-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DVM02VKwpzKPCzKGOCKyeyhAvYf0RVLsGpYFwGFJqeMIqUCnLdbGhPRFSKVNS73f iNEXH6ZEQ1dKihjSuc3hcQ== /in/edgar/work/0001109355-00-000017/0001109355-00-000017.txt : 20000927 0001109355-00-000017.hdr.sgml : 20000927 ACCESSION NUMBER: 0001109355-00-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000925 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONOMAWEST HOLDINGS INC CENTRAL INDEX KEY: 0000102588 STANDARD INDUSTRIAL CLASSIFICATION: [2030 ] IRS NUMBER: 941069729 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-01912 FILM NUMBER: 728433 BUSINESS ADDRESS: STREET 1: 1448 INDUSTRIAL AVE CITY: SEBASTOPOL STATE: CA ZIP: 95472-4848 BUSINESS PHONE: 7078242548 MAIL ADDRESS: STREET 1: 1448 INDUSTRIAL AVE CITY: SEBASTOPOL STATE: CA ZIP: 95472 FORMER COMPANY: FORMER CONFORMED NAME: VACU DRY CO DATE OF NAME CHANGE: 19920703 10-K 1 0001.txt ANNUAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended June 30, 2000 [ ] 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 0-1912 SONOMAWEST HOLDINGS, INC. (Exact name of registrant as specified in its charter) California 94-1069729 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification Number) 1448 Industrial Avenue, Sebastopol, California 95472-4848 (Address of principal executive offices) (707) 824-2548 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of Class) 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 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. [ ] On September 13, 2000 non-affiliates of the Registrant held voting stock with an aggregate market value of $6,300,337 computed by reference to the average of the bid and asked prices of such stock on such date. As of September 13, 2000, there were 1,522,350 shares of common stock, no par value, outstanding. Portions of the following document are incorporated by reference: Proxy Statement for the 2000 Annual Meeting of Shareholders scheduled to be held November 9, 2000 is incorporated by reference into Part III of this report. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS SonomaWest Holdings, Inc. (the Company) is including the following cautionary statement in this Annual Report to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward looking statements made by, or on behalf of, the Company. Forward looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions, and other statements which are other than statements of historical facts. Certain statements contained herein are forward looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward looking statements. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will be achieved or accomplished. PART I Item 1. Business. SonomaWest Holdings, Inc. (the Company or SonomaWest) was incorporated in California on December 27, 1946 as Vacu-dry Company, and had been engaged in the development, production and marketing of fruit products. As part of a strategic reorientation, on July 30, 1999 the Company sold certain assets related to its product lines of processed apple products and products containing processed apple products to Tree Top, Inc. (Tree Top) for $13.9 million. The decision of the Board to approve the asset sale followed intensive efforts over a three-year period to evaluate and improve the returns achieved by the apple product lines. The following product lines which are used in or related to the apple product lines were not included in the sale: (i) processed apple products produced primarily by means of a vacuum drying process; (ii) products which contain both processed apple products and other processed fruit, nut or vegetable products, provided such other processed fruit, nut or vegetable products comprise ten percent (10%) or more of the finished product, by weight; (iii) products containing processed apple products that are packaged by or on behalf of SonomaWest for retail sale; and, (iv) organic and pesticide-free processed apple products. In August 1999, the Company determined that these product lines, as well as the food storage product line, would be discontinued and held for sale. In the third quarter of fiscal 2000, the Company decided to discontinue and hold for sale the assets and operations of its organic packaged goods subsidiary Made In Nature Company, Inc. The intellectual property and most dried fruit inventories related to the organic packaged goods operation were sold in May 2000 for $1.1 million to Premier Valley Foods, Inc. SonomaWest's sole line of business will be its real estate management and rental operations upon the disposal of the remaining assets (primarily inventory) of its discontinued ingredients, food storage, and organic packaged goods businesses. Industry Segment Information For the year ended June 30, 2000, the Company operated in one reportable segment, real estate management and rental operations. All other businesses have been included in discontinued operations. See Item 2, Properties, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Environmental Matters The Company has complied with all governmental regulations regarding protection of the environment. No material capital expenditures are anticipated for environmental control facilities during the next fiscal year. Employees The Company has historically employed an average of approximately 265 persons. The Company substantially reduced its workforce following the sale to Tree Top, and currently has 7 employees supporting its real estate business and the disposal of the remaining assets of the discontinued businesses. The number of employees historically needed normally varied throughout each year and increased during periods of high production. Of the 265 employees, the General Truck Drivers, Warehouseman and Helpers Union, Teamsters Local #624, represented approximately 200. A collective bargaining agreement with those union employees expired June 30, 1999. Effects negotiations, as required by federal law, were entered into between the union and the Company on June 24, 1999. During these negotiations, the Company and the union approved a one-year extension to the collective bargaining agreement with no changes. Negotiations between the Company and the union were completed in December 1999, and the union contract has now terminated. Insurance The Company maintains product, property, and general liability insurance plus umbrella liability coverage. The Company does not carry any product recall coverage. While management feels the limits and coverage are adequate relative to the related risks, there is no assurance that this insurance will be adequate to protect the Company from product recall claims. A product recall could have a material adverse effect on the Company's business, financial condition and results of operations. Risk Factors Risks Associated with Investments in Real Estate - ------------------------------------------------ Income from the properties may be adversely affected by, among other things, increasing unemployment rates, oversupply of competing properties, reduction in demand for properties in the area, increasing affordability of single family homes, and adverse real estate, zoning and tax laws. Certain significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes, and maintenance costs) constitute fixed costs and do not decrease when circumstances cause a reduction in income from the investment. Potential Environmental Liability - --------------------------------- The Company could be held liable for the costs of removal or remediation of any hazardous or toxic substances located on or in its properties. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The presence of such substances, or the failure to remediate such substances properly, may adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. Other Federal and state laws require the removal of damaged material containing asbestos in the event of remodeling or renovation. Uninsured Loss - -------------- The Company carries several types of insurance. There are, however, certain types of extraordinary losses (such as losses from earthquakes) that may be either uninsurable or not economically insurable. Should an uninsured loss occur, the Company could lose its investment in and anticipated profits and cash flow from a property and would continue to be obligated on any mortgage indebtedness on the property. Item 2. Properties. The principal administrative offices of the Company were located in Santa Rosa, California until March 2000. These offices consisted of approximately 9,200 square feet of office space and are leased through December 2003. This space has been sublet through May 2002 at approximately the Company's lease rate, with an option to renew through December 2003. The Company will actively market this space to minimize the vacancy risk upon expiration of the sublease if the option to renew is not exercised, but there can be no assurance that our marketing efforts will be successful or that a suitable sublessee will be located in a timely manner. The Company owns 15 acres of land and approximately 103,000 square feet under roof at 1448 Industrial Avenue, Sebastopol, California. The Company is currently attempting to lease all of the available square footage to third parties, except for a small portion housing the Company's principal administrative offices since their relocation in March 2000 from leased premises discussed above. Currently, approximately 21% of the available square footage is vacant. The Company has a $2.0 million loan secured by this property which matures in December 2003. The Company also owns 66 acres of land and approximately 307,000 square feet under roof (its former manufacturing plant) at 2064 Gravenstein Hwy. No., Sebastopol, California. With the closure of the plant as a result of the discontinuance of the ingredients and food storage businesses, the Company is in the process of converting all of its former plant space to industrial/agricultural rentals. The available space includes offices, production buildings and cold storage. The current zoning for this property requires that the facility be used for diversified agricultural purposes. The Company is attempting to broaden the use permit to allow other types of activities, but there can be no assurance that such efforts will be successful. The existing use permit may restrict the types of tenants that could occupy the property, resulting in prolonged vacancy and/or lower rental rates, having a material adverse effect on the Company's business, financial condition and results of operations. Currently, approximately 60% of the available square footage is vacant. The Company has no debt associated with this facility. The Company has engaged a major real estate brokerage firm on a commission basis to assist in marketing all of its properties. There can be no assurance that these marketing efforts will be successful, or that suitable tenants will be found on a timely basis. Significant, prolonged vacancies at the properties may have a material adverse impact on the Company's business, financial condition and results of operations. Item 3. Legal Proceedings. A complaint was filed February 23, 2000 by several local apple growers naming the Company and Tree Top, Inc. as defendants. The complaint alleged that the July 1999 sale of the Company's apple ingredients business to Tree Top, Inc. was an unlawful combination in restraint of trade in the dried apple business under federal and California law; that the Company conspired with Tree Top, Inc. to monopolize the dried apple business; and that such acts also constitute unlawful business practices under the California Business and Professions Code. The suit sought treble damages, punitive damages, interest, and attorneys' fees, all in unnamed amounts. On August 4, 2000 the Company's motion to dismiss the complaint was granted without prejudice and with leave to amend. To date no amended complaint has been filed. Should an amended complaint be filed, the Company would defend itself vigorously. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the last quarter of the year ended June 30, 2000. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded on the Nasdaq National Market System (symbol: SWHI). The quarterly high and low prices for the last two fiscal years were as follows: Quarter Ending Low Bid High Bid -------------- ------- -------- 09/30/98 6-1/4 9 12/31/98 5-3/4 9 03/31/99 6-3/4 13 06/30/99 5-5/8 10-1/16 09/30/99 6-3/4 10-1/2 12/31/99 5-3/8 7 03/31/00 4-7/8 6-1/8 06/30/00 4-1/4 6-1/2 The above quotations were obtained from the Nasdaq-Amex Online website. On September 13, 2000, there were approximately 569 registered holders of common stock and 660 shareholders that held stock in street name. On that date, the average of the high and low price per share of the Company's stock was $6.19. This price does not include dealer mark-ups, mark-downs or commissions. The Company is considering a share repurchase program and/or a cash distribution. See Item 7, Liquidity and Capital Resources, for further discussion of the actions being considered. Item 6. Selected Financial Data. YEAR ENDED JUNE 30 (in thousands, except per share amounts) 2000 1999 1998 1997 1996 ------------- ------------- ------------ ------------- -------------- Total revenues $1,197 $665 $518 $537 $441 Net (loss) from continuing (473) (759) (573) (509) (546) operations Net earnings (loss) from 3,183 (2,170) 1,472 1,026 980 discontinued operations Net earnings 2,710 (2,929) 899 517 434 Earnings per share from continuing operations Basic (0.31) (0.50) (0.36) (0.31) (0.32) Diluted (0.31) (0.50) (0.36) (0.31) (0.32) Earnings per share from discontinued operations Basic 2.09 (1.43) 0.93 0.62 0.57 Diluted 2.06 (1.43) 0.92 0.62 0.57 Earnings Per Share Basic 1.78 (1.93) 0.57 0.31 0.25 Diluted 1.75 (1.93) 0.56 0.31 0.25 Total Assets 12,969 17,023 17,008 14,576 13,587 Long Term Debt 1,974 2,860 1,703 1,808 1,628
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. OVERVIEW When the Company acquired the assets and certain liabilities of Made in Nature, Inc. on June 11, 1998, SonomaWest operated in three business segments: industrial dried fruit ingredients, organic packaged goods and real estate. The Company commenced a strategic reorientation upon the announcement of the proposed sale of its apple-based industrial ingredients product line in June 1999. In August 1999 the decision was made to sell or discontinue all product lines in the Company's industrial dried fruit ingredients business. In January 2000, the Company decided to sell or discontinue its organic packaged goods business. As a result of these decisions, both of these business segments are considered discontinued operations and their operating results, results of cash flows and net assets are reflected outside of the Company's continuing operations. The Company's sole remaining line of business is its real estate management and rental operations. DISCONTINUED OPERATIONS In July 1999, the Company sold the bulk of its apple-based industrial ingredients product line to Tree Top, Inc., of Selah, Washington. This product line represented 55% and 81% of the Company's sales for the years ended June 30, 1999 and 1998, respectively. This sale, which was recorded in the first quarter of fiscal 2000, is an important element of the Company's strategic plan to increase the return on its investments and increase shareholder value by exiting businesses with low returns and high capital requirements. The transaction provided financial resources to support the Company's real estate and other business opportunities. Following completion of the sale, the Company determined in August 1999 that the remaining product lines in the Company's vacuum ingredients segment of its business would be discontinued and held for sale. These product lines included the Company's dried ingredients, Perma-Pak long-term food storage, and drink mix businesses. In January 2000, the Company decided to sell or discontinue its organic packaged goods business. As a result of these decisions, the Company has classified these business segments as discontinued operations. Accordingly, the Company has segregated the net assets of the discontinued operations in the consolidated balance sheets at June 30, 2000 and 1999, the operating results of the discontinued operations in the consolidated statements of operations for fiscal 2000, 1999, and 1998 and the cash flows from discontinued operations in the consolidated statements of cash flows for fiscal 2000, 1999, and 1998. In fiscal 2000, the Company recorded after-tax earnings from discontinued operations of $32,000 on sales of $9.5 million for the ingredients business and $2.2 million for the organic packaged goods business. This compares to an after-tax loss of $2.2 million on sales of $35.2 million for the ingredients business and $2.7 million for the organic packaged goods business in fiscal 1999. The decline in sales in the ingredients business is due to the sale of the apple ingredients business during the first quarter of fiscal 2000 and a significant decline in the sales of Perma-Pak food storage products. The decline in sales in the organic packaged goods business is due to the sale of the dried fruit business in the fourth quarter of fiscal 2000. After the allocation of selling, general and administrative expenses between continuing and discontinued operations, the discontinued businesses generated $53,000 of operating income in fiscal 2000 versus an operating loss of $4.1 million in fiscal 1999. Included in cost of sales, however, in fiscal 1999 is the write-down of food storage inventories by $3.5 million to reflect estimated net realizable value. While the Company experienced exceptionally strong food storage sales through the third quarter of fiscal 1999, sales have declined substantially since that time. The organic packaged goods business generated an operating loss of $2.4 million in fiscal 1999. The Company is actively marketing all remaining assets of its discontinued businesses (primarily inventory), but there can be no assurances that there will be a sale of all or any of the remaining assets. RESULTS OF CONTINUING OPERATIONS The Company's sole continuing line of business is its real estate management and rental operations. See Item 2, Properties, above for a further discussion of the Company's real estate operations. SUBSEQUENT EVENT The Company elected to prepay in full the remaining shareholder note payable (scheduled to mature in 2003) as of August 31, 2000, in the amount of $564,000 plus accrued interest. Accordingly, this amount is reflected in current liabilities in the consolidated balance sheet. FISCAL 2000 COMPARED TO FISCAL 1999 Rental Revenue. --------------- The Company leases warehouse, production, and office space as well as outside storage space at both of its properties. There are leases with approximately twenty tenants that have varying original terms ranging from month-to-month to eight years with options to extend. Fiscal 2000 rental revenue increased 80% or $532,000 over fiscal 1999. This increase was primarily a result of leasing activities at the Company's former production facility. This facility is approximately 40% occupied. The Company's other property is approximately 79% occupied. While the Company and its retained broker are actively marketing the properties to prospective tenants, there can be no assurance that tenants will be found in the near term. As a result, the Company's operating results will be negatively impacted as long as the tenant rental revenue stream fails to cover existing operating costs. Operating Costs. ----------------- Operating costs consist of direct costs related to continuing operations and all general corporate costs. Only direct selling, general and administrative costs related to the ingredients and organic packaged goods businesses were allocated to discontinued operations in the consolidated statements of operations. In fiscal 2000, operating costs related to continuing operations increased 15% or $282,000 from the prior year. This change was primarily due to increased temporary labor costs incurred during the first two quarters of fiscal 2000. Interest and Other Income (Expense), Net. -------------------------------------------- Interest and other income (expense) net consists primarily of interest income on the Company's cash balances, and interest expense on mortgage debt and shareholder loans. Proceeds from the sale of the ingredients business received in July 1999 were used to pay off the Company's revolving bank line of credit and substantially reduce long-term debt. As a result, in fiscal 2000, the Company was a net investor of cash, generating $409,000 of interest income and incurring $218,000 of interest expense, while in the prior year it was a net borrower, generating interest income of $2,000 and incurring interest expense of $179,000. Income Taxes. ------------- The fiscal 2000 effective tax rate changed from a benefit of 43% to a charge of 40%, due primarily to lower tax credits in fiscal 2000. FISCAL 1999 COMPARED TO FISCAL 1998 Rental Revenue. --------------- Rental revenue in fiscal 1999 increased 28% or $147,000 from fiscal 1998. This increase was a result of higher market rental rates, CPI increases and the leasing of some previously vacant space. Operating Costs. ---------------- Operating costs increased 37% or $515,000, due to salaries and benefits associated with increased staffing, increased legal and professional fees, and increased temporary labor costs. Interest and Other Income (Expense), Net. ------------------------------------------ Other expense increased 426% or $145,000, due primarily to the interest expense on the mortgage debt originated in fiscal 1999, and the full-year impact of the interest expense on the shareholder notes originated in fiscal 1998. Income Taxes. --------------- The effective tax rate changed from a charge of 37% to a benefit of 43%, primarily due to an increase in tax credits. LIQUIDITY AND CAPITAL RESOURCES The Company had cash of $8.4 million at June 30, 2000, and current maturities of long-term debt of $617,000. The Company used a portion of the $16.1 million net proceeds from its discontinued businesses to pay off borrowings under its bank line of credit and retire a significant portion of its long-term debt. Cash balances increased from $548,000 at June 30, 1999 primarily as a result of these net proceeds. The Company has contingently committed itself to a $3 million investment in a privately-held telecommunications company, MetroPCS, Inc., which is expected to be funded in fiscal 2001 if certain agreed-upon contingencies are satisfied. The Company is considering a potential share repurchase program, or, alternatively, a shareholder distribution of any cash balances in excess of that required for the MetroPCS, Inc. investment and support of the Company's real estate management and rental operations. There can be no assurance that any or all of the contemplated actions will take place. Item 8. Financial Statements and Supplementary Data. Independent Auditor's Report........................................... F-1 Consolited Balance Sheets at June 30, 2000 and 1999 ................... F-2 Consolidated Statements of Operations for the years ended June 30, 2000 1999 and 1998 ......................................................... F-3 Consolidated Statements of Changes in Shareholders' Equity for the years ended June 30, 2000, 1999 and 1998 .................................... F-4 Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and 1998 ......................................................... F-5 Notes to Consolidated Financial Statements............................. F-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of SonomaWest Holdings, Inc.: We have audited the accompanying consolidated balance sheets of SonomaWest Holdings, Inc. (a California corporation) and Subsidiary as of June 30, 2000 and 1999, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the three years then ended. 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 auditing standards generally accepted in the United States. 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 financial position of SonomaWest Holdings, Inc. and Subsidiary as of June 30, 2000 and 1999, and the results of its operations and its cash flows for the three years then ended, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Francisco, California, August 18, 2000 F-1 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND 1999 (AMOUNTS IN THOUSANDS)
ASSETS 2000 1999 ------- ------- CURRENT ASSETS: Cash $ 8,359 $ 548 Accounts receivable, less allowances for uncollectible accounts of $47 and $0 in 110 - fiscal 2000 and 1999, respectively Prepaid income taxes 816 566 Prepaid expenses 87 165 Current deferred income taxes, net 621 2,032 Net current assets of discontinued operations - 6,392 ---------------- ---------------- Total current assets 9,993 9,703 ---------------- ---------------- RENTAL PROPERTY, net 2,854 3,089 ---------------- ---------------- NET ASSETS OF DISCONTINUED OPERATIONS 122 3,905 ---------------- ---------------- DEFERRED INCOME TAXES, net - 326 ---------------- ---------------- Total assets $12,969 $ 17,023 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings under line of credit $ - $ 5,745 Current maturities of long-term debt 617 1,416 Accounts payable 24 89 Accrued payroll and related liabilities 78 277 Other accrued expenses 266 126 Net liabilities of discontinued operations 628 - ---------------- ---------------- Total current liabilities 1,613 7,653 ---------------- ---------------- LONG-TERM DEBT, net of current maturities 1,974 2,860 ---------------- ---------------- DEFERRED INCOME TAXES, net 147 - ---------------- ---------------- Total liabilities 3,734 10,513 ---------------- ---------------- SHAREHOLDERS' EQUITY: Preferred stock: 2,500 shares authorized; no shares outstanding - - Common stock: 5,000 shares authorized, no par value; 1,522 and 1,519 shares 2,905 2,890 outstanding in fiscal 2000 and 1999, respectively Warrants for common stock 456 456 Retained earnings 5,874 3,164 ---------------- ---------------- Total shareholders' equity 9,235 6,510 ---------------- ---------------- Total liabilities and shareholders' equity $ 12,969 $ 17,023 ================ ================
The accompanying notes are an integral part of these consolidated statements. F-2 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1998 -------------- ------------- ------------ RENTAL REVENUE $ 1,197 $ 665 $ 518 -------------- ------------- ------------ OPERATING COSTS 2,190 1,908 1,393 -------------- ------------- ------------ INTEREST AND OTHER INCOME (EXPENSE), NET 204 (179) (34) -------------- ------------- ------------ LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX (789) (1,422) (909) BENEFIT FOR INCOME TAXES (316) (663) (336) -------------- ------------- ------------ NET LOSS FROM CONTINUING OPERATIONS (473) (759) (573) -------------- ------------- ------------ DISCONTINUED OPERATIONS: Earnings (loss) from discontinued operations, net of income taxes 32 (2,170) 1,472 Gain on sale of discontinued operations, net of income taxes 3,151 - - -------------- ------------- ------------ NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS 3,183 (2,170) 1,472 -------------- ------------- ------------ NET EARNINGS (LOSS) $ 2,710 $ (2,929) $ 899 ============== ============= ============ WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS: Basic 1,520 1,514 1,581 Diluted 1,548 1,549 1,600 EARNINGS (LOSS) PER COMMON SHARE: Continuing operations: Basic $(0.31) $(0.50) $(0.36) Diluted (0.31) (0.50) (0.36) Discontinued operations: Basic 2.09 (1.43) 0.93 Diluted 2.06 (1.43) 0.92 Net earnings (loss): Basic 1.78 (1.93) 0.57 Diluted 1.75 (1.93) 0.56
The accompanying notes are an integral part of these consolidated statements. F-3 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998 (AMOUNTS IN THOUSANDS)
Common Stock Warrants for Total ---------------------------- Number Common Retained Shareholders' of Shares Amount Stock Earnings Equity ------------- -------------- --------------- -------------- ---------------- BALANCE, JUNE 30, 1997 1,643 $ 3,635 $ - $ 5,194 $ 8,829 Net earnings - - - 899 899 Repurchase of common stock (139) (835) - - (835) Issuance of common stock 7 37 - - 37 Issuance of warrants - - 456 - 456 ------------- -------------- --------------- -------------- ---------------- BALANCE, JUNE 30, 1998 1,511 2,837 456 6,093 9,386 Net loss - - - (2,929) (2,929) Issuance of common stock 8 53 - - 53 ------------- -------------- --------------- -------------- ---------------- BALANCE, JUNE 30, 1999 1,519 2,890 456 3,164 6,510 Net earnings - - - 2,710 2,710 Issuance of common stock 3 15 - - 15 ------------- -------------- --------------- -------------- ---------------- BALANCE, JUNE 30, 2000 1,522 $ 2,905 $ 456 $ 5,874 $ 9,235 ============= ============== =============== ============== ================
The accompanying notes are an integral part of these consolidated statements. F-4 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998 (AMOUNTS IN THOUSANDS) 2000 1999 1998 ----------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 2,710 $ (2,929) $ 899 ----------------------------------------------------- Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: (Income) loss from discontinued operations, net (32) 2,170 (1,472) Gain on sale of discontinued operations, net (3,151) - - Depreciation and amortization expense 414 468 333 Changes in assets and liabilities: Accounts receivable, net (110) - - Deferred income tax provision (benefit) 1,884 (2,863) 27 Prepaid income taxes (250) (439) (57) Prepaid expenses 78 5 - Accounts payable (65) (2,006) - Accrued payroll and related liabilities (199) 277 - Accrued expenses 140 (30) - ----------------------------------------------------- (1,291) (2,418) (1,169) ----------------------------------------------------- Net cash provided by (used in) continuing operations 1,419 (5,347) (270) ----------------------------------------------------- Net cash provided by discontinued operations 11,887 1,573 1,343 ----------------------------------------------------- Net cash provided by (used in) operating activities 13,306 (3,774) 1,073 ----------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (179) (379) (89) Investing activities of discontinued operations 2,099 (820) (803) ----------------------------------------------------- Net cash provided by (used for) investing activities 1,920 (1,199) (892) ----------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under the line of credit 3,727 26,924 11,245 Payments on the line of credit (9,472) (23,476) (10,302) Principal payments of long-term debt (1,685) (465) (1,059) Issuance of common stock 15 53 37 Financing activities of discontinued operations - 2,100 - ----------------------------------------------------- Net cash provided by (used for) financing activities (7,415) 5,136 (79) ----------------------------------------------------- NET INCREASE IN CASH 7,811 163 102 CASH AT BEGINNING OF YEAR 548 385 283 ----------------------------------------------------- CASH AT END OF YEAR $ 8,359 $ 548 $ 385 =====================================================
The accompanying notes are an integral part of these consolidated statements. F-5 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (AMOUNTS IN THOUSANDS) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: SonomaWest Holdings, Inc., formerly Vacu-dry Company, (SonomaWest or the Company) was incorporated in 1946 and through June 30, 1999 operated in three business segments: organic packaged goods, real estate and ingredients. As of June 30, 1999, the Company discontinued its ingredients business and was in the process of selling the assets related to this segment (see Note 2). The business included low-moisture fruits, bulk apple juice, apple juice concentrate, private label drink mixes, and low-moisture food products, which were sold to manufacturers principally in the United States and Canada. In the third quarter of fiscal 2000, the Company discontinued its organic packaged goods business, operated through a subsidiary, Made In Nature Company, Inc. (MINCO), and has sold the assets related to this segment (see Note 2). This subsidiary was formed on June 11, 1998 upon the acquisition of certain assets and liabilities of Made In Nature, Inc. (see Note 3). The business included the marketing of organic packaged foods and chilled pasteurized beverages, which were sold to distributors and retailers principally in the United States and Canada. As of June 30, 2000, the Company's sole continuing line of business is its real estate management and rental operations. The Company's real estate management and rental operations include industrial/agricultural property, some of which was formerly used by the Company in its discontinued businesses. This commercial property is now being rented to third parties. Basis of Presentation - --------------------- The accompanying financial statements include the accounts of SonomaWest and its 85 percent-owned subsidiary, MINCO. The accompanying consolidated statements of operations for the year ended June 30, 1998, include the accounts of MINCO for the period from June 11, 1998, to June 30, 1998, now classified as discontinued operations. All significant intercompany transactions have been eliminated in consolidation. Discontinued Operations - ----------------------- In July 1999, the Company consummated the sale of its processed apple products business line to Tree Top, Inc. (see Note 2). Subsequent to the sale, the Company decided to discontinue its entire ingredients segment and began pursuing potential buyers for other product lines within this segment. In January 2000, the Company decided to discontinue its entire organic packaged goods business and sold a significant portion of MINCO's assets to Premier Valley Foods, Inc. (see Note 2). The Company's continuing operations consist solely of its real estate management and rental operations. As a result of these decisions, SonomaWest has classified its ingredients and organic packaged goods operations as discontinued operations for all years presented and, accordingly, has segregated the net assets and liabilities of the discontinued operations in the consolidated balance sheets as of June 30, 2000 and 1999. All corporate overhead costs are presented as a component of continuing operations for the periods presented. As of June 30, 2000, the Company has completed its winddown of discontinued operations and has disposed of all discontinued assets with the exception of certain inventories and fixed assets. All corporate overhead costs are presented as a component of continuing operations. F-6 Supplemental Statements of Cash Flows Information 2000 1999 1998 ------------- ---------------- ------------- Cash paid for: Interest $ 326 $ 528 $ 309 ============= ================ ============= Income taxes $ 420 $ 783 $ 657 ============= ================ ============= Supplemental disclosure of non-cash transactions: Repurchase of common stock through issuance $ - $ - $ 835 of notes payable ============= ================ ============= Details of acquisition of MINCO: Fair value of assets acquired $ - $ - $ 5,374 Liabilities assumed - - (3,964) Creditor debt subsequently converted to equity - - (517) Warrants issued - - (456) Accrued acquisition costs - - (101) ------------- ---------------- ------------- Cash paid - - 336 Less: Cash acquired - - (39) ------------- ---------------- ------------- Net cash paid for acquisition $ - $ - $ 297 ============= ================ =============
Inventories - ----------- Company inventories of $4,801 consisting of Perma-Pak food storage items, organic dried fruit items, and organic orange juice concentrate are priced using the first-in, first-out (FIFO) method, are fully reserved, and are included in discontinued operations. Property, Plant, and Equipment - ------------------------------ Property and equipment acquired in connection with the acquisition of Made In Nature were recorded at estimated fair value on the acquisition date. All other property, plant, and equipment are stated at cost. The remaining machinery and equipment of the ingredients segment are included in net assets of discontinued operations (see Note 2). Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets as follows: Buildings and improvements 5 to 40 years Machinery and equipment 3 to 15 years No depreciation is charged on property, plant, and equipment classified in discontinued operations. F-7 Rental property (excluding those assets classified as part of discontinued operations) consist of the following as of June 30: 2000 1999 ------------------ ----------------- Land $ 231 $ 231 Buildings and improvements 7,192 7,160 Office equipment 354 207 ------------------ ----------------- Total rental property 7,777 7,598 Accumulated depreciation (4,923) (4,509) ------------------ ----------------- Net rental property $ 2,854 $ 3,089 ================== ================= Included in rental property above is office equipment utilized in the Company's administrative offices. Improvements that extend the life of the asset are capitalized; other maintenance and repairs are expensed. The cost of maintenance and repairs was $113 in 2000, $1,041 in 1999, and $1,142 in 1998. Impairment of Long-Lived Assets - ------------------------------- The Company reviews long-lived assets and identifiable intangibles whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted cash flows associated with these assets. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the assets' carrying value, the assets are adjusted to their fair values (based upon discounted cash flows). During fiscal 1998, the Company acquired certain assets and liabilities of MINCO (Note 3). This acquisition was accounted for under the purchase method, with the excess of cost over management's estimated fair value of the net assets acquired of $3,103 allocated to goodwill. During 1999, management reviewed the estimated future cash flows related to this operation and deemed them to be insufficient to fully recover the carrying value of the assets acquired. Accordingly, the Company recognized a $2,935 impairment expense during the fourth quarter of fiscal 1999 to write-off all unamortized goodwill as of that date. Income Taxes - ------------ The Company records income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the Company to compute deferred taxes based upon the amount of taxes payable in future years after considering changes in tax rates and other statutory provisions that will be in effect in those years. Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available tax credit carryforwards. Revenue - ------- The Company recognizes rental income on a straight-line basis over the term of occupancy in accordance with the provisions of the leases. F-8 Stock-Based Compensation - ------------------------ 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 employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock Based Compensation." Earnings per Common Share - ------------------------- Basic earnings per common share are computed by dividing net earnings by the weighted average number of shares of stock outstanding during the period. Diluted earnings per common share include the impact of stock options using the treasury stock method, if dilutive. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards - ------------------------ In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement will be adopted effective July 1, 2000 and is not expected to materially impact the Company's financial statements. Reclassifications - ----------------- Certain reclassifications have been made to the 1999 and 1998 consolidated financial statements to conform to the current year presentation adopted for fiscal 2000 and as required with respect to discontinued operations. 2. DISCONTINUED OPERATIONS: In July 1999, the Company consummated an asset purchase agreement (the Purchase Agreement) with Tree Top, Inc. The Purchase Agreement governed the sale of all intangible assets (primarily trademarks, know-how, and customer lists) and certain of the equipment relating to the Company's processed apple products line. Although the Purchase Agreement excludes other product lines within the Company's ingredient segment, the Company decided to actively seek buyers for the remaining product lines of the ingredients segment and has discontinued production of all ingredients segment products. Consequently, the ingredients segment has been presented as a discontinued operation in the accompanying consolidated financial statements for all periods presented. The purchase price for the sale of the processed apple products line of $12 million was paid in cash at the closing date of the sale on July 30, 1999. In addition, equipment with a net book value of $1,478 was sold for $500, and apple product inventories with a cost of $1.7 million were purchased for $1.9 million. Tree Top, Inc. did not assume any of the Company's liabilities. In connection with the Purchase Agreement, the Company and certain shareholders, directors, and management have agreed not to compete with Tree Top, Inc. in processed apple product lines for a period of three to ten years. In addition, as part of the transaction, the Company sold the Vacu-dry trademark. Thus, the Company changed its name to SonomaWest Holdings, Inc. in December 1999. In February 2000, certain local apple growers filed suit against the Company and Tree Top, Inc. alleging that this sale and related activities created a monopoly in the dried apple business in violation of federal and California law. The growers are seeking treble damages, punitive damages, interest, and attorney fees, all in unnamed amounts. On August 4, 2000, the Company's motion to dismiss the complaint was granted with leave to amend. The Company feels the suit is without merit and intends to continue to defend itself vigorously should an amended complaint be filed. In the third quarter of fiscal 2000, the Company decided to dispose of its organic packaged foods operations. Accordingly, the organic packaged foods segment is included in discontinued operations in the accompanying consolidated financial statements for all periods presented. The Company received $1.1 million for all intellectual property, consisting of the Made In Nature brand name and all related trademarks, and certain dried fruit inventory of the organic packaged goods segment from Premier Valley Foods, Inc. in May 2000. Remaining assets of this segment consist primarily of organic orange juice concentrate inventories, which are being actively marketed by the Company for liquidation. F-9 Upon the disposal of the Company's remaining ingredients and organic packaged foods assets, the sole remaining line of business will be its real estate management and rental operations. During fiscal 2000, the Company recorded a net after-tax gain of $3.2 million from the sale of the processed apple product line and the disposal of the remaining product lines of the ingredients segment and the organic packaged foods segment. The net after-tax gain included $16.1 million of proceeds from the sales offset by: a) the write-down of assets related to the discontinued segments to their estimated net realizable value (assets which were impaired as a direct result of the decision to discontinue the segments); b) costs incurred in closing the discontinued segments (consisting primarily of severance costs, professional fees, relocation costs and lease buy-outs); c) estimated operating losses to be incurred during the wind-down period; and d) losses on sale of equipment. Summarized historical information of the discontinued operations is as follows:
Fiscal Year Ended June 30 ---------------- ----------------- ---------------- 2000 1999 1998 ---------------- ----------------- ---------------- Income statement data: Revenues $ 9,264 $ 37,879 $ 26,162 Costs and expenses (9,211) (41,943) (23,825) ---------------- ----------------- ---------------- Operating income 53 (4,064) 2,337 Income tax (provision) benefit (21) 1,894 (865) ---------------- ----------------- ---------------- Income (loss) from discontinued operations, net $ 32 $ (2,170) $ 1,472 of income taxes ================ ================= ================ Balance sheet data: June 30, 2000 June 30, 1999 ------------- ------------- Accounts receivable, net of reserves of $ - $ 2,614 $57 and $463 Inventories, net of reserves of $4,801 and $4,346 - 8,715 Prepaid expense - 323 ---------------- ----------------- Total current assets of discontinued - 11,652 operations ---------------- ----------------- Property, plant, and equipment, net 122 4,494 ---------------- ----------------- Total assets of discontinued operations 122 16,146 ---------------- ----------------- Accounts payable 234 3,841 Accrued payroll and related liabilities - 972 Capital lease liability for computer system - 799 Other accrued expenses - 237 Provision for severance, transaction costs, wind-down costs 394 - and other liabilities related to the decision to discontinue the segments ---------------- ----------------- Total liabilities of discontinued 628 5,849 operations ---------------- ----------------- Net assets (liabilities) of discontinued $ (506) $ 10,297 operations ================ =================
F-10 3. ACQUISITION OF MADE IN NATURE: On April 22, 1998, Made In Nature Company, Inc. (MINCO) was formed for the purpose of acquiring certain assets and liabilities of Made In Nature, Inc. On June 11, 1998, SonomaWest acquired the assets and certain liabilities of Made In Nature, Inc. In addition to the assumption of certain liabilities, SonomaWest paid $336 in cash and issued to Made In Nature, Inc. and its primary shareholder a total of 112 warrants to purchase SonomaWest's common stock at $8.00 per share, expiring through June 2003. The warrant price was equal to the market price of the Company's stock on June 11, 1998. The value assigned to the warrants at acquisition date was $456 and is included in equity as warrants for common stock. Subsequent to the purchase, the Company entered into an agreement with a creditor of Made In Nature, Inc. whereby this creditor converted its debt into a 15 percent equity interest in MINCO. The acquisition was accounted for using the purchase method of accounting. The excess of purchase price over the estimated fair values of assets acquired and liabilities assumed of $3,103 was recorded as goodwill and was being amortized on a straight-line basis over 20 years during fiscal 1999. During the fourth quarter of fiscal 1999, the Company's analysis showed that cash flow projections did not support the recorded value of MINCO goodwill. Consequently, a charge of $2,935 was recorded to write-off the unamortized balance of MINCO goodwill. The estimated fair value of assets acquired and liabilities assumed is summarized as follows: Assets: Current assets $ 2,230 Property and equipment 41 --------------- Total assets 2,271 --------------- Liabilities: Other current liabilities 1,369 Creditor debt subsequently converted to equity 517 Short-term notes payable 2,095 Other long-term debt 500 ------------- Total liabilities 4,481 ------------- Net liabilities acquired $ 2,210 =============== Goodwill is calculated as follows: Cash purchase price $ 336 Acquisition costs 101 Value of warrants issued 456 Excess of liabilities assumed over assets acquired 2,210 --------------- Goodwill $ 3,103 =============== The following unaudited pro forma condensed consolidated results of continuing operations for the year ended June 30, 1998 is presented as if the Made In Nature acquisition had been made at the beginning of the period. The unaudited pro forma information is not necessarily indicative of either the results of operations that would have occurred had the purchase been made at the beginning of fiscal 1998 or the future results of the combined operations. Consolidated results of operations for the years ended June 30, 2000 and 1999, are presented in the accompanying consolidated statements of operations in discontinued operations. 1998 ---------------- (unaudited) Net sales $ 4,767 Net loss (1,648) Basic loss per common share $ (1.04) F-11 4. BORROWINGS UNDER LINE OF CREDIT: Borrowings under the line of credit were secured by the Company's inventory and accounts receivable. Interest accrued monthly at the bank's prime lending rate. 2000 1999 -------------------------- ------------------------- Balance at June 30 $ - $5,745 Maximum amount available under the line of $ - $8,000 credit at June 30 Average borrowings $479 $3,684 Maximum borrowings $5,745 $5,851 Interest at Prime Prime Interest rate at June 30 - 7.75% Weighted average interest rate 7.75% 7.98% Expiration date December 31, 1999 November 1, 2000
In accordance with the covenants of the revolving line of credit note with the Company's bank, the Company could not, without prior written consent of the bank, declare or pay any dividend or distribution either in cash, stock, or any other property on the Company's stock. No dividends were declared in fiscal 2000, 1999, or 1998. Among the restrictions under the line of credit were provisions that required the Company to maintain certain financial ratios. The Company obtained a waiver for the repurchase of stock during fiscal 1998 (see Note 7) and amended a financial covenant during 1998 to remain in compliance with the agreement. The Company was in violation of a financial ratio covenant as of June 30, 1999 for which it obtained a waiver as of June 30, 1999. In August 1999, the line of credit was paid in full with a portion of the proceeds from the Tree Top sale. Consequently, the amount outstanding under the line as of June 30, 1999 is classified as current in the accompanying consolidated financial statements. In August 1999, the bank amended the line of credit agreement, reducing the maximum line of credit to $2,000. This amended line of credit expired on December 31, 1999 and was not renewed. 5. LONG-TERM DEBT: Long-term debt consists of the following: 2000 1999 --------------- --------------- Note payable: seven-year consolidation note, interest fixed at $ - $ 932 7.75 percent, interest and principal due monthly, paid in full in August 1999 Note payable: five-year note, interest at the yield of 30-day commercial - 434 paper plus 2.1 percent (7.29 percent at payoff), interest and principal due monthly, paid in full in August 1999 Notes payable: unsecured five-year notes resulting from repurchase of 564 835 stock, interest at 8.5 percent, interest due monthly, principal due in January 2003, paid in full in January and August 2000 Note payable: five-year note, interest synthetically fixed at 2,027 2,075 7.35 percent, interest and principal due monthly, maturing in December 2003, secured by real property --------------- --------------- Total 2,591 4,276 Less: Current maturities (617) (1,416) --------------- --------------- Long-term debt $ 1,974 $ 2,860 =============== ===============
The Company retired two shareholder notes totaling $271 in the third quarter of fiscal 2000 and retired the remaining stockholder note of $564 in August 2000. The real property loan is expected to be paid off based on its normal payment schedule. Interest expense related to the shareholder notes and the real property note is included in continuing operations. Remaining interest expense of $45 and $386, attributed to the ingredients and organic packaged foods segments, is included in earnings from discontinued operations for fiscal 2000 and 1999, respectively. F-12 The real property note includes an interest rate swap agreement in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts. The purpose of the swap is to manage the Company's interest cost. Under the agreement, the Company is obligated to pay the lower of the fixed or variable rate. The swap is designated to hedge the underlying debt obligation. The interest rate differential is reflected as an adjustment to interest expense over the life of the swap and is not material to the financial statements as a whole. Maturities of long-term debt are as follows: Year Ending June 30 ----------------- 2001 $ 617 2002 57 2003 61 2004 1,856 2005 - --------------- Total $ 2,591 =============== 6. INCOME TAXES: The following is a summary of the Company's provision for income taxes: 2000 1999 1998 ------------------- ------------- ------------- Current: Federal $ (60) $ 238 $ 486 State (18) 15 71 Deferred: Federal 1,448 (2,168) 49 State 436 (695) (76) ------------------- ------------- ------------- Provision (benefit) $ 1,806 $ (2,610) $ 530 =================== ============= ============= The components of the provision (benefit) related to continuing operations and discontinued operations are as follows: 2000 1999 1998 -------------- ------------- -------------- Continuing operations $ (316) $ (663) $ (336) Discontinued operations 2,122 (1,947) 866 -------------- ------------- -------------- Provision (benefit) $ 1,806 $ (2,610) $ 530 ============== ============= ============== A reconciliation of the income tax provision to the expected provision at the federal statutory income tax rate is as follows: 2000 % 1999 % 1998 % ------------------ -------- ------------ -------- ------------ ------ Provision (benefit) at federal statutory rate $ 1,535 34% $ (2,056) 34% $ 486 34% State taxes, less federal tax benefit 260 6 (370) 6 88 6 Tax credits and other 11 - (184) 3 (44) (3) ------------------ -------- ------------ -------- ------------ ------ Total provision (benefit) $ 1,806 40% $ (2,610) 43% $ 530 37% ================== ======== ============ ======== ============ ======
F-13 Temporary differences that gave rise to deferred tax assets and liabilities for 2000 and 1999 were as follows: 2000 1999 -------------- -------------- Deferred tax assets: Employee benefit accruals $ 15 $ 155 Unicap and inventory reserves 354 1,741 Tax credit carryforwards - 117 State income taxes - 20 Bad debt reserves 28 186 Discontinued operations reserves 204 - Goodwill - 963 Other 20 10 -------------- -------------- Total deferred tax assets 621 3,192 -------------- -------------- Deferred tax liabilities: Depreciation (147) (782) Property taxes - (52) -------------- -------------- Total deferred tax liabilities (147) (834) -------------- -------------- $ 474 $ 2,358 ============== ==============
7. STOCK REPURCHASE: During the year ended June 30, 1998, the Company repurchased 139 shares from three existing shareholders in exchange for notes payable in the amount of $835. The purchase price was determined based upon the market price at or about the time of the negotiated transaction. There were no repurchases during fiscal 1999 or fiscal 2000. 8. STOCK APPRECIATION RIGHTS PLAN: The Company has a stock appreciation rights (SAR) plan as an incentive for key employees. Under the SAR plan, key employees are granted rights entitling them to market price increases in the Company's stock. At June 30, 2000 and 1999, 100 SARs were authorized. The Company has not granted SARs since 1995, and all employees holding SARs were among those terminated during fiscal 2000 in connection with the discontinuation of the ingredients segment. As a result, all remaining SARs were canceled during fiscal 2000. F-14 A summary of the outstanding SARs is as follows: Rights Outstanding at June 30 -------------------------- Price per Right 2000 1999 ------------- ------------ $2.69 - 2 3.75 - 1 4.63 - - 8.88 - 1 9.63 - 3 ------------- ------------ - 7 ============= ============ All rights are granted at fair market value at the date of grant. Rights generally vest ratably over a period from the second to the sixth anniversary date of the grant. The SAR liability and expense or credit recorded quarterly is based on the market price of the Company's stock as of the balance sheet date. In 2000, 1999, and 1998, the Company increased (decreased) operating costs by $0, ($41), and $43, respectively, in order to reflect the current SAR liability. 9. EMPLOYEE STOCK PURCHASE PLAN: The Employee Stock Purchase Plan enables substantially all employees to purchase a specified number of shares of the Company's common stock at 85 percent of the market value on the first or last business day of the quarterly offering period, whichever is lower. A maximum of 100 shares is authorized for issuance over the ten-year term of the plan that began on January 1, 1994. At June 30, 2000, 38 shares remain available for purchase under the plan. The following shares were issued under the terms of the plan during the three fiscal years ending June 30: Shares Average Price Issued per Share ---------- ------------------ 2000 3 $5.19 1999 8 6.34 1998 7 4.98 10. EMPLOYEE STOCK OPTION PLAN: During 1996, the Board of Directors (the Board) approved a stock option plan (the Plan) for employees and nonemployee consultants authorizing issuance of options for up to 90 shares of common stock. In 1998, the Plan limit was increased to 150 shares of common stock. In 1999, the Plan limit was increased to 275 shares of common stock. The Plan includes incentive stock options (ISOs) and nonqualified stock options (NSOs). Some of the terms and conditions of the Plan are different for ISOs and NSOs. The purchase price of each ISO granted will not be less than the fair market value of the Company's common shares at the date of grant. The purchase price of each NSO granted shall be determined by the Board in its absolute discretion, but in no event shall such price be less than 85 percent of the fair market value at the time of grant. NSO and ISO options granted have a ten-year life from the date of grant. Vested options can be exercised until the earlier of: 1) their expiration; or 2) 90 days from the termination of the employment or consulting relationship. Options normally vest in 25% annual increments from the date of hire. The number of shares available for granting future options was 128 as of June 30, 2000, 64 as of June 30, 1999, and 61 as of June 30, 1998. During May 1999, the Company modified its 1996 Stock Option program (the Plan) to include all nonbargaining employees. The modification allowed all employees who were employed as of April 26, 1999, to participate in the Plan, resulting in the issuance of 123 stock options. F-15 A summary of the status of the Company's stock option plan at June 30, 2000, and changes during the year ended are presented in the table below: Weighted Average Options Exercise Price --------------------- -------------------- Balance, June 30, 1999 211 $6.73 Granted 32 5.63 Cancelled (95) 8.00 Exercised - - --------------------- -------------------- Balance, June 30, 2000 148 $ 5.68 ===================== ==================== Options outstanding, exercisable, and vested by price range at June 30, 2000, are as follows:
Weighted Average Weighted Average Options Options Vested Remaining Fair Value of Outstanding at and Exercisable Contractual Life Options Granted, at Exercise Price June 30, 2000 at June 30, 2000 (Years) Grant Date - ---------------- ----------------- ------------------ ------------------- --------------------- $ 5.00 104 104 5.5 $ 1.94 5.28 2 - 9.8 2.10 6.30 15 - 9.4 2.47 8.00 27 7 8.8 4.24 ----------------- ------------------ --------------------- 148 111 $ 2.42 ================= ================== =====================
The Company accounts for the Plan under APB Opinion No. 25, under which no compensation cost has been recognized for employee grants of options under the plan. Had compensation cost for the Plan been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts: 2000 1999 1998 --------------- ---------- ------------ Net income (loss): As reported $ 2,710 $ (2,929) $ 899 Pro forma 2,550 (2,995) 854 Basic earnings per share: As reported 1.78 (1.93) 0.57 Pro forma 1.68 (1.98) 0.54 Diluted earnings per share: As reported 1.75 (1.93) 0.56 Pro forma 1.65 (1.98) 0.53 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted-average assumptions used for the 2000, 1999 and 1996 grants, respectively: weighted average risk-free interest rate of 6.19, 5.13 and 6.61 percent; expected dividend yield of 0 percent; expected life of four years for the Plan options; and expected volatility of 39.54, 63.85 and 37.44 percent. 11. EARNINGS PER SHARE CALCULATION: The Company computes earnings per share in accordance with SFAS No. 128, "Earnings per Share." In 2000, 1999 and 1998, the effect of potentially dilutive stock options and warrants has not been computed where the effect would be anti-dilutive due to a loss from continuing operations, discontinued operations and/or a net loss. F-16 12. COMMITMENTs: The Company leases office space under an operating lease that expires in 2004. At June 30, 2000, future minimum rental payments for the operating lease are as follows: Operating Lease 2001 $ 176 2002 176 2003 176 2004 81 2005 - -------------------------- $ 609 ========================== Rental expense under operating leases was $176 in 2000, $403 in 1999, and $259 in 1998. The Company has been leasing warehouse space, generating revenues of $1,197 in 2000, $665 in 1999, and $518 in 1998. The leases have varying terms, which range from month-to-month to expiration dates through 2007. Future minimum lease income as of June 30, 2000, is as follows: Year Ending June 30 -------------- 2001 $ 765 2002 581 2003 553 2004 553 2005 522 Thereafter 385 --------------- Total $ 3,359 =============== The Company has contingently committed to a $3,000 investment in a privately-held telecommunications company, MetroPCS, Inc., which will be funded in fiscal 2001 if certain agreed-upon contingencies are satisfied. 13. RETIREMENT PLANS: The Company has a contributory retirement savings and profit sharing plan covering nonunion employees. The Company contributes one and one-half times the first 3 percent of employee contributions to the retirement savings plan. Profit-sharing contributions are derived using a specific formula based upon the Company's earnings. Company contributions to the retirement savings and profit sharing plan are funded currently and were approximately $58 in 2000, $160 in 1999, and $148 in 1998. The employer's contributions for any fiscal year may not exceed the amount lawfully deductible by the Company under the provisions of the Internal Revenue Code. The Company contributed to a defined contribution plan for employees covered by collective bargaining agreement. These contributions, funded currently, were $144 in 2000, $628 in 1999, and $477 in 1998, and were included in discontinued operations. 14. RELATED-PARTY TRANSACTIONS: A member of the Company's Board is a member of the law firm that serves as the Company's general counsel. During 2000, 1999, and 1998, the Company incurred $271, $124, and $168, respectively, for legal services from this firm and from another firm of which the director was a member prior to October 16, 1999. Amounts payable to this firm as of June 30, 2000, totaled $25. During fiscal 1999, the Company incurred $150 for consulting services from a current shareholder of the Company. F-17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Items 10, 11, 12 and 13. The information required in Items 10, 11, 12 and 13 will be included in the definitive Proxy Statement for Registrant's 2000 Annual Meeting of Shareholders or in an amendment to the Form 10-K. The information required in this Part III will be filed with the Securities and Exchange Commission no later than 120 days after the end of the Company's fiscal year. PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K. I. Documents filed as part of this Report: (a)(1) Financial Statements The information required by this Item appears in Item 8 of this Annual Report on Form 10-K. (a)(2) Financial Statement Schedules Financial statement schedules not included herein have been omitted because of the absence of conditions under which they are required or because the required information, where material, is shown in the financial statements or notes thereto. Schedule No. Description - ----------------------------------- Schedule III* Real Estate and Accumulated Depreciation. * Schedule included after signature page. (a)(3) Exhibits Exhibit No. Document Description - -------------------------------------------- 3.1 Articles of Incorporation, as amended to date 3.2(1) ByLaws, as amended to date 10.1(2) Employment Agreement between Vacu-dry Company and Gary L. Hess, dated March 14, 1996 10.2(1) Stock Appreciation Rights Plan 10.3(3) 1996 Stock Option Plan, as amended 10.4(4) 1993 Employee Stock Purchase Plan 10.5(5) Agreement dated June 11, 1998 between MIN Acquisition Corp., Vacu-dry Company and Global Walk, Inc. 10.6(5) Co-Sale Agreement dated June 11, 1998 between Vacu-dry Company and Global Walk, Inc. 10.7(5) Asset Purchase Agreement dated June 11, 1998 between Vacu-dry Company, MIN Acquisition Corp., Made In Nature, Inc. and Gerald Prolman 10.8(5) Warrant to Purchase Common Stock dated June 11, 1998 issued by Vacu-dry Company to Made In Nature, Inc. 10.9(5) Warrant to Purchase Common Stock dated June 11, 1998 issued by Vacu-dry Company to Gerald E. Prolman 10.10(6) Asset Purchase Agreement dated June 21, 1999 between Vacu-dry Company and Tree Top, Inc. 10.11 June 20, 1999 Amendment to Employment Agreement between Vacu-dry Company and Gary L. Hess dated March 14, 1996 10.12 Asset Purchase Agreement dated May 25, 2000 between Premier Valley Foods, Inc., Made In Nature Company, Inc., and SonomaWest Holdings, Inc. 11 Computation of Per Share Earnings 21 Subsidiaries of the registrant 23 Consent of Independent Public Accountants 27 Financial Data Schedule (EDGAR Filing Only) - --------------------- (1) Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 (2) Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (3) Incorporated by reference to the registrant's Registration Statement on Form S-8 (No. 333-84295) filed on August 2, 1999 (4) Incorporated by reference to the registrant's Registration Statement on Form S-8 (No. 033-70870) filed on October 27, 1993 (5) Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (6) Incorporated by reference to Annex A to the registrant's Consent Statement on Schedule 14A filed on July 14, 1999 (b) Reports on Form 8-K During the quarter ended June 30, 2000, the Company did not file any reports on Form 8-K. 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. Date: September 25, 2000 SONOMAWEST HOLDINGS, INC. By: /s/ Gary L. Hess ----------------------------- Gary L. Hess Chief Executive Officer President Chief Financial 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 dates indicated. SIGNATURES TITLE DATE - ---------- ----- ---- /s/ Gary L. Hess Chief Executive Officer, September 25, 2000 - -------------------- Chief Financial Officer, President Gary L. Hess and Director /s/ Roger S. Mertz - -------------------- Director September 25, 2000 Roger S. Mertz /s/ Fredric Selinger - -------------------- Director September 25, 2000 Fredric Selinger /s/ Craig Stapleton - -------------------- Director September 25, 2000 Craig Stapleton SCHEDULE III SonomaWest Holdings, Inc. REAL ESTATE AND ACCUMULATED DEPRECIATION June 30, 2000 (DOLLARS IN THOUSANDS)
Column A Column B Column C Column D Column E Column F Column G Column H Column I Costs Gross Amount at Subsequently which Carried at Initial Cost to Company Capitalized Close of Year --------------------------------------------------------------------- -------------------------------------------------------------------------------- Bldgs Bldgs Life on and and Total Accumulated Year of Year which Description Encumbrances Land Improve- Improve- Land Improve- (Note 1) Depre- Cons- Acquired Depre- ments ments ments ciation truction ciation is Computed - ----------------------------------------------------------------------------------------------------------------------------------- 1365 Gravenstein 2,027 72 308 879 72 1,187 1,259 859 N/A 1964 5-40 Hwy. So. Sebastopol, CA 2064 Gravenstein - 159 2,312 3,693 159 6,005 6,164 3,967 N/A 1983 5-20 Hwy. No. Sebastopol, CA ----------------------------------------------------------------------------------------------------------- 2,027 231 2,620 4,572 231 7,192 7,423 4,826 =========================================================================================================== Note 1. The changes in the total cost of land, buildings, and improvements for the three years ended June 30, are as follows: 2000 1999 1998 ---- ---- ---- Balance at beginning of period 7,391 7,019 6,971 Additions 32 372 48 --------------------------- Balance at end of period 7,423 7,391 7,019 =========================== Note 2. The changes in accumulated depreciation for the three years ended June 30, are as follows: 2000 1999 1998 ---- ---- ---- Balance at beginning of period 4,465 4,143 3,826 Depreciation expense 361 322 317 ----------------------------- Balance at end of period 4,826 4,465 4,143 =============================
EX-3.1 2 0002.txt ARTICLES OF INCORPORATION ARTICLES OF INCORPORATION OF SONOMAWEST HOLDINGS, INC., a California corporation ONE: The name of this corporation is SonomaWest Holdings, Inc. TWO: The purpose for which this corporation is formed are: (a) To own, lease or otherwise acquire and to manage, operate and control dehydrating, canning, packaging and any and all other kinds of food processing equipment; to carry on a general business and deal in and with dehydrating, canning, packing, manufacturing, treating, working, refining and processing and packaging in any way all kids of food products, and to carry on any other business of a similar or related nature or capable of being conveniently carried on in connection with the foregoing, or calculated directly or indirectly to enhance the value of the property or rights of this corporation, or to make more efficient or more profitable the operations of this corporation. (b) To adopt, apply for, obtain, register, purchase, lease, or otherwise acquire, and to maintain, protect, hold, use, own, exercise, develop, operate and introduce, and to sell or grant licenses or other rights in respect of, trade-marks, trade names, patents, patent rights, copyrights, and distinctive works and rights analogous thereto, and inventions, improvements, processes, designs, systems, plans, methods, ideas, formulas, and the like, including such thereof as may be covered by, used in connection with, or secured or received under, Letters Patent of the United States of America, or elsewhere, or otherwise, which may be deemed capable of use in connection with the business of this corporation, and to acquire, use, exercise or otherwise turn to account licenses in respect of any such trademarks, trade names, patents, patent rights, copyrights, and distinctive works and rights analogous thereto, and inventions, improvements, processes, designs, systems, plans, methods, ideas, formulae and the like; (c) Without restriction as to limit or amount, to acquire, by purchase, lease or otherwise, and to own, hold, sell, convey, mortgage, transfer in trust, exchange, lease, rent, work, improve, develop, cultivate, and otherwise handle, deal in and dispose of all kinds of improved and unimproved real property and any interest or right therein, wherever situate; to survey, subdivide, plat and improve and same for the purpose of use, sale, or otherwise, and to construct and erect thereon factories, works, plants, mills, hotels, stores, houses, buildings or structures of any nature whatsoever; (d) Without restriction as to limit or amount, to acquire, by purchase, lease, hire, or otherwise, and to manufacture, own, use, hold, and to sell, lease, rent, exchange, transfer in trust, assign, convey, pledge, hypothecate, mortgage, or otherwise deal in and with or dispose of goods, wares, merchandise, and chattels, chattels real, choses in action, franchises, concessions and other privileges, things and property, and personal property of every kind and nature, and of any interest or right therein, capable of private ownership, wherever situate; (e) To acquire, by purchase or subscription, or in exchange for shares of its own stock, or otherwise, and to own, hold for investment, deal in or with, guarantee, secure the payment and satisfaction of, endorse, assign, transfer in trust, pledge, hypothecate, mortgage, or otherwise dispose of, shares of stock, voting trust certificates for shares of stock, bonds, coupons, debentures, debenture stock, notes, trust receipts, mortgages, deeds of trust, or any other securities or other obligations or evidences of indebtedness of any person, or of any corporation, organization, firm, or association organized under the laws of the State of California or of any other state, district, territory, dependency or country or subdivision or municipality thereof, which may have been or which may be created for any purpose or purposes whatsoever; to aid, in any manner or way, any person, corporation, organization, firm or association whose shares of stock, voting trust certificates for shares, notes, trust receipts, mortgages, deeds of trust, or any other securities or other obligations or evidences of indebtedness are so held or are in any manner guaranteed by the corporation, or otherwise, and to do any other acts or things for the preservation, protection, improvement or enhancement of the value of any such shares of stock, voting trust certificates for shares of stock, bonds, coupons, debentures, notes, trust receipts, mortgages, deeds of trust, or any other securities or other obligations or evidence of indebtedness or to do any acts or things designed for any such purposes; and, while the owner or holder thereof to exercise all the rights, powers and privileges of such ownership or holding, and to exercise any and all voting power thereon, and to issue in exchange therefor its own shares of stock, bonds, coupons, debentures, debenture stock, notes, trust receipts, mortgages, deeds of trust, and other securities and obligations and evidences of indebtedness or otherwise; (f) To draw, make, accept, endorse, discount, guarantee, execute and issue promissory notes, bills of exchange, checks, drafts, warrants, bills of lading, warehouse receipts and all kinds of obligations and certificates and negotiable or transferable instruments; (g) To issue shares of any class of the capital stock, voting trust certificates for shares of stock, bonds, coupons, debentures, debenture stock, notes, trust receipts, and any other securities and other obligations and evidences of indebtedness of the corporation, for cash, for labor done, for property, real or personal, or for leases or rentals thereof, or for any combination of any of the foregoing, or in exchange for the stock, voting trust certificates for shares of stock, bonds, coupons, debentures, debenture stock, notes, trust receipts, or any other securities or other obligations or evidences of indebtedness of any person, firm, association, corporation or organization; (h) To purchase, hold, cancel, reissue, sell, exchange, transfer or otherwise deal in, shares of its own capital stock, voting trust certificates therefor, and its own bonds, coupons, debentures, debenture stock, notes, trust receipts, mortgages, deeds of trust and other securities or other obligations and evidences of indebtedness from time to time to such an extent and in such a manner and upon such terms as its Board of Directors shall determine; provided that the corporation shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital, except as provided or permitted by law; provided further, that shares of its own capital stock belonging to the corporation shall not be voted upon directly or indirectly, nor counted as outstanding, for the purpose of computing any stockholders quorum or vote; (i) To borrow money and contract debts for any of the purposes of the corporation, including the acquisition of property, and to issue bonds, coupons, debentures, debenture stock, notes, trust receipts or other securities or other obligations or evidences of indebtedness therefor, and to secure the same by pledge, mortgage, deed of trust, or otherwise of the whole or any part of the real or personal property of the corporation, or to issue bonds, debentures, notes, trust receipts, or other securities or other obligations or evidences of indebtedness without security; (j) To loan money, and to take notes, trust receipts or other obligations or evidences of indebtedness therefor either without security or secured by bonds, debentures, mortgages, deeds of trust, pledges, or otherwise; (k) To organize or cause to be organized under the laws of the State of California, or of any other state, territory, dependency, province, nation or government, or the District of Columbia, a corporation or corporations for the purpose of accomplishing any or all of the objects for which the corporation is organized, and to wind up, liquidate, merge, consolidate, or dissolve any such corporation or corporations or to cause the same to be wound up, liquidated, merged, consolidated or dissolved; (l) To enter into, make, perform and carry out contracts of every kind, for any lawful purpose, with any person, corporation, organization, firm or association, including joint adventure, partnership and limited partnership contracts; (m) To act as financial, commercial or general agent for other corporations engaged in business similar or allied to that of the corporation, or engaged in any business in which any product of the corporation is employed, or engaged in the production of anything used in the business of the corporation; (n) To procure the prosecution, defense and settlement of actions at law or in equity; (o) To have one or more offices and to carry on any or all of its operations and business; (p) To do any and all things herein set forth and, in addition such other acts and things as are necessary, convenient or proper for, or incidental to the attainment of the purposes of the corporation, or any of them, to the same extent as natural persons lawfully might or could do in any part of the world, insofar as such acts are permitted to be done by a corporation organized under the general corporation laws of the State of California and in general to carry on any other business in connection therewith, whether manufacturing or otherwise, not forbidden by the laws of the State of California and with all the powers conferred upon corporations by the laws of the State of California; The foregoing clauses shall be construed both as objects and powers; and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of the corporation; and it is intended that the purposes, objects and powers specified in each of the clauses of this ARTICLE TWO of these Articles of Incorporation, shall, except as otherwise expressly provided, in no wise be limited or restricted by reference to or inference under the terms of any other clause of this Article or of any other article of these Articles of Incorporation, but that, except as otherwise expressly provided, each of the purposes, objects and powers specified in this Article and each of the articles or clauses of these Articles of Incorporation shall be regarded as independent purposes, objects and powers. THREE: The county in the State of California where the principal office for the transaction of the business of this corporation is to be located is in the County of Alameda. FOUR: This corporation is authorized to issue Five Million shares of common stock, and Two Million Five Hundred Thousand shares of preferred stock. The Board of Directors may issue the preferred stock in one or more series and may determine the rights, preferences, privileges and restrictions granted to, or imposed upon, any wholly unissued series of preferred stock. Upon the amendment of this article to read as herein set forth, each outstanding share is converted into or reconstructed as one common share. FIVE: The number of Directors of this corporation until changed by a by-law duly adopted by the voting shareholders of this corporation is three (3). The names and addresses of the persons who are hereby appointed to act as the first directors of this corporation are: NAME ADDRESS W.E.G. GALLWEY 950 Fifty-sixth Street Oakland 8, California FRANK P. ADAMS 950 Fifty-sixth Street Oakland 8, California ROBERT L. INGRAM 1924 Franklin Street Oakland, California SIX: The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. SEVEN: This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through by-law provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholder. EX-10.11 3 0003.txt EMPLOYMENT AGREEMENT VACU-DRY COMPANY 100 Stony Point Road, Suite 200 Santa Rosa, California 95401 June 20, 1999 Mr. Gary L. Hess c/o Vacu-dry Company 100 Stony Point Road, Suite 200 Santa Rosa, California 95401 Dear Gary: This will confirm our agreement regarding the amendment of your employment letter dated March 14, 1996 in the following respect: The provision relating to Termination is amended to read as follows: In the event your employment is terminated by the company prior to June 17, 2002, for any reason other than cause or other than upon your resignation, you shall be entitled to continued salary at the minimum base salary provided above for that number of months which remain between the date of termination and June 17, 2002, but not less than six. This amendment is subject to the closing of the company's agreement with Tree Top, Inc. dated June 17, 1999 relating to the sale of the company's processed apple product line. In the event that transaction does not close, this amendment to your employment letter shall be null and void. If the foregoing reflects our understanding, please execute and return to me the enclosed copy of this letter. Very truly yours, VACU-DRY COMPANY By /s/ William Burgess -------------------- William Burgess Vice President Accepted and agreed to: /s/ Gary L. Hess - ------------------------- Gary L. Hess EX-10.12 4 0004.txt ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is entered into as of May 25,2000 by and between PREMIER VALLEY FOODS, INC., a Delaware corporation ("Buyer"), and MADE IN NATURE COMPANY, INC., a California corporation ("Seller"'), and SONOMAWEST HOLDINGS, INC., a California corporation (the "Shareholder") with reference to the following facts: R E C I T A L S : ----------------- A. Seller is engaged in the business of producing, packing and distributing various consumer food products under the trademark "Made in Nature" and various related marks (the "Business"). B. Buyer is also in the business of producing, packing and distributing various consumer food products, and Buyer and Seller are parties to that certain Manufacturing/Packing Agreement dated September 22, 1999 (the "Co-Pack Agreement") under which Buyer packs and distributes dried fruits and vegetables for Seller under the "Made in Nature" trademark. C. Seller desires to transfer its intellectual property rights associated with the trademark "Made in Nature" and various related marks and its dried fruit inventories as more particularly described in Section 1.1 of this Agreement and to transfer certain related obligations and liabilities of Seller in connection therewith on the other terms and conditions hereinafter set forth. D. Buyer desires to acquire such assets and is willing to assume such obligations and liabilities under the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained in this Agreement, the parties agree as follows: 1. PRINCIPAL TERMS 1.1. Assets to be Purchased. Subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, convey, transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from Seller, the following assets and properties of the~ Business (the "Acquired Assets"), which shall include, without limitation: (a) All intellectual property rights of Seller, including without limitation, the trademark "Made in Nature" and any related marks, as more particularly described on the attached Schedule 1.1(a) ("Intellectual Property Rights"). (b) Seller's entire inventory of dried fruit (including raw material inventories, finished goods inventories and packaging materials inventories) as more specifically described on the attached Schedule 1.1(b) (the "Inventories"). (c) All goodwill related to the Business to the extent that it relates to the Intellectual Property Rights. 1.2. Liabilities. Subject to the provisions of this Agreement, Buyer shall not assume any of Seller's obligations except the liabilities described on Schedule 1.2 (each of the foregoing assumed obligations collectively referred to as the "Assumed Liabilities"). With the exception of the Assumed Liabilities, Buyer shall not assume any liability or obligation arising out of occurrences prior to the Closing Date. 1.3. Purchase Price. 1.3.1 The purchase price for the Intellectual Property Rights shall be $750,000 and the purchase price for the Inventories shall be $317,944.42. In the event that any of the Inventories are not already located in Buyer's facilities, such Inventories shall be shipped to Buyer's facilities at Buyer's sole cost and expense under arrangements made strictly between Buyer and the third parties where the Inventories are located. 1.3.2 Upon the terms and subject to the conditions contained in this Agreement, in consideration for the Acquired Assets and in full payment therefor, Buyer shall (i) assume the Assumed Liabilities as provided in Section 1.2 of this Agreement, and (ii) deliver to Seller on the Closing Date by wire transfer of funds by Buyer to Seller's designated bank account, the amount determined pursuant to Section 1.3.1. 1.4. Allocation. The Purchase Price for the Acquired Assets shall be allocated as follows: $750,000 shall be allocated to Intellectual Property Rights and the balance of the purchase price shall be allocated among the Inventories as provided on the attached Schedule 1.1(b). Each of the parties agrees to report this transaction for federal and state tax purposes in accordance with the allocation of the Purchase Price set forth herein. 1.5. Termination of Co-Pack Agreement. The Co-Pack Agreement shall be deemed terminated effective as of the Closing. 2. REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES Seller and Shareholder, jointly and severally, represent and warrant that: 2.1. Due Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Seller has all requisite corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Documents and to consummate the transactions contemplated hereby and thereby. Seller has the requisite corporate power and authority and all licenses and permits necessary to own or lease and operate the Acquired Assets and carry on the Business as it is presently being conducted. Seller does not have and has never had any subsidiaries or affiliated companies. 2.2. Due Authorization. The execution, delivery and performance by Seller of this Agreement and the other documents provided for herein and the consummation of the transaction contemplated hereby and thereby have been duly authorized by all requisite corporate action. This Agreement and the other documents to which any of the Selling Parties are a party have been duly executed and delivered by Selling Parties, and constitute or will constitute, as the case may be, valid and binding obligations of Selling Parties, enforceable in accordance with their respective terms. 2.3. Financial Statements. 2.3.1 Attached as Schedule 2.3 hereto are true, correct and complete copies of (i) an internally prepared balance sheet of the Seller as of June 30, 1999 (the "Balance Sheet") and the related income statement for the 12-month period then ended, and (ii) an internally prepared balance sheet of the Seller as of March 31, 2000 (the "Interim Balance Sheet") and the related income statement for the three-month period then ended. Such financial statements present fairly the financial position and results of operations of the Seller at the dates and for the periods to which they relate and have been prepared in accordance with accounting principles consistently applied. 2.3.2 As of the date of the Interim Balance Sheet, the Seller had no material liability of any nature, whether known or unknown and whether accrued, absolute, contingent or otherwise, of a type which should be reflected in the Interim Balance Sheet that was not fully disclosed, reserved against or reflected therein. The Seller has not incurred any such material liability since the date of the Interim Balance Sheet, except for any liability that has arisen in the Ordinary Course of Business since such date. 2.4. Absence of Certain Changes and Events. Since the date of the Interim Balance Sheet and until the date of this Agreement, there has not been any: (a) Transaction by Seller relating to the Business or the Acquired Assets except in the ordinary course of business as conducted on that date; (b) Destruction, damage to, or loss of any asset of Seller (whether or not covered by insurance) that materially and adversely affects the financial condition, business, or prospects of the Business; (c) Amendment or termination of any contract, agreement, or license to which Seller is a party relating to or affecting the Acquired Assets- (d) Mortgage, pledge, or other encumbrance of any of the Acquired Assets; (e) Waiver or release of any right or claim of Seller relating to or affecting the Acquired Assets; (f) Commencement or notice or threat of commencement of any civil litigation or any governmental proceeding against or investigation of Seller or the Shareholders relating to or affecting the Acquired Assets; (g) Agreement by Seller to do any of the things described in the preceding clauses (a) through (f); or (h) Other event or condition of any character that has or might reasonably have a material and adverse effect on the financial condition, business, assets, liabilities, or prospects of the Business. 2.5. Consents. No consent, license, approval or authorization of, or registration or declaration with, any governmental authority, agency, bureau or commission, or any third party, is required to be obtained or made by Selling Parties in connection with the execution, delivery, performance, validity, and enforceability of this Agreement or the consummation of the transactions contemplated by this agreement. 2.6. Title to Assets. Except as set forth on the attached Schedule 2.6, Seller has good and marketable title to the Acquired Assets, and all the Acquired Assets are free and clear of restrictions on or conditions to transfer or assignment, and free and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims, easements, rights of way, covenants, conditions, or restrictions, except for (1) those disclosed in the Balance Sheet or the Interim Balance Sheet; (2) the lien of current taxes not yet due and payable; and (3) possible minor matters that, in the aggregate, are not substantial in amount and do not materially detract from or interfere with the present or intended use of the Acquired Assets or materially impair the Business. None of the Shareholder; nor any officer, director, or employee of Seller or Shareholder; nor any spouse, child, or other relative of any of these persons, owns, or has any interest, directly or indirectly, in the Inventories or any copyrights, patents, trademarks, trade names, or trade secrets used by Seller in connection with the Business. 2.7. Compliance with Other Instruments and Laws. Seller is not in violation of any term of any charter, by-law, mortgage, indenture, instrument, agreement, judgment, decree or order or of any law, ordinance, rule or governmental regulation (including without limitation those relating to environmental protection, pollution, sanitation, conservation, hazardous substances, or contaminants) applicable to Seller which violation would materially interfere with Buyer's use of the Acquired Assets or operation of the Business, or result in a material fine, penalty or other liability. Seller has all approvals, and is in compliance with, all consents, permits, licenses, orders, ratings, authorizations and approvals of, or registration or declarations with, all governmental authorities, agencies, bureaus, commissions or regulatory bodies which are necessary for it to operate the Business as presently operated (collectively, the "Approval") and which are necessary to sell the Acquired Assets free from any and all claims and liens of third parties. 2.8. Litigation. Except as set forth on Schedule 2.8 hereto, there are no actions, suits, claims, proceedings or governmental investigations against Seller with respect to the Acquired Assets, or to which the Acquired Assets are subject, before any court or governmental agency or authority, pending or, to the knowledge of Selling Parties threatened, which could have an adverse effect on the Acquired Assets. 2.9. Inventory. All of the classes of goods included within the Inventories, whether or not reflected in the Balance Sheet or the Interim Balance Sheet, consist of a quality and quantity usable and salable in the ordinary course of business. All of such goods have been priced at the lower of cost or market on a first-in, first-out basis. The quantities of each item included within such inventories (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Business. 2.10. Intellectual Property. (a) Schedule 1.1(a) contains a complete and accurate list and summary description of all marks used by Seller in connection with the Business. Seller is the owner of all right, title, and interest in and to each of such marks, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims. (b) All marks listed on Schedule 1.1(a) have been registered (or applications for registration have been filed) with the United States Patent and Trademark Office, or the comparable govern-mental body in any foreign jurisdiction listed on the attached Schedule 1.1(a) and are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. (c) No mark listed on Schedule 1.1(a) has been or is now involved in any opposition, invalidation, or cancellation and, to Sellers' knowledge, no such action is threatened with the respect to any of such marks. (d) To Selling Parties' knowledge, there is no potentially interfering trademark or trademark application of any third party. (e) No mark listed on Schedule 1.1(a) is infringed or, to Selling Parties' knowledge, has been challenged or threatened in any way. No mark listed on Schedule 1.1(a) infringes or is alleged to infringe any trade name, trademark, or service mark of any third party. (f) All products and materials containing a mark listed on Schedule 1.1(a) bear the proper registration notice where permitted by law. 2.11. Taxes. Within the times and in the manner prescribed by law, Seller has filed all federal, state, and local tax returns required by law and has paid all taxes, assessments, and penalties due and payable. The federal and state income tax returns of Seller have not been audited by the Internal Revenue Service or any state taxing authority The provisions for taxes reflected in the balance sheet included in the Interim Financial Statements, are adequate for any and all federal, state, county, and local taxes for the period ending on the date of that balance sheet and for all prior periods, whether or not disputed. There are no present disputes as to taxes of any nature' payable by Seller. 2.12. Contracts. Seller has delivered to Buyer a copy of (or provided a written description of any oral) (a) mortgage, indenture, note or installment obligation or other instrument or contract primarily related to the Acquired Assets, (b) guaranty of any obligation by Seller or any of the Selling Shareholders or other person with respect to the Acquired Assets, (c) agreement or arrangement limiting in any way the freedom of Selling Parties to sell any of the Acquired Assets or to compete in any line of business, with any person or other entity or in any geographical area, which is presently in effect, (d) license agreements to which Seller is a party and which relate to the Acquired Assets; and (e) any other agreements relating to the Acquired Assets or the Business under which Seller is obligated to render, or is entitled to receive, or is expected to render or receive any performance on or after the Closing Date. A list of the items described by the previous sentence ("Contracts") is set out on Schedule 2.12. All of the Contracts are in full force and effect and, as to each such Contract, there does not exist thereunder any default by Seller or, to the knowledge of Selling Parties, any other party thereto. Except as set forth on Schedule 2.12, no consents by any party to a Contract listed on Schedule 2.12 are required in connection with the transactions contemplated by this Agreement. 2.13. Insurance. Schedule 2.13 to this Agreement is a description of all insurance policies held by Seller concerning the Business and the Acquired Assets. All of these policies are in the respective amounts set forth on Schedule 2.13. Seller has maintained and now maintains (i) insurance on al ' 1 their assets and businesses of a type customarily insured by a person operating a business similar to that of the Business, including covering product liability insurance, and (ii) adequate insurance protection against all liabilities, claims, and risks against which it is customary to insure. Seller is not in default with respect to payment of premiums on any such policy. Except as set forth in Schedule 2.13, no claim is pending under any such policy. 2.14. Brokers or Finders. None of the Selling Parties, or any of their agents have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents" commissions or other similar payment in connection with this Agreement or the transactions contemplated by this Agreement. 3. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Selling Parties as follows: 3.1. Due Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has the corporate power and authority to execute, deliver and perform this Agreement and the other documents contemplated hereby and to consummate the transactions contemplated hereby and thereby. Buyer has the requisite corporate power and authority and all licenses and permits necessary to own or lease and operate the Acquired Assets. 3.2. Due Authorization. The execution, delivery and performance by Buyer of this Agreement and the other documents provided for herein and the consummation of the transaction contemplated hereby and thereby have been duly authorized by all requisite corporate action. This Agreement and the other documents to which the Buyer is a party have been duly executed and delivered by Buyer, and constitute or will constitute, as the case may be, valid and binding obligations of Buyer, enforceable in accordance with their respective terms. 3.3. Consents. No consent, license, approval or authorization of, or registration or declaration with, any governmental authority, agency, bureau or commission, or any third party,* is required to be obtained or made by Buyer in connection with the execution, delivery, performance, validity, and enforceability of this Agreement or the consummation of the transactions contemplated by this agreement. 3.4. Brokers or Finders. Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement or the transactions contemplated by this Agreement. 3.5. Complete Disclosure. None of the representations and warranties made by Buyer herein or in any document delivered by Buyer, or on its behalf, contains or will contain any untrue statement of material fact, or omit to state any material fact, the omission of which would be misleading. 4. OBLIGATIONS BEFORE CLOSING 4.1. Operation of Business. Until the Closing Date, Seller shall (i) operate the Business in the ordinary course as has been operated prior to the date hereof, (ii) maintain all the Acquired Assets in good condition, (iii) perform its obligations under all agreements binding upon it, (iv) maintain all licenses, permits and authorizations, (v) maintain all insurance as disclosed on Schedule 2.13, and (vi) maintain good will of suppliers, customers, and others having business relations with Seller. 4.2. Disclosure. Neither party shall reveal to the general public the details of this Agreement or the transactions contemplated by this Agreement or make any public or private announcement concerning this Agreement or the transactions contemplated by this Agreement without first obtaining the approval of the other party hereto. Nothing contained herein shall be deemed to prevent a party from making such disclosures as may be (a) required to be filed with or submitted to regulatory agencies or bodies, or (b) otherwise permitted by other provisions of this Agreement. 4.3. Access. Prior to the Closing Date, Buyer, its employees, and agents shall be permitted reasonable access to the employees, records and property of Seller during regular business hours. After the Closing Date, Seller, its employees and agents, shall be permitted reasonable access to the records of Seller if necessary to comply with law. 4.4. Consents and Approvals. Selling Parties and Buyer will use their best efforts to obtain all consents and approvals required to be obtained in order to consummate the transactions contemplated hereby. 4.5. Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Selling Parties will not, without the prior consent of Buyer, take any affirmative action, or fail to take any reasonable action within their or its control, as a result of which any of the changes or events listed in Section 2.4 is likely to occur. 4.6. Notification. Between the date of this Agreement and the Closing Date, each of the Selling Parties will promptly notify Buyer in writing if such Selling Party becomes aware of any fact or condition that causes or constitutes a breach of any of the representations and warranties of Selling Parties as of the date of this Agreement, or if such Selling Party becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in any Schedule to this Agreement if the Schedule were dated the date of the occurrence or discovery of any such fact or condition, Selling Parties will promptly deliver to Buyer a supplement to such Schedule specifying such change. During the same period, each of the Selling Parties will promptly notify Buyer of the occurrence of any breach of any covenant of Selling Parties in this Article 4 or of the occurrence of any event that may make the satisfaction of the conditions in Section 5.1 or Section 5.2 impossible or unlikely. 4.7. No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Section 7.1, Selling Parties will not, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any nonpublic information to, or consider the merits of any unsolicited inquiries or proposals from, any person (other than Buyer) relating to any transaction involving the sale of the business or assets (other than sales of inventory in the ordinary course of business) of the Seller, or any of the capital stock of the Seller, or any merger, consolidation, business combination, or similar transaction involving the Seller. 4.8. Payment of Accounts and Trade Payables. Seller shall promptly pay all accounts payable incurred prior to the Closing Date which directly relate to the Acquired Assets except those being contested in good faith. Seller shall obtain the prior written consent of Buyer prior to contesting any such accounts payable. 5. CONDITIONS PRECEDENT 5.1. Conditions to Mutual Obligations. The respective obligations of each of the parties hereto at the Closing are subject to the fulfillment to their reasonable satisfaction of the following conditions precedent (or mutual written waiver thereof) on or before the Closing Date: 5.1.1 Consummation of the transactions contemplated hereby shall not have been prohibited by any order, decree or judgment of any United States court, governmental agency, or other regulatory agency or commission having competent jurisdiction. 5.1.2 There shall not have been promulgated, entered, issued or determined to be applicable to this Agreement any law, regulation, order, judgment or decree making the sale or purchase of the Acquired Assets as contemplated hereby illegal. 5.2. Conditions to Buyer's Obligations. The obligation of Buyer to purchase the Acquired Assets and to perform the other provisions under this Agreement are subject to the satisfaction, at or before the Closing Date of all the conditions set out below in this Section 5.2. Buyer may waive any or all of these conditions in whole or in part, in writing, without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Buyer of any of its other rights or remedies, at law or in equity, if Selling Parties shall be in default of any of their representations, warranties, or covenants under this Agreement. 5.2.1 All representations and warranties of Selling Parties set forth in this Agreement and in the Schedules to this Agreement must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to any Schedule. 5.2.2 Seller and Selling Shareholders shall have performed, satisfied, and complied with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by them on or before the Closing Date. 5.2.3 No action, suit, or proceeding before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or to its consummation, shall have been instituted or threatened on or before the Closing Date. 5.2.4 Seller shall have obtained the discharge and release of any liens or encumbrances against the Acquired Assets. 5.2.5 Buyer shall have received such certificates of discharge (collectively, the "Certificates of Discharge") it reasonably believes should be obtained from local, state and federal taxing authorities that could have liens on the Acquired Assets after the Closing Date. 5.2.6 Buyer shall have received copies of resolutions by the Board of Directors of Seller, duly certified by the Secretary of Seller, authorizing the execution of this Agreement by Seller and the consummation of the transactions contemplated by this Agreement. 5.2.7 Buyer shall have received copies of resolutions by the Board of Directors of Shareholder, duly certified by the Secretary of Shareholder, authorizing the execution of this Agreement by Shareholder and the consummation of the transactions contemplated by this Agreement. 5.2.8 The form and substance of all certificates, instruments, opinions, and other documents delivered to Buyer under this Agreement shall be satisfactory in all reasonable respects to Buyer and its counsel. 5.3. Conditions To Selling Parties' Performance. The obligation of Selling Parties to sell and transfer the Acquired Assets and to perform the other provisions under this Agreement are subject to the satisfaction, at or before the Closing Date, of all 9f the following conditions. Selling Parties may waive any or all of these conditions in whole or in part, in writing, without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Selling Parties of any of their other rights or remedies, at law or in equity, if Buyer should be in default of any of its representations, warranties or covenants under this Agreement. 5.3.1 All representations and warranties of Buyer set forth in this Agreement must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 5.3.2 Buyer shall have performed and complied with all covenants and agreements, and satisfied all conditions that it is required by this Agreement to perform, comply with, or satisfy, before or at the Closing Date. 5.3.3 The execution, delivery and performance by Buyer of this Agreement and the other documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby shall have been duly authorized by the Board of Directors of Buyer. 6. THE CLOSING 6.1. Date and Time. The transfer of the Acquired Assets by Seller to Buyer (the "Closing") shall take place at the offices of the Buyer's counsel at 1676 N. California Blvd., Suite 200, Walnut Creek, California 94596, at 10:00 a.m. (local time) on or before May 25, 2000, or such other date and time as may be agreed to by the parties in writing. Notwithstanding the foregoing, upon the mutual agreement of the parties, the Closing may be consummated via the delivery of executed documents via mail or overnight service or via the transmission of signature pages by facsimile. Subject to the provisions of Article 7, failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 6.1 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. It is anticipated that the Closing will occur simultaneous with the execution of this Agreement. 6.2. Selling Parties' Deliveries. At the Closing, Selling Parties shall deliver or cause to be delivered to Buyer, each duly executed (if execution is appropriate): (a) Such bills of sale and other recordable instruments of assignment, transfer and conveyance as Buyer shall reasonably request in order to sell, convey, assign, transfer and deliver to Buyer good title to all of the Acquired Assets free and clear of any and all liens and encumbrances. (b) UCC termination statements duly executed by the holders of all security interests of record with respect to outstanding UCC-1 financing statements evidencing security interests in any of the Acquired Assets. (c) Full possession and enjoyment of the Inventories. (d) The Certificates of Discharge. (e) All other documents and instruments required to b@ delivered to Buyer pursuant to the provisions of this Agreement. 6.3. Buyer's Deliveries. At the Closing, Buyer shall deliver or cause to be delivered to Seller: (a) The purchase price set forth in Section 1.3 of this Agreement by wire transfer or certified or official bank check drawn on a California bank payable to the order of Seller. (b) An instrument of assumption of liabilities by which Buyer assumes the Assumed Liabilities as of the Closing Date in a form reasonably satisfactory to the Seller. (c) All other documents and instruments required to be delivered to Buyer pursuant to the provisions of this Agreement. 6.4. Further Assurances. At or after the Closing Date, Selling Parties and Buyer shall prepare, execute and deliver, at the other party's direction and at the appropriate party's expense, such further instruments of transfer or assumption, and shall take such further action in order to evidence in Buyer title to the Acquired Assets or to consummate the terms of this Agreement. 7. TERMINATION 7.1. Termination. This Agreement may, by notice given prior to or at the Closing, be terminated: (a) by either Buyer or Selling Parties if a material breach of any provision of this Agreement has been committed by the other party and such breach has not been waived; (b) (i) by Buyer if any of the conditions in Section 5.1 or 5.2 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or (ii) by Selling Parties, if any of the conditions in Section 5.1 or 5.3 has not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Selling Parties to comply with their obligations under this Agreement) and Selling Parties have not waived such condition on or before the Closing Date; (c) by mutual consent of Buyer and Selling Parties; or (d) by either Buyer or Selling Parties if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before May 31, 2000, or such later date as the parties may agree upon. 7.2. Effect Of Termination. Each party's right of termination under Section 7.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 7.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 10.4 (regarding payment of expenses] and 10.5 [regarding confidentiality] will survive; provided, however, that if this Agreement is terminated by a party because of the material breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 8. OBLIGATIONS AFTER CLOSING 8.1. Survival of Representations, Warranties and Agreements. All representations of Selling Parties and Buyer in this Agreement shall survive the execution of this Agreement. All statements contained in any schedule, exhibit or any document delivered at Closing shall be deemed representations within the meaning of this Section. 8.2. Indemnification by Selling Parties. Selling Parties agree to defend with competent counsel, indemnify and hold Buyer and its agents, employees, officers, directors and stockholders (collectively referred to herein as "Buyer Indemnitees") harmless from any and all Indemnifiable Losses that are not Assumed Liabilities and that are caused by or arise out of or otherwise in respect of (i) the failure of any representation or warranty made by Selling Parties hereunder to be true when made and as of the Closing Date; (ii) the nonfulfillment of any obligation of Selling Parties under this Agreement; (iii) any and all claims (other than claims arising out of a failure by Buyer to perform its obligations under this Agreement, or arising out of Buyer's use or sale of the Acquired Assets from and after the Closing Date) including but not limited to business torts, breach of contract claims, indemnity or guarantee claims, malicious or intentional misconduct, fraud, personal injury, property damage, employment-related claims and worker's compensation claims, arising from Seller's use or sale of the Acquired Assets before the Closing Date. 8.3. Indemnification by Buyer. Buyer will defend with competent counsel, indemnify and hold Seller and its agents, employees, officers, directors and stockholders (collectively referred to herein as the "Seller Indemnitees") harmless from any and all Indemnifiable Losses that are caused by or arise out of or otherwise in respect of (i) the failure of any representation or warranty made by Buyer hereunder to be true when made and as of the Closing Date; and (ii) any and all claims (other than claims arising out of a failure by Selling Parties to perform their obligations under this Agreement) arising from Buyer's use or sale of the Acquired Assets from and after the Closing Date. 8.4. Procedures. When a party seeking indemnification under Section 8.2 or 8.3 (the "Indemnified Party") receives notice of any action, suit, proceeding, claim, demand or assessment which is likely to give rise to a claim for indemnification hereunder, the Indemnified Party shall give prompt written notice thereof to the other party (the "Indemnifying Party") reasonably describing (to the extent known) the nature of such claim and the basis therefor. If the Indemnified Party fails to give such prompt written notice to the Indemnifying Party, the Indemnified Party shall not forfeit its indemnification claim, but such indemnification claim shall be reduced by the amount of any additional or increased liability, cost or expense (including applicable interest and penalties) caused by the delay in giving notice. If the Indemnified Party is entitled to indemnification hereunder, the Indemnifying Party shall, at its expense, assume the complete defense of the action, suit, proceeding, claim, demand or assessment giving rise thereto, with full authority to conduct such defense and to settle or otherwise dispose of the same, except as set forth below. The Indemnifying Party and the Indemnified Party will each fully cooperate with the other in the defense of any claim which is likely to give rise to a claim for indemnification hereunder or does present such a claim. The Indemnifying Party will not, except with the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld), consent to the entry of any judgment or enter into any settlement in connection with such defense which does not include a release of the Indemnified Party from all liability in respect thereof or does include any undertaking or agreement which causes the Indemnified Party to perform any act or to refrain from performing any act. The Indemnified Party will not, except with the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld), consent to the entry of any judgment or enter into any settlement in connection with such defense. 8.5. Indemnifiable Losses. In determining the amount of Indemnifiable Losses for which an Indemnified Party is liable hereunder, amounts paid or recovered from or reimbursed by third parties and/or under insurance policies, contractual or other rights of indemnification or contribution, and the like, which amounts are paid to the Indemnified Party on behalf of the Indemnifying Party, shall reduce the amount for which the Indemnifying Party shall otherwise be liable hereunder. If an Indemnified Party receives payment from the Indemnifying Party with respect to an indemnification claim made hereunder, and the amount for which the Indemnified Party was entitled to seek indemnity hereunder is subsequently reduced under the terms of this Section 8.5, the Indemnified Party shall promptly refund to the Indemnifying Party the amount of such reduction. As used herein, the term "Indemnifiable Losses" means all costs, expenses, losses, claims, obligations, liabilities, damages, deficiencies, actions, and judgments, or diminution in value, whether or not involving a third-party claim together with all reasonable attorneys' fees and other costs and expenses of the defense thereof (including such fees, costs and expenses incurred pursuant to Section 8.4); provided, however, an Indemnified Party's internal expenses (salaries, general and administrative costs, allocated corporate overhead, etc.) incurred in processing, monitoring and assisting in the defense of an action, suit, proceeding, claim, demand or assessment subject to indemnity hereunder shall not be considered an "Indemnifiable Loss" and shall be borne by the Indemnified Party. 8.6. Name Change. Seller will change its corporate name promptly after the closing to a name that does not include the words "Made in Nature" and to cease all uses of the mark "Made in Nature" or any of the marks listed on Schedule 1.1(a) or any derivative thereof, whether in connection with the sale of dried fruits and nuts or any other consumer product whatsoever. Notwithstanding the foregoing, Seller may continue to sell its existing chilled beverage inventory under the "Made in Nature" mark until the existing inventory has been liquidated, or until three (3) months after the Closing Date, whichever shall first occur. Seller may also continue to sell bulk ingredients intended for use in manufacturing or processing chilled beverage and dried fruit and vegetable inventories as long as necessary, and in this regard, shall be allowed during the three (3) month period after the Closing Date to reference the Made in Nature organic certification of such ingredients. 9. NON-COMPETITION; NON-DISCLOSURE 9.1. Intent. Selling Parties hereby represent and warrant to Buyer that they have each agreed to be bound by the provisions of this Section 9.1 (i) to induce Buyer to consummate the transactions contemplated by this Agreement, (ii) with the intention of causing the effective preservation of the goodwill of the Business unimpaired, and (iii) to provide assurance to Buyer that Seller and Shareholder will take no action that could frustrate or interfere with such preservation or otherwise impair such goodwill. 9.2. Noncompetition. Seller and Shareholder hereby covenants and agrees with Buyer that, except as otherwise expressly provided in this Agreement or consented to, approved or otherwise permitted by Buyer in writing, for the period ending two years from the Closing Date (provided, however, that such period shall be extended in either case by and for the duration of any period of time during which Seller or Shareholder is in violation of any provision in this Section 9.2), the Seller and Shareholder shall not do the following, directly or indirectly, acting alone or as a member of a partnership or other business entity or as a holder of any security of any class (provided however, that nothing herein shall prohibit Seller or Shareholder from holding less than one percent (1%) of the outstanding amount of any publicly traded security): 9.2.1 engage, within (a) the counties of the State of California listed on Schedule 9.2.1(a) hereto and any county or other political subdivision in the United States of America within or outside of the State of California in which Seller carries on the Business as of the Closing Date; or (b) Any foreign country or province or political subdivision thereof in which Seller carries on the Business as of the Closing Date; 9.2.2 request, induce or attempt to influence any person who is or was a customer or supplier of Buyer to limit, curtail or cancel its business with Buyer or any successor; or 9.2.3 request, induce or attempt to influence any current or future officer, director, employee, consultant, agent or representative of Buyer to (i) terminate his, her or its employment or business relationship with Buyer or (ii) commit any act that, if committed by Seller or Shareholder, would constitute a breach of any provision hereof. The provisions of Sections 9.2.1 through 9.2.3 above are separate and distinct commitments independent of each of the other such Sections. 9.3. Equitable Relief. Selling Parties agree that a violation on its or their part of any covenant contained in this Article 9 will cause such damage to Buyer as will be irreparable, and for that reason Selling Parties agree that Buyer shall be entitled, as a matter of right, to an injunction from any court of competent jurisdiction restraining any further violation of said covenants by Selling Parties or either or them. Such right to injunctive remedies shall be in addition to and cumulative with any other rights and remedies Buyer may have pursuant to this Article 9 or pursuant to law, including specifically the recovery of monetary damages, whether compensatory or punitive. Selling Parties acknowledge and agree that the covenants and agreements contained herein are minimum and reasonable in scope as to both area and time and are necessary to protect the legitimate interests of Buyer and its goodwill. Selling Parties hereby waive any requirement for securing or posting a bond in connection with the obtaining of injunctive or other equitable relief by Buyer. 9.4. Enforcement and Reformation. Since it is the agreement and desire of the parties hereto that the provisions of this Article 9 be enforced to the fullest extent possible under the laws and public policies applied in each jurisdiction in which enforcement is sought, should any particular provision of this Article 9 be deemed invalid or unenforceable, the same shall be deemed reformed and amended to delete that portion that is adjudicated to be invalid, and the deletion shall apply only with respect to the operation of said provision and, to die extent a provision of this Article 9 would be deemed unenforceable by virtue of its scope, but may be made enforceable by limitation thereon, each party agrees that this Article 9 shall be reformed and amended so that the same shall be enforceable to the fullest extent permissible under the laws and public policies applied in the jurisdiction in which enforcement is sought, the parties hereto acknowledging that the covenants contained herein are an indispensable part of the transactions contemplated hereby. 10. MISCELLANEOUS PROVISIONS 10.1. Entire Agreement. This Agreement and all other agreements, exhibits, and schedules referred to in this Agreement constitute the final, complete, and exclusive statement of the terms of the agreement between the parties pertaining to the purchase and sale of assets of Seller, and supersedes all prior and contemporaneous understandings or agreements of the parties. No party has been induced to enter into this Agreement by, nor is any party relying upon, any representation or warranty outside those expressly set forth in this Agreement. 10.2. Binding Effect; Assignment. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. No party may assign their respective interests hereunder without the express written consent of the other, such consent not to be unreasonably withheld. Notwithstanding the foregoing, Buyer may assign all of its rights and delegate all of its duties hereunder to another entity which it controls, or which is under common control with Buyer. 10.3. Captions. The Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provisions hereof. 10.4. Transaction Expenses. Except as otherwise provided herein, each of the parties hereto shall each respectively pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated hereby, including regulatory approvals thereof, whether or not the transactions contemplated hereby occur, which costs and expenses shall include without limitation, fees and expenses of legal counsel, accountants, brokers or finders, consultants or other representatives or services used, hired or connected with such transactions. 10.5. Confidentiality. Between the date of this Agreement and the Closing Date, Buyer and Selling Parties will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Selling Parties to maintain in confidence, any written, oral, or other information obtained in confidence from another party in connection with this Agreement or the transactions contemplated hereby, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated by this Agreement, or (c) the furnishing or use of such information is required by legal proceedings. If the transactions contemplated by this Agreement are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request. 10.6. Notices. All notices hereunder must be in writing and shall be sufficiently given for all purposes hereunder if properly addressed and delivered personally by documented overnight delivery service, by certified or registered mail, return receipt requested, or by facsimile or other electronic transmission service at the address or facsimile number, as the case may be, set forth below. Any notice given personally or by documented overnight delivery service is effective upon receipt. Any notice given by registered mail is effective upon receipt, to the extent such receipt is confirmed by return receipt. Any notice given by facsimile transmission is effective upon receipt, to the extent that receipt is confirmed, either verbally or in writing by the recipient. Any notice which is refused, unclaimed or undeliverable because of an act or omission of the party to be notified, if such notice was correctly addressed to the party to be notified, shall be deemed communicated as of the first date that said notice was refused, unclaimed or deemed undeliverable by the postal authorities, or overnight delivery service. Any "copy to" notice to be given as set forth below is a courtesy copy only; and a notice given to such person is not sufficient to effect giving a notice to the principal party, nor does a failure to give such a courtesy copy of a notice constitute a failure to give notice to the principal party. Buyer: Premier Valley Foods, Inc. 101 Ygnacio Valley Road, Suite 100 Walnut Creek, CA 94596 Attn: Secretary Fax No.: (925) 974-6670 Copy to: George S. Cabot, Esq. Morgan, Miller & Blair Professional Corporation 1676 N. California Blvd., Suite 200 Walnut Creek, CA 94596 Fax No.: (925) 943-1106 Seller and Shareholder: 1448 Industrial Ave. Sebastopol, CA 95472 Attn: President Fax: (707) 824-2545 Copy to: Roger Mertz, Esq. Allen Matkins Leck Gamble & Mallory, LLP 333 Bush Street, 17th Floor San Francisco, CA 94104-2806 Fax No.: (415) 837-1516 The parties may change their addresses for notices set forth above by notice given in accordance with the provisions of this Section 10-6. 10.7. Waiver, Consent. This Agreement may not be changed, waived or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto. 10.8. No Third-Party Beneficiaries. Nothing herein shall be construed to confer upon any person or entity, other than the parties hereto and their shareholders, any rights or benefits. 10.9. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one instrument. 10.10. Gender; Number. Whenever the context requires, words used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine or neuter gender. 10.11. Severability. If any provision of this Agreement is determined to be unenforceable, Seller and Buyer hereby agree that such provision may be reformed so that it is enforceable to the maximum extent permitted by law. In the event that any provision of this Agreement cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 10.12. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of California. 10.13. Jurisdiction and Venue. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of California, County of Contra Costa, or, if it has or can acquire jurisdiction, in the United States District Court for the Northern District of California, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world by any means by which notice may be given pursuant to Section 10.6, except facsimile or other electronic transmission service. 10.14. Attorneys' Fees. Should any litigation be commenced between the parties to this Agreement concerning the purchase and sale of Acquired Assets or the other transactions contemplated by this Agreement, the party prevailing in such litigation shall be entitled to have its reasonable attorneys" fees paid by the non-prevailing party. 11. DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article 11: "Acquired Assets"--as defined in Section 1.1. "Ancillary Documents"--all of the agreements certificates and documents to be delivered in connection with the transactions contemplated hereby other than this Agreement. "Assumed Liabilities"--as defined in Section 1.2. "Balance Sheet"--as defined in Section 2.3. "Business"--as defined in Recital A. "Buyer Indemnitees"--as defined in Section 8.2. "Buyer"--as defined in the first paragraph of this Agreement. "Certificates of Discharge"--as defined in Section 5.2.5. "Closing"--as defined in Section 6.1. "Closing Date"--the date and time as of which the Closing actually takes place. "Contracts"--as defined in Section 2.12. "Indemnifiable Loss"--as defined in Section 8.5. "Indemnified Party"--as defined in Section 8.4. "Indemnifying Party"--as defined in Section 8.4.. "Intellectual Property Rights"--as defined in Section 1.1(a). "Interim Balance Sheet"--as defined in Section 2.3. "Inventories"--as defined in Section 1.1(b). "Purchase Price"--as defined in Section 1.3. "Seller"--as defined in the first paragraph of this Agreement. "Seller Indemnitees"--as defined in Section 8.3. "Selling Parties"--the Seller and the Shareholder. "Shareholder"--as defined in the first paragraph of this Agreement. IN WITNESS WHEREOF, the parties to this Agreement have executed it to be effective as of the date first written above. Seller: MADE IN NATURE COMPANY, INC., a California corporation By: /s/ Gary Hess --------------------------------- Gary Hess President Buyer: PREMIER VALLEY FOODS, INC., a Delaware corporation By: /s/ Al Vangelos -------------------------------- Al Vangelos Chairman and CEO By: /s/ Ian Crabtree -------------------------------- Ian Crabtree Chief Operating Officer and Secretary Shareholder: SONOMAWEST HOLDINGS, INC., a California corporation By: /s/ Gary Hess ------------------------------- Gary Hess President EX-11 5 0005.txt COMPUTATION OF EARNINGS
COMPUTATION OF EARNINGS (LOSS) PER SHARE (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED JUNE 30, 2000 1999 1998 -------------------- -------------------- -------------------- AVERAGE COMMON SHARES OUTSTANDING 1,520 1,514 1,581 AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 1,548 1,549 1,600 NET LOSS FROM CONTINUING OPERATIONS APPLICABLE TO COMMON STOCK $(473) $(759) $(573) EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS: Basic $ (0.31) $ (0.50) $ (0.36) Diluted (1) $ (0.31) $ (0.50) $ (0.36) NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS APPLICABLE TO COMMON STOCK $ 3,813 $ (2,170) $ 1,472 EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS: Basic $ 2.09 $ (1.43) $ 0.93 Diluted (2) $ 2.06 $ (1.43) $ 0.92 NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 2,710 $ (2,929) $ 899 TOTAL EARNING PER COMMON SHARE: Basic $ 1.78 $ (1.93) $ 0.57 Diluted (2) $ 1.75 $ (1.93) $ 0.56
(1) The effect of potentially dilutive stock options and warrants has not been computed for any period presented because the effect would be anti-dilutive. (2) The effect of potentially dilutive stock options and warrants has not been computed for 1999 because the effect would be anti-dilutive. EX-21 6 0006.txt SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT Entity Legal Status Status - ------ ------------ ------- Made In Nature Company, Inc. A California corporation Active EX-23 7 0007.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File nos. 033-70870 and 333-84295). ARTHUR ANDERSEN LLP San Francisco, California September 25, 2000 EX-27 8 0008.txt 2000 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K FOR THE YEAR ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 0000102588 SonomaWest Holdings, Inc. 12-Mos JUN-30-2000 JUN-30-2000 8,359 0 157 47 0 9,993 7,777 4,923 12,969 1,613 0 0 0 2,905 6,330 12,969 0 1,197 0 2,190 0 0 326 (789) (316) (473) 3,183 0 0 2,710 1.78 1.75 1 Net of reserve of $4,801 2 1,522 total common shares outstanding
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