3.	Investment in Non-public Company

February 15, 2011,

Apio entered into a share purchase agreement (the “Windset Purchase Agreement”) with Windset. Pursuant to the Windset Purchase Agreement, Apio purchased from Windset

150,000

Senior A preferred shares for

$15

million and

201

common shares for

$201.

July 15, 2014,

Apio increased its investment in Windset by purchasing from the Newell Capital Corporation an additional

common shares and

51,211

junior preferred shares of Windset for

$11

million. After this purchase, the Company’s common shares represent a

26.9%

ownership interest in Windset. The Senior A preferred shares yield a cash dividend of

7.5%

annually. The dividend is payable within

days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock does

not

yield a dividend unless declared by the Board of Directors of Windset and

such dividend has been declared.

The Shareholders’ Agreement between Apio and Windset, as amended on

March 15, 2017,

includes a put and call option (the “Put and Call Option”), which can be exercised on or after

March 31, 2022,

whereby Apio can exercise the put to sell its common, Senior A preferred shares, and junior preferred shares to Windset, or Windset can exercise the call to purchase those shares from Apio, in either case, at a price equal to

26.9%

of the fair market value of Windset’s common shares, plus the liquidation value of the preferred shares of

$20.1

million (

$15

million for the Senior A preferred shares and

$5.1

million for the junior preferred shares). Under the terms of the arrangement with Windset, the Company is entitled to designate

one

five

members on the Board of Directors of Windset.

October 29, 2014,

Apio further increased its investment in Windset by purchasing

70,000

shares of Senior B preferred shares for

million. The Senior B preferred shares pay an annual dividend of

7.5%

on the amount outstanding at each anniversary date of the Windset Purchase Agreement. The Senior B preferred shares purchased by Apio have a put feature whereby Apio can sell back to Windset the

million at any time after

October 29, 2017.

At any time, Windset has the right to call the Senior B preferred shares owned by Apio. Windset’s partial call provision is restricted such that a partial call cannot result in Apio holding less than

10%

of Windset’s common shares outstanding.

The investment in Windset does

not

qualify for equity method accounting as the investment does

not

meet the criteria of in-substance common stock due to returns through the annual dividend on the non-voting senior preferred shares that are

not

available to the common stockholders. As the put and call options require all of the various shares to be put or called in equal proportions, the Company has deemed that the investment, in substance, should be treated as a single security for purposes of accounting.

The fair value of the Company’s investment in Windset was determined utilizing the Windset Purchase Agreement’s put/call calculation for value and a discounted cash flow model based on projections developed by Windset, and considers the put and call conversion options. These features impact the duration of the cash flows utilized to derive the estimated fair values of the investment. These

two

discounted cash flow models’ estimate for fair value are then weighted. Assumptions included in these discounted cash flow models will be evaluated quarterly based on Windset’s actual and projected operating results to determine the change in fair value.

During each of the

three

months ended

November 25, 2018

and

November 26, 2017,

the Company recorded

$412,500

in dividend income. During each of the

six

months ended

November 25, 2018

and

November 26, 2017,

the Company recorded

$825,000

in dividend income. The increase in the fair market value of the Company’s investment in Windset for the

three

month periods ended

November 25, 2018

and

November 26, 2017

was

$600,000

and

$1.3

million, respectively. The increase in the fair market value of the Company’s investment in Windset for the

six

month periods ended

November 25, 2018

and

November 26, 2017

was

$1.6

million and

$2.2

million, respectively, and is included in Other income in the accompanying Consolidated Statements of Comprehensive Income