-----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, L+YhwGRO2YcWcmOfMxOihybDqwhfWZMepJ+L9ky7YhXVJdYPbvhqe79dSN4fNJs3 D2elTrKg1ZPiGeyjbaD/KQ== /in/edgar/work/0001109355-00-000024/0001109355-00-000024.txt : 20001114 0001109355-00-000024.hdr.sgml : 20001114 ACCESSION NUMBER: 0001109355-00-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 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-Q SEC ACT: SEC FILE NUMBER: 000-01912 FILM NUMBER: 761934 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-Q 1 0001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15 (d) of the - ------- Securities Exchange Act of 1934. For the quarterly period ended September 30, 2000 or Transition Report Pursuant to Section 13 or 15(d) of the - ------ Securities Exchange Act of 1934. For the transition period from _________ to _________. Commission File Number 01912 SONOMAWEST HOLDINGS, INC. (Exact name of registrant as specified in its charter) California 94-1069729 (State of incorporation) (IRS Employer Identification #) 1448 Industrial Avenue, Sebastopol, CA 95472-4848 - -------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 707/824-2548 -------------------------------------------------- (Former Name,Former Address and Former Fiscal Year, if Changed Since Last Report) 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: ------- ---------- As of October 26, 2000, there were 1,522,350 shares of common stock, no par value, outstanding. 1 SONOMAWEST HOLDINGS, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at September 30, 2000 and June 30, 2000...................................................3 Condensed Consolidated Statements of Earnings - Three Months Ended September 30, 2000 and 1999...............................4 Condensed Consolidated Statements of Cash Flows - Three Months Ended September 30, 2000 and 1999...............................5 Notes to Condensed Consolidated Financial Statements............6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................7 PART II. OTHER INFORMATION Item 1. Legal Proceedings..............................................10 Item 6. Exhibits and Reports on Form 8-K...............................10 Signature .....................................................10 2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements SONOMAWEST HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AMOUNTS IN THOUSANDS --------------------
CURRENT ASSETS: 9/30/00 6/30/00 - --------------- ------- ------- Cash $ 7,446 $8,359 Accounts Receivable, less allowance for uncollectible accounts of $8 and $47, respectively 107 110 Prepaid income taxes 816 816 Prepaid expenses 65 87 Current deferred income taxes, net 637 621 ----- ----- Total current assets 9,071 9,993 ----- ----- Real property, net 2,743 2,854 Net assets of discontinued operations 151 122 Other assets 61 - -------- ---------- Total Assets $12,026 $12,969 ======= ======= CURRENT LIABILITIES: - -------------------- Current maturities of long term debt $ 54 $ 617 Accounts payable and accrued expenses 164 147 Unearned rents and deposits 152 143 Accrued payroll and related liabilities 44 78 Net liabilities of discounted operations 291 628 -------- -------- Total current liabilities 705 1,613 -------- -------- Long term debt-net of current maturities 1,960 1,974 -------- -------- Deferred income taxes, net 147 147 -------- -------- Total Liabilities 2,812 3,734 -------- -------- SHAREHOLDERS' EQUITY: - --------------------- Preferred stock: 2,500 shares authorized; no shares outstanding - - Common stock: 5,000 shares authorized, no par value; 1,522 shares outstanding 2,905 2,905 Warrants for common stock 456 456 Retained earnings 5,853 5,874 ------- ------- Total shareholders' equity 9,214 9,235 ------- ------- Total Liabilities and Shareholders' Equity $12,026 $12,969 ======= =======
See Notes to Condensed Consolidated Financial Statements 3 SONOMAWEST HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS ----------------------------------------------
Three Months Ended September 30 ------------------ 2000 1999 ---- ---- Rental revenue $ 243 $ 201 Operating costs 517 378 Interest and Other income (expense), net 88 (49) ---------- ---------- Loss from continuing operations before income taxes (186) (226) Benefit for income taxes (75) (90) ---------- ---------- Net loss from continuing operations (111) (136) DISCONTINUED OPERATIONS: Earnings (loss) from discontinued operations, net of income taxes 90 412 Gain (loss) on sale of discontinued business, net of income taxes - 3,249 ---------- --------- NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS 90 3,661 ---------- -------- NET EARNINGS (LOSS) $ (21) $ 3,525 ========== ======== WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS: Basic 1,522 1,519 Diluted 1,542 1,566 EARNINGS (LOSS) PER COMMON SHARE Continuing operations Basic $ (0.07) $ (0.09) Diluted $ (0.07) $ (0.09) Discontinued operations: Basic $ 0.06 $ 2.41 Diluted $ 0.06 $ 2.34 Net Earnings (loss): Basic $ (0.01) $ 2.32 Diluted $ (0.01) $ 2.25
See Notes to Condensed Consolidated Financial Statements 4 SONOMAWEST HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) AMOUNTS IN THOUSANDS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 ------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999 ---- ---- Net earnings (loss) $(21) $3,525 Adjustments to reconcile net earnings (loss to net cash used for operating activities: Earnings from discontinued operations, net (90) (412) Gain on sale of discontinued business, net 0 (3,249) Depreciation and amortization expense 121 92 Changes in assets & liabilities: Accounts receivable, net 3 - Prepaid income taxes - 1,750 Prepaid and other assets (39) 114 Accounts payable and accrued expenses 17 (38) Deferred income taxes, net (16) 849 Accrued payroll & related liabilities (34) (138) Unearned rents and deposits 9 - ------------ ------------ Net cash provided by (used for) continuing operating (50) 2,493 activities ------------ ------------ Net cash provided by (used for) discontinued operations (281) 8,634 ------------ ------------ Net cash provided by (used for) operating activities (331) 11,127 ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures (5) (6) ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under the line of credit - 3,727 Payments on the line of credit - (9,472) Principal payments of long term debt (577) (1,377) Payments on capital leases - (69) Issuance of common stock - 4 ----------- ---------- Net cash used for financing activities (577) (7,187) ----------- ---------- NET INCREASE (DECREASE) IN CASH (913) 3,934 CASH AT THE BEGINNING OF THE YEAR 8,359 548 ----------- ---------- TOTAL CASH AT THE END OF THE PERIOD $7,446 $4,482 =========== ==========
See Notes to Condensed Consolidated Financial Statements 5 SONOMAWEST HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 2000 Note 1- The accompanying fiscal 2001 and 2000 unaudited interim statements have been prepared pursuant to the rules of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes these disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments necessary for a fair presentation for the periods presented have been reflected and are of a normal recurring nature except as discussed below. These interim financial statements should be read in conjunction with the financial statements and notes thereto for each of the three years in the period ended June 30, 2000. The results of operations for the three month period ended September 30, 2000 are not indicative of the results that will be achieved for the entire year ending June 30, 2001. Reclassifications - Certain previously reported amounts were reclassified to conform to the current presentation with respect to discontinued operations. Note 2- 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 $1,478,000 was sold for $500,000 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. 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. 6 Summarized historical information of the discontinued operations is as follows:
(in thousands) Three Months Ended September 30, -------------------------------- 2000 1999 ---- ---- Income statement data: Revenues $206 $8,345 Costs and expenses (56) (7,659) ---- ------- Operating income 150 686 Income tax expense (60) (274) ---- ----- Income from discontinued operations, net of income taxes $ 90 $412 ==== ==== September 30, 2000 June 30, 2000 ------------------ ------------- Balance sheet data: Accounts receivable, net of reserves of $0 and $37 $ 29 $ - ---- --- Total current assets of discontinued operations 29 - Property, plant and equipment, net 122 122 --- --- Total assets of discontinued operations 151 122 === === Accounts payable - 234 Provision for severance, transaction costs, wind-down costs and 291 394 --- ---- Total liabilities of discontinued operations 291 628 --- --- Net assets (liabilities) of discontinued operations $(140) $(506) ====== ======
Note 3 - Statement of Cash Flows - Interest and income tax payments reflected in the Consolidated Statement of Cash Flows were as follows: (in thousands) 2001 2000 ---- ---- Interest paid $ 45 $160 Income taxes paid $ - $ - Note 4 - Long-term debt - At September 30, 2000, the Company was not in compliance with certain covenants of the lending agreements with its finance institution lender. Subsequently, the Company received a one-year wavier regarding the breach of the lending covenants. Accordingly, this debt is classified as long-term debt on the balance sheet at September 30, 2000. The Company is currently working with its lender to revise its loan agreement and conform it to its current operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SonomaWest Holdings, Inc. (the "Company") is including the following cautionary statement in this Form 10-Q 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. In addition to other factors and matters discussed elsewhere herein, these risks and uncertainties include, but are not limited to, uncertainties affecting the food processing industry, risks associated with fluctuations in the price and availability of raw materials, management of growth, adverse publicity affecting organic foods or the Company's products, and product recalls. 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 7 projections will result or be achieved or accomplished. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. The financial statements herein presented for the quarters ending September 30, 2000 and 1999 reflect all the adjustments that in the opinion of management are necessary for the fair presentation of the financial position and results of operations for the periods then ended. All adjustments during the periods presented are of a normal recurring nature unless otherwise stated. OVERVIEW Since the Company acquired certain of the assets and liabilities of Made in Nature, Inc. in June 1998, the Company has operated in three business segments: industrial dried fruit ingredients, organic packaged foods and real estate. The Company commenced a strategic reorganization 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 segment. In January 2000, the Company decided to sell or discontinue its organic packaged foods business. As a result of these decisions, both business segments are considered discontinued operations and their operating results, results of cash flows, net assets and liabilities 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 improve 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 September 30 and June 30, 2000, the operating results of the discontinued operations in the consolidated statements of operations for the three months ended September 30, 2000 and 1999 and the cash flows from discontinued operations in the consolidated statements of cash flows for the three months ended September 30, 2000 and 1999. For the three months ended September 30, 2000, the Company recorded after-tax earnings from discontinued operations of $90,000 on revenue of $206,000. This compares to an after-tax earnings of $412,000 on revenue of $8.3 million for the three months ended September 30, 1999. The decline in revenue in the discontinued operations is due to the sale of the apple ingredients and organic packaged goods businesses in fiscal 2000. After the allocation of selling, general and administrative expenses between continuing and discontinued operations, the discontinued businesses generated $150,000 of operating income for the three months ended September 30, 2000 versus an operating income of $686,000 for the three months ended September 30, 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. 8 RESULTS OF CONTINUING OPERATIONS The Company's continuing line of business consists of the leasing and development of the Company's real estate. The Company intends to develop its real estate largely for agricultural and industrial rental. The current use permit for the Company's former production site requires that the facility be used exclusively 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 Company's other piece of real estate is already zoned for industrial use. Results of Operations - --------------------- The Company's sole continuing line of business is its real estate management and rental operations consisting of several buildings and yards on two property locations. The two properties have a combined leaseable area of approximately 410,000 square feet on 81 acres of land. Twenty-three tenants that have varying original lease terms ranging from month-to-month to eight years with options to extend lease approximately 205,000 square feet or 50% of the properties' available lease space. Rental Revenue. The Company leases warehouse, cold storage, production, and office space as well as outside storage space at both of its properties. For the three months ending September 30, 2000, rental revenue increased 21% or $42,000 to $243,000 compared to the corresponding period in the prior year. This increase was primarily a result of leasing activities at the Company's former production facility. This facility is approximately 41% occupied. The Company's other property is approximately 76% 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. 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. The Company's operating results will be negatively impacted as long as the tenant rental revenue stream fails to cover existing operating costs. Cost reduction efforts to minimize any avoidable spending have been undertaken to minimize negative operating results while the tenant search continues. For the three months ending September 30, 2000, operating costs increased 37% or $139,000 to $517,000 compared to the corresponding period in the prior year. Included in operating cost, however, for the three months ending September 30, 1999 is an expense offset for over-accrued bonuses in fiscal year 1999 of $169,000. 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. In Fiscal 2000, proceeds from the sale of the ingredients business were used to pay off the Company's revolving bank line of credit and substantially reduce long-term debt. As a result, for the three months ending September 30, 2000, the Company was a net investor of cash, generating $128,000 of interest income and incurring $45,000 of interest expense, while in the corresponding period in prior year it was a net borrower, generating interest income of $58,000 and incurring interest expense of $116,000. Income Taxes. The effective tax rate for the three months ended September 30, 2000 was 40%, or approximately the statutory rate after the federal benefit for state income taxes. Liquidity and Capital Resources - ------------------------------- The Company had cash of $ 7.4 million at September 30, 2000, and current maturities of long-term debt of $54,000. In fiscal 2000, 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. In August 2000, the Company elected to prepay in full a remaining shareholder note payable (scheduled to mature in 2003), in the amount of $564,000 plus accrued interest. The cash balances decreased from $8.4 million at June 30, 2000 primarily as a result of the shareholder note payoff and payments of liabilities regarding discontinued operations. At September 30, 2000, the Company was not in compliance with certain covenants of the lending agreements with its finance institution lender on its long-term debt. Subsequently, the Company received a one-year wavier regarding the breach of the lending covenants. The Company is currently working with its lender to revise its loan agreement and conform it to its current operations. Alternatively, the Company has the ability to payoff its long-term debt position in cash. 9 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. Subsequent events have eliminated the contingency converting this investment to a full commitment. It is anticipated that the Company will make its $3 million investment in several stages beginning November 2000. The Company's Board of Directors has authorized a program to repurchase up to 375,000 shares of the Company's stock at $8.00 per share. The offer is subject to regulatory filings and approvals and approval by the Company's lender. The Company anticipates that the offer will be made in early calendar year 2001. PART II. OTHER INFORMATION Item 1. Legal Proceedings On February 23, 200 several local apple growers filed a complaint in the United States District Court for the Northern District of California 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 attorney fees, all in unnamed amounts. On August 4, 2000, the Company's motion to dismiss the complaint was granted with leave to amend. To date there has been no amendment. The Company believes the suit was without merit and will defend itself vigorously should an amended complaint be filed. On October 10, 2000 the holder of 95,000 warrants to purchase the Company's common stock filed a complaint in the Superior Court in and for Sonoma County against the Company. The complaint alleges breach of contract with respect to the warrants and seeks declaratory relief as to the holder's rights, the imposition of a constructive trust, damages, and a preliminary injunction baring the Company from distributing certain cash proceeds resulting from the liquidation of operating assets. The Company has not answered the complaint. The Company believes this complaint is without merit and intends to defend itself vigorously. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10. MetroPCS 6% Subordinated Convertible Note, dated July 17, 2000 27. Financial Data Schedule b. Reports on Form 8-K None SIGNATURES Pursuant to the requirements 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: November 13, 2000 /s/ Gary L. Hess - ---------------- Gary L. Hess, Chief Executive Officer, President and Chief Financial Officer 10 EX-10 2 0002.txt 6% SUBORDINATED CONVERTIBLE NOTE NEITHER THIS NOTE NOR THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR CONVEYED WITHOUT SUCH REGISTRATION OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. MetroPCS, Inc. 6% SUBORDINATED CONVERTIBLE NOTE DUE 2002 $60,000.00 New York, New York SCN368 July 17, 2000 FOR VALUE RECEIVED, the undersigned, MetroPCS, Inc., a Delaware corporation (the "Company"), promises to pay to the order of SonomaWest Holdings, Inc. (the "Holder"), the principal sum of $60,000.00 (SIXTY THOUSAND DOLLARS) on January 17, 2002, together with accrued interest thereon upon maturity as provided herein. All payments of interest and all payments on account of the principal of this Note shall be made in lawful money of the United States of America by wire transfer of immediately available funds to the account designated in writing by the Holder to the Company or, to the extent permitted by Section 1 hereof, in Notes (as defined below). All payments received for application to this Note, whether designated as principal or interest, shall first be applied to the payment of accrued interest, and the balance applied in reduction of the principal amount hereof This 6% Subordinated Convertible Note due 2002 (individually, the "Note," and collectively with any other of the Company's 6% Subordinated Convertible Notes due 2002, the "Notes") is issued pursuant to the Securities Purchase Agreement, dated as of July 17, 2000, between the Company and the Purchasers named therein (the "Securities Purchase Agreement"), and is entitled to all the benefits of, and subject to all terms and conditions set forth in, the Securities Purchase Agreement. All terms used in this Note, but not otherwise defined in this Note, shall have the meaning assigned to them in the Securities Purchase Agreement. This Note is a general unsecured obligation of the Company. 1. Interest. The Company promises to pay interest on this Note at the rate of 6% per annum, upon the conversion, prepayment or maturity of the Notes (each an "Interest Payment Date"). Interest on this Note shall accrue beginning on the date hereof and shall cease to accrue on the date that the principal amount hereof is paid in full or the Note is converted as provided herein. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Upon the occurrence and during the continuance of an Event of Default, in accordance with Section 5.2 and in addition to the other remedies set forth therein and in Section 5.3, the Company shall pay interest on this Note at the rate of 10% per annum. 2. [Reserved] 3. Conversion. 3.1. Conversion Privilege and Conversion Price of the Notes (a) Subject to and upon compliance with the provisions of this Section 3, at the option of the Holder, this Note or any portion of the principal amount hereof which is $100 or an integral multiple of $100, and any accrued but unpaid interest thereon, may be converted at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares of Series D Preferred Stock at the conversion price with respect to this Note (herein called the "Conversion Price"), determined as hereinafter provided, in effect at the time of conversion. In the event that this Note is converted, it shall be converted into the number of fully paid and non-assessable shares of Series D Preferred Stock obtained by dividing (i) the unpaid principal balance of this Note to be converted, together with all accrued and unpaid interest hereon, each as of the date of conversion, by (ii) the Conversion Price in effect at the time of conversion. The Conversion Price initially shall be $100 per each $100 principal amount of Notes, subject to adjustment as provided herein. In addition, following an Initial Public Equity Offering, the Holder of this Note may, by written notice to the Company, demand that the Company repurchase, and the Company shall so repurchase within 5 Business Days of the date of such written notice, all or a portion (as so designated by the Holder) of this Note, at the principal amount so designated plus accrued and unpaid interest thereon. (b) If a Subsequent Closing (as defined in the Securities Purchase Agreement) shall occur, this Note automatically shall be converted to Series D Preferred Stock simultaneously with, and in addition to, the purchase of Series D Preferred Stock to occur with the Subsequent Closing, in accordance with the provisions hereof. If the FCC Decision Date (as defined in the Securities Purchase Agreement) shall have occurred but the Subsequent Closing shall not have occurred, provided no Default or Event of Default has occurred and is continuing, this Note automatically shall be converted to Series D Preferred Stock on January 16, 2002 in accordance with the provisions hereof. If the FCC Decision Date shall not have occurred by January 17, 2002, then this Note shall mature in accordance with the terms hereof. 3.2. Exercise of Conversion Privilege In order to exercise the conversion privilege with respect to this Note, and subject to Section 3. 1 (b) above, the Holder shall surrender this Note, duly endorsed or assigned to the Company or in blank. Subject to Section 3. 1(b) above, the surrendered Note must be accompanied by a written request for conversion (substantially as set forth in the form of Conversion Notice set forth as part of Exhibit B) to the Company that the Holder elects to convert this Note or, if less than the entire principal amount thereof is to be converted, such lesser amount of this Note. This Note shall be deemed to have been converted immediately prior to the close of business on the day of surrender of this Note for conversion in accordance with the foregoing provisions, and at such time the rights of the Holder as a Holder shall cease, and the Person or Persons entitled to receive the Series D Preferred Stock issuable upon conversion shall be treated for all purposes as the record Holder or Holders of such Series D Preferred Stock at such time. As promptly as practicable on or after the Conversion Date, the Company shall issue and shall deliver to the Holder a certificate or certificates for the number of full shares of Series D Preferred Stock issuable upon conversion, together with payment in lieu of any fraction of a share as provided in Section 3.3. If this Note is converted in part only, upon such conversion the Company shall execute and deliver to the Holder, at the expense of the Company, a new Note of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of this Note. 3.3. Fractions of Shares No fractional shares of Series D Preferred Stock shall be issued upon the conversion of this Note. Instead of any fractional share of Series D Preferred Stock which would otherwise be issuable upon conversion of this Note (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction. 3.4. Company to Reserve Preferred Stock The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Series D Preferred Stock, solely for the purpose of effecting the conversion of the Notes, the whole number of shares of Series D Preferred Stock then issuable upon the conversion in full of all of the Notes. 3.5. Taxes on Conversions The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Series D Preferred Stock upon conversion of this Note. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Series D Preferred Stock in a name other than that of the Holder of this Note. 3.6. Covenant as to Preferred Stock Upon Conversion The Company covenants that all shares of Series D Preferred Stock which may be issued upon conversion of this Note will be duly authorized, validly issued, fully paid and nonassessable and, except as provided in Section 3.5, the Company will pay all taxes, liens and charges with respect to the issue thereof. 3.7. Provisions in Case of Reclassification, Consolidation, Merger or Sale of Assets In the event that the Company shall be a party to any transaction (including without limitation any (i) recapitalization or reclassification of the Series D Preferred Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Series D Preferred Stock), (ii) any consolidation of the Company with, or merger of the Company into, any other Person, or any merger of another Person into the Company (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Series D Preferred Stock of the Company), (iii) any sale or transfer of all or substantially all of the assets of the Company, or (iv) any compulsory share exchange) pursuant to which the Series D Preferred Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of this Note shall have the right thereafter to convert this Note (subject to funds being legally available for such purpose under applicable law at the time of such conversion) only into the kind and amount of securities, cash and other property receivable upon such transaction by a Holder of the number of shares of Series D Preferred Stock into which this Note might have been converted immediately prior to such transaction. The Company or the Person formed by such consolidation or resulting from such merger or which acquired such assets or which acquired the Company's shares, as the case may be, shall execute and deliver to the Company written documentation clearly establishing such rights. Such documentation shall provide for adjustments which, for events subsequent thereto, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The above provisions of this Section 3.7 shall similarly apply to successive transactions of the foregoing type. 4. Antidilution. If at any time an event occurs which causes an adjustment to the conversion price of the Series D Preferred Stock in accordance with the Certificate of Designations applicable to the Series D Preferred Stock (or would cause an adjustment to the conversion price of the Series D Preferred Stock if any shares of Series D Preferred Stock were outstanding as of the date of such event), the Conversion Price of this Note will be adjusted by the same percentage by which the conversion price of the Series D Preferred Stock is adjusted (or would be adjusted if any shares of Series D Preferred Stock were outstanding). 5. Events of Default. 5.1. Events of Default Defined An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal on this Note when the same becomes due and payable, whether at maturity; or (b) the Company defaults in the payment of any interest on this Note for more than seven (7) Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of 'or compliance with any term or covenant contained herein or in the Securities Purchase Agreement which can be cured and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer (as defined in the Securities Purchase Agreement) obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from the Holder (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (c) of Section 5. 1); or (d) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in the Securities Purchase Agreement or in any writing furnished in connection with the transactions contemplated thereby proves to have been false or incorrect on the date as of which made and such breach can be cured and is not remedied within 30 days of such breach; or (e) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or interest on any indebtedness for borrowed money that is outstanding in an aggregate principal amount of at least $5,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any indebtedness for borrowed money in an aggregate outstanding principal amount of at least $5,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists; (f) a court or governmental authority of competent jurisdiction enters an order appointing a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any of its subsidiaries or with respect to substantially all of their respective property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Subsidiary, or any such petition shall be filed against the Company or any Subsidiary and such petition shall not be dismissed within 60 days; or (g) a final judgment or judgments, excluding any judgments relating to the Company's confirmed plan of reorganization, for the payment of money aggregating in excess of $5,000,000 are rendered against the Company and which judgments are not, within 30 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 30 days after the expiration of such stay; (h) any attachment or levy of a material portion of the Company's assets, which attachment or levy is not, within 30 days after entry thereof, bonded, discharged or stayed pending appeal or is not discharged with 30 days after the expiration of such stay; (i) any event has occurred which is likely to result in a Material Adverse Effect (as defined in the Securities Purchase Agreement) on the Company; (j) the loss, or voluntary relinquishing, by the Company of any FCC license; (k) the imposition on the Company by any court of law of any adverse conditions to the effectiveness, validity or use of any FCC license; (l) the reinstatement by any court of law, other than in connection with the Company's confirmed plan of reorganization, of a cost of the FCC licenses which is substantially similar to the original bid price paid by the Company as secured debt. 5.2. Remedies on Default; Acceleration (a) If an Event of Default with respect to the Company described in paragraph (a) or (b) of Section 5.1 has occurred, the applicable interest rate shall be increased to 10%. (b) If an Event of Default with respect to the Company described in paragraph (f) of Section 5.1 has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (c) If any other Event of Default has occurred and is continuing, any Holder or Holders of more than 66 2/3% in principal amount of the Company's 6% Subordinated Convertible Notes due 2002 (of which this note is one) at the time outstanding may at any time at its or their option, by notice or notices to the Company (a "Default Notice"), declare all of such Notes then outstanding to be immediately due and payable in full within five (5) days of a Default Notice. The Company immediately shall provide such Default Notice to all holders of Notes. (d) Upon this Note becoming due and payable under this Section 5.2 whether automatically or by declaration, this Note will forthwith mature and the entire unpaid principal amount of this Note, plus all accrued and unpaid interest thereon and shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. 5.3. Other Remedies If any Default or Event of Default has occurred and is continuing, and irrespective of whether this Note has become or has been declared immediately due and payable under Section 5.2, the Holder may proceed to protect and enforce its rights of such Holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in the Securities Purchase Agreement, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 5.4. Rescission At any time after any Notes have been declared due and payable pursuant to Section 5.2, the Holders of not less than 66 2/3% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and (to the extent permitted by applicable law) on any overdue interest in respect of the Notes, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 9.4 of the Securities Purchase Agreement, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Securities Purchase Agreement. No rescission and annulment under this Section 5.4 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 5.5. Expenses The Company will pay to the Holder on demand such further amount as shall be sufficient to cover all costs and expenses of Holder incurred in any enforcement or collection under this Section 5, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 6. Waiver. To the extent permitted by law, the Company hereby waives presentment, protest and demand, notice of protest, demand, dishonor and nonpayment, and diligence in collection. 7. Collection Costs. If at any time the indebtedness evidenced by this Note is collected through legal proceedings or this Note is placed in the hands of attorneys for collection, the Company agrees to pay all costs and expenses (including all reasonable attorneys' fees) incurred by the Holder in collecting or attempting to collect such indebtedness. 8. Successors and Assigns. This Note shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Subject to applicable securities laws and Article VIII of the Securities Purchase Agreement, the Holder may assign the Note. The Company may not assign any of its rights under this Note except as otherwise provided in the Securities Purchase Agreement. References in this Note to Shares shall be deemed to refer to any successor equity securities of any successor to the Company in compliance with the Securities Purchase Agreement. 9. Amendment and Waiver. No failure or delay on the part of the Company or the Holder of this Note in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor, shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or the Holder of this Note at law, in equity or otherwise. Any amendment, supplement or modification of or to any provision of this Note shall be effective only if it is made or given in writing and signed by the Company and the Holder of this Note. Any waiver of any provision of this Note and any consent to any departure from the terms of any provision of this Note shall be effective only if executed in writing by the party or parties making such waiver or consenting to such departure and only in the specific instance and for the specific purpose for which made or given. 10. Governing Law. This Note shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such State without regard to the conflicts of law principles of such State. IN WITNESS WHEREOF, this Note has been executed and delivered by the undersigned as of the date first above written. MetroPCS, Inc. By: /s/ Roger D. Linquist ------------------------------------- Name: Roger D. Linquist Title: President and Chief Executive Officer Form of Election to Convert --------------------------- To MetroPCS, Inc. The undersigned owner of this Note hereby irrevocably exercises the option to convert this Note into shares of Series D Preferred Stock of MetroPCS, Inc. in accordance with the terms of this Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned registered Holder hereof, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Note. Dated: Principal Amount of Note: __________________________________ Signature (for conversion only) Signature (for conversion only) If shares of Series D Preferred Stock are to be issued and registered otherwise than to the registered Holder named above, please print or type the name and address, including zip code, and social security or other taxpayer identification number of the recipient below. EX-27 3 0003.txt FDS
5 This schedule contains summary financial information extracted from the SonomaWest Holdings, Inc. condensed financial statements for the interim period ended September 30, 2000 included in Form 10-Q and is qualified in its entirety by refernce to such financial statements. 0000102588 SONOMAWEST HHOLDINGS, INC. 1,000 USD 3-MOS JUN-30-2001 JUL-01-2000 SEP-30-2000 1 7,446 0 115 8 0 9,071 7,834 5,091 12,026 705 0 0 0 2,905 6,309 12,026 0 243 0 517 (133) 0 (45) (186) (75) (111) 90 0 0 (21) (0.01) (0.01)
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