FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number : 1-7183
TEJON RANCH CO.
(Exact name of Registrant as specified in its Charter)
Delaware 77-0196136
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
P.O. Box 1000, Lebec, California 93243
(Address of principal executive office)
Registrant's telephone number, including area code:(805) 327-8481
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock, $.50 par value
per share, held by persons other than those who may be deemed to be affiliates
of Registrant on March 19, 1998 was $347,279,086 based on the closing price on
that date on the American Stock Exchange.
The number of Registrant's outstanding shares of Common Stock on March
19, 1998 was 12,685,994 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held on May 11, 1998 relating to the directors and executive officers of
Registrant are incorporated by reference into Part I, Item 4, and Part III.
Total Pages - 168
Exhibit Index - Page 60<PAGE>
PART I
Item 1. Business
Throughout Item I-"Business," Item 2-"Properties," Item 3-"Legal
Proceedings," and Item 7-"Management's Discussion and Analysis of Financial
Condition and Results of Operations," Registrant has made forward-looking
statements regarding future developments in the cattle industry, the
Registrant's plans for future plantings of permanent crops, future yields and
prices for the Registrant's crops, future prices, production and demand for
oil and other minerals, future development of the Registrant's property, and
potential losses to the Company as a result of pending environmental
proceedings. These forward-looking statements are subject to factors beyond
the control of Registrant (such as weather and market forces) and, with
respect to the Registrant's future development of its land, the availability
of financing and the ability to obtain various governmental entitlements. No
assurance can be given that actual future events will be consistent with the
forward-looking statements made in this Annual Report.
Registrant owns approximately 270,000 contiguous acres of land located
in Kern and Los Angeles Counties in the State of California on which it is
engaged principally in production and sale of beef cattle, farming, and
leasing of land for oil, gas and mineral production and commercial purposes.
Registrant is also engaged in planning the future uses of its lands.
The following table shows the revenues, operating profits and
identifiable assets of each of Registrant's industry segments for the last
three years:
<TABLE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(Amounts in thousands of dollars)
<S> <C> <C> <C>
1997 1996 1995
Revenues (1)
Livestock $ 24,555 $ 4,573 $ 6,748
Farming 9,173 9,107 7,973
Resource Management 2,696 2,508 2,188
Commercial and Land Use 3,403 1,464 1,271
Segment Revenues 39,827 17,652 18,180
Interest Income 1,159 1,308 1,374
Total Revenues $ 40,986 $ 18,960 $ 19,554
Operating Profits
Livestock $ 1,499 $ 412 $ 41
Farming 2,627 3,134 1,811
Resource Management 1,328 1,356 1,241
Commercial and Land Use 1,003 (841) (1,262)
Segment Profits (2) 6,457 4,061 1,831
Interest Income 1,159 1,308 1,374
Corporate Expense (2,346) (2,266) (2,046)
Interest Expense (747) (295) (436)
Operating Profits $ 4,523 $ 2,808 $ 723
Identifiable Segment
Assets (3)
Livestock $ 24,215 $ 5,554 $ 5,533
Farming 10,176 10,545 10,370
Oil and Minerals 363 259 258
Commercial and Land Use 5,933 2,874 2,713
Corporate 23,006 28,137 26,329
Total Assets $ 63,693 $ 47,369 $ 45,203
</TABLE>
(1) Intersegment sales were insignificant.
(2) Segment Profits are revenues less operating expenses, excluding interest
and corporate expenses.
(3) Identifiable assets by segment include both assets directly identified
with those operations and an allocable share of jointly-used assets.
Corporate assets consist primarily of cash and cash equivalents,
refundable and deferred income taxes and buildings and improvements.
Livestock Operations
Registrant conducts a beef cattle range operation upon those portions of
its ranch which are not devoted to farming, commercial or other purposes.
This range operation depends primarily upon forage from natural vegetation.
The beef cattle activities include both commercial cow-calf operations (the
maintenance of a cattle herd whose offspring are used to replenish the herd,
with excess numbers being sold commercially) and the use of stocker cattle
(cattle purchased at light weights for growing on available range forage
before being resold). At December 31, 1997, Registrant's cattle herd numbered
approximately 30,975 of which approximately 22,882 head were stockers and the
remainder were in the breeding herd. At December 31, 1996, Registrant's
cattle herd numbered approximately 15,316 of which approximately 8,350 head
were stockers. Registrant's range cattle are either sold to stocker and
feedlot operators or fed at Registrant's feedlot in Texas and sold to packers.
As to the sale of cattle, Registrant is in direct competition with other
commercial cattle operations throughout the United States. The prices
received for Registrant's cattle are primarily dependent upon the commodity
market's perception of supply and demand at the time cattle are sold. In an
attempt to reduce the market risks of its livestock activities, Registrant
usually hedges future sales of cattle in the futures and options markets or
obtains fixed prices for future delivery through contracts with cattle buyers,
feedlots, or packing houses. Registrant purchased a feedlot in 1997 in order
to further vertically integrate its beef operations.
During the last low in the cattle cycle a number of companies in the
cattle industry began to explore in depth various forms of strategic alliances
within the production, feeding and meat-packing segments of the cattle
business. Registrant believes there will be dramatic shifts in the form of
cattle marketing in the United States. To be successful in the cattle
industry in the future Registrant believes that the producers of beef must
become more consumer oriented. To achieve this goal Registrant is beginning a
program to vertically integrate its cattle operations. Vertical integration
will allow Registrant to control the quality of the product through the
production process to the end users. To vertically integrate Registrant must
control the feeding of cattle and create strategic alliances with other
producers to supply beef products to end users. To begin the process of
vertical integration within the beef industry, Registrant has purchased the
assets of a cattle feedlot that is located in western Texas. This feedlot
will allow Registrant to control the feeding and sales of cattle. The
purchase of the feedlot occurred on March 10, 1997.
Cattle prices over the last year were steadily improving until late 1997
and early 1998 when the impact of the Asian financial crisis hit the cattle
commodity markets. With beef being the largest dollar agricultural export and
Asia receiving much of the beef exported, prices fell significantly during
December 1997 through early February 1998. Not only have prices declined in
the beef market, but prices for hides, which are used in the production of
leather, have also declined. Hide prices have declined almost 30% over this
time frame. It is anticipated that prices later in 1998 will improve when
compared to current levels due to fewer head of cattle in feedlots. The
increase in price, however, will be less than normally anticipated due to the
decline in Asia's economies. Overall, Registrant believes it will see lower
prices during 1998, which will impact cattle sales revenues.
Farming Operations
In the San Joaquin Valley, Registrant farms permanent crops including
the following acreage: wine grapes-1,528, almonds-1,366, pistachios-738 and
walnuts-295. Included in these acreage figures are: 308 acres of pistachio
trees planted in 1994, with the first harvestable crop expected in 1998; 72
acres of Rubired grapes planted in 1996, with the first harvestable crop
expected in 1998; 152 acres of almonds planted in 1996, with the first
harvestable crop expected in 1999; and 36 acres of Cabernet Sauvignon and Ruby
Cabernet wine grapes planted in early 1997, with the first harvestable crop
expected in 1998. During 1997, Registrant began land preparation for the
development of 300 acres of almonds which were planted in early 1998 and 300
acres of almonds to be planted in 1999. Registrant's objective in planting
new trees is to offset the normal yield decline as its older plantings reach
productive maturity and to improve revenues from farming operations in future
years. As certain of Registrant's permanent plantings age to the point of
declining yields, Registrant will evaluate the advisability of replanting such
crops, or replacing them with different plantings, depending upon market
conditions.
Registrant sells its farm commodities to several commercial buyers. As
a producer of these commodities, Registrant is in direct competition with
other producers within the United States and throughout the world. Prices
received by Registrant for its commodities are determined by total industry
production and demand levels. Registrant attempts to improve price margins by
producing high quality crops through cultural practices and by obtaining
better prices through marketing arrangements with handlers.
In 1997, almonds produced were sold to two domestic commercial buyers,
with one of the buyers receiving approximately 70% of the crop.
The California almond industry is subject to a federal marketing order
which empowers the Secretary of Agriculture to set the percentage of almonds
which can be sold during any crop year and the percentage of almonds to be
held in reserve in order to assist in the orderly marketing of the crop.
During 1997 and 1996 the saleable percentage was set at 100% of the total
almond crop.
In 1997, Registrant's pistachios were sold to one customer.
Registrant's 1997 walnuts were sold to two customers, each receiving
approximately 50% of the crop. During 1997 the majority of wine grapes were
sold to one winery.
Yields from Registrant's farming operations were below 1996 yields with
the exception of grapes. While the California almond industry produced a near
record crop, Registrant's almond production was 12% below 1996 due to the
timing of rains and cold temperatures during the critical pollination period.
Prices for almonds declined during 1997 due to the increased level of
production for the year within the industry. The combination of lower yields
and prices caused revenues to decline approximately 40%.
Grape yields in 1997 were 29% greater than 1996 production, and 1997
grape revenues were 25% above the 1996 crop. Pistachios were in the "off
year" of their alternate bearing cycle and, while the yields were 20% below
the 1996 crop, they were much higher than previous "off year" yields.
Pistachio revenue in 1997 was flat when compared to 1996 pistachio revenues.
Prices for pistachios increased slightly when compared to the prior year due
to crop yields being slightly below the previous year's level. Registrant's
1997 walnut crop yield was 39% below last year's production, and revenues from
walnuts fell by approximately 39%. Prices for walnuts remained fairly stable
due to flat production for the industry. Registrant's crop was below
expectation due to below-normal chilling hours during the dormancy period and
to high production from the trees over the last three years causing stress to
the trees.
Overall 1997 crop revenues were less than expected due mainly to lower
than expected almond and walnut production. See "Management's Discussion and
Analysis of Financial Statements and Results of Operations". Demand for
Registrant's crops is expected to remain good throughout 1998. Management
expects further price pressure on both nuts and grapes as new production
within California comes online. Registrant has some price protection with
regard to its wine grapes because it has three years remaining on a contract
with a winery that provides the better of a minimum price or market price for
its grape shipments. Nut crop markets are particularly sensitive to the size
of each year's world crop. Large crops in California and abroad can rapidly
depress prices.
1997 was an excellent water year with 100% of Registrant's water
entitlement being available from the State Water Project. In addition, there
was sufficient runoff from local mountain streams throughout the year,
allowing Registrant to capture and utilize this water to offset some of the
higher priced State Water Project water. Because of the abundant water,
Registrant was able to bank (percolate into the underground) some of its
excess supply for future use and was able to exchange some of its 1997 water
deliveries for deliveries for banking purposes in future years plus a
favorable exchange fee. The State Department of Water Resources has announced
its 1998 water supply at 100% of full entitlement. This is only a tentative
commitment, however, and is subject to change. This level of supply, if it
ultimately turns out to be available, will cover all of the Registrant's
farming needs.
See discussion of water contract entitlement and long-term outlook for
water supply under Part I, Item 2, "Properties-Farmland".
Resource Management
The Resource Management Division is made up of Registrant's oil and
mineral leases, game management program, film location activities, and the
quarter horse breeding program. These are all lines of business which are
based on the use of ranch lands and resources but are not of the size to
warrant separate divisions such as livestock, farming and real estate.
Registrant leases certain portions of its land to oil companies for the
exploration for, and production of, oil and gas but does not itself engage in
any such exploratory or extractive activities.
As of December 31, 1997, approximately 9,645 acres were committed to
producing oil and gas leases from which the operators produced an average of
approximately 392 barrels of oil, 221 MCF of dry gas, and 10 gallons of wet
gas per day during 1997. Approximately 1,600 acres were also held under
exploratory leases. Registrant's share of production based upon its average
royalty rate during the last three years has been 49, 66, and 62 barrels of
oil per day for 1997, 1996, and 1995, respectively. Approximately 264
producing oil wells were located on the leased land as of December 31, 1997.
An additional 66 wells during 1997 have been shut-in and non-productive.
Shut-in wells occur as oil revenues received by the operators lag behind the
cost of keeping the wells in production. Low prices in the oil market have
been a disincentive to exploratory leasing and drilling on Registrant's lands.
No new wells were drilled on Registrant's lands during 1997.
Prices for Kern County's heavy crude oil dropped throughout 1997,
hitting a low of $6.75 per barrel during March 1998. These reduced prices for
early 1998 will negatively impact Registrant's royalties from the producing
wells. Registrant attempts to require lessees to honor their lease
obligations to legally and properly abandon non-producing wells in an
environmentally sound manner, but its success at this is mixed.
Estimates of oil and gas reserves on Registrant's properties are unknown
to Registrant. Registrant does not make such estimates and does not file
reports as to reserve estimates with governmental agencies. Registrant's
lessees do not make information concerning reserves available to Registrant.
Registrant has approximately 2,440 acres under lease to National Cement
Company of California, Inc. ("National") for the purpose of manufacturing
portland cement from limestone deposits found on the leased acreage. National
owns and operates on the property a cement manufacturing plant having a design
capacity of 600,000 tons of cement per year. The manufacturing plant is
currently being redesigned to have a production capacity of 1,000,000 tons.
The amount of payment which Registrant receives under the lease is based upon
shipments from the cement plant. The term of this lease expires in 2007, but
National has remaining options to extend the term for two additional
successive increments of 20 years each and one final increment of 19 years.
For information as to proceedings under environmental laws relating to the
cement plant, see Item 1-"Legal Proceedings".
Approximately 433 acres of Registrant's land are leased to owners and
operators of sand and gravel screening and rock crushing plants under two
leases with rental payments based on the amount of sand and gravel removed and
sold. Registrant is actively searching for a new lessee for a third area of
the ranch where rock aggregate deposits have been extracted in the past.
The quarter horse program consists of the breeding of quality blood line
quarter horses, the sale of horses, the boarding and training of horses, and
the management of horse events. The quarter horse program will continue to
direct its efforts to the improvement of Registrant's breeding mares and the
hosting of competitive events to enhance the revenues of the operation.
Registrant also provides filming location services and a game management
program, which is a hunting program that is managed in close cooperation with
California Department of Fish and Game.
Real Estate
Registrant leases to various tenants lands which are used for a full-
service truckstop facility, a truck wash, four auto service stations with
convenience stores, four full-service restaurants, four fast-food operations,
a motel, two antique shops, a United States Postal Service facility, several
microwave repeater locations and radio and cellular transmitters/relay sites.
In addition, there is a 1,400-acre site leased to a major aeronautical firm
for testing facilities.
The Real Estate Division continues to focus substantial attention on
additional development along the Interstate 5 corridor, where the Company owns
approximately 16 miles of frontage, with commercial land around four separate
interchanges. The land planning process in previous years had identified the
Interstate 5 corridor as an area of focus in near term planning and
entitlement activities. (See Part I, Item 2, "Properties-Land Use Planning".)
During 1997, new commercial activity included the opening of a new
Country Side Inn hotel at the Grapevine Center during March 1997 and the
establishment of a new 350-acre Tejon Industrial Complex ("Industrial
Complex") at the I-5/Laval Road interchange. The first project in the
Industrial Complex was announced during December 1997. Registrant created a
joint venture with Petro Stopping Centers for the purpose of developing a
major Travel Plaza on 50 acres of land in the Industrial Complex.
Construction of the Travel Plaza is scheduled to begin in the second quarter
of 1998 and is expected to be completed before the end of the fourth quarter
of 1998. Negotiations for two new commercial leases at the Grapevine Center
have been initiated and are expected to close by the end of the second quarter
of 1998.
Within the commercial leasing area, Registrant is in direct competition
with other landowners who have highway interchange locations along Interstate
5 within California.
Customers
During 1997, 1996 and 1995 the following customers accounted for more
than 10% of Registrant's consolidated revenues: Golden State Vintners, a
purchaser of grapes (14% in 1997, 21% in 1996, and 18% in 1995), Harris Ranch
(18% in 1996), and Timmerman Cattle (26% in 1995).
Employees
At December 31, 1997, Registrant had 88 full-time employees.
Executive Officers of Registrant
The following table shows, as to each executive officer of Registrant,
the offices held as of March 23, 1998, the period the offices have been held,
and the age of the executive officers. All of such officers serve at the
pleasure of the board of directors.
Name Offices Held Since Age
Robert A. Stine President and Chief 1996 51
Executive Officer, Director
Matt J. Echeverria Senior Vice President, 1987 47
Livestock
John A. Wood Vice President, Farming 1978 60
Dennis Mullins Vice President, 1993 45
Public Affairs, Secretary
and General Counsel
Allen E. Lyda Vice President, 1990 40
Finance, Treasurer
and Assistant Secretary
David Dmohowski Vice President, 1991 50
Land Planning
James Taylor Vice President, 1997 59
Real Estate
A description of present and prior positions with Registrant, and
business experience for the past five years is given below.
Mr. Stine has been employed by Registrant since May 1996, serving as
President and Chief Executive Officer and as a Director. Mr. Stine served as
the Chief Executive Officer of the Collins Companies from 1986 to April 1995.
Mr. Echeverria has served as Vice President since 1987 and was elected
Senior Vice President in 1995. He also served as acting Chief Executive
Officer of Registrant from May 1995 to May 1, 1996.
Mr. Wood has served Registrant as Vice President since 1978.
Mr. Mullins has been employed by Registrant since 1993, serving as Vice
President, Public Affairs, Secretary and General Counsel. From January 1992
to January 1993 he served as General Counsel of the United States General
Services Administration in Washington, D.C.
Mr. Lyda has been employed by Registrant since 1990, serving as Vice
President, Finance and Treasurer. He was elected Assistant Secretary in 1995.
Mr. Dmohowski has been employed by Registrant since January 1991,
serving as Vice President, Land Planning.
Mr. Taylor has been employed by Registrant since May 1997, serving as
Vice President, Real Estate. From 1992 to 1997, he was a principal partner
and President of Urban Assist, Inc., a planning and project management company
located in Irvine, California.
Item 2. Properties
Registrant owns approximately 270,000 acres of contiguous land located
approximately 60 miles north of Los Angeles and approximately 15 miles east of
Bakersfield. The land is undeveloped, except for certain limited farming and
commercial uses. Included in the land are portions of the San Joaquin Valley,
foothills, portions of the Tehachapi Mountains and portions of the western end
of the Antelope Valley. A number of key transportation and utility
facilities, including Interstate 5 (a major north-south federal highway in
California), U.S. Highway 58, California Highways 138 and 223, the California
Aqueduct, the Southern Pacific-Santa Fe Railway Line and various transmission
lines for electricity, oil, natural gas and communication systems cross
Registrant's lands.
For information as to Registrant's livestock, farming, resource
management and real estate operations on the land, see Part I, Item 1 -
"Livestock Operations," "Farming Operations," "Oil and Minerals," and "Real
Estate."
Land Use Planning
Registrant has continued to engage in planning activities related to
future uses of its lands. Over the last two years Registrant initiated
planning programs intended to guide decision making relating to future
development on the Ranch with special focus on the important Interstate 5
corridor. During 1997 Registrant retained a team of experts to evaluate the
market feasibility of developing a major destination land use at the Grapevine
Center. Evaluation and marketing studies continue to proceed forward for this
project. Evaluations are also being conducted with various groups to
determine the development potential of a rural ranch estates program in the
central canyon areas near Tejon Lake. Planning and market research for this
product will continue during 1998. Since the prospects and timing of
residential and recreational projects are dependent on market demand, the
timing of any significant residential and/or recreational development is
uncertain. Registrant is evaluating the environmental and regulatory factors
that might affect its ability to secure value-enhancing entitlements for
potential land development. The results of this evaluation will help
Registrant in formulating long-range entitlement strategies. The timing of
any extensive development of Registrant's property and its nature and extent
are expected to be dependent upon market demand, the availability of adequate
development capital and the obtaining of appropriate governmental permits and
approvals.
Approximately 250,000 acres of Registrant's land are located in Kern
County, California. The Kern County General Plan for this land contemplates
continued commercial, resource utilization, farming, grazing and other
agricultural uses, as well as certain new developments and uses, including
housing and recreational facilities. While the County General Plan is
intended to provide general guidelines for land use and development, it is
subject to amendment to accommodate changing circumstances and needs. In
addition to the General Plan, ranch lands will require specific zoning and
site plan approvals prior to actual development.
Registrant has not yet made specific proposals to the County to
implement any part of its proposed land use concept, except at the Grapevine
and Laval Road Interchanges on Interstate 5. Along the Interstate 5 corridor,
Registrant is aggressively pursuing additional commercial activity in order to
meet the needs of the 50,000 vehicles per day that travel through the ranch.
To meet this built-in customer base, Registrant is investigating several
potential opportunities that can expand current commercial activities.
The remainder of Registrant's land, approximately 20,000 acres, is in
Los Angeles County. This area of the ranch is accessible from Interstate 5
via Highway 138 and lies 30 miles west of the Antelope Valley communities of
Palmdale and Lancaster. Los Angeles County has adopted general plan policies
which contemplate future limited residential development of portions of this
land, subject to further assessments of environmental and infrastructure
constraints. No specific land use proposals have been made by Registrant to
the County. Registrant continues to monitor regional planning issues and
continues to develop its liaison with Los Angeles County government and other
regulatory agencies in order to preserve future development opportunities.
In addition to its agricultural contract water entitlements, Registrant
has an entitlement to obtain from the California State Water Project
sufficient water to service a substantial amount of future residential and/or
commercial development. Portions of the property also have available ground
water; this would be sufficient to support low density residential development
in the Tejon Lake area and significant commercial development in the
Interstate 5 corridor.
Portions of Registrant's property consist of mountainous terrain, and
much of the property is not presently served by developed roads or by utility
or water lines. Any significant development of the property would involve the
construction of roads, utilities and other expensive infrastructure and would
have to be done in a manner which accommodates a number of environmental
concerns, including endangered species and wetlands issues, that may limit
development of portions of the property.
Due to the property's location and its undeveloped state, from time to
time unsolicited proposals are made for governmental or quasi-public uses of
portions of the property or neighboring lands by entities, some of which may
have the power of eminent domain. For the most part Registrant opposes such
uses because, to the extent that any such proposals may be implemented through
the use of the power of eminent domain or otherwise, the flexibility to
develop some of Registrant's other lands could be correspondingly limited.
Registrant completed negotiations with a company concerning the construction
of a major oil pipeline over the Ranch during December 1995. The pipeline
will follow an alignment of other oil pipelines which are along the Interstate
5 corridor. Final governmental approvals were received by the pipeline
company in 1996, and construction commenced in 1997. The pipeline company
purchased its easement from Registrant in November 1997 for $2,050,000.
Registrant's lands are also being evaluated as a possible route for a high
speed rail system between Los Angeles and San Francisco.
Farmland
Although changing crop market conditions and the cost and availability
of irrigation water bear on the economic feasibility of farming on
Registrant's lands, portions of the land located in the San Joaquin Valley are
suitable for farming a wide variety of tree, vine and row crops.
Existing long-term contracts with the Wheeler Ridge-Maricopa Water
Storage District ("Wheeler Ridge") provide for water deliveries from the
California State Water Project ("Project") to certain farmland in the San
Joaquin Valley belonging to Registrant. The long-term water supply picture in
the state is uncertain, however, not only due to recurring droughts, but also
because of existing and likely additional restrictions placed on water
exported from the Sacramento-San Joaquin River Delta ("Delta") to protect
allegedly endangered species and improve water quality in the Delta.
Reserving water flowing into the Delta for environmental purposes has been
required. The reserved water then flows into the San Francisco Bay and is
unavailable for beneficial use. The impact of these regulations could be
severe during drought years when the supply of water for all uses is limited.
Pursuant to an interim agreement that has been extended and now expires in
late 1998 among the federal agencies, the concerned state agencies,
environmental groups, and water users, a maximum of 1.1 million acre feet of
water has been reserved for such environmental uses. This water would
otherwise be available for beneficial use by state and federal water project
participants. However, there is no assurance that this interim agreement will
be made permanent or that the final agreement now in the final stages of
development will limit water used for environmental purposes to a comparable
amount.
Registrant's total water entitlement substantially exceeds its permanent
crop needs. If a 100% allocation is made by the Project to the Kern County
Water Agency, of which Wheeler Ridge is a sub-unit, then deliveries from
Wheeler Ridge will be sufficient for Registrant's 1998 crops. Longer term,
however, year-to-year uncertainty of the water supply and potentially higher
costs for water may jeopardize the financial viability of Wheeler Ridge by
forcing marginal operators out of business and shifting a greater portion of
the financial burden imposed by long term fixed costs and defaulted water
assessments upon the remaining growers. High water costs prevent farmers from
raising annual crops. Farmers also may be unable to obtain conventional
financing for the higher value permanent crops because of the unpredictability
of a water supply to nourish the trees and vines. These effects have been
mitigated by the set of agreements among the State and nearly all Project
water users known as the "Monterey Agreement". The Monterey Agreement should
improve the reliability of water supply to agricultural users in drought years
by eliminating the priority for urban use that resulted in agriculture's
allocation being reduced to as low as zero in dought years, and should improve
the financial viability of Wheeler Ridge and similarly situated water
districts by allowing for the sale of substantial water entitlement to urban
users. A number of such water transfers have occurred, and interest in
further transfers has been expressed by urban water agencies.
Registrant's contracts with Wheeler Ridge, as of December 31, 1997,
provide for annual water entitlement to approximately 5,488 acres of
Registrant's lands. Existing Wheeler Ridge water delivery facilities are
capable of delivering the contract water entitlement amounts to all of that
acreage. The water contracts require annual payments related to the Project
and Wheeler Ridge fixed costs, whether or not water is used or available.
Payments made under these contracts in 1997 by Registrant totaled
approximately $1,215,000.
In 1995, Registrant transferred 4,021 acre feet of entitlement from
Wheeler Ridge to Tejon-Castaic Water District ("TCWD"), which lies entirely
within the boundaries of Registrant's lands. TCWD contributed 900 acre feet
of entitlement to the Kern Water Bank Authority in order to join the Authority
and obtain water banking rights. The Kern Water Bank provides Registrant with
a supplemental source of water for agricultural and development uses in
drought years. The remaining 3,121 acre feet retained by TCWD are now more
directly under the control of Registrant and would be available for future
development purposes in the San Joaquin Valley or in other areas of the Ranch.
This water could also be used for farming purposes in the same manner it was
used before the transfer with the consent of Wheeler Ridge and the Kern County
Water Agency.
Lands benefiting from Wheeler Ridge are subject to contingent assessment
liens under the California Water Storage District Law. These liens are senior
in priority to any mortgages on the property. The liens secure Wheeler Ridge
bonds issued to finance construction of water distribution facilities. Lien
enforcement can involve foreclosure of the liens and the resulting loss of the
lands subject to the liens. These liens will be enforced only if Wheeler
Ridge revenues from water contracts and other regular revenue sources are not
sufficient to meet Wheeler Ridge obligations. Lien assessments are levied by
Wheeler Ridge based on estimated benefits to each parcel of land from the
water project serving the land. Lands belonging to Registrant are presently
subject to such contingent liens totaling approximately $817,000. Since
commencement of operations in 1971, Wheeler Ridge has had sufficient revenues
from water contract payments and other service charges to cover its
obligations without calls on assessment liens, and Wheeler Ridge has advised
Registrant that it does not anticipate the need to make any calls on
assessment liens.
Under California law, lands located in a water storage district may be
reassessed at the request of the district board of directors or at the request
of 10% or more of the district landholders. As a result of any reassessment,
which is based upon relative benefits from district facilities to each land
parcel, the lien assessments may be redistributed and may increase or decrease
for any particular parcel. Additional projects, if any, which might result in
new assessment liens, must be approved by landowners of more than one-half of
the land (based on valuation) in the district as well as by the California
Department of Water Resources.
Item 3. Legal Proceedings
Registrant leases land to National Cement Company of California, Inc.
("National") for the purpose of manufacturing Portland cement from limestone
deposits found on the leased acreage. See "Business-Resource Management." In
August 1997, National ceased burning hazardous waste as supplemental fuel in
the cement plant located on the land leased from Registrant. The fuel was
obtained, transported, stored and processed by National's subtenant, Systech
Environmental Corporation ("Systech"). Systech has removed the above-ground
improvements from its former sublease premises and is in the process of
preparing a formal closure plan under the Resource Conservation and Recovery
Act ("RCRA"). After this closure plan is approved by the California
Department of Toxic Substances Control, Systech will undertake the site
investigation and (if needed) cleanup work specified in the closure plan.
A number of contaminated sites have been discovered on the land leased
to National, including several landfills containing industrial waste, a
storage area for drums containing lubricants and grease, an underground plume
of chlorinated hydrocarbons, and diesel fuel which leaked from a pipeline.
Because the waste in some or all of the sites has contaminated groundwater,
the California Regional Water Quality Control Board for the Lahontan Region
(the "Regional Water Board") has issued investigation and cleanup orders with
respect to certain of the sites. These orders, which have different
provisions depending on the site involved, generally require National, Lafarge
Corporation ("Lafarge"), the predecessor in interest to National under the
existing lease, and the Registrant to investigate and clean up soil and
groundwater contamination in the vicinity of the sites. Although Registrant
did not deposit any of the contaminants, the orders state that Registrant, as
a landowner, will be responsible for complying with the orders if Lafarge and
National fail to perform the necessary work. Civil fines for violations of a
Regional Water Board order can be as high as $10,000 per day for each day the
violation occurs and as high as $15,000 per day for each day a discharge of
pollutants and a violation of the order occurs.
Lafarge has undertaken the investigation and remediation of the
landfills and has completed the removal of contaminated soils above the
groundwater level from them. Additional work is required to alleviate
groundwater contamination resulting from the landfills. The order issued by
the Regional Water Board with respect to the drum storage area has been
dismissed because of the low level of petroleum contamination. Lafarge has
completed a substantial amount of the site investigation with respect to the
chlorinated hydrocarbons. Lafarge is undertaking additional investigation
work as directed by the Regional Water Board, and is developing a feasibility
study evaluating different remediation options. The plume of chlorinated
hydrocarbons covers an extensive area and has migrated off of the leased
premises in one direction. With respect to the diesel pipe leak, Lafarge has
performed some site investigation and requested that the Regional Water Board
approve closure of the site without requiring any remediation. Registrant
opposed the request, and in December 1996, the Regional Water Board denied
Lafarge's request. Registrant believes that Lafarge will be directed or
ordered to undertake further site investigation. There appears to be
significant contamination along the length of the pipeline, and portions of
the contamination appear to be located under the cement plant itself, which
means that remediation, if possible, may be more difficult and expensive.
On October 9, 1997, the Regional Water Board named National and Lafarge
as primarily responsible parties in a cleanup and abatement order and named
National as the primarily responsible party in a cease and desist order and
waste discharge requirements. Those orders require investigation and certain
remedial activities related to the cement kiln dust piles on the premises but
do not require the removal or disposal of the piles. The Regional Water Board
named Registrant secondarily responsible on these three orders relating to the
kiln dust piles, which means that Registrant could be ordered to perform the
obligations of National or Lafarge under the orders if either of them should
fail to do so. Registrant has appealed these orders but the appeals are
currently stayed pending Lafarge's and National's compliance.
The United States Environmental Protection Agency ("USEPA") has proposed
to regulate all kiln dust nationwide under the hazardous waste program, but
with a tailored set of standards. The proposed rules would mostly involve
careful groundwater monitoring and possibly covering dust piles so they do not
blow in the wind. Measures of this type are already being taken by National
on the cement plant site. Kiln dust from cement plants using supplemental
fuels like the plant operated by National will not be treated any differently
under this program. The cement industry filed comments opposing the proposed
rules for kiln dust and is engaged in a legislative effort to secure the
management of kiln dust as a non-hazardous waste. The industry has also
proposed an enforceable agreement between the cement manufacturers and USEPA
with respect to the management of kiln dust in lieu of regulations. USEPA is
considering this approach. In 1995, the California Legislature enacted
legislation classifying kiln dust as a non-hazardous waste if it is managed
on-site under regulations administered by a regional water quality control
board and it would otherwise be classified as hazardous solely because of its
extreme pH content. Registrant believes this legislative reclassification
will apply to the kiln dust pile currently used by National but not to older
piles created by Lafarge and its predecessors, which are believed to contain
chromium bricks. If the chromium bricks are present, that could provide an
independent basis for classifying the kiln dust as a hazardous waste.
Under the lease between Registrant and National, the tenant is obligated
to indemnify Registrant for costs and liabilities arising directly or
indirectly out of the use of the leased premises by the tenant. All
obligations under this indemnity provision arising after the assignment of the
lease to National (which occurred in November 1987) were assumed by National,
and Lafarge has liability for all obligations under the indemnity provisions
arising before the assignment. National's obligation is guaranteed by its
parent, National Cement Company, Inc. Registrant believes that all of the
matters described above in this Item 3 are included within the scope of the
National and Lafarge indemnity obligations. While National has to date
generally honored its indemnity obligations by reimbursing Registrant for
most of the costs and expenses for which National has been invoiced, Lafarge
has recently repudiated its indemnity obligations. Registrant is currently
evaluating whether it needs to file suit against Lafarge in order to enforce
its rights under the indemnity.
Registrant has been advised that National and Lafarge have reached an
agreement to share cleanup responsibilities. This agreement settled a lawsuit
between National and Lafarge. Registrant believes that under this agreement
Lafarge is responsible for cleanup of the industrial waste landfills, the
diesel release and the chlorinated hydrocarbon plume.
To date Registrant is not aware of any failure by Lafarge or National to
comply with the orders of the Regional Water Board or to pursue the cleanup of
the Additional Landfills as instructed by Regional Water Board staff.
Registrant has not been ordered by the Regional Water Board to perform any of
the investigative, characterization, remediation or removal activities.
However, Registrant has been compelled to become involved in reviewing the
investigative reports and cleanup recommendations made by Lafarge and its
consultants and in monitoring the Regional Water Board proceedings and
Lafarge's activities.
Registrant believes that Lafarge and National have sufficient resources
to perform any reasonably possible or reasonably likely obligations relating
to these matters. Publicly available financial information with respect to
Lafarge indicates that it had a net worth of approximately $1.2 billion as of
September 30, 1997. National and its parent/guarantor are subsidiaries of a
large French company, and so far as Registrant is aware, no separate financial
statements are publicly available with respect to either company. However,
Registrant has held discussions with National which indicate sufficient
resources are available to satisfy any reasonably likely obligations relating
to the above matters. Thus, Lafarge and National appear not to have violated
any Regional Water Board orders and appear to have the financial strength to
carry out any future orders that may be approved by the Regional Water Board.
Therefore, Registrant believes that it is remote that any cleanup orders
issued by the Regional Water Board will have a material effect on Registrant.
If, however, National and Lafarge do not fulfill their cleanup
responsibilities and Registrant is required at its own cost to perform the
landfill, kiln dust, diesel release and underground plume remedial work likely
to be mandated by the regulatory agencies, the amount of any such expenditure
by Registrant could be material.
As an unrelated matter, Registrant has recently become aware that soils
contaminated by gasoline, diesel fuel, and heavy metals are present on the
premises along the Interstate 5 corridor leased by Truckstops of America for a
truck stop and gas station. Registrant has become actively engaged in the
regulatory oversight activities of the Kern County Environmental Health
Services Department, which has named Registrant as a secondarily responsible
party with respect to the underground diesel storage tanks that have leaked,
and of the Central Valley Regional Water Quality Control Board. Registrant
has demanded the cleanup of the contaminated soils. This demand has been made
on the current tenant, the company that owns all Truckstops of America truck
stops nationally, the former tenant, and the guarantors of the lease, Standard
Oil Company of Ohio and BP Oil & Exploration, Inc. Registrant has entered
into settlement discussions with the foregoing parties, all potential
defendants, is currently working with them on a jointly approved investigation
plan, and is hopeful that this dispute can be resolved without resorting to
litigation. Because of the financial strength of Standard Oil Company of
Ohio and BP Oil & Exploration, Inc., Registrant believes it is remote that
this matter will have a material effect on Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
1. 1998 Stock Incentive Plan.
2. Non-Employee Director Stock Incentive Plan.
The above are covered in the definitive Proxy Statement to be filed by
Registrant with the Securities and Exchange Commission with respect to its
1998 Annual Meeting of Stockholders. Refer to "Approval of 1998 Stock
Incentive Plan", "Approval of Non-Employee Director Stock Incentive Plan", and
Appendices A and B of Proxy Statement.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Registrant's Common Stock is traded on the American Stock Exchange. The
following table shows the high and low sale prices for Registrant's Common
Stock on the American Stock Exchange for each period during the last two
years, as reported by the American Stock Exchange.
<TABLE>
1997 1996
<S> <C> <C> <C> <C>
Quarter High Low High Low
First 18 14 16-7/8 14-1/4
Second 19 15-1/8 19-1/4 15-3/8
Third 45 17-3/4 18 15-1/4
Fourth 33-3/4 23-7/8 17 14
</TABLE>
As of March 11, 1998, there were 750 owners of record of Registrant's
Common Stock.
Registrant paid cash dividends of $.05 per share in each of the years
1997 and 1996. Two and one-half cents per share was paid in June and December
of each year.
Item 6. Selected Financial Data.
<TABLE>
Years Ended December 31
(In thousands of dollars, except
per share amounts)
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Operating Revenues,
Including Interest
Income $40,986(1) $18,960 $19,554 $16,943 $19,535
Net Income 3,032(1) 1,685 434(2) 1,527 2,972(3)
Total Assets 63,693 47,369 45,203 44,920 47,111
Long-term Debt 3,925 1,800 1,800 1,950 3,550
Income Per Share .24(1) .13 .03(2) .12 .23(3)
Cash Dividends
Declared and Paid Per
Share 0.05 0.05 0.05 0.05 0.05
</TABLE>
(1) Includes receipt of one time payment of $2,050,000 ($1,353,000 net
of tax, or $.11 per share) from a pipeline company for the
acquisition of easement rights.
(2) Net income from continuing operations was reduced by $400,000
($240,000 after tax or $.02 per share) due to the charge-off of
almond trees destroyed by 1995 winter storms.
(3) Net income from continuing operations was enhanced by the
recognition of a $1,054,000 ($632,000 after tax or $.05 per share)
refund from a local water district.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements that are
subject to many uncertainties and may turn out not to be accurate. These
forward-looking statements are subject to factors beyond the control of the
Company (such as weather and market forces) and with respect to the Company's
future development of its land, the availability of financing and the ability
to obtain various governmental entitlements. No assurance can be given that
actual future events will be consistent with the forward-looking statements
made in this Annual Report.
Results of Operations
As reflected in the accompanying financial statements, net income was
$3,032,000 in 1997, $1,685,000 in 1996, and $434,000 in 1995.
Net income for 1997 increased when compared to 1996 due to higher
operating profits within the Livestock Division and increased easement sales
within the Real Estate Division.
Net income for 1996 increased when compared to 1995 due to improved
operating profits within the Livestock, Farming, and Real Estate Divisions.
Changes in revenues and expenses of Registrant's industry segments for years
1997 and 1996 are summarized below.
Livestock. Livestock net operating income of $1,499,000 in 1997 was an
increase of $1,087,000 when compared to 1996 net operating income. The growth
in net operating income is due primarily to an increase in cattle sales
revenue ($5,972,000) and net operating income provided by the cattle feedlot
that was purchased early in 1997 ($801,000). These favorable variances were
partially offset by an increase in cost of sales on cattle sold of
approximately $5,386,000. Cattle sales revenue grew during 1997 due to an
increase in volume of cattle sold and higher prices on the cattle sold.
During 1997, 3,115 additional head of cattle were sold and the weights at
which the cattle were sold averaged approximately 300 pounds per head greater
than in 1996. Cost of sales increased due to owning the cattle for longer
periods of time during 1997 than in past years. Registrant, with the purchase
of the feedlot, has changed its operating procedures and is holding and owning
the cattle through the feeding phase in order to have more direct control over
the quality of beef the cattle are producing. By holding the cattle for a
longer period of time, the weights on the cattle will increase and Registrant
will receive more for the animal but the cost of sales also increases due to
the costs of feeding for the additional period of ownership.
Registrant continued to use the futures and options markets to protect
the future selling price of cattle and purchase prices of feed. Without the
ability to hedge cattle and feed positions, Registrant would have sustained a
net loss on the sale of its cattle during 1996. During 1997, due to the
increase in cattle prices throughout most of the year, Registrant recognized
approximately $360,000 in losses on hedge positions. Gains on hedge positions
totaled approximately $578,000 during 1996. Many of these gains were due to
the continuing decline of cattle prices during 1996, especially during the
first half of 1996. Registrant's goal in hedging its cattle and feed costs is
to protect or create a range of selling prices and feed prices that in years
like 1996 and 1995, allow Registrant to recognize a profit on the sale of
cattle once all costs are deducted. The risk in hedging cattle prices is that
in those years that prices increase the hedge may limit or cap potential gains
from the increase in price or can add additional costs for feed if grain
prices fall dramatically.
Cattle prices improved throughout 1997 until late 1997 and early 1998
when the impact of the Asian financial crisis hit the cattle commodity
markets. With beef being the largest dollar agricultural export and Asia
receiving much of the beef exported, prices fell significantly during December
1997 through February 1998. Not only have prices declined in the beef market,
but prices for hides, which are used in the production of leather, have also
declined. Hide prices have declined almost 30% over this time period. It is
anticipated that prices later in 1998 will improve when compared to current
levels due to fewer head of cattle being in feedlots for sale. The increase
in prices is expected to be less than would normally be expected due to the
economic problems in Asia. Overall, Registrant believes it will see lower
prices during 1998, which will impact cattle sales revenues.
On March 10, 1997, Registrant purchased the assets of a feedlot that is
located in western Texas. Registrant will operate this feedlot for its use as
well as that of other customers who want to feed cattle. The feedlot was
purchased for $3.5 million, has a cattle head capacity of 35,000 and covers
approximately 650 acres. Registrant believes that by controlling the feeding
phase of its cattle before sending them to packing houses, a better quality
product will be produced providing higher margins to Registrant. During 1997,
the feedlot produced approximately $14,000,000 in revenues and a net operating
profit of $801,000. Registrant believes that the revenues generated by the
new feedlot operation will continue to be material to future earnings. In
connection with the purchase of the feedlot Registrant began a program in 1997
to expand the cattle herd. At December 31, 1997 Registrant had 30,975 head of
cattle, which is approximately 16,000 head more than in 1996. This will allow
Registrant to provide additional cattle for the feedlot operation and
potentially increase the earnings from its cattle operations. Registrant is
also becoming involved in a strategic alliance with other select producers and
a packer to produce a high-grade beef product to be sold to steak restaurants
and higher end grocery stores. The strategic alliance was formed in order for
the producers of cattle to gain higher margins on the beef they produce and
sell.
Livestock operating profits of $412,000 in 1996, grew $371,000 when
compared to 1995 operating profits. The growth in operating profits is due to
a decrease in cost of sales ($2,553,000) which was partially offset by reduced
cattle sales revenue ($2,091,000). Cost of sales declined during 1996 due to
cattle being placed in feedlots for periods of time shorter than in 1995 and
to better grazing conditions during 1996. During 1995, Registrant delayed the
sale of approximately 7,000 head of cattle from May 1995 to October 1995 and
placed these cattle in feedlots during the summer months of 1995. The expense
associated with four extra months of feedlot costs during 1995 is the primary
reason for the favorable 1996 cost of sales variance. The reduction in cattle
sales revenue is due primarily to fewer pounds of cattle being sold in 1996
than in 1995. During 1996, more head of cattle were sold, 10,527 head of
cattle compared to 9,551 head of cattle in 1995, but at weights which were
approximately 370 pounds per head less than in 1995 when cattle were held in
feedlots for four extra months. As in 1995 cattle prices per pound continued
to be depressed throughout 1996.
See Part I, Item 1 -"Business-Livestock Operations" for a further
discussion of Registrant's livestock operations for 1997 and future
expectations.
Farming. Farming operating profits of $2,627,000 in 1997 are $507,000 less
than 1996 operating profits. The decline in 1997 operating profits is due to
a drop in almond revenues ($1,069,000), lower walnut revenues ($377,000) and
higher cultural costs ($940,000). These unfavorable variances were partially
offset by increased grape revenues ($980,000), the receipt in 1997 of revenues
associated with the 1996 crop ($693,000) and lower fixed water costs
($240,000).
The decrease in almond revenues during 1997 was due to a decrease in
production of 12% when compared to 1996 and a decrease in prices of
approximately 47%. Registrant's production fell during 1997 due to the timing
of rains and cold weather during the critical pollination period. Prices
declined due to the California almond industry producing a near record crop.
Walnut revenues declined due to a 39% drop in production during 1997. The
decline in walnut production was due primarily to below normal chilling hours
that are required by walnut trees for adequate dormancy during the winter
months. Grape revenues increased primarily due to an increase in production
of 29% when compared to 1996. Production increased due to favorable summer
weather. The additional revenue received in 1997 related to the 1996 harvest
was due to 1996 final market prices for grapes and almonds being higher than
originally forecasted by the grape and almond industries. Cultural costs
increased due to higher chemical costs, expenses associated with crops coming
into production that were capitalized in prior years and increased harvest
costs due to the high grape production.
Overall 1997 crop revenues were higher than expected due mainly to
higher wine grape production and the receipt in 1997 of revenues associated
with the 1996 crop. Almond, walnut, and pistachio demand is expected to
remain good during 1998 and the near future. Industry expectations are that
statewide nut crop yields should continue to improve, which may negatively
impact prices. In addition, industry projections show a continuation of new
almond and pistachio plantings that could impact prices once full production
begins. Registrant's 1998 almond crop as well as the crops of other producers
within California may be negatively impacted by the winter rain and winds
caused by "El Nino" storms during February 1998 and March 1998 that arrived
during the critical bee pollination period. This potential decline in
production could help stabilize prices on almonds at current levels. In 1996
Registrant signed a five year contract with a winery that provides the better
of a minimum price or market price for grapes each year. This contract is
beneficial to the Registrant because it helps minimize future price
fluctuations. Within the grape industry there continues to be new land
developed, which could depress prices in the future once all new developments
are in full production. Pricing pressure on grapes did begin during 1997 due
to high industry production and should continue into 1998. All of
Registrant's crops are particularly sensitive to the size of each year's world
crop. Large crops in California and abroad can rapidly depress prices. For
a further discussion of the 1997 farming year refer to Part I, Item 1 -
"Business - Farming Operations".
Farming operating profits increased $1,323,000 in 1996 to $3,134,000,
which was a 73% increase over 1995 operating profits. In comparison to 1995,
net operating income increased due to higher pistachio revenues ($608,000),
higher grape revenues ($434,000), higher almond revenues ($127,000), and the
charge-off of destroyed almond trees of $400,000, which occurred during 1995.
Partially offsetting these favorable variances was an increase in fixed water
costs of $168,000 and in cultural costs of $152,000. The increase in cultural
costs was primarily due to higher harvesting costs.
Grape revenues grew $434,000 in 1996 due to increases in prices. On
average the price received by Registrant increased approximately $61.00 per
ton of grapes. The almond revenue increase during 1996 was due to a 13%
increase in production. The increase in production was partially offset by
almond prices falling 7% when compared to 1995 prices. Pistachio revenues
were $608,000 higher in 1996 due to an increase in production. Pistachio
production increased approximately 157% because 1996 was the "on" production
year in the alternate year bearing cycle. Walnut revenues increased $51,000
during 1996 due to prices rising approximately 8% during 1996.
Resource Management. Resource Management net operating income of $1,328,000
in 1997 was $28,000, or 2% below 1996 net operating income. The decrease in
net operating income during 1997 was due to lower revenues from oil and gas
royalties, increases in professional service fees and an increase in staffing
costs. These unfavorable variances were partially offset by increased
sand/rock aggregate royalties, cement royalties, and game management permits.
Oil and gas royalties declined due to lower prices for crude oil within
California and the continuing decline of oil exploration activities on ranch
lands. Professional service fees and staffing costs increased due to the
ongoing monitoring of the activities of oil and gas lessees and monitoring of
environmental activities at the National Cement lease site. Sand/rock and
cement royalties increased during 1997 due to the growth of construction
within Southern California and Kern County. Game management permit revenues
increased due to an expansion of services offered and an increase in hunting
programs. The Resource Management division has been very profitable over the
last several years. However, oil and gas royalties are expected to be
adversly affected over the next few years by the fact than little or no new
oil and gas exploration is taking place on Registrant's lands and oil prices
during early 1998 are at the lowest levels in 18 years. Registrant does
expect royalties from cement production to grow over the next few years due to
increased construction activity and to the cement manufacturing plant being
renovated and production capacity being increased. See Part I, Item 1 -
"Business - Resource Management", for a further discussion of 1997 activities
and future expectations.
Resource Management operating profits of $1,356,000 in 1996 were
$115,000, or 9% greater than 1995 operating profits. The increase in
operating profits during 1996 was primarily due to the growth of filming
location fees and higher oil and gas royalties and cement royalties. These
increases were partially offset by lower sand/rock aggregate royalties and
increased professional service fees. Filming location fees increased due to a
much more aggresive marketing program which increased the number of films and
commercials that used Registrant's lands for location film shoots. Oil and
gas royalties increased due to an increase in oil prices throughout 1996, and
cement royalties were higher due to increases in production because of the
growth in construction within Southern California. Sand/rock royalties
declined due to winter weather during early 1996 which delayed the start of
several construction projects. Professional service fees increased due to the
monitoring of environmental activities at the National Cement site.
Real Estate. Real Estate operating profits of $1,003,000 in 1997 is a
$1,844,000 increase when compared to 1996's operating loss. The increase
during 1997 is due primarily to the receipt of a one time payment of
$2,050,000 ($1,353,000 net of tax) in revenue from a pipeline company for the
acquisiton of easement rights. This increase is partially offset by higher
professional service and planning fees ($154,000) and higher staffing costs
($75,000). Professional service fees increased due to market evaluations
being conducted to determine the feasibility of developing a destination land
use at Grapevine Center and a rural ranch estates program. Staffing costs
increased due to the hiring of a new Vice President of Real Estate. See Part
I, Item 1, "Business - Commercial and Land Use" and Part I, Item 2,
"Properties - Land Planning", for a further discussion of 1997 and 1998
activity and future planning activities.
The 1996 operating loss of $841,000 was a $421,000 improvement over
1995's operating loss of $1,262,000. The improvement in 1996 was due to a
decrease in professional service fees ($573,000) and a gain from the sale of
land ($184,000). Partially offsetting the above favorable variances was an
increase in fixed water costs of $325,000. Registrant's commercial lease
revenue during 1996 was flat when compared to 1995 lease revenues.
Professional service fees declined due to the timing of planning activities on
Registrant's lands related to the Interstate 5 corridor and the absence of any
costs during 1996 related to the proposed major crude oil pipeline through
Registrant's land. The costs associated with the pipeline were incurred
during 1995. Fixed water costs grew due to the transfer of additional state
water project water that can be used in the future for municipal and
industrial uses. In addition to the cost of this additional water, a local
water district charged Registrant for costs related to a water banking
program.
Interest. Interest income declined to $1,159,000 during 1997 from
$1,308,000 in 1996 due to a $3,000,000 reduction in funds invested.
Investment funds declined due to the purchase of the feedlot, capital
expenditures, an increase in the cattle herd, and the payment of dividends.
Interest income in 1996 fell $66,000, or 5%, when compared to 1995
interest income. The reduction during 1996 is due primarily to lower average
invested dollars throughout 1996 when compared to 1995. On average $20.3
million was invested during 1996 while $21.3 million was invested during 1995.
Investment funds declined due to capital expenditures and the payment of
dividends.
Interest expense for 1997 was $747,000, an increase of $452,000 over
1996. The growth in interest expense was due to the addition of long-term
debt associated with the purchase of the cattle feedlot ($2,375,000
outstanding) and the short-term funding of the growth in the cattle herd. The
feedlot also borrows on a short-term basis to provide cattle and feed
financing for its outside customers. The cost of this borrowing approximates
the bank's prime interest rate. The feedlot then charges its customers the
national prime interest rate plus one to one and one-half percent for any
financings it does. See Note 5 to the Audited Consolidated Financial
Statements for a further discription of short-term and long-term debt.
Interest expense declined in 1996 to $295,000 from $436,000 in 1995.
Interest expense during 1996 was attributable to the remaining balance of
long-term debt used to finance Registrant's 758-acre almond and 897-acre wine
grape developments, which were developed in 1981, and use of Registrant's
working capital line of credit. The increase in expense during 1995 was due
to Registrant increasing the usage of short-term lines of credit which became
necessary because of delays in the sale of cattle and the timing of 1995 crop
proceeds.
Corporate Expenses. Corporate expenses for 1997 were $2,346,000, an increase
of $80,000 when compared to 1996 corporate expenses. The increase is due to
higher professional service charges and staffing costs. Staffing costs
increased due to to the fact that Registrant's new Chief Executive Officer
joined Registrant in May 1996 and served the full year of 1997. Professional
service fees increased due to costs associated with consulting contracts with
an investment banking firm.
Corporate expenses for 1996 were $220,000, or 11%, higher than corporate
expenses for 1995. The increase in costs is primarily due an increase in
staffing costs ($122,000) and employee relocation costs ($108,000). These
variances were partially offset by a reduction in professional service fees
($85,000). The increase in staffing costs and relocation costs was primarily
related to the hiring of a new Chief Executive Officer in May 1996.
Inflation. Inflation can have a major impact on Registrant's operations.
The farming operations are most affected by escalating costs and unpredictable
revenues (due to an oversupply of certain crops) and very high irrigation
water costs. High fixed water costs related to Registrant's farm lands will
continue to adversely affect earnings.
Prices received by Registrant for many of its products are dependent
upon prevailing market conditions and commodity prices. Therefore, it is
difficult for Registrant to accurately predict revenue, just as it cannot pass
on cost increases caused by general inflation, except to the extent reflected
in market conditions and commodity prices.
Impact of Accounting Change. In June 1997, the FASB issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosure about Segments
of an Enterprise and Related Information" which are effective for fiscal years
beginning after December 15, 1997. Accordingly, Registrant plans to adopt
SFAS No. 130 and SFAS No. 131 with the fiscal year beginning January 1, 1998.
SFAS No. 130 and SFAS No. 131 do not have any impact on the financial results
or financial condition of Registrant, but will result in the disclosure of the
components of comprehensive income.
Impact of Year 2000. During early 1997, Registrant completed the conversion
to new accounting and financial software that identifies the date by using
four digits for the year. Registrant at this time believes that the new
software installed will eliminate its internal exposure to Year 2000 problems.
Registrant is in the process of initiating formal communications with
all of its significant suppliers and large customers to determine the extent
to which Registrant's systems are vulnerable to those third parties' failure
to remediate their own Year 2000 issues. No assurances can be given that the
systems of other companies on which Registrant's systems rely will be timely
converted and will not have an adverse effect on the Registrant's systems.
Financial Condition. Registrant's cash, cash equivalents and short-term
investments totaled approximately $18,165,000 at December 31, 1997, a decrease
of 13% from the corresponding amount at the end of 1996. Working capital at
the end of 1997 was $24,518,000, which is comparable to 1996's working
capital. Working capital uses during the year were for capital expenditures,
expansion of the cattle herd, purchase of the cattle feedlot and the payment
of dividends. Registrant has a revolving line of credit of $6,000,000 that as
of December 31, 1997, had a balance of $5,897,000 bearing interest at the rate
of 8.25%. Registrant also has an outstanding short-term borrowing with an
investment banking firm with a balance of $4,827,000 at December 31, 1997 at
an interest rate of 6.50%. The feedlot Registrant acquired also has a short-
term revolving line of credit with a local bank for $4,000,000. The
outstanding balance at December 31, 1997 was $1,231,000, with an interest rate
approximating the Bank's prime lending rate of 8.25%. The revolving lines of
credit are used as a short-term cash management tools and for the financing of
customer cattle and feed receivables at the feedlot.
The principal uses of cash and cash equivalents during 1997, 1996, and
1995 consisted of capital expenditures, expansion of the cattle herd, purchase
of the cattle feedlot, purchase of land, payments of long-term debt and the
payment of dividends.
The accurate forecasting of cash flows by Registrant is made difficult
due to the fact that commodity markets set the prices for the majority of
Registrant's products and the fact that the cost of water changes
significantly from year-to-year as a result of changes in its availability.
Registrant, based on its past experience, believes it will have adequate cash
flows over the next twelve months to fund internal operations.
During 1998, $8,994,000 has been budgeted for capital expenditures,
which includes new equipment and improvements to existing facilities.
Registrant is currently expanding its farming operations with two new farming
developments, will continue the expansion of the cattle herd, and is investing
approximately $5.7 million in the infrastructure and off-site improvements
related to the Travel Plaza joint venture and industrial park. These new
projects will be funded from current cash resources and Registrant's excess
borrowing capacity.
Registrant has traditionally funded its growth and capital additions
from internally generated funds. Management believes that the combination of
short-term investments, excess borrowing capacity, and capital presently
available to it will be sufficient for its near term operations.
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section of this
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information as to the directors of Registrant is incorporated by
reference from the definitive proxy statement to be filed by Registrant with
the Securities and Exchange Commission with respect to its 1998 Annual Meeting
of Stockholders. Information as to the Executive Officers of Registrant is
set forth in Part I, Item 1 under "Executive Officers of Registrant."
Item 11. Executive Compensation.
Information required by this Item is incorporated by reference from the
definitive proxy statement to be filed by Registrant with the Securities and
Exchange Commission with respect to its 1998 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this Item is incorporated by reference from the
definitive proxy statement to be filed by Registrant with the Securities and
Exchange Commission with respect to its 1998 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
Information required by this Item is incorporated by reference from the
definitive proxy statement to be filed by Registrant with the Securities and
Exchange Commission with respect to its 1998 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this report: Page Number
1. Consolidated Financial Statements:
1.1 Report of Independent Auditors 37
1.2 Consolidated Statements of Financial
Position - December 31, 1997 and 1996 38
1.3 Consolidated Statements of Income -
Years Ended December 31, 1997, 1996
and 1995 40
1.4 Consolidated Statements of Stockholders'
Equity - Three Years Ended
December 31, 1997 41
1.5 Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996
and 1995 42
1.6 Notes to Consolidated Financial
Statements 43
2. Supplemental Financial Statement Schedules:
None.
3. Exhibits:
3.1 Restated Certificate of
Incorporation *
3.2 By-Laws *
10.1 Water Service Contract with
Wheeler Ridge-Maricopa Water
Storage District (without exhibits),
amendments originally filed under
Item 11 to Registrant's
Annual Report on Form 10K **
10.3 Lease Agreement for Mr. San Olen **
10.4 Asset Purchase Agreement dated
March 10, 1997 for purchase of feedlot
assets ***
10.5 Petro Travel Plaza Operating Agreement 62
10.6 Amended and Restated Stock Option
Agreement Pursuant to the 1992
Employee Stock Incentive Plan 114
10.7 Severance Agreement 123
10.8 Director Compensation Plan 135
10.9 Non-Employee Director Stock
Incentive Plan 138
10.9(1)Stock Option Agreement Pursuant
to the Non-Employee Director
Stock Incentive Plan 142
10.10 1998 Stock Incentive Plan 148
10.10(1)Stock Option Agreement Pursuant
to the 1998 Stock Incentive Plan 153
10.11 Employment Contract - Robert L. Stine 160
22 List of Subsidiaries of Registrant 166
23 Consent of Ernst & Young LLP 167
27 Financial Data Schedule (Edgar) 168
(b) Report on Form 8-K filed during the last quarter of the period covered
by this report:
None.
(c) Exhibits
* This document, filed with the Securities Exchange Commission in
Washington D.C. (file number 1-7183) under Item 14 to
Registrant's Annual Report on Form 10-K for year ended December
31, 1987, is incorporated herein by reference.<PAGE>
** This document, filed with the Securities Exchange Commission in
Washington D.C. (file Number 1-7183) under item 14 to
Registrant's Annual Report on Form 10-K for year ended December
31, 1994, is incorporated herein by reference.
*** This document, filed with the Securities Exchange Commission in
Washington D.C. (file Number 1-7183) under item 14 to
Registrant's Annual Report on Form 10-K for year ended December
31, 1996, is incorporated herein by reference.
(d) Financial Statement Schedules -- The response to
this portion of Item 14 is submitted as a separate
section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TEJON RANCH CO.
DATED: March 20, 1998 BY:
Robert A. Stine
President and Chief Executive
Officer
(Principal Executive Officer)
DATED: March 20, 1998 BY:
Allen E. Lyda
Vice President, Finance &
Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Name Capacity Date
Director March 23, 1998
Otis Booth, Jr.
Director March 23, 1998
Craig Cadwalader
Director March 23, 1998
Dan T. Daniels
Director March 23, 1998
Rayburn S. Dezember
Director March 23, 1998
Robert F. Erburu
Director March 23, 1998
Clayton W. Frye, Jr.
Director March 23, 1998
Donald Haskell
Director March 23, 1998
Norman Metcalfe
Director March 23, 1998
Robert Ruocco
Director March 23, 1998
Robert A. Stine
Director March 23, 1998
Martin Whitman
Director March 23, 1998
Phillip L. Williams
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2),(c) and (d)
List of Financial Statements and Financial Statement Schedules
Financial Statements
Certain Exhibits
Year Ended December 31, 1997
Tejon Ranch Co.
Lebec, California
Form 10-K - Item 14(a)(1) and (2)
Tejon Ranch Co. and Subsidiaries
Index to Financial Statements and Financial Statement Schedules
ITEM 14(a)(1) - FINANCIAL STATEMENTS
The following consolidated financial statements of Tejon Ranch Co. and
subsidiaries are included in Item 8:
Page
Report of Independent Auditors 37
Consolidated Balance Sheets -
December 31, 1997 and 1996 38
Consolidated Statements of Income -
Years Ended December 31, 1997, 1996 and 1995 40
Consolidated Statements of Stockholders' Equity -
Three Years Ended December 31, 1997 41
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995 42
Notes to Consolidated Financial Statements 43
ITEMS 14(a)(2) - FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.<PAGE>
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Tejon Ranch Co.
We have audited the consolidated balance sheets of Tejon Ranch Co. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tejon Ranch Co.
and subsidiaries at December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
February 11, 1998
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Balance Sheets
December 31
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 976,000$ 693,000
Marketable securities 17,189,000 20,127,000
Accounts receivable 8,448,000 4,303,000
Inventories 12,222,000 3,430,000
Prepaid expenses and other current assets 1,659,000 1,319,000
Total current assets 40,494,000 29,872,000
Property and equipment, net 21,778,000 16,270,000
Other assets:
Breeding herd, net of accumulated
depreciation of $134,000 in 1,147,000 1,054,000
1997 and $133,000 in 1996
Other assets 274,000 173,000
1,421,000 1,227,000
Total assets $63,693,000 $47,369,000
</TABLE>
See accompanying notes.
<TABLE>
December 31
1997 1996
<S> <C> <C>
Liabilities and Stockholders' equity
Current liabilities:
Trade accounts payable $ 2,889,000 $ 488,000
Other accrued liabilities 390,000 569,000
Current deferred income 292,000 265,000
Income taxes payable --- 856,000
Short-term note 11,955,000 2,808,000
Current portion of long-term debt 450,000 200,000
Total current liabilities 15,976,000 5,186,000
Long-term debt, less current portion 3,925,000 1,800,000
Deferred income taxes 3,304,000 2,651,000
Commitments and contingencies
Stockholders' equity:
Common Stock, $.50 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares -
and 12,682,244 in 1996 6,343,000 6,341,000
Additional paid-in capital 385,000 387,000
Unrealized gains on available-for-sale
securities, net of taxes 109,000 7,000
Defined benefit plan-funding --- (256,000)
adjustment, net of taxes
Retained earnings 33,651,000 31,253,000
Total stockholders' equity 40,488,000 37,732,000
Total liabilities and stockholders' $63,693,000 $47,369,000
See accompanying notes
</TABLE>
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Income
Year Ended December 31
<S> <C> <C> <C>
1997 1996 1995
Revenues:
Livestock $ 24,555,000 $ 4,573,000 $ 6,748,000
Farming 9,173,000 9,107,000 7,973,000
Resource Management 2,696,000 2,508,000 2,188,000
Real Estate 3,403,000 1,464,000 1,271,000
Interest income 1,159,000 1,308,000 1,374,000
40,986,000 18,960,000 19,554,000
Costs and expenses:
Livestock 23,056,000 4,161,000 6,707,000
Farming 6,546,000 5,973,000 6,162,000
Resource Management 1,368,000 1,152,000 947,000
Real Estate 2,400,000 2,305,000 2,533,000
Corporate expenses 2,346,000 2,266,000 2,046,000
Interest expense 747,000 295,000 436,000
36,463,000 16,152,000 18,831,000
Income before income taxes 4,523,000 2,808,000 723,000
Income taxes 1,491,000 1,123,000 289,000
Net income $ 3,032,000 $ 1,685,000 $ 434,000
Net income per share, basic $0.24 $0.13 $0.03
Net income per share, diluted $0.24 $0.13 $0.03
See accompanying notes.
</TABLE>
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three years ended December 31, 1997
Additional Unrealized Benefit Plan
Common Paid-In Gains Funding Retained
Stock Capital (Losses) Adjustment Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1995 $6,341,000$387,000 $(372,000) --- $30,402,000 $36,758,000
Net income --- --- --- --- 434,000 434,000
Cash dividends
paid- $.05 per
share --- --- --- --- (634,000) (634,000)
Change in
unrealized gains
(losses) on --- --- 411,000 --- --- 411,000
available-for-sale
securities, net of
a tax benefit of
$164,000
Balance December
31, 1995 6,341,000 387,000 39,000 --- 30,202,000 36,969,000
Net income --- --- --- --- 1,685,000 1,685,000
Cash dividends
paid- --- --- --- --- (634,000) (634,000)
$.05 per share
Defined benefit
plan funding --- --- --- (256,000) --- (256,000)
adjustments,net of
taxes of $170,000
Changes in
unrealized gains
(losses) on --- --- (32,000) --- --- (32,000)
available-for-sale
securities, net of
taxes of $21,000
Balance December 6,341,000 387,000 7,000 (256,000) 31,253,000 37,732,000
31, 1996
Net Income --- --- --- --- 3,032,000 3,032,000
Cash dividends
paid-
$.05 per share --- --- --- --- (634,000) (634,000)
Defined benefit
plan funding --- --- --- 256,000 --- 256,000
adjustments, net
of taxes of
$170,000
Changes in
unrealized gains
(losses) on --- --- 102,000 --- --- 102,000
available-for-sale
securities, net of
taxes of $73,000
Exercise of stock 2,000 (2,000) --- --- --- ---
options
Balance, December $6,343,000 $385,000 $ 109,000 $ --- $33,651,000 $40,488,000
31,1997
See accompanying notes.
</TABLE>
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Operating activities
Net income $ 3,032,000 $ 1,685,000 $ 434,000
Items not affecting cash:
Depreciation and amortization 1,729,000 1,221,000 1,017,000
Deferred income taxes 585,000 134,000 (196,000)
(Gains) losses on sales of 3,000 --- (7,000)
investments
Current deferred income 27,000 (208,000) 71,000
Changes in certain current assets
and current liabilities:
Accounts receivable (4,145,000) 184,000 (2,362,000)
Inventories (8,434,000) (603,000) 301,000
Prepaid expenses and other (100,000) (93,000) 57,000
current assets
Trade accounts payable and other 2,222,000 (355,000) (251,000)
accrued liabilities
Income taxes payable (856,000) 592,000 (292,000)
Net cash provided by (used in) (5,937,000) 2,557,000 (1,228,000)
operating activities
Investing activities
Acquisition of Champion Feeders (3,874,000) --- ---
Maturities of marketable 8,415,000 9,859,000 8,754,000
securities
Funds invested in marketable (5,310,000) (9,784,000) (4,657,000)
securities
Net change in breeding herd (174,000) (168,000) (125,000)
Property and equipment (3,600,000) (2.343,000) (3,263,000)
expenditures
Net book value of property and --- --- 528,000
equipment disposals
Other (125,000) 36,000 (24,000)
Net cash provided by (used in) (4,668,000) (2,400,000) 1,213,000
investing
Financing activities
Proceeds from revolving line of 30,435,000 15,824,000 9,792,000
credit
Payments on revolving line of (21,288,000) (14,698,000) (9,017,000)
credit
Borrowing of long-term debt 2,500,000 --- 2,000,000
Repayments of long-term debt (125,000) --- (2,150,000)
Cash dividends paid (634,000) (634,000) (634,000)<PAGE>
Net cash provided by (used in) 10,888,000 492,000 (9,000)
financing activities
Increase (decrease) in cash and 283,000 649,000 (24,000)
cash equivalents
Cash and cash equivalents at 693,000 44,000 68,000
beginning of year
Cash and cash equivalents at end $ 976,000 $ 693,000 $ 44,000
of year
</TABLE>
See accompanying notes
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany transactions have been
eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. The carrying amount
for cash equivalents approximates fair value.
Marketable Securities
The Company considers those investments not qualifying as cash equivalents,
but which are readily marketable, to be marketable securities. The Company
classifies all marketable securities as available-for-sale, which are stated
at fair value with the unrealized gains (losses), net of tax, reported in a
separate component of stockholders' equity.
Credit Risk
The Company grants credit to customers, principally large cattle purchasers,
feedlot customers, co-ops, wineries, nut marketing companies, and lessees of
Company facilities, all of which are located in California. The Company
performs periodic credit evaluations of its customer's financial condition and
generally does not require collateral.
During 1997, 1996 and 1995 the following customers accounted for more than 10%
of the Company's consolidated revenues, Golden State Vintners (14% in 1997,
21% in 1996, and 18% in 1995), Harris Ranch (18% in 1996), and Timmerman
Cattle (26% in 1995).
Farm Inventories
Costs of bringing crops to harvest are capitalized when incurred. Such costs
are expensed when the crops are sold. Farm inventories held for sale are
valued at the lower of cost (first-in, first-out method) or market.
Cattle Inventories and Breeding Herd
Cattle raised on the Ranch are stated at the accumulated cost of developing
such animals for sale or transfer to a productive function and purchased
cattle are stated at cost plus development costs. All cattle held for sale
are valued at the lower of cost (first-in, first-out method) or market and are
included in the caption inventories. Purchased bulls and cows, included in
the breeding herd and used for breeding, are depreciated using the straight-
line method over five to seven years.
Commodity Contracts Used to Hedge Price Fluctuations
The Company enters into futures and option contracts to hedge its exposure to
price fluctuations on its stocker cattle and its cattle feed costs. The goal
of the Company is to protect or create a future price for its cattle and feed
that will provide a profit once the cattle are sold and all costs are
deducted. Realized gains, losses, and costs associated with closed contracts
are included in prepaid assets and are recognized in cost of sales expense at
the time the hedged cattle are sold or feed is used.
Property and Equipment
Property and equipment accounts are stated on the basis of cost, except for
land acquired upon organization in 1936 which is stated on the basis (presumed
to be at cost) carried by the Company's predecessor. Depreciation is computed
using the straight-line method over the estimated useful lives of the various
assets. Buildings and improvements are depreciated over a 10 year to 27.5
year life. Machinery and equipment is depreciated over a 3 year to 10 year
life depending on the type of equipment. Vineyards and orchards are generally
depreciated over a 20 year life with irrigation systems over a 10 year life.
Oil, gas and mineral reserves have not been appraised, so no value has been
assigned to them.
Vineyards and Orchards
Costs of planting and developing vineyards and orchards are capitalized until
the crops become commercially productive. Interest costs and depreciation of
irrigation systems and trellis installations during the development stage are
also capitalized. Revenue from crops earned during the development stage are
credited against development costs. Depreciation commences when the crops
become commercially productive.
At the time crops are harvested and delivered to buyers and revenues are
estimatable, revenues and related costs are recognized, which traditionally
occurs during the third and fourth quarters of each year. Orchard revenues
are based upon estimated selling prices, whereas vineyard revenues are
recognized at the contracted selling price. Estimated prices for orchard
crops are based upon the quoted estimate of what the final market price will
be by marketers and handlers of the orchard crops. Actual final orchard crop
selling prices are not determined for several months following the close of
the Company's fiscal year due to supply and demand fluctuations within the
orchard crop markets. Adjustments for differences between original estimates
and actual revenues received are recorded during the period in which such
amounts become known. The net effect of these adjustments increased farming
revenue $693,000 in 1997, decreased farming revenue $129,000 in 1996,
increased farming revenue by $124,000 in 1995.
The California Almond Board has the authority to require producers of almonds
to withhold a portion of their annual production from the marketplace. At
December 31, 1997, 1996 and 1995, no such withholding was mandated.
Net Income Per Share
Effective December 31, 1997, the Company adopted SFAS 128 "Earnings Per Share"
which replaced primary and fully diluted earnings per share with basic and
diluted earnings per share.
Basic net income per share is based upon the weighted average number of shares
of common stock outstanding during the year (12,683,497 in 1997,12,682,244 in
1996 and 12,682,244 in 1995). Diluted net income per share is based upon the
weighted average number of shares of common stock outstanding, and the average
shares outstanding assuming the issuance of common stock for stock options
using the treasury stock method (12,726,729 in 1997, 12,683,760 in 1996, and
12,684,105 in 1995). The weighted average of dilutive stock options were
43,232 in 1997, 1,516 in 1996, and 1,861 in 1995.
In March 1992, the Company's Board of Directors adopted the 1992 Stock Option
Plan providing for the granting of options to purchase a maximum of 230,000
shares of the Company's common stock to employees, advisors, and consultants
of the Company. Since the adoption of the Plan, the Company has granted
options to purchase 179,000 shares at a price equal to fair market value at
date of grant.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company records impairment losses on long-lived
assets held and used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than their related carrying amounts. SFAS No. 121 had no impact on the
Company's consolidated financial position and results of operations in the
current year.
Environmental
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
the completion of a feasibility study or the Company's commitment to a
formal plan of action. No liabilities for environmental costs have been
recorded at December 31, 1997, 1996 or 1995.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management. Actual results could differ from these
estimates.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131" Disclosure about Segments of an Enterprise and Related
Information" which are effective for fiscal years beginning after December 15,
1997. Accordingly, the Company plans to adopt SFAS No. 130 and SFAS No. 131
with the fiscal year beginning January 1, 1998. SFAS No. 130 and SFAS No. 131
do not have any impact on the financial results or financial condition of the
Company, but will result in the disclosure of the components of comprehensive
income.
2. Marketable Securities
Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, requires that an enterprise
classify all debt securities as either held-to-maturity, trading, or
available-for-sale. The Company has elected to classify its securities as
available-for-sale and therefore, is required to adjust securities to fair
value at each reporting date.
The following is a summary of available-for-sale securities at December 31:
<TABLE>
1997 1996
Estimated Fair Estimated Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Marketable securities:
U.S. Treasury
and agency
notes $9,770,000 $9,947,000 $13,156,000 $13,158,000
Corporate notes 7,237,000 7,242,000 6,960,000 6,969,000
$17,007,000 $17,189,000 $20,116,000 $20,127,000<PAGE>
</TABLE>
As of December 31, 1997, the cumulative fair value adjustment to stockholders'
equity is an unrealized gain of $109,000, net of a tax expense of $73,000.
The Company's gross unrealized holding gains equal $220,000, while gross
unrealized holding losses equal $38,000. On
December 31, 1997, the average maturity of U.S. Treasury and agency securities
was one year and corporate notes was 1.7 years. Currently, the Company has no
securities with a weighted average life of greater than five years. During
1997, the Company recognized losses of $3,000 on the sale of $2.0 million of
securities, carried at historical cost adjusted for amortization and
accretion. There were no sales of securities during 1996.
Market value equals quoted market price, if available. If a quoted market
price is not available, market value is estimated using quoted market prices
for similar securities. The Company's investments in corporate notes are with
companies with a credit rating of A or better.
3. Inventories
Inventories at December 31, 1997 and 1996 consist principally of cattle held
for sale.
4. Property and Equipment
Property and equipment consists of the following at December 31:
<TABLE>
<S> <C> <C>
1997 1996
Land and land improvements $ 4,040,000 $ 3,877,000
Buildings and improvements 10,875,000 7,639,000
Machinery, water pipelines, furniture, fixtures,
and other equipment 6,480,000 4,254,000
Vineyards and orchards 16,478,000 15,068,000
37,873,000 30,838,000
Less allowance for depreciation (16,095,000) (14,568,000)
$ 21,778,000 $ 16,270,000
</TABLE>
5. Line of Credit and Long-Term Debt
The Company may borrow up to $6,000,000 on a short-term unsecured revolving
line of credit at interest rates approximating the bank's prime rate (8.25% at
December 31, 1997). The revolving line expires in September 1999. At
December 31, 1997, there was $5,897,000 of outstanding debt under the line of
credit agreement. The Company also has an outstanding short-term borrowing
with an investment banking company, with an outstanding balance of $4,827,000
at December 31, 1997, at an interest rate of 6.50%. The Company's acquired
feedlot also has a short-term revolving line of credit with a local bank for
$4,000,000. The outstanding balance at December 31, 1997 was $1,231,000,
with the interest rate approximating the bank's prime lending rate of 8.25%.
At December 31, 1996, the Company had outstanding short-term borrowing under a
line of credit with a banking company. The short-term borrowing was in the
amount of $2,808,000 at an interest rate of 8.25%.
Long-term debt consists of the following at December 31:
<TABLE>
<S> <C> <C>
1997 1996
Notes payable to a bank $4,375,000 $2,000,000
Less current portion (450,000) (200,000)
$3,925,000 $1,800,000
</TABLE>
One note payable with an outstanding balance of $2,000,000 to a bank provides
for interest at an average rate of 7.91% per annum, payable monthly, on
amounts outstanding. Principal is payable in semi-annual installments of
$100,000, with the remaining balance due December 31, 1999. Amounts borrowed
under the agreement are unsecured.
The second note payable with an outstanding balance of $2,375,000 to a bank
provides for interest at an average rate of 8.57% per annum, payable monthly,
on amounts outstanding. Principal is payable quarterly in amounts of $62,500,
with the remaining balance due
December 31, 2003. Amounts borrowed are secured by land and assets of the
acquired feedlot.
The line of credit and long-term debt instruments listed above approximate
fair value.
Interest paid approximated interest expense incurred for each of the three
years in the period ended December 31, 1997.
Maturities of long-term debt at December 31, 1997 are $450,000 in 1998,
$2,050,000 in 1999, and $250,000 per year for 2000 through 2002 and $1,125,000
thereafter.
6. Common Stock and Stock Option Information
The Company has elected to follow Accounting Principles Board Opinion No 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employees', advisors', and consultants'
stock options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of stock options granted by the Company equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The 1992 Stock Option Plan provides for the granting of options to purchase a
maximum of 230,000 shares of the Company's common stock at 100% of the fair
market value as of the date of grant. The compensation committee of the board
of directors administers the plan. 179,000 options have been granted under
the 1992 Stock Option Plan with 159,000 options at a grant price of $16 per
share and 20,000 options at a grant price of $15 per share.
During 1996, 100,000 shares were granted at an exercise price of $17.88, which
was the market price at the date of grant. These options have a ten-year
period to exercise and vest over a one-to-five-year period from the date of
grant. These options along with 59,000 options granted in 1992 at $20 per
share were subsequently amended in 1997. On April 7, 1997 159,000 shares were
amended to lower the previously existing exercise price to $16.00 per share,
which was the market price at the amended date of grant. These options have a
ten-year period to exercise and vest over a one-to-five-year period from the
grant date. The exercise period and vesting period of these options run from
the original grant date. The original grant date for 59,000 options is 1992
and 100,000 options have an original grant date of May 1, 1996.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its stock options under the fair value method of the statement. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions
for 1997: Risk-free interest rate of 5.80%; dividend rate of .20%; volatility
factor of the expected market price of the Company's common stock of .35; and
a weighted average expected life of the options of five years from the option
grant date.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock option plan.
For proposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. The Company's pro
forma information follows:
<TABLE>
1997 1996
<S> <C> <C>
Pro forma net income $ 2,940,000 $ 1,634,000
Pro forma net income per $0.23 $0.13
share, diluted
</TABLE>
A summary of the Company's stock option activity, and related information for
the years ended December 31, follows:
<TABLE>
1997 1996
Weighted- Weighted-
Average Average
Exercise Exercise
Options Prices Options Prices
<S> <C> <C> <C> <C>
Outstanding beginning of 179,000 $ 17.84 93,000 $ 17.70
year
Granted 159,000 16.00 100,000 17.88
Exercised (6,822) 15.33 --- ---
Forfeited (159,000) 18.66 (14,000) 11.88
Outstanding end of year 172,178
$ 15.91 179,000 $ 17.84
Weighted-average fair
value of options granted $ 6.34 $ 6.31
</TABLE>
The above options were exercised with a net 3,750 shares of common stock
issued by the Company as 3,072 of the options were given back by the grantees
as consideration for the exercise price of the options.
Exercise prices for options outstanding as of December 31, 1997 ranged from
$15.00 to $16.00. The weighted-average remaining contractual life of those
options is approximately six years.
7. Commodity Contracts Used to Hedge Price Fluctuations
The Company uses commodity derivatives to hedge its exposure to price
fluctuations on its purchased stocker cattle and its cattle feed costs. The
objective is to protect or create a future price for stocker cattle that will
protect a profit or minimize a loss once the cattle are sold and all costs are
deducted and protect the Company against a disastrous cattle market decline.
To help achieve this objective the Company uses both the futures commodity
markets and options commodity markets. A futures contract is an obligation to
make or take delivery at a specific future time of a specifically defined,
standardized unit of a commodity at a price determined when the contract is
executed. Options are contracts that give their owners the right, but not the
obligation, to buy or sell a specified item at a set price on or before a
specified date. The Company continually monitors any open futures and options
contracts to determine the appropriate hedge based on market movement of the
underlying asset. The options and futures contracts used typically expire on
a quarterly or semi-annual basis and are structured to expire close to or
during the month the stocker cattle and feed are scheduled to be sold or
purchased. The risk associated with hedging for the Company is that hedging
limits or caps the potential profits if cattle prices begin to increase
dramatically or can add additional costs for feed if grain prices fall
dramatically.
Payments received and paid related to outstanding options contracts are
deferred in prepaid and other current assets and were approximately $12,000 at
December 31, 1997. Futures contracts are carried off-balance sheet until the
contracts are settled because there is no exchange of cash until settlement.
Realized gains, losses, and costs associated with closed contracts are
included in prepaid and other assets and will be recognized in cost of sales
expense at the time the hedged stocker cattle are sold. At December 31, 1997
there was $181,000 of hedging costs associated with closed contracts included
in prepaid and other assets. During 1997, the Company recognized
approximately $360,000 in net losses from hedging activity as an increase in
cost of sales. In 1996 and 1995, the Company recognized approximately
$577,000 and $215,000, respectively, in net gains from hedging activity as a
reduction in cost of sales.
The following table identifies the futures contract amounts and options
contract costs outstanding at December 31, 1997:
<TABLE>
Cattle Hedging Estimated
Activity Commodity Original Fair Value Estimated
Future/Option Contract/Cost at Settlement Gain(Loss)
Description No. Contracts (Bought) Sold (Buy) Sell at Settlement
<S> <C> <C> <C> <C>
Corn futures bought 1,220 $ (3,637,000) $ 3,346,000 $(291,000)
1,000 bushels per contract
Cattle options bought 50 (12,000) 38,000 26,000
40,000 lbs. per contract
</TABLE>
The above futures contracts and options contracts expire between February 1998
and September 1998. Estimated fair value at settlement is based upon quoted
market prices at December 31, 1997.
8. Income Taxes
The Company accounts for income taxes using SFAS No. 109, Accounting for
Income Taxes. SFAS No. 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns.
The provision for income taxes consists of the following at December 31:
<TABLE>
1997 1996 1995
Federal:
<S> <C> <C> <C>
Current $ 691,000 $ 746,000 $ 176,000
Deferred 486,000 106,000 70,000
1,177,000 852,000 246,000
State:
Current 182,000 248,000 65,000
Deferred 132,000 23,000 (22,000)
314,000 271,000 43,000
$1,491,000 $1,123,000 $ 289,000
</TABLE>
The reasons for the difference between total income tax expense and the amount
computed by applying the statutory Federal income tax rate (34%) to income
before taxes are as follows at December 31:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Income tax at the statutory rate $1,538,000 $955,000 $ 246,000
State income taxes, net of Federal 123,000 179,000 29,000
benefit
Other, net (170,000) (11,000) 14,000
$1,491,000 $1,123,000 $ 289,000
</TABLE>
Deferred income taxes result from temporary differences in the financial and
tax bases of assets and liabilities. The net current deferred asset is
included with prepaid expenses and other assets on the statement of financial
position. Significant components of the Company's deferred tax
liabilities and assets are as follows at December 31:
<TABLE>
Deferred tax assets: 1997 1996
<S> <C> <C>
Accrued expenses $ 126,000 $ 147,000
Prepaid revenues 44,000 147,000
Other 65,000 50,000
Total deferred tax assets 235,000 344,000
Deferred tax liabilities:
Depreciation and amortization 1,458,000 1,460,000
Involuntary conversion-land 1,339,000 363,000
Other 507,000 828,000
Total deferred tax liabilities 3,304,000 2,651,000
Net deferred tax liabilities $3,069,000 $2,307,000
</TABLE>
The Company made net payments of income taxes of $1,317,000, $531,000 and
$721,000 during 1997, 1996 and 1995, respectively.
9. Operating Leases
The Company is lessor of certain property pursuant to various commercial lease
agreements having terms ranging up to 60 years. The cost and accumulated
depreciation of buildings and improvements subject to such leases were
$2,699,000 and $998,000, respectively, at
December 31, 1997. Income from commercial rents, included in real estate
revenue was $985,000 in 1997, $928,000 in 1996, and $936,000 in 1995. Future
minimum rental income on noncancelable operating leases as of December 31,
1997 is: $1,035,000 in 1998, $921,000 in 1999, $830,000 in 2000, $826,000 in
2001, $826,000 in 2002, and $5,718,000 for years thereafter.
10. Commitments and Contingencies
A total of 6,200 acres of the Company's land is subject to water contracts
requiring minimum future annual payments for as long as the Company owns such
land. The estimated minimum payments for 1998 are $1,300,000, whether or not
water is available or is used. Minimum payments made under these contracts
were approximately $1,215,000 in 1997, $1,277,000 in 1996, and $1,109,000 in
1995. Approximately 4,600 acres of these lands are subject to contingent
assessments of approximately $817,000 to service water district bonded
indebtedness, if water district revenues are insufficient to cover bond
interest and redemptions when due.
The Company leases land to National Cement Company of California, Inc.
(National) for the purpose of manufacturing portland cement from limestone
deposits on the leased acreage. National, Lafarge Corporation (the parent
company of the previous operator) and the Company have been ordered to cleanup
and abate an old industrial waste landfill site and the cement kiln dust pile
on the leased premises. The cleanup order for the kiln dust piles now
requires only site stabilization measures of the sort previously undertaken by
National, and does not call for transporting the large piles offsite. Under
both orders, the Company is secondarily liable and will be called upon to
perform work only if National and Lafarge fail to do so. Under the lease
agreements with National and Lafarge, both companies are required to indemnify
the Company for any costs and liabilities incurred in connection with the
cleanup order. Due to the financial strength of National and Lafarge, the
Company believes that a material effect to the Company is remote at this time.
11. Retirement Plan
The Company has a retirement plan which covers substantially all employees.
The benefits are based on years of service and the employee's five year final
average salary. Contributions are intended to provide for benefits
attributable to service both to date and expected to be provided in the
future. The Company funds the plan in accordance with the Employee Retirement
Income Security Act of 1974 (ERISA).
The following accumulated benefit information is as of December 31:
<TABLE>
1997 1996
<S> <C> <C>
Accumulated actuarial present value of benefit
obligation, including vested benefits of $2,254,000
in 1997 and $2,060,000 in 1996 $2,315,000 $2,084,000
Projected benefit obligation for service rendered to 2,820,000 2,466,000
date
Plan assets at fair value 2,323,000 1,947,000
Projected benefit obligation in excess of Plan assets (497,000) (519,000)
Items not yet recognized in earnings:
Unrecognized net gain from past experience different
from that assumed and effects of changes in 1,036,000 1,084,000
assumptions
Unrecognized net transition asset being amortized
over approximately 17 years (118,000) (138,000)
Adjustment required to recognize minimum liability --- (564,000)
Prepaid (accrued) pension cost $ 421,000 $ (137,000)
</TABLE>
In accordance with the provisions of Financial Accounting Standard No. 87, the
Company recorded a minimum pension liability representing the excess of the
accumulated benefit obligation over the fair value of plan assets and accrued
pension liabilities during 1996. The liability was offset by intangible
assets to the extent possible. Because the asset recognized may not exceed
the amount of unrecognized past service cost, the balance of the liability at
the end of 1996 was reported as a separate reduction of stockholders' equity,
net of applicable deferred income taxes.
Plan assets consist of equity, debt, and short-term money market investment
funds. The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
projected benefits obligation was 6.5% in 1997 and 1996. The expected long-
term rate of return on plan assets was 7.5% in 1997 and 1996.
Total pension and retirement expense was as follows for each of the years
ended December 31:
<TABLE>
1997 1996 1995
Cost components:
<S> <C> <C> <C>
Service cost-benefits earned during the period $(81,000) $(74,000) $ (80,000)
Interest cost on projected benefit obligation (155,000) (136,000) (136,000)
Actual return on plan assets 543,000 (89,000) 305,000
Net amortization and deferral (422,000) 214,000 (209,000)
Total net periodic pension cost $(115,000) $(85,000) $(120,000)
</TABLE>
12. Business Segments
The Company operates principally in four industries: livestock, farming,
resource management, and real estate use. The livestock segment includes the
production and sale of beef cattle and operation of a feedlot. The farming
segment involves those operations related to permanent crops, leasing
farmland, and the supervision of farming activities. The resource management
and the real estate segments collect rents and royalties from lessees of
Company-owned properties, and the real estate operation entitles and develops
Company-owned properties.
Information pertaining to the Company's business segments follows for each of
the years ended December 31
<TABLE>
1997 1996 1995
Segment profits:
<S> <C> <C> <C>
Livestock $ 1,499,000 $ 412,000 $ 41,000
Farming 2,627,000 3,134,000 1,811,000
Resource management 1,328,000 1,356,000 1,241,000
Real Estate 1,003,000 (841,000) (1,262,000)
Segment profits 6,457,000 4,061,000 1,831,000
Interest income 1,159,000 1,308,000 1,374,000
Corporate expenses (2,346,000) (2,266,000) (2,046,000)
Interest expense (747,000) (295,000) (436,000)
Operating profit $ 4,523,000 $ 2,808,000 $ 723,000 <PAGE>
</TABLE>
<TABLE>
Depreciation
Identifiable and Capital
Assets Amortization Expenditures
1997
<S> <C> <C> <C>
Livestock $24,215,000 $ 588,000 $4,109,000
Farming 10,176,000 737,000 1,287,000
Resource management 363,000 21,000 25,000
Real Estate 5,933,000 328,000 1,571,000
Corporate 23,006,000 55,000 84,000
Total $63,693,000 $1,729,000 $7,076,000
1996
Livestock $ 5,554,000 $ 307,000 $ 98,000
Farming 10,545,000 626,000 1,051,000
Resource Management 259,000 1,000 ---
Real Estate 2,874,000 183,000 901,000
Corporate 28,137,000 104,000 293,000
Total $47,369,000 $1,221,000 $2,343,000
1995
Livestock $ 5,533,000 $ 303,000 $ 270,000
Farming 10,370,000 477,000 2,287,000
Resource Management 258,000 1,000 ---
Real Estate 2,713,000 133,000 557,000
Corporate 26,329,000 103,000 149,000
$45,203,000 $1,017,000 $3,263,000
</TABLE>
Intersegment sales are not significant. Segment profits are total revenues
less operating expenses, excluding interest and corporate expenses.
Identifiable assets by segment include both assets directly identified with
those operations and an allocable share of jointly used assets. Corporate
assets consist primarily of cash and cash equivalents, refundable and deferred
income taxes, land and buildings. Land is valued at cost for acquisitions
since 1936. Land acquired in 1936, upon organization of the Company, is
stated on the basis (presumed to be at cost) carried by the Company's
predecessor.
13. Unaudited Quarterly Operating Results
The following is a tabulation of unaudited quarterly operating results for the
years indicated (in thousands of dollars, except per share amounts):
<TABLE>
Segment Net Earnings
Total Profit Income (Loss)
Revenue(1) (Loss) (Loss) Per Share(2)
1997
<S> <C> <C> <C> <C>
First quarter $ 3,037 $ (93) $ (288) $(0.02)
Second quarter 6,265 251 (6) 0.00
Third quarter 16,163 2,830 1,432 0.11
Fourth quarter (3) 15,521 3,469 1,894 0.15
$40,986 $6,457 $3,032 $ 0.24
1996
First quarter $ 1,518 $ (408) $ (364) $(0.03)
Second quarter 4,312 416 57 0.01
Third quarter 5,824 1,982 918 0.07
Fourth quarter 7,306 2,071 1,074 0.08
$18,960 $4,061 $1,685 $ 0.13
</TABLE>
(1) Includes interest income.
(2) Earnings per share on a diluted basis.
(3) Includes receipt of one time payment of $2,050,000 ($1,353,000 net of
tax or $.11 per share) from a pipeline company for acquisition of
easement rights.
14. Acquisition of Assets
On March 10, 1997, the Company completed the purchase of certain assets from
Champion Feeders, Inc., a cattle feedlot company in western Texas. The assets
purchased include land, a feed mill, cattle pins, office and shop buildings,
and all rolling stock. No debt or material liabilities of Champion Feeders,
Inc. were assumed in the purchase of these assets. The purchase price for
these assets was $3.5 million plus inventory and other assets of $374,000, as
of February 28, 1997 and has been accounted for as a purchase. The purchase
price of assets was based upon a dollar value per head of capacity at the
feedyard and the fair market value of assets purchased. The excess of the
purchase price over the fair market value of tangible assets acquired was
immaterial.
The purchase of these assets allows the Company to begin to meet its long-
term objective of becoming more vertically integrated within the beef
industry. The assets purchased allow the Company to own and operate a cattle
feedyard operation in western Texas.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the acquisition had
occurred as of January 1, 1997, and does not purport to be indicative of what
would have occurred had the acquisition actually been made as of such date or
of results that may occur in the future. The pro forma information provided
is for the year ended December 31:
<TABLE>
1997 1996
Pro forma Statement of Income
<S> <C> <C>
Revenues $43,646,000 $34,059,000
Net Operating Income 4,854,000 3,228,000
Net Income 3,286,000 1,937,000
Earnings Per Share, diluted $0.26 $0.15<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Amounts in thousands)
This schedule contains summary financial information extracted from the balance
sheet, income statement, and footnotes and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 976
<SECURITIES> 17,189
<RECEIVABLES> 8,448
<ALLOWANCES> 0
<INVENTORY> 12,222
<CURRENT-ASSETS> 40,494
<PP&E> 37,873
<DEPRECIATION> (16,095)
<TOTAL-ASSETS> 63,693
<CURRENT-LIABILITIES> 15,976
<BONDS> 0
0
0
<COMMON> 6,343
<OTHER-SE> 34,145
<TOTAL-LIABILITY-AND-EQUITY> 63,693
<SALES> 40,986
<TOTAL-REVENUES> 40,986
<CGS> 33,370
<TOTAL-COSTS> 33,370
<OTHER-EXPENSES> 2,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 747
<INCOME-PRETAX> 4,523
<INCOME-TAX> 1,491
<INCOME-CONTINUING> 3,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,032
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
EXHIBIT 10.6
TEJON RANCH CO.
AMENDED AND RESTATED STOCK OPTION AGREEMENT
Pursuant to the
1992 EMPLOYEE STOCK INCENTIVE PLAN
This Incentive Stock Option Agreement ("Agreement") is made
and entered into as of the Date of Grant indicated below by and
between Tejon Ranch Co., a Delaware corporation (the "Company"),
and the person named below as Optionee.
WHEREAS, Optionee is an employee, officer or director of the
Company and/or one or more of its subsidiaries;
WHEREAS, pursuant to the Company's 1992 Employee Stock
Incentive Plan (the "1992 Plan"), the Compensation Committee of
the Board of Directors of the Company administering the 1992 Plan
(the "Committee") approved the grant to Optionee of an option to
purchase shares of the Common Stock, par value $.50 per share, of
the Company (the "Common Stock"), on the terms and conditions set
forth in a Stock Option Agreement entered into by Optionee and
the Company as of the Date of Grant; and
WHEREAS, on April 7, 1997 the terms of said option were
amended to change the date when it becomes exercisable and to
change the Exercise Price per share set forth in Section 1 to an
amount equal to the Fair Market Value per share of Common Stock
(as defined in Section 2) on April 7, 1997;
NOW, THEREFORE, in consideration of the foregoing recitals
and the covenants set forth herein, the parties hereto hereby
amend and restate their agreement as so amended:
1. Grant of Option; Certain Terms and Conditions. The
Company hereby grants to Optionee, and Optionee hereby
accepts, as of the Date of Grant indicated below, an option
(the "Option") to purchase the number of shares of Common
Stock indicated below (the "Option Shares") at the Exercise
Price per share indicated below. The Option shall become
exercisable on and after the Vesting Dates indicated below
as to the number of shares indicated with respect to each
such Vesting Date, except as otherwise provided in
Section 3. The Option shall expire at 5:00 p.m., Los
Angeles, California time, on the Expiration Date indicated
below and shall be subject to all of the terms and
conditions set forth in this Agreement.
Optionee:
Date of Grant:
Number of shares purchasable:
Exercise Price per share:
Expiration Date:
Vesting Dates:
2. Incentive Stock Option; Internal Revenue Code
Requirements. The Option is intended to qualify as an
incentive stock option under Section 422 of the Internal
Revenue Code (the "Code") except to the extent that the
aggregate Fair Market Value (determined as of the Date of
Grant) of the shares of Common Stock with respect to which
the Option is exercisable for the first time by Optionee
during any calendar year (under the 1992 Plan and all other
stock option plans of the Company and its subsidiaries)
exceeds $100,000. Such excess shares are intended to be
treated as shares issued pursuant to an Option that is not
an incentive stock option described in Section 422 of the
Code, in accordance with Section 422(d) of the Code. The
number of such excess shares as to which this option is not
intended to be treated as an incentive option is 3,750.
The "Fair Market Value" of a share of Common Stock or other
security on any day shall be equal to the last sale price,
regular way, per share or unit of such other security on
such day or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular
way, in either case as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on the American
Stock Exchange or, if the shares of Common Stock or such
other security are not listed or admitted to trading on the
American Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities
exchange on which the shares of Common Stock or such other
security are listed or admitted to trading or, if the shares
of Common Stock or such other securities are not listed or
admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market
as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or such other
system then in use or, if on any such date the shares of
Common Stock or such other security are not quoted by any
such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a
market in shares of Common Stock or such other security
selected by the Board of Directors.
3. Acceleration and Termination of Option.
(a) Termination of Employment.
(i) Definition of Termination. In the event that
Optionee shall cease to be an employee of the
Company or any of its subsidiaries voluntarily or
involuntarily or for any reason whatever, such
event is referred to in this Agreement as a
"Termination" of Optionee's "Employment."
(ii) Normal Termination. If Optionee's Employment
is Terminated for any reason other than those
enumerated in this Section 3(a)(ii), then the
Option shall terminate three (3) months from the
date of such Termination of Employment but in no
event later than the Expiration Date. During such
three month period, the Option shall be
exercisable only if the date of Termination of
Employment is after the ninth anniversary of the
Date of Grant.
(iii) Death or Permanent Disability. In the
event of a Termination of Optionee's Employment by
reason of the death of Permanent Disability (as
hereinafter defined) of Optionee, the Option shall
terminate on the first anniversary of the date of
such Termination of Employment or the Expiration
Date, whichever is earlier.
"Permanent Disability" shall mean the inability to engage in
any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than
twelve (12) months. The Optionee shall not be deemed to
have a Permanent Disability unless proof of the existence
thereof shall have been furnished to the Committee in such
form and manner, and at such times, as the Committee may
require. Any determination by the Committee that Optionee
does or does not have a Permanent Disability shall be final
and binding upon the Company and Optionee.
(b) Death or Permanent Disability Following
Termination of Employment. Notwithstanding anything to
the contrary in this Agreement, if Optionee shall die
or suffer a Permanent Disability at any time after the
Termination of his or her Employment and prior to the
Expiration Date, then to the extent that the Option was
exercisable on the date of such death or Permanent
Disability the Option shall terminate on the earlier of
the Expiration Date or the first anniversary of the
date of such death.
(c) Acceleration of Option Upon a Change of Control.
The Option shall become fully exercisable with respect
to all Option Shares in the event of a Change of
Control. A "Change of Control" shall mean the first to
occur of the following events:
(i) a reorganization, merger or consolidation of
the Company, the issuance or transfer of
securities of the Company in one transaction or
series of related transactions or any other
transaction or series of related transactions in
each case if and only if as a result of the
transaction or transactions persons other than the
shareholders immediately prior to such transaction
or transactions shall own 80% or more of the
voting securities of the Company or its successor
after the transaction;
(ii) the sale or transfer by the Company of all or
substantially all of its property and assets in a
single transaction or series of related
transactions; or
(iii) the dissolution or liquidation of the
Company.
(d) Discretionary Acceleration. The Committee, in its
sole discretion, may
accelerate the exercisability of the Option for
any reason, including without limitation in the
event of death or disablement of Optionee or
termination of employment of Optionee by the
Company other than for cause.
(e) Other Events Causing Termination of Option.
Notwithstanding anything to the contrary in this
Agreement, the Option shall terminate in the event of
the occurrence of an event referred to in clause (ii)
or (iii) of paragraph (c) above or a merger or
consolidation referred to in clause (i) of
paragraph (c) above (a "Termination Event") (even if
such Termination Event occurs after an event referred
to in clause (i) of said paragraph (c) above which is
not a Terminating Event) unless the terms of any such
transaction constituting the Terminating Event
otherwise provide. Such termination shall occur on the
30th day following any such Terminating Event (or such
later date as the Board of Directors or the Committee
shall determine) unless the Board of Directors or the
Committee (i) sets an earlier date which is at least
ten days prior to the occurrence of the Terminating
Event, (ii) notifies the Optionee in writing at least
ten days before the occurrence of the Terminating Event
of the setting of such date and (iii) accelerates the
exercisability of the Option to the extent it would
otherwise be exercisable for any part of the thirty day
period after such event pursuant to Section 1 or
pursuant to paragraph (c) above so that, to such
extent, the Option could be exercised for a period of
at least ten days prior to the occurrence of the
Terminating Event. In such event where the
requirements of clauses (i), (ii) and (iii) of the
preceding sentence are met, the Option shall expire
immediately upon the occurrence of the Terminating
Event.
4. Adjustments. In the event that the outstanding
securities of the class then subject to the Option are
increased, decreased or exchanged for or converted into
cash, property and/or a different number or kind of
securities, or cash, property and/or securities are
distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend
(other than a cash dividend paid out of earned surplus) or
other distribution, stock split, reverse stock split or the
like, or in the event that substantially all of the property
and assets of the Company are sold, then, the Committee
shall make appropriate and proportionate adjustments in the
number and type of shares or other securities or cash or
other property that may thereafter be acquired upon the
exercise of the Option; provided, however, that any such
adjustments in the Option shall be made without changing the
aggregate Exercise Price of the then unexercised portion of
the Option.
5. Exercise. The Option shall be exercisable during
Optionee's lifetime only by Optionee or by his or her
guardian or legal representative, and after Optionee's death
only by the person or entity entitled to do so under
Optionee's last will and testament or applicable intestate
law. The Option may only be exercised by the delivery to
the Company of a written notice of such exercise pursuant to
the notice procedures set forth in Section 7 hereof, which
notice shall specify the number of Option Shares to be
purchased (the "Purchased Shares") and the aggregate
Exercise Price for such shares (the "Exercise Notice"),
together with payment in full of such aggregate Exercise
Price as follows:
(a) by the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly
endorsed or accompanied by a duly executed stock power,
which delivery effectively transfers to the Company
good and valid title to such shares, free and clear of
any pledge, commitment, lien, claim or other
encumbrance (such shares to be valued on the basis of
the aggregate Fair Market Value thereof on the date of
such exercise), provided that the Company is not then
prohibited from purchasing or acquiring such shares of
Common Stock; and/or
(b) by reducing the number of shares of Common Stock
to be issued and delivered to Optionee upon such
exercise (such reduction to be valued on the basis of
the aggregate Fair Market Value (determined on the date
of such exercise) of the additional shares of Common
Stock that would otherwise have been issued and
delivered upon such exercise), provided that the
Company is not then prohibited from purchasing or
acquiring such shares of Common Stock.
The balance of the Exercise Price not paid by an exchange of
shares pursuant to (a) or (b) above shall be paid in cash or
by a cashier's or certified bank check payable to the
Company.
The Optionee will be obligated to pay the Exercise Price in
the manner contemplated by (a) and/or (b) above and will be
permitted to pay the Exercise Price in cash only to the
extent that it cannot be paid in the manner provided in (a)
and (b) above. Notwithstanding the foregoing, the Optionee
shall be obligated to pay the Exercise Price in the manner
contemplated by (a) above only to the extent that he or she
owns shares of Common Stock beneficially, has the power to
dispose of those shares and such disposition contemplated by
(a) above would not constitute a "disqualifying disposition"
of shares resulting in a loss of the special tax treatment
afforded incentive stock options.
6. Payment of Withholding Taxes.
(a) If the Company is obligated to withhold an amount
on account of any federal, state or local tax imposed
as a result of the exercise of the Option, including,
without limitation, any federal, state or other income
tax, or any F.I.C.A., state disability insurance tax or
other employment tax, then Optionee shall, concurrently
with such exercise, pay such amount (the "Withholding
Liability") to the Company in cash or by a cashier's or
certified bank check payable to the Company; provided,
however, that, in the discretion of the Committee, the
Optionee may, pursuant to an irrevocable election of
Optionee (a "Withholding Election") made on or prior to
the date of such exercise, instead pay all or any part
of the Withholding Liability in the following manner:
(i) by the delivery to the Company of a
certificate or certificates representing shares of
Common Stock, duly endorsed or accompanied by a
duly executed stock powers, which delivery
effectively transfers to the Company good and
valid title to such shares, free and clear of any
pledge, commitment, lien, claim or other
encumbrance (such shares to be valued on the basis
of the aggregate Fair Market Value thereof on the
date of such exercise), provided that the Company
is not then prohibited from purchasing or
acquiring such shares of Common Stock; and/or
(ii) by reducing the number of shares of Common
Stock to be issued and delivered to Optionee upon
such exercise (such reduction to be valued on the
basis of the aggregate Fair Market Value
(determined on the date of such exercise) of the
additional shares of Common Stock that would
otherwise have been issued and delivered upon such
exercise), provided that the Company is not then
prohibited from purchasing or acquiring such
shares of Common Stock.
(b) The Committee shall have sole discretion to
approve or disapprove any Withholding Election and may
adopt such rules and regulations as are consistent with
and necessary to implement the foregoing. The
Committee may permit Optionee to make a Withholding
Election to pay withholding taxes in excess of the
minimum amount required by law, provided that the
amount of withholding taxes so paid does not exceed the
estimated total federal, state and local tax liability
of Optionee attributable to such exercise.
7. Notices. Any notice given to the Company shall be
addressed to the Company at P.O. Box 1000, Lebec, California
93243, Attention: President, or at such other address as
the Company may hereinafter designate in writing to
Optionee. Any notice given to Optionee shall be sent to the
address set forth below Optionee's signature hereto, or at
such other address as Optionee may hereafter designate in
writing to the Company. Any such notice shall be deemed
duly given when delivered personally or five days after
mailing by prepaid certified or registered mail return
receipt requested.
8. Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Agreement,
no shares of stock issuable upon exercise of the Option, and
no certificate representing all or any part of such shares,
shall be purchased, issued or delivered if (a) such shares
have not been admitted to listing upon official notice of
issuance on each stock exchange upon which shares of that
class are then listed or (b) in the opinion of counsel to
the Company, such issuance or delivery would cause the
Company to be in violation of or to incur liability under
any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which
the Company is a party, or any other requirement of law or
of any administrative or regulatory body having jurisdiction
over the Company.
9. Restrictions on Transferability.
(a) Neither the Option nor any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated
or otherwise transferred in any manner other than by
will or the laws of descent and distribution.
(b) By accepting the Option, the Optionee for himself
or herself and his or her transferees by will or the
laws of descent and distribution, represent and agree
that all shares of Common Stock purchased upon exercise
of the Option will be acquired for investment and not
with a view to the distribution thereof unless they
have been registered under the Securities Act of 1933,
and will otherwise be acquired, held and disposed of
and held in accordance with the restrictions of said
Act and the rules and regulations of the Securities and
Exchange Commission thereunder, that the Company may
instruct its transfer agent to restrict further
transfer of said shares in its records except upon
receipt of satisfactory evidence that such restrictions
have been satisfied, that upon each exercise of any
portion of the Option, the certificates evidencing the
purchased shares shall bear an appropriate legend on
the face thereof evidencing such restrictions, and that
the person entitled to exercise the same shall furnish
evidence satisfactory to the Company (including a
written and signed representation) to the effect that
the shares are being acquired subject to such
restrictions.
10. 1992 Plan. The Option is granted pursuant to the 1992
Plan, as in effect on the Date of Grant, and is subject to
all the terms and conditions of the 1992 Plan, as the same
may be amended from time to time; provided, however, that no
such amendment shall deprive Optionee, without his or her
consent, of the Option or of any of Optionee's rights under
this Agreement. The interpretation and construction by the
Committee of the 1992 Plan, this Agreement, the Option and
such rules and regulations as may be adopted by the
Committee for the purpose of administering the 1992 Plan
shall be final and binding upon Optionee. Until the Option
shall expire, terminate or be exercised in full, the Company
shall, upon written request therefor, send a copy of the
1992 Plan, in its then-current form, to Optionee or any
other person or entity then entitled to exercise the Option.
11. Stockholder Rights. No person or entity shall be
entitled to vote, receive dividends or be deemed for any
purpose the holder of any Option Shares until the Option
shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement
and the Option Shares have been issued.
12. Employment Rights. No provision of this Agreement or
of the Option granted hereunder shall (a) confer upon
Optionee any right to continue in the employ of the Company
or any of its subsidiaries, (b) affect the right of the
Company and each of its subsidiaries to terminate the
employment of Optionee, with or without cause, or (c) confer
upon Optionee any right to participate in any employee
welfare or benefit plan or other program of the Company or
any of its subsidiaries other than the 1992 Plan. The
Optionee hereby acknowledges and agrees that the Company and
each of its subsidiaries may terminate the employment of
Optionee at any time and for any reason, or for no reason,
unless Optionee and the Company or such subsidiary are
parties to a written employment agreement that expressly
provides otherwise.
13. Effect on Other Agreement. This Agreement supersedes
the Stock Option Agreement between the Optionee and the
Company previsouly entered into with respect to the Option
and dated as of the Date of Grant.
14. Governing Law. This Agreement and the Option granted
hereunder shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company and Optionee have duly
executed this Agreement as of the Date of Grant.
TEJON RANCH CO. OPTIONEE
By: ________________________________
Name:
Title: ____________________________________
Signature ____________________________________
Street Address _______________________________
City, State and Zip Code______________________
Social Security Number
EXHIBIT 10.7
SEVERANCE AGREEMENT
This Severance Agreement is entered into this ____ day of
July, 1997 between Tejon Ranch Co., a Delaware corporation
(the "Company") and _______ (the "Executive").
R E C I T A L S
The Company considers it essential and in the best interest
of its stockholders to foster the continuous employment of
key management personnel. The Company further recognizes
that, as in the case of many publicly held corporations, the
possibility of a change of control of the Company may exist
and that such possibility, and the uncertainty and questions
which it may raise among management, may create concerns
for, and the distraction of, management personnel and may
even result in departures which might have otherwise not
have taken place, all to the detriment of the Company and
its stockholders. The Company now desires to take steps to
reinforce and encourage the continued attention and
dedication of members of the Company's management, including
the Executive, to their assigned duties without distraction
in the face of potentially disturbing circumstances arising
from the possibility of a change of control of the Company.
A G R E E M E N T
1. Payment of Severance Benefits Upon Change of Control.
In the event of a Change of Control of the Company (as
defined in Section 3) during the two-year period from the
date of this Agreement, Executive shall be entitled to the
Severance Benefits set forth in Section 2, but only if:
(a) the Executive's employment by the Company or
the successor owner of its business is terminated by
the Company or such successor without Cause (as defined
in Section 4) during the two years after the occurrence
of the Change of Control;
(b) the Executive terminates his or her
employment with the Company or its successor for Good
Reason (as defined in Section 5) during the two years
after the occurrence of the Change of Control;
(c) the Executive's employment by the Company is
terminated by the Company within three months prior to
the Change in Control and such termination (i) was at
the request of a third party who had taken steps to
effect the Change in Control at the time of the request
or (ii) otherwise arose in connection with or in
anticipation of the Change in Control; or
(d) the Executive terminates his or her
employment with the Company for Good Reason during the
period commencing three months prior to the Change in
control and the event referred to in Section 5(a), (b)
or (c) constituting Good Reason (i) occurs at the
request of a third party who had taken steps to effect
the Change in Control at the time of the request or
(ii) otherwise arose in connection with or in
anticipation of the Change in Control.
Any resignation by the Executive at the request of the Board
of Directors shall be treated as a termination by the
Company pursuant to (a) or (c) above (whichever is
applicable) but shall not necessarily mean that the
requirements of (c)(i) or (ii) have been satisfied. The
effective date of any termination of employment referred to
in (a) or (c) above shall be the date specified by the
Company or the successor owner of its business, and the
effective date of any termination of employment referred to
in (b) or (d) above shall be the date specified in the
notice of termination delivered pursuant to Section 5 or, if
no date is specified in the notice, the date specified by
the Executive orally or, if no such date is specified
orally, the date the Executive ceases working for the
Company or the successor owner of its business on a full
time basis.
2. Definition of Severance Benefits.
2.1 Amount of Benefits. Except as provided in Section
2.2, the Severance Benefits referred to in Section 1 shall
include and be limited to the following:
(a) continuation of payments equal to the
Executive's base salary (at the greater of the rate in
effect immediately prior to the Change in Control or
the rate in effect immediately prior to the termination
of his or her employment) for a period of 30 full
months after the effective date of termination of the
Executive's employment as described in Section 1, such
payments to be made on the same dates the Executive's
salary would have been paid if his or her employment
had not terminated;
(b) payments equal to the Executive's Three-
Year Average Bonus (as defined in Section 6), for each
of the two full fiscal years commencing after the
effective date of the termination of his or her
employment plus a payment equal to [up to one-half] of
the Executive's Three-Year Average Bonus for the third
full fiscal year commencing after such termination,
such payments to be made on the dates the Executive's
bonuses for those years would have been paid if his or
her employment had not terminated;
(c) a payment equal to either (i) a prorated
portion of the Executive's bonus for the year in which
the effective date of termination of the Executive's
employment occurs based upon the number of days in the
year prior to such termination of employment as
compared to the full year, but only if all performance
and other criteria for earning the bonus have been
satisfied as of the date of termination (other than the
criterion that the Executive continue to be employed)<PAGE>
or (ii) if such performance criteria have not been
established or satisfied as of the effective date of
termination, then such prorated portion of the
Executive's Three-Year Average Bonus, such payment to
be made in the case of either (i) or (ii) above on the
date the Executive's bonus for the year of termination
would have been paid if his or her employment had not
terminated;
(d) continuation of the Company's
contribution to health and life insurance benefits for
the period from the effective date of termination of
employment until the earlier of expiration of the
period of salary continuation referred to in (a) above
or the date the Executive becomes employed on a full-
time basis by another employer and is covered by a
medical plan provided by such employer with no
remaining applicable exclusions for pre-existing
conditions;
(e) if the Executive has the right to use of
a Company car or a country club membership at the
expense of the Company, continuation of such use for a
period of three months after the effective date of
termination of the Executive's employment; and
(f) if the Executive's principal residence
is a house owned and provided by the Company,
continuation of the use of such residence rent-free for
a period of three months after termination of
Executive's employment, the right to rent such
residence for an additional three months at a monthly
rent of $750 and the right to rent such residence for
an additional two months at a monthly rental of $1,500.
In addition to the foregoing Severance Benefits, the
Executive will continue to be entitled to his or her
benefits under the Company's existing Pension Plan and
Supplemental Executive Retirement Plan as determined in
accordance with the terms of those plans taking into account
the termination of the Executive's employment. If the
Executive has been credited with more than 15 years of
service under such plans as of the effective date of
termination of his or her employment, he or she shall also
be credited with additional years of service under the plans
for the period of salary continuation referred to in (a)
above to the extent such credit is permitted by the plans.
Notwithstanding (a) through (f) above, in the case of a
termination of employment prior to the occurrence of a
Change of Control, the Company shall have no obligation to
pay or provide any Severance Benefits prior to the
occurrence of the Change of Control and, to the extent
Section 1(c) or (d) applies, the amount of Severance
Benefits shall be determined as if the Executive's
employment terminated effective upon the occurrence of the
Change of Control, except that the Company shall have no
obligation to provide the benefits in (e) or (f) above to
the extent that, upon the occurrence of the Change in
Control, those benefits would have already terminated had
they commenced on the date of termination of employment..
Notwithstanding (b) and (c) above, the benefits set forth in
those subparagraphs shall not be payable if the Executive
had been advised, prior to the Change in Control, that he or
she would not be eligible to earn a bonus for the year in
which the termination of employment becomes effective.
2.2 Reduction of Amount of Severance Benefits In the
event the Company determines that payment of any of the
Severance Benefits would result in the imposition of any tax
imposed by Section 4999 of the Internal Revenue Code of 1986
(or any successor statute) and the regulations thereunder,
the Severance Benefits shall be reduced to such extent as
the Company determines is necessary to avoid the imposition
of any such tax. Such reductions shall first be made in the
bonus payments referred to in Section 2.1(b) in reverse
chronological order and thereafter, if necessary, to the
payments referred to in Section 2.1(c) and the salary
payments referred to in Section 2 (a) in that order of
priority and each in reverse chronological order.
2.3 Resolution of Disagreements. The Company shall
make its determination as to whether any reduction in
Severance Benefits is required pursuant to Section 2.2
within 15 days after the termination of the employment of
the Executive and again promptly after the Executive
exercises any stock options and shall deliver to the
Executive written notice of the determination together with
the Company's detailed calculations supporting its
conclusion. If the Executive does not agree with the
Company's determination, he or she shall notify the Company
in writing of that disagreement within 30 days after receipt
of the Company's notice and detailed calculations. Failure
to give such notice of disagreement shall be deemed to
constitute acceptance of the determination by the Company
and such determination shall become final and binding on the
parties. The notice by the Executive shall set forth in
reasonable detail why the Executive disagrees with the
determination made by the Company and shall be accompanied
by the Executive's detailed calculations supporting his or
her conclusion. If the Company and the Executive have not
resolved their disagreement within ten days after the
Company receives the Executive's notice and detailed
calculations, the Company and the Executive shall refer the
matter to the firm then serving as the independent certified
public accountants of the Company, whose determination shall
be final and binding on both parties. The Company will
endeavor to cause the accounting firm to give both the
Executive and the Company written notice of its
determination accompanied by its detailed calculations. If
the Company does not then have a firm serving as its
independent certified public accountants or if the firm then
serving in that capacity refuses to resolve the matter or
fails to provide written notice of its determination
accompanied by its detailed calculations within 30 days
after the matter is referred to it, then either party will
have the right to commence an arbitration pursuant to
Section 13 to resolve the matter. The fees and expenses of
the accounting firm will be paid by the Company.
If the Company determines that payment of the full Severance
Benefits will result in the imposition of a tax as provided
above, the Company will have the right to withhold from the
payment of Severance Benefits the amount of any reduction
determined by it in accordance with Section 2.2. If the
Executive disagrees with the determination by the Company,
the Company shall have the right to continue to withhold the
payments of such amounts until the matter is finally
resolved. If such resolution indicates that the Company's
determination was incorrect, the Company shall promptly pay
to the Executive any amount of Severance Benefits which
should not have been withheld, with interest for the period
that the payment was withheld at the reference rate then in
effect of the Bank of America National Trust and Savings
Association. If such final resolution indicates that the
Company did not withhold sufficient funds from the payment
of Severance Benefits, the Executive shall promptly refund
to the Company any amount which should have been withheld
with interest determined as provided above.
3. Definition of Change of Control.
3.1 Events Constituting Change of Control. For
purposes of this Agreement, a "Change of Control" of
the Company shall be deemed to have occurred if any one
of the following events occurs:
(a) except as provided in Section 3.3, the
acquisition by any person or group of beneficial
ownership of 28% or more of the outstanding shares of
Common Stock of the Company or, if there are then
outstanding any other voting securities of the Company,
such acquisition of 28% or more of the combined voting
power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors, but only if at the time of the acquisition
or within one year thereafter the Board of Directors of
the Company (if the Company continues to own its
business), or the Board of Directors of any successor
owner of its business consists of a majority of
directors who are not Incumbent Directors;
(b) the Company sells all or substantially
all of its assets (or consummates any transaction
having a similar effect) or the Company merges or
consolidates with another entity or completes a
reorganization, except that:
(i) no such transaction shall be deemed to constitute a Change of
Control if the holders of the voting securities of the Company
outstanding immediately prior to the transaction own immediately
after the transaction in approximately the same proportions more
than 72% of the combined voting power of the voting securities of
the entity purchasing the assets or surviving the merger or
consolidation or, in the case of a reorganization, more than 72%
of the combined voting power of the voting securities of the
Company; and
(ii) no such transaction shall be deemed to constitute a Change
of Control if:
(A) the holders of the voting securities of the Company
outstanding immediately prior to the transaction own immediately
after the transaction in approximately the same proportions less
than 72% but more than 50% of the combined voting power of the
voting securities of the entity purchasing the assets or
surviving the merger or consolidation or, in the case of a
reorganization, less than 72% and more than 50% of the combined
voting power of the voting securities of the Company unless
(B) at the time of the acquisition or within one year thereafter
the Board of Directors of the Company (if the Company continues
to own its business), or the Board of Directors of any successor
owner of its business consists of a majority of directors who are
not Incumbent Directors;
(c) the Company is liquidated; or
(d) The Board of Directors of the Company (if the Company
continues to own its business) or the board of directors or
comparable governing body of any successor owner of its business
(as a result of a transaction which is not itself a Change of
Control) consists of a majority of directors or members who are
not Incumbent Directors.
For purposes of this Agreement, any Change of Control as a result
of an event described in (a), (b), (c) or (d) above will be
deemed to have occurred upon the occurrence of the event unless
in the case of (a) or (b)(ii) the requisite change in the
majority of the Board of Directors of the Company or the
successor owner of its business does not occur at that time, in
which event the Change of Control, if any, will be deemed to
occur upon such change in the majority of such Board of Directors
(provided that such change occurs within the one year period
referred to above).
3.2 Definition of Incumbent Directors. For purposes of Section
3.1 and subject to the last sentence of this Section 3.2,
"Incumbent Directors" includes only those persons who are:
(i) serving as directors of the Company on the date of this
Agreement,
(ii) elected by a majority of the directors referred to in (i)
or selected by a majority of such directors to be nominated for
election by the stockholders and are elected or
(iii) elected by a majority of the directors referred to in (i)
and (ii) or selected by a majority of such directors to be
nominated for election by the stockholders and are elected.
Notwithstanding the foregoing, directors elected or selected as
provided in (ii) or (iii) above after an event described in
Section 3.1 (a) or 3.1(b)(ii) shall not be Incumbent Directors
unless they satisfy all of the following requirements:
(A) they were elected to fill a vacancy resulting from the
resignation of or the failure to re-nominate a director who is
then 70 years of age or older or to replace a director who has
died or ceases to be a director (by resignation, removal or
otherwise) as a result of physical or mental disability;
(B) they are not, officers, directors or employees of (or hold
any comparable position with respect to), or have record or
beneficial ownership of more than one percent (1%) of the
outstanding shares or other equity interests of, any person or
member of any group which acquires Common Stock or other voting
securities of the Company as described in Section 3.1(a) or
3.1(b)(ii) or any affiliate of any such person or member, or a
spouse or relative of any such officer, director, employee,
record or beneficial owner, person, member of a group or
affiliate;
(C) during the five years prior to their becoming directors,
they have not had any relationship with any person or member of
any group which acquires Common Stock or other voting securities
of the Company as described in Section 3.1(a) or 3.1(b)(ii) or
any affiliate of any such person or member that would be required
by Item 404(b) of Regulation S-K or any successor provision to be
disclosed in a proxy statement for such person, member or
affiliate if such person, member or affiliate were subject to the
rules of the Securities and Exchange Commission applicable to the
solicitation of proxies and had solicited proxies for a fiscal
year while, or the fiscal year immediately after, such
relationship existed; and
(D) they have not been suggested, designated or selected for
nomination as a director by any officer, director, employee,
record or beneficial owner, person, member of a group, affiliate,
spouse or relative referred to in (B) above (except that merely
participating as a director of the Company in a vote of the
directors of the Company to elect, nominate or designate for
nomination a candidate for a directorship shall not mean that the
candidate was "suggested, designated or selected for nomination"
by such director within the meaning of this Clause D).
3.3 Exception for Certain Acquisitions of Stock. Section 3.1(a)
shall not include any acquisition of beneficial ownership of
Common Stock or other voting securities of the Company (i)
directly from the Company or (ii) by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
entity controlled by the Company. In the event of the redemption
of outstanding shares of Common Stock or other voting securities
by the Company, any resulting increase in the percentage of
outstanding shares or other voting securities beneficially owned
by any person or group shall be taken into account in determining
whether the percentage in Section 3.1(a) has been met or exceeded
except as provided in the following sentence. No acquisition of
additional outstanding shares of Common Stock or other voting
securities of the Company by Ardell Investment Company, M.H.
Sherman Company, The Times Mirror Company or the Times Mirror
Foundation and no increase in the percentage of outstanding
shares or other voting securities beneficially owned by any of
them resulting from any redemption of shares or other voting
securities by the Company shall result in a Change of Control
pursuant to Section 3.1(a) unless, in either case, the resulting
increase in the percentage of beneficial ownership of Ardell
Investment Company and M. H. Sherman Company in the aggregate or
by The Times Mirror Company and the Times Mirror Foundation in
the aggregate exceeds 10%.
3.4 Definition of Person, Acquisition, Group and Beneficial
Ownership. For purposes of this Agreement the term "person"
shall have the meaning set forth in the Securities Exchange Act
of 1934 and the terms "acquisition," "group, " and "beneficial
ownership" shall have the meanings set forth in Rules 13d-3 and
13d-5 of the Rules of the Security and Exchange Commission
adopted under the Securities Exchange Act of 1934.
4. Definition of Termination for Cause. The Executive's
employment shall be deemed to have been terminated for "Cause" if
such employment terminates as a result of:
(a) the death of the Executive;
(b) the Executive becoming unable to perform the essential
duties of his or her position, even with reasonable
accommodation, as a result of any physical or mental condition
for a period of more than ninety (90) consecutive days or for
ninety (90) nonconsecutive days in any three hundred sixty five
(365) day period; or
(c) the Executive's professional dishonesty; willful
misconduct; breach of fiduciary duty involving self-dealing or
personal profits; intentional failure to perform duties or abide
by Company policies, in each case to the extent such duties or
policies have been communicated to the Executive in writing or
their existence is otherwise known to the Executive and the
Executive has not cured such failure within a reasonable time
after notice of such failure is given to him or her; conviction,
entry of a plea of guilty or nolo contendere in connection with
any alleged violation or an actual violation of any law, rule,
regulation (other than traffic violations or similar offenses) or
any cease-and-desist or other court order; involvement in any
legal proceeding which, in the opinion of legal counsel to the
Company, would be required to be disclosed pursuant to Item
401(d) of Regulation S-K of the Securities and Exchange
Commission; any non-prescription use of any controlled substance
or the use of alcohol or any other non-controlled substance which
the Board of Directors of the Company reasonably determines
renders the Executive unfit to serve in his or her capacity as an
officer of the Company; or any act or omission which has a
material adverse effect on the public image, reputation or
integrity of the Company.
5. Definition of "Good Reason." For purposes of this Agreement
the Executive shall be deemed to have terminated his or her
employment for "Good Reason" if such a termination results from:
(a) a substantial reduction in the duties and
responsibilities of the Executive below those he or she had in
the position he or she held immediately prior to the Change in
Control;
(b) the Company shall require the Executive to have as his
or her principal location of work any location which is not
within 75 miles of Lebec, California;
(c) the Company shall (i) reduce the base salary of the
Executive by more than 5% or (ii) change the objective criteria
for calculating the annual bonus that can be earned by the
Executive or, if no such objective criteria exist, change the
amount of the annual bonus such that, in either case, the
Executive cannot reasonably be expected to earn in salary and
bonus combined (taking into account any reduction in salary
referred to in (i) above) at least 90% of the average amount he
or she had earned in salary and bonus combined for the last three
full fiscal years preceding the year for which the bonus is
changed or such lesser number of full fiscal years during which
the Executive has been employed by the Company; or
(d) the Company fails to require a successor to expressly
assume this Agreement as required in Section 9 below.
If objective criteria for calculating the amount of the annual
bonus of the Executive are not established prior to or during the
year for which the bonus is paid, then the calculatlion in
(c)(ii) above shall be based on the actual amount of the bonus
when it is determined and the 180 day period referred in the
following paragraph shall not begin to run until the amount of
the bonus is known to the Executive.
Notwithstanding the foregoing, none of the events referred to in
(a) through (c) above shall constitute Good Reason unless the
Executive gives written notice to the Company of his or her
election to terminate his or her employment for such reason
within 180 days after he or she becomes aware of the existence of
facts or circumstances constituting Good Reason. Such notice
shall set forth in reasonable detail the facts and circumstances
constituting the Good Reason and, if the Good Reason is a curable
condition, shall provide the Company with 30 days to cure such
condition. The notice shall also specify the date when the
termination of employment is to become effective (if the Good
Reason is not curable or is curable and not cured within the 30
days), which date shall be not less than 60 days and not more
than 180 days from the date the notice is given.
6. Definition of "Three-Year Average Bonus." For purposes of
determining the amount of the Severance Benefit referred to in
Section 2.1(b) and (c) (subject to the last paragraph of Section
2.1), an Executive's "Three-Year Average Bonus" shall be deemed
to be the average of the bonuses paid for the three most recent
full fiscal years preceding the date of termination of the
Executive's employment, or, if the Executive was not an executive
officer of the Company during such three year period or could not
have earned a bonus during such three year period, then (subject
to the last paragraph of Section 2.1) the average annual bonus
for such shorter time that he or she was an executive officer of
the Company and could have earned a bonus. Notwithstanding the
foregoing, if all performance and other criteria for earning the
bonus for the year in which termination of the Executive's
employment occurs have been satisfied as of the effective date of
such termination (other than the criterion that the Executive
continued to be employed), then the full bonus for that year and
the two most recent full fiscal years shall be averaged to
determine the Three-Year Average Bonus.
7. Employment At Will. The employment relationship
contemplated by this Agreement is an at will relationship under
which either the Executive or the Company has the right at any
time to terminate the employment relationship with or without
Cause or Good Reason and without notice, subject only to the
payment of the Severance Benefits set forth in Section 2 to the
extent that they become payable under the terms of this
Agreement. Nothing in this Agreement is intended to create a
term of employment for a period of years or otherwise.
8. Mitigation. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of
any Severance Benefit provided for in this Agreement be reduced
by any compensation earned by Executive as a result of employment
by another employer, except as provided in Section 2.1(d).
Notwithstanding the foregoing, in the event that the Executive is
entitled, by operation of any applicable law, to unemployment
compensation benefits or benefits under the Worker Adjustment and
Retraining Act of 1988 (known as the "WARN" Act) in connection
with the termination of his or her employment in addition to
those required to be paid to him or her under this Agreement,
then to the extent permitted by applicable statutory law
governing severance payments or notice of termination of
employment, the Company shall be entitled to offset the amounts
payable hereunder by the amounts of any such statutorily mandated
payments.
9. Assumption of Agreement. The Company will require any
successor (whether by purchase of assets, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
all of the obligations of the Company under this Agreement.
10. Assignment and Successors in Interest. This Agreement is
personal to the Executive and is not assignable by him or her.
This Agreement shall inure to the benefit of and be enforceable
by the Executive and his or her personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.
11. Withholding Taxes. Any payments provided for hereunder
shall be paid net of any applicable withholding required under
federal, state or local law.
12. Covenants of Executive. During the period that Executive is
receiving payments described in Section 1(a) above, he or she
will not solicit any employees to accept employment for any other
person or entity and will not disclose to any person or entity,
except as necessary to enforce this Agreement or as required by
law, any information concerning the Company or its business that
Executive knows to be of a confidential or non-public nature.
13. Notice. All notices, requests, demands and other
communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when personally
delivered, in the case of the Company to an executive officer
other than the Executive, or when mailed by United States mail,
postage prepaid, return receipt requested, addressed, in the case
of the Company to 4436 Lebec Road, Lebec, California 93243 or, in
the case of the Executive to the address set forth beneath his or
her signature hereto, or such other address as may be provided by
either party as to himself, herself or itself in the manner set
forth above.
14. Arbitration. Except as provided in Section 2.3, all
disputes or controversies arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Los
Angeles or Bakersfield, California in accordance with the rules
of the American Arbitration Association then in effect, provided
that the arbitrator or arbitrators shall decide the dispute or
controversy in accordance with California law as applied to this
Agreement. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
15. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws
of the State of California applicable to the agreements between
residents of California to be performed entirely within
California.
16. Attorneys' Fees. In the event of any litigation or
arbitration arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover his, her or its
reasonable attorneys' fees incurred in connection therewith.
17. Entire Agreement. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter
contained herein and supersedes all prior agreements, promises,
covenants, arrangements, commitments, communications,
representations, or warranties, whether oral or written.
18. Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by parties hereto.
No waiver by either party hereto at any time of any breach by the
other party or of any right or remedy under this Agreement shall
constitute a waiver of any other breach, right or remedy, whether
or not similar in nature.
19. Counterparts. This Agreement may be executed in two
counterparts each of which shall be deemed an original but both
of which together shall constitute one and the same instrument.
TEJON RANCH CO. By: (Address)
EXHIBIT 10.8
TEJON RANCH CO.
DIRECTOR COMPENSATION PLAN
Annual Retainer
Each director of Tejon Ranch Co. (the "Company") who is not
an employee of the Company will be paid an annual retainer of
$24,000 for service as a director for each calendar year
commencing with 1998 and continuing through 2002. Unless a
director otherwise elects as set forth below, one-half of the
$24,000 will be paid in cash and the other half will be paid in
the form of the grant of a stock option having the terms and
valued as provided below. Any non-employee director will have
the right to elect to take all of his or her annual retainer
compensation in the form of stock options instead of taking one-
half of such compensation in cash by delivering written notice of
his or her election to do so to the Company prior to December 31
of each year with respect to compensation for the following year,
except that the election for 1998 must be made by January 31,
1998.
Any non-employee director who is affiliated with a person or
entity owning beneficially 5% or more of the outstanding shares
of Common Stock of the Company (including anyone who is an
employee of any such stockholder) will have the right to take his
or her entire annual retainer compensation in cash. For this
purpose, beneficial ownership will be determined in accordance
with Rule 13d-3 of the Securities and Exchange Commission adopted
under the Securities Exchange Act of 1934. Such election shall
be made by delivering written notice thereof to the Company
within the time period referred to above.
If a director makes any such election (either to take all
retainer compensation in options or all such compensation in
cash), such election shall remain in effect for all subsequent
years of the Plan unless it is changed by another election made
within the applicable time period for a subsequent year.
The cash portion of the annual retainer compensation will be
paid on or before December 31 of each calendar year with respect
to services during that calendar year and stock options
representing the option portion of such compensation will be
granted on the second Tuesday of January of each calendar year
with respect to service during that year, except that options for
1998 will be granted on February 2, 1998. In the event any
director serves for only a portion of any such calendar year, the
amount of the cash portion of the annual retainer shall be
reduced prorata (based upon the number of days during the year
through December 15 not served divided by the number of days in
the period from January 1 through December 15) and the option
portion shall terminate as to a similarly prorated number of
shares.
Other Compensation of Directors
In addition to the annual retainer compensation, non-
employee directors of the Company will be entitled to receive the
following amounts of cash:
$1,000 per meeting of the Board of Directors attended by
such director, whether attended in person or by telephone
conference call;
$500 per committee meeting attended by such director on
the day of a Board meeting, whether in person or by
telephone conference call;
$1,000 per committee meeting attended on a day when the
Board of Directors is not meeting, whether attended in
person or by telephone conference call.
All such other compensation of directors shall be paid on
the next regular payday of the Company following any such Board
or committee meeting. Directors shall also be compensated for
their out-of-pocket costs of travel to attend Board meetings upon
submission of customary documentation of such costs.
Terms of Stock Options
The stock options granted as part of the annual retainer
compensation shall be granted under the Company's Non-employee
Director Stock Incentive Plan (the "Stock Incentive Plan") to be
adopted by the Board of Directors of the Company and submitted to
the stockholders of the Company for approval at the 1998 Annual
Meeting of Stockholders. In the event the Stock Incentive Plan
is not approved by the stockholders, options granted under the
Stock Incentive Plan for 1998 compensation will terminate and the
entire amount of the annual retainer compensation referred to
above shall be paid in cash for 1998 and all subsequent years
through 2002 unless this Plan is otherwise amended or is repealed
by the Board of Directors. Options granted under the Stock
Incentive Plan shall have an exercise price equal to the fair
market value of the shares on the date of grant, shall have a
term of ten years, shall be fully exercisable commencing on
December 15 of the calendar year in which they are granted and
shall be non-transferable by the director except in connection
with his death or disability. The death,
disability or termination of the grantee's status as a director
shall not cause any option granted under the Stock Incentive Plan
to terminate, except that if a director ceases to serve in that
capacity at any time during the year for which the option is
granted, the option shall terminate as to the prorated number of
shares referred to above.
Valuation of Options
To determine the number of shares to be granted under the
Stock Incentive Plan to satisfy the Company's obligation to pay
annual retainer compensation, the value per share of the options
will be determined using the Black-Scholes method as of the date
of grant. The number of shares subject to the option to be
granted each director will then be determined by dividing the
amount of annual retainer compensation to be paid to such
director in the form of options by the per
share value of the options so determined.
Retention of Ownership of Stock
The Board of Directors has adopted a policy urging each
director to retain ownership of shares of stock issued upon
exercise of options issued under the Stock Incentive Plan. Such
continuing ownership is intended to more closely align the
interest of each director with those of the stockholders of the
Company. This policy is not intended to limit transfers by a
director to
his or her spouse or to lineal descendants or to any trust,
partnership or other similar entity in which they have a
substantial beneficial interest. This policy is not intended to
be legally
binding, is not reflected in the terms of the Stock Incentive
Plan and will not be reflected in the terms of options granted
under the Stock Incentive Plan.
Duration of Director Compensation Plan
This Director Compensation Plan shall commence effective
February 1, 1998 and shall continue until December 31, 2002
unless it is amended or repealed by the Board of Directors prior
to that date. Participation in the Director Compensation Plan
does not confer upon any person any right to continue as a
director of the Company.
EXHIBIT 10.9
TEJON RANCH CO.
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this Non-Employee Director Stock
Incentive Plan (this "Plan") of Tejon Ranch Co., a Delaware
corporation (the "Company"), is to enable the Company to attract,
retain and motivate its non-employee directors by providing for
or increasing the proprietary interests of such persons in the
Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any person who is a director of the Company and is not
a full-time employee of the Company or any of its wholly-owned or
majority owned subsidiaries (a "Grantee") shall be eligible to be
considered for the grant of Awards (as hereinafter defined) under
this Plan. For purposes of this Plan directors who work as
employees part time or full time on a temporary basis (as
determined by the Board of Directors) shall be eligible to be
considered for the grant of Awards under this Plan.
Section 3. AWARDS
(a) The Board of Directors of the Company (the
"Board") or the Committee (as hereinafter defined) may authorize
and direct one or more officers of the Company to enter into, on
behalf of the Company, any type of arrangement with a Grantee
that is not inconsistent with the provisions of this Plan and
that, by its terms, involves or might involve the issuance of
(i) shares of Common Stock, par value $.50 per share, of the
Company (the "Common Shares") or (ii) a Derivative Security (as
such term is defined in Rule 16a-1 promulgated under the
Securities Exchange Act of 1934, as such Rule may be amended from
time to time) with an exercise or conversion privilege at a price
related to the Common Shares or with a value derived from the
value of the Common Shares. The entering into of any such
arrangement is referred to herein as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses
of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock
appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) Common Shares may be issued pursuant to an Award
for any lawful consideration as determined by the Board or the
Committee, including, without limitation, services rendered by
the recipient of such Award.
(d) The exercise period for awards granted in the form
of options shall be not more than 120 months from the date the
option is granted.
(e) Awards granted in the form of options shall
provide that neither the option nor any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the
laws of descent and distribution or any transfer to a guardian or
other personal representative in connection with the disability
of the Grantee.
(f) Awards granted in the form of options shall be
exercisable at such times and in such amounts as are determined
by the Board of Directors or the Committee.
(g) Subject to the other specific provisions of this
Plan, the Board or the Committee, in its sole and absolute
discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions
may include, among other things, a provision permitting the
recipient of such Award, including any recipient who is a
director or officer of the Company, to pay the purchase price of
the Common Shares or other property issuable pursuant to such
Award, or such recipient's tax withholding obligation with
respect to such issuance, in whole or in part, by any one or more
of the following:
(i) the delivery of previously owned shares of
capital stock of the Company or other property,
(ii) a reduction in the amount of Common Shares or
other property otherwise issuable pursuant to such Award,
(iii) the delivery of a promissory note, the
terms and conditions of which shall be determined by the Board,
and/or
(iv) cash in the form of a personal or cashier's
or bank certified check.
Section 4. STOCK SUBJECT TO PLAN
(a) At any time, the aggregate number of Common Shares
issued and issuable pursuant to all Awards granted under this
Plan shall not exceed 200,000 ( the "Share Limitation"), subject
to adjustment as provided in Section 7 hereof.
(b) For purposes of Section 4(a) hereof, the aggregate
number of Common Shares issued and issuable pursuant to Awards
granted under this Plan shall at any time be deemed to be equal
to the sum of the following:
(i) the number of Common Shares which were issued
prior to such time pursuant to Awards granted under this Plan
excluding shares which were reacquired by the Company pursuant to
provisions in the Awards with respect to which those shares were
issued giving the Company the right to reacquire such shares upon
the occurrence of certain events; plus
(ii) the number of Common Shares which are or may be
issuable at or after such time pursuant to outstanding Awards
granted under this Plan prior to such time.
Section 5. DURATION OF PLAN
No Awards shall be granted under this Plan after
December 31, 2002. Although Common Shares may be issued after
December 31, 2002 pursuant to Awards granted on or prior to such
date, no Common Shares shall be issued under this Plan after
December 31, 2012.
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by the Board or a
committee thereof (the "Committee") consisting of two or more
directors.
(b) Subject to the provisions of this Plan, the Board
or the Committee shall be authorized and empowered to do all
things necessary or desirable in connection with the
administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) determine which persons meet the requirements
of Section 2 hereof for eligibility under this Plan and to which
of such eligible persons, if any, Awards shall be granted
hereunder;
(iii) grant Awards to eligible persons and
determine the terms and conditions thereof, including the number
of Common Shares issuable pursuant thereto;
(iv) determine whether, and the extent to which
adjustments are required pursuant to Section 7 hereof; and
(v) interpret and construe this Plan and the
terms and conditions of any Award granted hereunder.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject
to this Plan are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind
of shares or securities or cash, property and/or securities are
distributed in respect of such outstanding securities, in either
case as a result of a reorganization, merger, consolidation,
recapitalization, reclassification, dividend (other than a
dividend paid out of earned surplus), or other distribution,
stock dividend, stock split, reverse stock split or the like, or
in the event that substantially all of the assets of the Company
are sold, then, unless the terms of such transaction or document
evidencing an Award shall provide otherwise, the Committee may
make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities of the Company that may be
acquired pursuant to Awards theretofore granted under this Plan
and (b) the maximum number and type of shares or other securities
of the Company that may be issued pursuant to Awards thereafter
granted under this Plan.
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time
and in any manner.
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of January 26, 1998,
the date upon which it was approved by the Board; provided,
however, that no Common Shares may be issued under this Plan
until it has been approved by a majority vote of the holders of
the outstanding shares of Common Stock of the Company at a
meeting duly held or by written consent in accordance with the
laws of the State of Delaware. If an Award granted under this
Plan takes the form of an option, it shall be rescinded if such
stockholder approval is not obtained within 12 months after the
date set forth above upon which this Plan was approved by the
Board.
Section 10. STOCK EXCHANGE REQUIREMENTS; APPLICABLE
LAWS
Notwithstanding anything to the contrary in this Plan,
no Common Shares purchased upon exercise of an Award, and no
certificate representing all or any part of such shares, shall be
issued or delivered if (a) such shares have not been admitted to
listing upon official notice of issuance on each stock exchange
upon which shares of that class are then listed or (b) in the
opinion of counsel to the Company, such issuance or delivery
would cause the Company to be in violation of or to incur
liability under any Federal, state or other securities law, or
any requirement of any listing agreement to which the Company is
a party, or any other requirement of law or of any administrative
or regulatory body having jurisdiction over the Company.
EXHIBIT 10.9(1)
TEJON RANCH CO.
STOCK OPTION AGREEMENT
PURSUANT TO THE
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
This Stock Option Agreement (this "Agreement") is made and
entered into as of the Date of Grant indicated below by and
between Tejon Ranch Co., a Delaware corporation (the "Company"),
and the person named below as Optionee.
WHEREAS, Optionee is a director of the Company eligible to
receive awards under the Company's Non-Employee Director Stock
Incentive Plan (the "Plan"); and
WHEREAS, pursuant to the Plan the Board of Directors of the
Company or a committee thereof administering the Plan (the
"Committee") approved the grant to Optionee of an option to
purchase shares of the Common Stock, par value $.50 per share, of
the Company (the "Common Stock"), on the terms and conditions to
be set forth in a stock option agreement in the form of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals
and the covenants set forth herein, the Company and the Optionee
hereby agree as follows::
1. Grant of Option; Certain Terms and Conditions. The
Company hereby grants to Optionee, and Optionee hereby accepts,
as of the Date of Grant indicated below, an option (the "Option")
to purchase the number of shares of Common Stock indicated below
(the "Option Shares") at the Exercise Price per share indicated
below. Subject to the provisions of Section 2, the Option shall
be exercisable in whole or from time to time in part commencing
on December 15 of the year of the Date of Grant as to any whole
number of shares not exceeding the number set forth below in the
aggregate for all such exercises. The Option shall expire at
5:00 p.m., California time, on the Expiration Date indicated
below (except as provided in Section 2) and shall be subject to
all of the terms and conditions set forth in this Agreement.
Optionee:
Date of Grant:
Number of shares purchasable:
Exercise Price per share:
Expiration Date:
Period for Which Option is Granted:
2. Termination of Option. The Option shall terminate upon
the first to occur of any of the following:
(i) a reorganization, merger or consolidation of the
Company as a result of which the outstanding securities of
the class then subject to the Option are exchanged for or
converted into cash, property and/or securities not issued
by the Company unless provision is made in writing in
connection with any such transaction for the assumption of
the Option or the substitution for the Option of a new
option covering the stock of a successor entity, or a parent
or subsidiary thereof, with appropriate adjustments as to
the number and kind of shares and prices; or
(ii) the sale or transfer by the Company of all or
substantially all of its property and assets in a single
transaction or series of related transactions; or
(iii) the dissolution or liquidation of the
Company.
The death or disability of Optionee, termination of Optionee's
status as a director or the Optionee becoming an employee of the
Company on terms that would make him or her ineligible to receive
awards under the Plan will not result in the termination or
otherwise affect the Option, except that, if Grantee ceases to be
a director of the Company eligible to receive awards under the
Plan at any time during the Period to Which the Option is Granted
(as defined in Section 1), the Option shall terminate as to that
number of shares that is proportional to the portion of such
Period after which Grantee has ceased to be such a director
(determined on the basis of the number of days elapsed).
3. Adjustments. In the event that the outstanding
securities of the class then subject to the Option are increased,
decreased or exchanged for or converted into cash, property
and/or a different number or kind of securities, or cash,
property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a
reorganization, merger, consolidation, recapitalization,
reclassification, dividend (other than a cash dividend paid out
of earned surplus) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all
of the property and assets of the Company are sold, then, unless
the terms of such transaction otherwise provide, the Board of
Directors or the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter be
acquired upon the exercise of the Option; provided, however, that
any such adjustments in the Option shall be made without changing
the aggregate Exercise Price of the then unexercised portion of
the Option.
4. Exercise. The Option shall be exercisable during
Optionee's lifetime only by Optionee or by his or her guardian or
legal representative, and after Optionee's death only by the
person or entities entitled to do so under Optionee's last will
and testament or applicable intestate law. The Option may only
be exercised by the delivery to the Company of a written notice
of such exercise pursuant to the notice procedures set forth in
Section 6 hereof, which notice shall specify the number of Option
Shares to be purchased (the "Purchased Shares") and the aggregate
Exercise Price for such shares (the "Exercise Notice"), together
with payment in full of such aggregate Exercise Price, which may
be made in any of the following ways or in any combination
thereof:
(a) by the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly
endorsed or accompanied by a duly executed stock power,
which delivery effectively transfers to the Company good and
valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to
be valued on the basis of the aggregate Fair Market Value
thereof (as defined below) on the date of such exercise),
provided that the Company is not then prohibited from
purchasing or acquiring such shares of Common Stock;
(b) by reducing the number of shares of Common Stock
to be issued and delivered to Optionee upon such exercise
(such reduction to be valued on the basis of the aggregate
Fair Market Value (determined on the date of such exercise)
of the additional shares of Common Stock that would
otherwise have been issued and delivered upon such
exercise), provided that the Company is not then prohibited
from purchasing or acquiring such shares of Common Stock;
and/or
(c) by payment in cash by wire transfer or by a
cashier's or bank certified check payable to the Company
(unless the Company is willing to accept a personal check).
The "Fair Market Value" of a share of Common Stock or any
other security on a day shall be equal to the last sale price,
regular way, per share or unit of such other security on such day
or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in each case as
reported on the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the American Stock Exchange or, if the shares of Common Stock
or such other security are not listed or admitted to trading on
the American Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange
on which the shares of Common Stock or such other security are
listed or admitted to trading or, if the shares of Common Stock
or such other securities are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices
in the over-the-counter market as reported by the Nasdaq Stock
Market or such other system then in use or, if on any such date
the shares of Common Stock or such other security are not quoted
by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a
market in shares of Common Stock or such other security selected
by the Board of Directors or the Committee.
5. Payment of Withholding Taxes.
(a) If the Company is obligated to withhold an amount
on account of any federal, state or local tax imposed as a result
of the exercise of the Option, including, without limitation, any
federal, state or other income tax, or any F.I.C.A., state
disability insurance tax or other employment tax, then Optionee
shall, concurrently with such exercise, pay such amount (the
"Withholding Liability") to the Company in cash by wire transfer
or by a cashier's or certified bank check (unless the Company is
willing to accept a personal check) payable to the Company;
provided, however, that, in the discretion of the Company, the
Optionee may, pursuant to an irrevocable election of Optionee (a
"Withholding Election") made on or prior to the date of such
exercise, instead pay all or any part of the Withholding
Liability in the following manner:
(i) by the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly
endorsed or accompanied by a duly executed stock powers,
which delivery effectively transfers to the Company good and
valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to
be valued on the basis of the aggregate Fair Market Value
thereof on the date of such exercise), provided that the
Company is not then prohibited from purchasing or acquiring
such shares of Common Stock; and/or
(ii) by reducing the number of shares of Common Stock
to be issued and delivered to Optionee upon such exercise
(such reduction to be valued on the basis of the aggregate
Fair Market Value (determined on the date of such exercise)
of the additional shares of Common Stock that would
otherwise have been issued and delivered upon such
exercise), provided that the Company is not then prohibited
from purchasing or acquiring such shares of Common Stock.
(b) The Board and the Committee shall have sole
discretion to approve or disapprove any Withholding Election and
may adopt such rules and regulations as are consistent with and
necessary to implement the foregoing. The Board or the Committee
may permit Optionee to make a Withholding Election to pay
withholding taxes in excess of the minimum amount required by
law, provided that the amount of withholding taxes so paid does
not exceed the estimated total federal, state and local tax
liability of Optionee attributable to such exercise.
6. Notices. Any notice given to the Company shall be
addressed to the Company at P.O. Box 1000, Lebec, California
93243, Attention: President, or at such other address as the
Company may hereinafter designate in writing to Optionee. Any
notice given to Optionee shall be sent to the address set forth
below Optionee's signature hereto, or at such other address as
Optionee may hereafter designate in writing to the Company. Any
such notice shall be deemed duly given when delivered personally
or five days after mailing by prepaid certified or registered
mail return receipt requested.
7. Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Agreement, no
shares of stock issuable upon exercise of the Option, and no
certificate representing all or any part of such shares, shall be
purchased, issued or delivered if (a) such shares have not been
admitted to listing upon official notice of issuance on each
stock exchange upon which shares of that class are then listed or
(b) in the opinion of counsel to the Company, such issuance or
delivery would cause the Company to be in violation of or to
incur liability under any federal, state or other securities law,
or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or
of any administrative or regulatory body having jurisdiction over
the Company.
8. Restrictions on Transferability.
(a) Neither the Option nor any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the
laws of descent and distribution.
(b) By accepting the Option, the Optionee for himself
or herself and his or her transferees by will or the laws of
descent and distribution, represents and agrees that all shares
of Common Stock purchased upon exercise of the Option will be
acquired for investment and not with a view to the distribution
thereof unless they have been registered under the Securities Act
of 1933, and will otherwise be acquired and disposed of and held
in accordance with the restrictions of said Act and the rules and
regulations of the Securities and Exchange Commission thereunder,
that the Company may instruct its transfer agent to restrict
further transfer of said shares in its records except upon
receipt of satisfactory evidence that such restrictions have been
satisfied, that upon each exercise of any portion of the Option,
the certificates evidencing the purchased shares shall bear an
appropriate legend on the face thereof evidencing such
restrictions, and that the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares
are being acquired subject to such restrictions.
9. The Plan. The Option is granted pursuant to the Plan,
as in effect on the Date of Grant, and is subject to all the
terms and conditions of the Plan, as the same may be amended from
time to time; provided, however, that no such amendment shall
deprive Optionee, without his or her consent, of the Option or of
any of Optionee's rights under this Agreement. The interpretation
and construction by the Board of Directors of the Plan, this
Agreement, the Option and such rules and regulations as may be
adopted by the Board for the purpose of administering the Plan
shall be final and binding upon Optionee. Until the Option shall
expire, terminate or be exercised in full, the Company shall,
upon written request therefor, send a copy of the Plan, in its
then-current form, to Optionee or any other person or entity then
entitled to exercise the Option.
10. Stockholder Rights. No person or entity shall be
entitled to vote, receive dividends or be deemed for any purpose
the holder of any Option Shares until the Option shall have been
duly exercised to purchase such Option Shares in accordance with
the provisions of this Agreement and the Option Shares have been
issued.
11. Rights as a Director. No provision of this Agreement
or of the Option granted hereunder shall confer upon Optionee any
right to continue as a director of the Company.
12. Entire Agreement. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter
hereof and supersedes all prior agreements, understandings and
commitments of any kind. This Agreement cannot be amended except
in a writing signed by the parties hereto, and no right or
obligation of any party hereto may be waived except in a writing
singed by the party making the waiver.
13. Governing Law. This Agreement and the Option granted
hereunder shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company and Optionee have duly
executed this Agreement as of the Date of Grant.
TEJON RANCH CO. OPTIONEE
By:
Name: Signature
Title:
Street Address
City, State and Zip Code
Social Security Number
EXHIBIT 10.10
TEJON RANCH CO.
1998 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this 1998 Stock Incentive Plan ( this
"Plan") of Tejon Ranch Co., a Delaware corporation (the
"Company"), is to enable the Company and its subsidiaries to
attract, retain and motivate their employees, consultants and
advisers by providing for or increasing the proprietary interests
of such persons in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Company, who
is an employee, consultant or adviser of the Company or any of
its subsidiaries (a "Grantee") shall be eligible to be considered
for the grant of Awards (as hereinafter defined) hereunder;
provided, however, that only those Grantees who are employees of
the Company or any of its subsidiaries shall be eligible to be
considered for the grant of Incentive Stock Options (as
hereinafter defined) hereunder.
Section 3. AWARDS
(a) The Board of Directors of the Company (the
"Board") or the Committee (as hereinafter defined), on behalf of
the Company, is authorized under this Plan to enter into any type
of arrangement with a Grantee that is not inconsistent with the
provisions of this Plan and that, by its terms, involves or might
involve the issuance of (i) shares of Common Stock, par value
$.50 per share, of the Company (the "Common Shares") or (ii) a
Derivative Security (as such term is defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as such Rule may be amended from time to
time) with an exercise or conversion privilege at a price related
to the Common Shares or with a value derived from the value of
the Common Shares. The entering into of any such arrangement is
referred to herein as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses
of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock
appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) Common Shares may be issued pursuant to an Award
for any lawful consideration as determined by the Board or
Committee, including, without limitation, services rendered by
the recipient of such Award.
(d) The exercise period for Awards granted in the form
of options shall not be more than 120 months from the date the
option is granted.
(e) Awards granted in the form of options shall
provide that neither the option nor any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the
laws of descent and distribution or any transfer to a guardian or
other personal representative in connection with the disability
of the Grantee.
(f) Awards granted in the form of options shall be
exercisable at such times and in such amounts as are determined
by the Board of Directors or the Committee, except that in no
event shall any Award be granted to any one person in any one
calendar year with respect to more than 400,000 Common Shares.
(g) Subject to the provisions of this Plan, the Board
or the Committee, in its sole and absolute discretion, shall
determine all of the terms and conditions of each Award granted
under this Plan, which terms and conditions may include, among
other things:
(i) a provision permitting the recipient of such
Award, including any recipient who
is a director or officer
of the Company, to pay the purchase
price of the Common Shares or other
property issuable pursuant to such
Award, or such recipient's tax
withholding obligation with respect to
such issuance, in whole or in part, by
any one or more of the following:
(A) the delivery of previously owned shares of
capital stock of the Company or other property,
(B) a reduction in the amount of Common Shares or
other property otherwise issuable pursuant to such Award,
(C) the delivery of a promissory note, the terms
and conditions of which shall be determined by the Board or the
Committee, or
(D) cash in the form of a personal, cashier's or
certified bank check;
(ii) a provision conditioning or accelerating the
receipt of benefits pursuant to such Award, either
automatically or in the discretion of the Committee, upon the
occurrence of specified events, including, without limitation, a
change of control of the Company, an acquisition of a
specified percentage of the voting power of the Company, the
dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or
an event of the type described in Section 7 hereof; or
(iii) a provision required in order for such Award
to qualify as an incentive stock option under Section 422 of
the Internal Revenue Code (an "Incentive Stock Option").
Section 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be
issued and issuable pursuant to all Awards, including Incentive
Stock Options granted under this Plan, shall not exceed 800,000
(subject to adjustment as provided in Section 7). Such maximum
number does not include the number of Common Shares subject to
the unexercised portion of any Awards granted in the form of
options, including Incentive Stock Options, under this Plan that
expires or is terminated. Such maximum number of Common Shares
is subject to adjustment as provided in Section 7 hereof (and is
referred to herein as the "Share Limitation").
(b) For purposes of Section 4(a) hereof, the aggregate
number of Common Shares issued and issuable pursuant to Awards
granted under this Plan shall at any time be deemed to be equal
to the sum of the following:
(i) the number of Common Shares which were issued
prior to such time pursuant to Awards granted under this Plan
excluding (except for purposes of computing the Share Limitation
applicable to Incentive Stock Options granted under this Plan)
shares which were reacquired by the Company pursuant to
provisions in the Awards with respect to which those shares were
issued giving the Company the right to reacquire such shares upon
the occurrence of certain events; plus
(ii) the number of Common Shares which are or may
be issuable at or after such time pursuant to outstanding Awards
granted under this Plan prior to such time.
Section 5. DURATION OF PLAN
No Awards shall be granted under this Plan after
January 25, 2008. Although Common Shares may be issued after
January 25, 2008 pursuant to Awards granted prior to such date,
no Common Shares shall be issued under this Plan after
January 25, 2018.
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by the Board or a
committee thereof (the "Committee") consisting of two or more
directors.
(b) Subject to the provisions of this Plan, the Board
or the Committee shall be authorized and empowered to do all
things necessary or desirable in connection with the
administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) determine which persons meet the requirements
of Section 2 hereof for eligibility under this Plan and to which
of such eligible persons, if any, Awards shall be granted
hereunder;
(iii) grant Awards to eligible persons and
determine the terms and conditions thereof, including the number
of Common Shares issuable pursuant thereto;
(iv) determine whether, and the extent to which
adjustments are required pursuant to Section 7 hereof; and
(v) interpret and construe this Plan and the
terms and conditions of any Award granted hereunder.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject
to this Plan are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind
of shares or securities, or cash, property and/or securities are
distributed in respect of such outstanding securities, in either
case as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, reclassification, dividend
(other than a dividend paid out of earned surplus) or other
distribution, stock dividend, stock split, reverse stock split or
the like, or in the event that substantially all of the assets of
the Company are sold, unless the terms of such transaction or
document evidencing an Award shall provide otherwise, the
Committee may make appropriate and proportionate adjustments in
(a) the number and type of shares or other securities that may
thereafter be acquired pursuant to Incentive Stock Options and
other Awards theretofore granted under this Plan and (b) the
maximum number and type of shares or other securities of the
Company that may be issued pursuant to Incentive Stock Options
and other Awards thereafter granted under this Plan.
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time
and in any manner; provided, however, that (a) no such amendment
or termination shall deprive the recipient of any Award
theretofore granted under this Plan, without the consent of such
recipient, of any of his or her rights thereunder or with respect
thereto; and (b) no such amendment shall increase the aggregate
number of Common Shares that may be issued pursuant to all
Incentive Stock Options granted under this Plan (except pursuant
to Section 7 hereof) or change, alter or modify the employees or
class of employees eligible to receive Incentive Stock Options
under this Plan without the approval of the stockholders of the
Company, which approval must be obtained within 12 months after
the adoption of such amendment by the Board and prior to the
issuance of any increased number of shares or the issuance of
shares to any person not eligible under the terms of this Plan
before any such change.
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of January 26, 1998,
the date upon which it was approved by the Board; provided,
however, that no Common Shares may be issued under this Plan
until it has been approved, directly or indirectly, by a majority
vote of the holders of the outstanding Common Shares of the
Company present, or represented, and entitled to vote at a
meeting duly held in accordance with the laws of the State of
Delaware. If an Award granted under this Plan takes the form of
an option, it shall be rescinded if such stockholder approval is
not obtained within 12 months after the date set forth above upon
which this Plan was approved by the Board.
Section 10.STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS
Notwithstanding anything to the contrary in this Plan,
no Common Shares purchased upon exercise of an Award, and no
certificate representing all or any part of such shares, shall be
issued or delivered if (a) such shares have not been admitted to
listing upon official notice of issuance on each stock exchange
upon which shares of that class are then listed or (b) in the
opinion of counsel to the Company, such issuance or delivery
would cause the Company to be in violation of or to incur
liability under any Federal, state or other securities law, or
any requirement of any listing agreement to which the Company is
a party, or any other requirement of law or of any administrative
or regulatory body having jurisdiction over the Company.
EXHIBIT 10.10(1)
TEJON RANCH CO.
STOCK OPTION AGREEMENT
Pursuant to the
1998 STOCK INCENTIVE PLAN
This Incentive Stock Option Agreement ("Agreement") is
made and entered into as of the Date of Grant indicated below by
and between Tejon Ranch Co., a Delaware corporation (the
"Company"), and the person named below as Optionee.
WHEREAS, Optionee is an employee, consultant or advisor
of the Company and/or one or more of its subsidiaries;
WHEREAS, pursuant to the Company's 1998 Stock Incentive
Plan (the "Plan"), the Compensation Committee of the Board of
Directors of the Company administering the Plan (the "Committee")
approved the grant to Optionee of an option to purchase shares of
the Common Stock, par value $.50 per share, of the Company (the
"Common Stock"), on the terms and conditions set forth in a Stock
Option Agreement entered into by Optionee and the Company as of
the Date of Grant;
NOW, THEREFORE, in consideration of the foregoing
recitals and the covenants set forth herein, the parties hereto
agree as follows:
1. Grant of Option; Certain Terms and Conditions.
The Company hereby grants to Optionee, and Optionee hereby
accepts, as of the Date of Grant indicated below, an option (the
"Option") to purchase the number of shares of Common Stock
indicated below (the "Option Shares") at the Exercise Price per
share indicated below. The Option shall become exercisable as to
20% of the Number of Shares Purchasable set forth below on
_____________ of each of the five years commencing ___________,
2001, except as otherwise provided in Section 3. The Option
shall expire at 5:00 p.m., Los Angeles, California time, on the
Expiration Date indicated below and shall be subject to all of
the terms and conditions set forth in this Agreement.
Optionee:
Date of Grant:
Number of Shares Purchasable:
Exercise Price per share:
Expiration Date:
2. Incentive Stock Option; Internal Revenue Code
Requirements. The Option is intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code (the
"Code") except to the extent that the aggregate Fair Market Value
(determined as of the Date of Grant) of the shares of Common
Stock with respect to which the Option is exercisable for the
first time by Optionee during any calendar year (under the Plan
and all other stock option plans of the Company and its
subsidiaries) exceeds $100,000. Such excess shares are intended
to be treated as shares issued pursuant to an Option that is not
an incentive stock option described in Section 422 of the Code,
in accordance with Section 422(d) of the Code. The number of
such excess shares as to which the option is not intended to be
treated as an incentive option is ______.
The "Fair Market Value" of a share of Common Stock or
other security on any day shall be equal to the last sale price,
regular way, per share or unit of such other security on such day
or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the American Stock Exchange or, if the shares of Common Stock
or such other security are not listed or admitted to trading on
the American Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange
on which the shares of Common Stock or such other security are
listed or admitted to trading or, if the shares of Common Stock
or such other securities are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices
in the over-the-counter market as reported by Nasdaq Stock Market
or such other system then in use or, if on any such date the
shares of Common Stock or such other security are not quoted by
any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a
market in shares of Common Stock or such other security selected
by the Board of Directors.
3. Acceleration and Termination of Option.
(a) Termination of Employment.
(i) Definition of Termination. In the
event that Optionee shall cease to be an employee of the Company
or any of its subsidiaries voluntarily or involuntarily or for
any reason whatever, such event is referred to in this Agreement
as a "Termination" of Optionee's "Employment."
(ii) Normal Termination. If Optionee's
Employment is Terminated for any reason other than those
specifically enumerated in Section 3(a)(iii), (b) or (d), then
the Option shall terminate three (3) months from the date of such
Termination of Employment but in no event later than the
Expiration Date. During such period, the Option shall be
exercisable only to the extent it was exercisable on the date of
Termination of Employment.
(iii) Death or Permanent Disability. In
the event of a Termination of Optionee's Employment by reason of
the death or Permanent Disability (as hereinafter defined) of
Optionee, the Option shall terminate on the first anniversary of
the date of such Termination of Employment or the Expiration
Date, whichever is earlier.
"Permanent Disability" shall mean the inability to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than twelve
(12) months. The Optionee shall not be deemed to have a
Permanent Disability unless proof of the existence thereof shall
have been furnished to the Committee in such form and manner, and
at such times, as the Committee may require. Any determination
by the Committee that Optionee does or does not have a Permanent
Disability shall be final and binding upon the Company and
Optionee.
(b) Death or Permanent Disability Following
Termination of Employment. Notwithstanding anything to the
contrary in this Agreement, if Optionee shall die or suffer a
Permanent Disability at any time after the Termination of his or
her Employment and prior to the Expiration Date, then to the
extent that the Option was exercisable on the date of such death
or Permanent Disability the Option shall terminate on the earlier
of the Expiration Date or the first anniversary of the date of
such death.
(c) Acceleration of Option Upon a Change of
Control. The Option shall become fully exercisable with respect
to all Option Shares in the event of a Change of Control.
"Change of Control" shall mean the first to occur of the
following events:
(i) a merger or consolidation of the Company
if and only if as a result of the transaction persons other than
the shareholders immediately prior to such transaction shall own
80% or more of the voting securities of the Company or its
successor after the transaction;
(ii) the sale or transfer by the Company of
all or substantially all of its property and assets in a single
transaction or series of related transactions; or
(iii) the dissolution or liquidation of the Company.
Nothing in this Agreement shall limit or otherwise affect any
other contractual right now existing or hereafter entered into
relating to the acceleration of the dates upon which the Option
may be exercised.
(d) Other Events Causing Termination.
Notwithstanding anything else to the contrary in this Agreement,
the Option shall terminate in the event of the occurrence of an
event referred to in clause (iii) of paragraph (c) above or a
merger or consolidation referred to in clause (i) or sale or
transfer of assets referred to in clause (ii) of said paragraph
(c) above (a "Terminating Event") unless the terms of such
transaction constituting the Terminating Event otherwise provide.
Such termination shall occur on the 30th day following any such
Terminating Event (or such later date as the Board of Directors
or the Committee shall determine) unless the Board of Directors
or the Committee (i) sets an earlier date which is at least ten
days prior to the occurrence of the Terminating Event,
(ii) notifies the Optionee in writing at least ten days before
the occurrence of the Terminating Event of the setting of such
date and (iii) accelerates the exercisability of the Option to
the extent it would otherwise be exercisable for any part of the
thirty day period after such event pursuant to Section 1 above so
that, to such extent, the Option could be exercised for a period
of at least ten days prior to the occurrence of the Terminating
Event. In such event where the requirements of clauses (i), (ii)
and (iii) of the preceding sentence are met, the Option shall
expire immediately upon the occurrence of the Terminating Event.
(e) Discretionary Acceleration. The Committee,
in its sole discretion, may accelerate the exercisability of the
Option for any reason, including without limitation in the event
of death or disability of Optionee.
4. Adjustments. In the event that the outstanding
securities of the class then subject to the Option are increased,
decreased or exchanged for or converted into cash, property
and/or a different number or kind of securities, or cash,
property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a
reorganization, merger, consolidation, recapitalization,
reclassification, dividend (other than a cash dividend paid out
of earned surplus) or other distribution, stock dividend stock
split, reverse stock split or the like, or in the event that
substantially all of the property and assets of the Company are
sold, then, the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter be
acquired upon the exercise of the Option; provided, however, that
any such adjustments in the Option shall be made without changing
the aggregate Exercise Price of the then unexercised portion of
the Option.
5. Exercise. The Option shall be exercisable during
Optionee's lifetime only by Optionee or by his or her guardian or
legal representative, and after Optionee's death only by the
person or entity entitled to do so under Optionee's last will and
testament or applicable intestate law. The Option may only be
exercised by the delivery to the Company of a written notice of
such exercise pursuant to the notice procedures set forth in
Section 7 hereof, which notice shall specify the number of Option
Shares to be purchased (the "Purchased Shares") and the aggregate
Exercise Price for such shares (the "Exercise Notice"), together
with payment in full of such aggregate Exercise Price in one or
more of the following ways at the option of the Grantee:
(a) by the delivery to the Company of a
certificate or certificates representing shares of Common Stock,
duly endorsed or accompanied by a duly executed stock power,
which delivery effectively transfers to the Company good and
valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be
valued on the basis of the aggregate Fair Market Value thereof on
the date of such exercise), provided that the Company is not then
prohibited from purchasing or acquiring such shares of Common
Stock; and/or
(b) by reducing the number of shares of Common
Stock to be issued and delivered to Optionee upon such exercise
(such reduction to be valued on the basis of the aggregate Fair
Market Value (determined on the date of such exercise) of the
additional shares of Common Stock that would otherwise have been
issued and delivered upon such exercise), provided that the
Company is not then prohibited from purchasing or acquiring such
shares of Common Stock; and/or
(c) delivery of a cashier's or certified bank
check or, if the Company so elects, a personal check, in each
case payable to the Company.
6. Payment of Withholding Taxes.
(a) If the Company is obligated to withhold an
amount on account of any federal, state or local tax imposed as a
result of the exercise of the Option, including, without
limitation, any federal, state or other income tax, or any
F.I.C.A., state disability insurance tax or other employment tax,
then Optionee shall, concurrently with such exercise, pay such
amount (the "Withholding Liability") to the Company in cash or by
a cashier's or certified bank check or, if the Company so elects,
a personal check, in each case payable to the Company; provided,
however, that, in the discretion of the Board or the Committee,
the Optionee may, pursuant to an irrevocable election of Optionee
(a "Withholding Election") made on or prior to the date of such
exercise, instead pay all or any part of the Withholding
Liability in the following manner:
(i) by the delivery to the Company of a
certificate or certificates representing shares of Common Stock,
duly endorsed or accompanied by a duly executed stock powers,
which delivery effectively transfers to the Company good and
valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be
valued on the basis of the aggregate Fair Market Value thereof on
the date of such exercise), provided that the Company is not then
prohibited from purchasing or acquiring such shares of Common
Stock; and/or
(ii) by reducing the number of shares of
Common Stock to be issued and delivered to Optionee upon such
exercise (such reduction to be valued on the basis of the
aggregate Fair Market Value (determined on the date of such
exercise) of the additional shares of Common Stock that would
otherwise have been issued and delivered upon such exercise),
provided that the Company is not then prohibited from purchasing
or acquiring such shares of Common Stock.
(b) The Board or the Committee shall have sole
discretion to approve or disapprove any Withholding Election and
may adopt such rules and regulations as are consistent with and
necessary to implement the foregoing. The Board or the Committee
may permit Optionee to make a Withholding Election to pay
withholding taxes in excess of the minimum amount required by
law, provided that the amount of withholding taxes so paid does
not exceed the estimated total federal, state and local tax
liability of Optionee attributable to such exercise.
7. Notices. Any notice given to the Company shall be
addressed to the Company at P.O. Box 1000, Lebec, California
93243, Attention: General Counsel, or at such other address as
the Company may hereinafter designate in writing to Optionee.
Any notice given to Optionee shall be sent to the address set
forth below Optionee's signature hereto, or at such other address
as Optionee may hereafter designate in writing to the Company.
Any such notice shall be deemed duly given when delivered
personally or five days after mailing by prepaid certified or
registered mail return receipt requested.
8. Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Agreement, no
shares of stock issuable upon exercise of the Option, and no
certificate representing all or any part of such shares, shall be
purchased, issued or delivered if (a) such shares have not been
admitted to listing upon official notice of issuance on each
stock exchange upon which shares of that class are then listed or
(b) in the opinion of counsel to the Company, such issuance or
delivery would cause the Company to be in violation of or to
incur liability under any federal, state or other securities law,
or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or
of any administrative or regulatory body having jurisdiction over
the Company.
9. Restrictions on Transferability.
(a) Neither the Option nor any interest therein
may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the
laws of descent and distribution.
(b) By accepting the Option, the Optionee for
himself or herself and his or her transferees by will or the laws
of descent and distribution, represent and agree that all shares
of Common Stock purchased upon exercise of the Option will be
acquired for investment and not with a view to the distribution
thereof unless they have been registered under the Securities Act
of 1933, and will otherwise be acquired, held and disposed of and
held in accordance with the restrictions of said Act and the
rules and regulations of the Securities and Exchange Commission
thereunder, that the Company may instruct its transfer agent to
restrict further transfer of said shares in its records except
upon receipt of satisfactory evidence that such restrictions have
been satisfied, that upon each exercise of any portion of the
Option, the certificates evidencing the purchased shares shall
bear an appropriate legend on the face thereof evidencing such
restrictions, and that the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares
are being acquired subject to such restrictions.
10. The Plan. The Option is granted pursuant to the
Plan, as in effect on the Date of Grant, and is subject to all
the terms and conditions of the Plan, as the same may be amended
from time to time; provided, however, that no such amendment
shall deprive Optionee, without his or her consent, of the Option
or of any of Optionee's rights under this Agreement. The
interpretation and construction by the Board or the Committee of
the Plan, this Agreement, the Option and such rules and
regulations as may be adopted by the Committee for the purpose
of administering the Plan shall be final and binding upon
Optionee. Until the Option shall expire, terminate or be
exercised in full, the Company shall, upon written request
therefor, send a copy of the Plan, in its then-current form, to
Optionee or any other person or entity then entitled to exercise
the Option.
11. Stockholder Rights. No person or entity shall be
entitled to vote, receive dividends or be deemed for any purpose
the holder of any Option Shares until the Option shall have been
duly exercised to purchase such Option Shares in accordance with
the provisions of this Agreement and the Option Shares have been
issued.
12. Employment Rights. No provision of this Agreement
or of the Option granted hereunder shall (a) confer upon Optionee
any right to continue in the employ of the Company or any of its
subsidiaries, (b) affect the right of the Company and each of its
subsidiaries to terminate the employment of Optionee, with or
without cause, or (c) confer upon Optionee any right to
participate in any employee welfare or benefit plan or other
program of the Company or any of its subsidiaries other than the
1992 Plan. The Optionee hereby acknowledges and agrees that the
Company and each of its subsidiaries may terminate the employment
of Optionee at any time and for any reason, or for no reason,
unless Optionee and the Company or such subsidiary are parties to
a written employment agreement that expressly provides otherwise.
13. Governing Law. This Agreement and the Option
granted hereunder shall be governed by and construed and enforced
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Company and Optionee have duly executed
this Agreement as of the Date of Grant.
TEJON RANCH CO. OPTIONEE
By:
Name: Signature
Title:
Street Address
City, State and Zip Code
Social Security Number
EXHIBIT 10.11
April 10, 1996
Mr. Robert Stine
PO Box 2261
Ranch Santa Fe, CA 92067
Dear Bob:
I am writing to confirm the terms of the agreement between you
and Tejon Ranch Co. (the "Company") as to the terms of your
employment. Those terms are as follows:
1 Position. You will be employed as the President and
Chief Executive Officer of the Company, subject to the direction
and control of and reporting to the Board of Directors or a
committee thereof. You will also be elected as a member of the
Board of Directors. You agree to devote your full business time
and energies to the business and affairs of the Company, to use
your best efforts, skill and abilities to promote the Company's
interests and to perform your duties in accordance with policies
and practices established from time to time by the Board of
Directors. Your duties may include serving as an officer and/or
director of subsidiaries or other affiliates of the Company.
While employed by the Company, you agree that you will not render
services to others or engage in any other activities that would
interfere with or prevent your fulfilling your obligations to the
Company. The Company agrees that you can continue to serve on
the Board of Directors of Rancho Santa Fe National Bank and that
you may participate in civic and charitable activities in the
Bakersfield area that do not interfere with or prevent you from
performing your obligations to the Company. You agree that you
will not serve on any other boards of directors without the prior
approval of the Company's Board of Directors, which will not be
unreasonably withheld.
2. Salary. Your base salary will be at the annual rate of
$275,000 per annum but will be pro rated for the calendar year
1996 based upon a start date of May 1, 1996. This means that the
annual compensation for calendar year 1996 will in fact be
$183,333 if you start on that date. Your salary will be payable
on the same date as salaries to other executives of the Company
are paid. The amount of your salary will be subject to review
from time to time by the Board of Directors or a committee
thereof (expected to be the Compensation Committee), but not
before November 1997.
3. Incentive Compensation. In addition to your salary,
you will be paid a bonus within 45 days after the end of each
full fiscal year of the Company that you are employed pursuant to
this Agreement in an amount to be determined by the Board of
Directors or a committee thereof ranging between 0 and 50% of
your salary for the relevant year, except that the bonus for 1996
will be guaranteed at 20% of your base salary, i.e., $36,667 for
the period from May 1, 1996 to December 31, 1996. For 1997 and
thereafter, the bonus will be based upon performance criteria
determined by the Board of Directors or a committee thereof.
4. Equity Participation. At or about the date you begin
working, the Company will grant you an option to purchase 100,000
shares of its Common Stock under its 1992 Stock Option Plan at an
exercise price equal to the fair market value of the shares on
the date of grant determined in accordance with the Plan. The
option will have a term of 10 years and will vest (i.e., become
exercisable) as to the following number of shares on the
anniversaries of the date you begin work as set forth below:
First Anniversary - 10,000 shares
Second Anniversary - an additional 15,000 shares
Third Anniversary - an additional 15,000 shares
Fourth Anniversary - an additional 30,000 shares
Fifth Anniversary - an additional 30,000 shares
Except as provided in Section 8 below, if your employment
terminates you will have the right to exercise the option to the
extent that it was exercisable on the date of termination at any
time within three months after the date of termination. In the
case of termination of employment as a result of death or
disability, the three-month period shall be extended to one year.
The option is intended to constitute an "incentive stock
option" under Section 422 of the Internal Revenue Code, except to
the extent that the aggregate fair market value of shares with
respect to which incentive stock options are exercisable for the
first time by you during any calendar year under all plans of the
Company and its parents and subsidiaries exceeds $100,000, all as
determined pursuant to Section 422(d) of the Internal Revenue
Code.
In order to permit a so called "cashless exercise" of your
option, the Company will cooperate with you to permit you to
exercise the option (to the extent it is then exercisable),
immediately sell the shares and apply the proceeds of sale to the
exercise price but only to the extent the Company can do so
without violating any applicable provision of law and only if the
shares purchased are at the time registered under the Securities
Act of 1933 and can be sold by you under Rule 144 of the
Securities and Exchange Commission or any successor provision.
5. Relocation Benefits. The Company will reimburse you
for the sales commission and for standard escrow fees, title
insurance premiums and other closing costs typically paid by
sellers with respect to the sale of your present home. In
addition, the Company will pay the reasonable costs of moving
your furniture and personal effects to Bakersfield The "other
closing costs" referred to above shall include such items as
recording costs and costs of obtaining lenders' beneficiary
statements but shall not include any cost of any improvements to
your property (or the payment of cash in lieu thereof) or any
amounts payable with respect to representations, warranties and
other similar obligations incurred in connection with the sale or
any prepayment penalties. In addition, the Company will make
available to you the use of Residence No. 7 on the Ranch until
your residence in Rancho Santa Fe is sold and you have arranged
for permanent housing in Bakersfield, although the period for
your use of this housing shall not exceed eight months.
6. Perquisites. The Company will provide you with a 4-
wheel drive vehicle costing approximately $35,000 and will
reimburse you for your insurance, normal maintenance and repair
and fuel expenses while you are employed. In addition, the
Company will provide you with a membership at the Stockdale
Country Club, and will pay the dues with respect to that
membership while you are employed as the President and Chief
Executive Officer of the Company. You will also participate in
the health insurance, life insurance and retirement programs made
available from time to time by the Company to other executive
officers, and you will be entitled to the same vacation benefits
made available from time to time to other executive officers of
the Company. The Company will reimburse you for all reasonable
out-of-pocket business expenses incurred in performing the
services contemplated by this agreement in accordance with then
prevailing Company policies, provided that reasonable
documentation of such expenses is provided by you.
7. Death and Disability. If you become disabled and are
unable to perform your duties, the Company will continue to pay
your salary and provide the perquisites referred to in Section 6
for the period of such disability up to a maximum of 90 days, and
the Company will have the right to terminate this agreement
effective upon the expiration of said 90-day period. Thereafter
you will be entitled to receive benefits under any then-existing
disability insurance program of the Company. "Disability" means
any physical or mental condition which renders you unable to
perform the essential functions of your position, even with
reasonable accommodation. In the event of your death, this
Agreement shall automatically terminate.
8. Severance Benefits. In the event of termination of
your employment by the Company without cause at any time during
the first two years of your employment, the Company will continue
to pay you, as a severance benefit, the amount of your salary
then in effect (less appropriate withholding amounts) for a
period of two years after such termination. Such payments will
be made on the normal salary payment days of the Company. In the
event of termination by the Company without cause after the first
two years, the Company will continue to pay your salary as
provided above for a period of one year after such termination.
In addition, if your employment is terminated by the Company
without cause, the option referred to in Section 4 will fully
vest (i.e., become exercisable as to all of the shares) but
remain subject to the requirement referred to in Section 4 that
it be exercised within three months of such termination.
For purposes of this Section 8, termination for cause shall
include termination for personal dishonesty; willful misconduct;
breach of fiduciary duty involving self-dealing or personal
profit; intentional failure to perform duties or abide by Company
policies, in each case to the extent such duties or policies have
been communicated to you in writing or their existence is
otherwise known to you, and you have not cured such failure
within a reasonable time after written notice of such failure is
given to you: conviction, entry of a plea of guilty or nolo
contendere in connection with any alleged violation, or any
actual violation, of any law, rule, regulation (other than
traffic violations or similar offenses) or any cease-and-desist
or other court order; involvement in any legal proceeding which,
in the opinion of legal counsel to the Company, would be required
to be disclosed pursuant to Item 401(f) of Regulation S-K of the
Securities and Exchange Commission (a copy of which is attached
to this agreement), other than proceedings under federal
bankruptcy laws or state insolvency laws involving entities in
which you have less than a 50% interest; any material breach of
this agreement; non-prescription use of any controlled substance
or the use of alcohol or any other non-controlled substance which
the Board reasonably determines renders you unfit to serve in
your capacity as an officer of the Company; and any act or
omission which has a material adverse effect on the public image,
reputation or integrity of the Company.
If you voluntarily resign or your employment is terminated
by the Company for cause or your employment terminates as a
result of your death or disability, you will not be entitled to
any severance benefits pursuant to the first paragraph of this
Section 8 except as provided in Section 7 with respect to
disability pay and disability insurance and except in the case of
death for any life insurance benefits. Also, in such event the
exercise dates of your option will not be accelerated, although
your option will still be exercisable during the three month or
one year period specified in Section 4 (whichever is applicable)
with respect to the number of shares as to which it had become
exercisable on the date of termination (determined without any
acceleration of the exercise dates) In the event that a
voluntary resignation by you is caused by a reduction in your
duties and responsibilities below those appropriate for a senior
executive of the Company or any other material change in the
circumstances of your employment made by the Company for the
purpose and with the intention of causing you to resign, you will
be treated as having been terminated by the Company.
9. Employment at Will. The employment relationship
contemplated by this agreement is an at-will relationship under
which you and the Company each has the right at any time to
terminate the relationship with or without cause and without
notice, subject only to the severance benefits set forth in
Section 8 above in the event the Company terminates the
relationship without cause. Nothing in this agreement is
intended to create a term of employment for a period of years or
otherwise.
10. Nondisclosure. You agree that, for so long as you
remain in the employ of the Company and thereafter, you will not
disclose to any person or entity or otherwise use or exploit any
proprietary or confidential information of the Company, including
without limitation trade secrets, processes, proposals, reports,
methods, computer software or programming or budgets or other
financial information regarding the Company, its business,
properties, customers or affairs obtained by you while you are
employed by the Company, except to the extent required by you to
perform your duties pursuant to this agreement. Information will
not be deemed to be confidential for purposes of this agreement
if it is or becomes generally available to the public other than
as a result of a disclosure by you. You will have the right to
use any such confidential information to the extent necessary to
assert any right or defend against any claim arising under this
agreement or pertaining to confidential information or its use
and to the extent necessary to comply within the applicable
provision of law. All files, records, documents, computer
recorded information, specifications and other similar items
relating to the business of the Company, whether prepared by you
or otherwise coming into your possession, shall remain the
exclusive property of the Company and shall not be removed from
the premises of the Company except when (and only for the period)
necessary to carry out your duties. If removed, all such
materials shall be immediately returned to the Company upon any
terminatin of your employment, and no copies thereof shall be
kept by you, except that you shall be entitled to retain
documents reasonably related to your rights as an optionholder,
stockholder and former employee of the Company. You acknowledge
and agree that the remedy for any breach of the provisions of
this Section 10 may be inadequate in that the Company may, in
addition to all other remedies that may be available to it at
law, seek injunctive relief prohibiting any such breach.
11. Noninterference with Business. During the period of
your employment and for any two-year period thereafter
(regardless of the reason for termination of employment) you
agree that you will not participate with or advise in any
capacity any person or entity in any negotiation between such
person or entity and the Company or any affiliate of the Company.
In addition, during such period you agree that you will not,
directly or indirectly, solicit or induce (or assist in or
encourage the solicitation of) any employee of the Company or its
affiliated entities to leave the employ of the Company for
purposes of accepting employment with any other person or entity.
For purposes of this agreement "affiliate" means the corporation
or other entity controlled by the Company, directly or
indirectly, through stock ownership or any other means.
12. Assignment. This agreement is personal to you and is
not assignable by you under any circumstances. Likewise, the
Company will not have the right to assign this agreement to any
other person or entity except for any corporation or entity into
which the Company may be merged or consolidated or any person or
entity which may acquire all or a substantial portion of the
assets of the Company.
13. Attorneys Fees. In the event of any litigation brought
to enforce the provisions of this agreement, the prevailing party
will have the right to recover his or its reasonable attorneys'
fees incurred in connection therewith.
14. Entire Agreement. This agreement sets forth the entire
understanding of you and the Company with respect to the subject
matter hereof and supersedes all prior agreements, memoranda,
discussions and understandings of any kind. This agreement
cannot be amended except in a writing signed by you and the
Company, and no course of dealing contrary to its terms shall
constitute an amendment. No right or obligation hereunder can be
waived except in a writing signed by the party making the waiver.
15. Partial Invalidity. If any provision of this agreement
is invalid or unenforceable in any jurisdiction that provision
shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any way affecting
the remaining provisions of this agreement.
16. Governing Law. This agreement shall be construed and
enforced in accordance with the substantive law of the State of
California without regard to provisions relating to choice of law
or conflict of laws.
If this letter correctly sets forth the terms of our
agreement with respect to your employment, please execute this
letter and the enclosed copy in the place indicated and return
the copy to me, and thereupon this letter shall become a binding
and enforceable agreement between you and the Company.
Sincerely,
Donald Haskell, Chairman
AGREED:
Robert A. Stine
Dated: April 10, 1996
EXHIBIT 22
(22) Subsidiaries of Registrant
A. Registrant: Tejon Ranch Co.
B. Subsidiaries of Registrant
a. Tejon Ranchcorp (100% of whose Common Stock is
owned by Registrant);
b. Laval Farms Corporation, formerly Tejon
Agricultural Corporation (100% of whose Common
Stock is owned by Tejon Ranchcorp);
c. Tejon Farming Company (100% of whose Common Stock
is owned by Tejon Ranchcorp);
d. Tejon Marketing Company; (100% of whose Common
Stock is owned by Tejon Ranchcorp);
e. Tejon Ranch Feedlot, In. (100% of whose Common
Stock is owned by Tejon Ranchcorp);
f. White Wolf Corporation (100% of whose Common Stock
is owned by Tejon Ranchcorp);
g. Tejon Development Company; (100% of whose Common
Stock is owned by Tejon Ranchcorp).
C. Each of the aforesaid subsidiaries is included in
Registrant's Consolidated Financial Statement set
forth in answer to Item 14(a)(1) hereof.
D. Each of the aforesaid subsidiaries was organized and
incorporated under the laws of the State of California.
E. Each of the aforesaid subsidiaries does business under
its name, as shown. Tejon Ranchcorp also does business
under the names Tejon Ranch, Fireside Oak Co. and
Grapevine Center.
In addition to the foregoing, Laval Farms Limited
Partnership, formerly Tejon Agricultural Partners, a California
limited partnership, may be deemed to be a "subsidiary" of
Registrant within the meaning of the Rules under the Securities
Exchange Act of 1934 by reason of the fact that the sole general
partner of said partnership is Laval Farms Corporation, a wholly-
owned subsidiary of Registrant.<PAGE>
EXHIBIT 23
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 333-33491) pertaining to the
Tejon Ranch Company 1992 Stock Option Plan of our report dated
March 27, 1998, with respect to the consolidated financial
statements and schedules of Tejon Ranch Company included in the
Form 10-K for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 27, 1998<PAGE>
