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,
2001 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 #)
2064 Highway 116 North, Sebastopol, CA 95472-2662
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707-824-2001
--------------------------------------------------
(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 September 30, 2001, there were 1,023,797 shares of common stock, no par
value, outstanding.
SONOMAWEST HOLDINGS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2001 and
June 30, 2001.......................... ....................... 3
Condensed Consolidated Statements of Earnings - Three months
ended September 30, 2001 and 2000................................4
Condensed Consolidated Statement of Changes in Shareholders'
Equity - Three months ended September 30, 2001...................5
Condensed Consolidated Statements of Cash Flows - Three months
ended September 30, 2001 and 2000................................6
Notes to Condensed Consolidated Financial Statements.............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................13
Item 6. Exhibits and Reports on Form 8-K................................13
Signature.................................................................13
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
ASSETS 9/30/01 6/30/01
----------------- ----------------
CURRENT ASSETS:
Cash $2,979 $ 3,336
Restricted cash (see note 3) 600 600
Accounts receivable, less allowance for uncollectible accounts of $9
and $10 respectively 153 97
Other receivables 83 124
Prepaid income taxes 283 287
Prepaid expenses and other assets 111 129
Current deferred income taxes, net 368 263
----------------- ----------------
Total current assets 4,577 4,836
----------------- ----------------
RENTAL PROPERTY, net 2,172 2,252
----------------- ----------------
INVESTMENT, at cost 1,045 599
----------------- ----------------
Total assets $7,794 $7,687
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
$
Current maturities of long-term debt $ 58 57
Accounts payable 111 70
Unearned rents and deposits 229 176
Accrued payroll and related liabilities 382 52
Accrued expenses 286 241
Net liabilities of discounted operations 264 281
----------------- ----------------
Total current liabilities 1,330 877
----------------- ----------------
LONG TERM DEBT, net of current maturities 1,902 1,917
----------------- ----------------
DEFERRED INCOME TAXES, net 39 45
----------------- ----------------
Total liabilities 3,271 2,839
----------------- ----------------
SHAREHOLDERS' EQUITY:
Preferred stock: 2,500 shares authorized; no shares outstanding - -
Common stock: 5,000 shares authorized, no par value; 1,024 and 1,024
shares outstanding, respectively 2,207 2,187
Retained earnings 2,316 2,661
----------------- ----------------
Total shareholders' equity 4,523 4,848
----------------- ----------------
Total liabilities and shareholders' equity $ 7,794 $ 7,687
================= ================
The accompanying notes are an integral part of these consolidated statements.
3
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000
------------- -------------
RENTAL REVENUE $ 351 $ 243
OPERATING COSTS 811 517
------------- -------------
OPERATING LOSS (460) (274)
INTEREST AND OTHER INCOME (EXPENSE), NET (61) 88
------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX (521) (186)
BENEFIT FOR INCOME TAXES 138 75
------------- -------------
NET LOSS FROM CONTINUING OPERATIONS (383) (111)
GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income taxes 38 90
------------- -------------
NET LOSS $ (345) $ (21)
============= =============
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS:
Basic 1,024 1,522
Diluted 1,059 1,542
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations:
Basic $ (0.37) $ (0.07)
Diluted (0.37) (0.07)
Discontinued operations:
Basic 0.04 0.06
Diluted 0.04 0.06
Net earnings (loss):
Basic (0.34) (0.01)
Diluted (0.34) (0.01)
The accompanying notes are an integral part of these consolidated statements.
4
SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
(AMOUNTS IN THOUSANDS)
Common Stock
---------------------------- Total
Number Retained Shareholders'
of Shares Amount Earnings Equity
------------- -------------- -------------- ----------------
BALANCE, JUNE 30, 2001 1,024 $ 2,187 $ 2,661 $ 4,848
Net loss - - (345) (345)
Non-cash stock compensation charge 18 - 18
Issuance of common stock - 2 - 2
------------- -------------- -------------- ----------------
BALANCE, SEPTEMBER 30, 2001 1,024 $ 2,207 $ 2,316 $ 4,523
============= ============== ============== ================
The accompanying notes are an integral part of these consolidated statements.
5
SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
2001 2000
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (345) (21)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Loss on sale of fixed assets 1 -
Gain on sale of discontinued operations, net (38) (90)
Non-cash stock compensation charge 18 -
Depreciation expense 97 121
Changes in assets & liabilities:
Accounts receivable, net (56) 3
Other receivables 41 -
Prepaid expenses and other assets 22 (39)
Accounts payable and accrued expenses 86 17
Deferred income taxes, net (111) (16)
Accrued payroll and related liabilities 330 (34)
Unearned rents and deposits 53 9
-------------------- --------------------
Net cash provided by continuing operating activities 98 50
-------------------- --------------------
Net cash provided by (used in) discontinued operations 21 (281)
-------------------- --------------------
Net cash provided by (used in) operating activities 119 (331)
-------------------- --------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures, net (18) (5)
Investments (446) -
-------------------- --------------------
Net cash (used in) investing activities (464) (5)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long term debt (14) (577)
Issuance of common stock 2 -
-------------------- --------------------
Net cash (used for) financing activities (12) (577)
-------------------- --------------------
NET DECREASE IN CASH (357) (913)
CASH AT BEGINNING OF THE PERIOD 3,936 8,359
-------------------- --------------------
CASH AT THE END OF THE PERIOD $ 3,579 $ 7,446
==================== ====================
The accompanying notes are an integral part of these consolidated statements.
6
SONOMAWEST HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2001
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, 2001. The results of
operations for the three month period ended September 30, 2001 are not
necessarily indicative of the results that will be achieved for the entire year
ending June 30, 2002.
Reclassifications - Certain previously reported amounts were reclassified to
conform to the current presentation.
Note 2-
The Company has committed itself to a $3 million investment in the preferred
stock of a privately held telecommunications company, Metro PCS, Inc. As of
September 30, 2001, the Company had invested $1,045,000 of its $3 million
commitment. The Company has accounted for the investment using the cost method.
It is expected that the Company will make the remaining investment in several
installments throughout the fiscal year ending June 30, 2002.
Note 3-
During December 2000, the Company entered into an agreement with its sole lender
in order to modify the terms of the lending agreement. As a result, the
financial based debt covenant was amended. The new covenant required the
Company, at the end of each Fiscal Year, to maintain a debt service coverage
ratio at least 1:15 to 1. Until such time as this ratio reaches 1.25 to 1, the
Company was required to maintain restricted, unencumbered cash or marketable
securities of at least $600,000. Furthermore, the terms of the loan restrict the
Company from incurring any additional indebtedness during the term of the loan.
As of June 30, 2001, the Company's debt service ratio was .97 to 1.
Consequently, $600,000 is classified as restricted cash on the accompanying
balance sheet. The Company received a waiver from the Bank of this
non-compliance with the debt service coverage ratio as of June 30, 2001.
As of August 15, 2001, the Company and the Bank agreed to a Restated and Amended
Addendum to this Agreement. This addendum amends and restates the provisions of
the agreement described above. The new addendum requires that the Company, at
the end of each Fiscal Year, maintain a debt service coverage ratio of at least
1.05 to 1. It still requires that until such time as this ratio reaches 1.25 to
1, the Company is required to maintain restricted, unencumbered cash or
marketable securities of at least $600,000. As of September 30, 2001 the
$600,000 continues to be presented on the Balance Sheet as Restricted Cash, as
7
the Bank Agreement states that the test of the Debt Service coverage ratio be
calculated as of each fiscal year end. As of the last fiscal year end, the
Company did not exceed the required ratio to release this restriction. As a
condition to decrease the required debt service coverage ratio from 1.15 to
1.05, per the Amended Addendum, the Bank was granted a security interest in a
Money Market account in the amount of $90,000. This account balance is part of,
not an addition to, the restricted unencumbered cash balance of $600,000. The
Money Market account was opened and the cash transferred to the account
subsequent to September 30, 2001. Management is confident that in the future it
can remain in compliance with this new debt service coverage ratio.
The Company has a variable rate borrowing tied to the LIBOR rate. To reduce its
exposure to changes in the LIBOR rate, the Company has entered into a swap
contract. The Company is a party to an interest rate swap under which it
exchanges monthly, the difference between fixed and floating interest amounts
calculated on an initial agreed-upon notional amount of $2,100,000. The notional
amount is amortized monthly based on the Company's principal payments and was
$1,960,000 as of September 30, 2001. The interest rate contract has a five year
term that coincides with the term of the borrowing, both of which began on
December 1, 1998 and end on December 1, 2003. The swap contract requires the
Company's counter party to pay it a floating rate of interest based on USD-LIBOR
due monthly. In return, the Company pays its counter party a fixed rate of 5.10%
interest due monthly. The Company reports all changes in fair value of its swap
contract in earnings. During the three months ended September 30, 2001, the
Company recorded a decrease in the value of this swap of $60,000, which is
included in interest expense. The cumulative effect of adopting this standard
effective July 1, 2000 was not significant.
Note 4-
On July 17, 2001 the Company entered into an agreement in principle, which was
thereafter executed, with its President and Chief Executive Officer replacing
the executive's existing employment agreement. Pursuant to the separation
agreement, the executive will continue as President and Chief Executive Officer,
first on a full-time basis and then on a part-time basis, through October 31,
2001. Effective September 2001, the Company will pay separation payments to Mr.
Hess in the amount of $12,500 monthly for 29 months, replacing all payment
obligations under his prior employment agreement. Mr. Hess has also been
designated as the Company's exclusive sales representative in its efforts to
sell any and all remaining Perma-Pak finished good inventory and other Perma-Pak
property. Mr. Hess also has the option of extending the period within which he
is eligible to exercise options previously granted to him. The options currently
expire on January 29, 2002. To the extent that Mr. Hess elects to exercise some
or all of his options on or before January 29, 2002, the Company has committed
to loan him up to $447,000.
On September 4, 2001 the Company authorized the waiver of the provision of a
resigning board members' options providing for the termination 90 days following
service. Consequently, a non-cash compensation charge of $18,000 was recorded in
September, 2001.
Note 5-
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
8
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 condensed consolidated balance sheets at
September 30, 2001 and 2000, the operating results of the discontinued
operations in the consolidated statements of operations and the cash flows from
discontinued operations in the consolidated statements of cash flows for period
ending September 30, 2001 and 2000.
Upon the disposal of the Company's remaining ingredients assets, the sole
remaining line of business will be its real estate management and rental
operations and its investment in the preferred stock of a private
telecommunications company, Metro PCS, Inc..
The gain on the sale of discontinued operations presented in the accompanying
statements of earnings for the three months ended September 30, 2001 and 2000,
respectively represent the sales of remaining discontinued inventories and fixed
assets net of related selling costs and income taxes. Remaining liabilities of
discontinued operations of $264,000 and $281,000, as of September 30, 2001 and
June 30, 2001, respectively relate to reserves for rental repairs necessary to
ready warehouses previously used in the discontinued operations for future
rentals and estimated lease obligations at the Company's former corporate
headquarters in excess of projected sublease income. All remaining inventories
and fixed assets of discontinued operations are fully reserved.
Note 6 -
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 $ 37 $ 45
Income taxes paid $ - $ -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SonomaWest Holdings, Inc. (the "Company" or "Registrant") 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. In addition to other factors and matters discussed elsewhere herein,
these risks and uncertainties include, but are not limited to, uncertainties
affecting the real estate market, performance of the Company's investment, and
manage-ment of growth. The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a reasonable
basis, although actual results may differ materially from those described in any
such forward looking statements. Risks inherent in the Registrant's business and
factors that could cause or contribute to such differences include, without
limitation, the considerations set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations". There can be no
assurance that management's expectations, beliefs or projections will be
achieved or accomplished, and the Company expressly disclaims any obligation to
update any forward looking statements.
9
The financial statements herein presented for the quarters ending September 30,
2001 and 2000 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
As of September 30, 2001, the Company's business consists of its real estate
management and rental operations and its investment in the preferred stock of a
private telecommunications company, MetroPCS, Inc. Prior to the sale of its
other business segments, 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.
During fiscal 2001, the Company committed to a $3 million minority investment in
a telecommunications company. As of September 30, 2001, the Company had invested
$1,045,000 of its $3.0 million commitment.
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, was 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
liabilities of the discontinued operations in the consolidated balance sheets at
September 30, 2001 and June 30, 2001, the operating results of the discontinued
operations in the consolidated statements of operations for the three ended
September 30, 2001 and 2000 and the cash flows from discontinued operations in
the consolidated statements of cash flows for the three months ended September
30, 2001 and 2000.
For the three months ended September 30, 2001, the Company recorded an after-tax
gain from discontinued operations of $38,000. This compares to an after-tax gain
of $90,000 for the three months ended September 30, 2000. The gains on the sale
of discontinued operations relate to the Company's continued efforts to sell the
remaining discontinued inventories and fixed assets.
The Company continues to actively market 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.
10
RESULTS OF CONTINUING OPERATIONS
The Company's continuing line of business is its real estate management and
rental operations. Additionally, the Company has committed to a $3 million
minority investment in a telecommunications company, Metro PCS, Inc. As of
September 30, 2001, the Company has invested $1,045,000 of its commitment.
Currently, there are no other plans to make any additional commitments to other
investments.
Results of Operations
---------------------
The Company leases warehouse, production, and office space as well as outside
storage space at both of its properties. The two properties have a combined
leaseable area of approximately 472,000 square feet on 81.5 acres of land. As of
September 30, 2001, the Company has twenty-eight tenants that have varying
original lease terms ranging from month-to-month to eight years with options to
extend the leases. As of September 30, 2001, the Company's tenants occupy
approximately 325,000 square feet or 69% of the properties' available space.
Rental Revenue. For the three months ended September 30, 2001 rental revenue
increased $108,000 from the three months ended September 30, 2000. The increase
in rental revenue is attributable to increased occupancy in the current year as
the Company continues in its efforts to lease vacant space.
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 discontinued packaged goods businesses were
charged to discontinued operations in the consolidated statements of operations.
For the three months ended September 30, 2001 operating costs increased $294,000
or 57% compared to the three months ended September 30, 2000, primarily due to
separation costs of $350,000 related to the termination of the Company's CEO
offset by efficiencies gained as the Company continues to minimize costs.
Operating costs also include a non-cash compensation charge of $18,000 related
to the extension of a former Board Member's stock options. Excluding the impact
of separation costs and the non-cash compensation charge, the Company's total
operating costs exceeded the tenant rental revenue. Cost reduction efforts to
minimize any avoidable spending have been undertaken to minimize these negative
operating results while the Company actively searches for additional tenant
revenue. 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 or at rates comparable with existing leases. 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.
Interest and Other Income (Expense), Net. Interest and other income (expense)
consists primarily of interest income on the Company's cash balances and
interest expense on mortgage debt and the decrease in the value of the Swap
contract. 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, for the three months ending
September 30, 2001, the Company generated $36,000 of interest income and
incurred $37,000 of interest expense, compared to $128,000 of interest income
and $45,000 of interest expense for the corresponding period in the prior year.
The decrease in interest income is due to a reduced cash balance in fiscal 2001
as a result of the Company's investment in Metro PCS coupled with drops in
interest rates.
Income Taxes. The effective tax rate for the three months ended September 30,
2001 decreased to 26% from 40% as of September 30, 2000. The decrease is due to
a valuation allowance placed on state net operating losses generated as of
September 30, 2001, due to the uncertainty of future taxable income against
which the state net operating losses could be offset, in addition to a non-cash
compensation charge that will not be deductible for income tax purposes. The
Company has continued to benefit from federal losses due to the ability to carry
such losses back and offset against prior taxable income.
11
Liquidity and Capital Resources
-------------------------------
The Company had unrestricted cash of $3.0 million at September 30, 2001, and
current maturities of long-term debt of $58,000. The Company's cash balance
decreased $357,000 during the quarter ended September 30, 2001, primarily as a
result of the investment of $446,000 in Metro PCS, Inc.
As of August 15, 2001, the Company and its Bank agreed to restate and amend its
loan agreement. This agreement required the Company to maintain, at the end of
each fiscal year, a debt service coverage ratio of at least 1.05 to 1. Until
such time as this ratio reaches 1.25 to 1, the Company is required to maintain
restricted unencumbered cash or marketable securities of at least $600,000. As a
condition of the decrease in the required debt service coverage ratio from 1.15
to 1.05, the Bank was granted a security interest in a Money Market account in
the amount of $90,000. This account balance is part of, not an addition to, the
restricted unencumbered cash balance of $600,000. The Money Market account was
opened and the cash transferred to the account subsequent to September 30, 2001.
The Company has committed itself to a $3 million investment in the preferred
stock of a privately held telecommunications company, MetroPCS, Inc. As of
September 30, 2001, the Company had invested $1,045,000 of its $3 million
commitment. The Company has accounted for the investment using the cost method.
It is expected that the remaining $1,955,000 will be funded in several
installments throughout the fiscal year ending June 30, 2002.
On July 17, 2001 the Company entered into an agreement in principle, which was
thereafter executed, with its President and Chief Executive Officer replacing
the executive's existing employment agreement. Pursuant to the separation
agreement, the executive will continue as President and Chief Executive Officer,
first on a full-time basis and then on a part-time basis, through October 31,
2001. Effective September 2001, the Company will pay separation payments to Mr.
Hess in the amount of $12,500 monthly for 29 months, replacing all payment
obligations under his prior employment agreement. Mr. Hess has also been
designated as the Company's exclusive sales representative in its efforts to
sell any and all remaining Perma-Pak finished good inventory and other Perma-Pak
property. Mr. Hess also has the option of extending the period within which he
is eligible to exercise options previously granted to him. The options currently
expire on January 29, 2002. To the extent that Mr. Hess elects to exercise some
or all of his options on or before January 29, 2002, the Company has committed
to loan him up to $447,000.
On September 4, 2001 the Company authorized the waiver of the provision of a
resigning Board Member's options providing for the termination 90 days following
service, consequently, a non-cash compensation charge of $18,000 was recorded in
September, 2001.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule (EDGAR Filing Only)
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: October 30, 2001
SONOMAWEST HOLDINGS, INC.
By: /s/ Gary L. Hess
----------------------------------
Gary L. Hess,
Chief Executive Officer, President and Chief Financial Officer
13