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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 18, 2005
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SonomaWest Holdings, Inc.
(Exact Name of Registrant as Specified in Charter)
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Delaware 000-01912 94-1069729
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2064 Highway 116 North
Sebastopol, California 95472
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (707) 824-2534
Same
(Former name or Former Address, if Changed Since Last Report.)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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Item 1.01 Entry into a Material Definitive Agreement
The disclosures set forth below under Item 8.01, Other Events, are hereby
incorporated by reference into this item.
Item 2.01 Completion of Acquisition or Disposition of Assets
To the extent it is deemed to involve a sale of assets, the disclosure
under Item 8.01 Other Events, below under the caption "MetroPCS Shares," is
hereby incorporated by reference into this Item.
Item 8.01 Other Events
Credit Agreement. On October 18, 2005, SonomaWest Holdings, Inc. (the
"Company" or "SonomaWest"), entered into a credit agreement with Wells Fargo
Bank, National Association. The credit agreement replaces the Company's previous
credit agreement with the bank and, in part, refinances approximately $1,606,300
of indebtedness under the previous agreement. The credit agreement provides for
a line of credit, which is available through September 1, 2010. The line of
credit provides for advances not to exceed at any time an aggregate principal
amount of $500,000, and advances under the line of credit may be used to provide
funds for tenant improvements. The term note bears interest at the bank's prime
rate plus .25% (or, at the Company's election, the LIBOR rate, as defined, plus
3.25%), with monthly principal payments of approximately $6,700 beginning
November 1, 2005. Unpaid principal and interest is due on the maturity date of
October 1, 2010. The note is secured by a first deed of trust on the Company's
property (the "North Property") located at 2064 Gravenstein Highway North,
Sebastopol, California.
The credit agreement includes a number of customary representations,
warranties and covenants, including: a requirement to maintain a minimum
earnings before interest, taxes, depreciation and amortization ("EBITDA")
Coverage Ratio, as defined, of not less than 1.1 to 1.0 on an annual basis,
determined as of each fiscal year end; a Debt Service Coverage Ratio, as
defined, of not less than 2.0 to 1.0 on a semi-annual trailing four-quarter
basis determined as of each June 30 and December 31; and unencumbered cash and
cash equivalents of not less than $1,000,000 at all times.
In connection with the new credit agreement, the Bank obtained an
appraisal from a third party concerning the Company's North Property that serves
as collateral securing the Company's obligations under the credit agreement.
Based upon a number of valuation approaches, for purposes of the credit
agreement the appraiser appraised the North Property at approximately
$14,000,000. This appraisal was obtained by the bank solely for purposes of its
analysis of the security underlying the credit agreement. The Company also
requested the appraiser to appraise the Company's south property (the "South
Property"), and the appraiser appraised the South Property at approximately
$4,000,000. The appraisals are based on a number of assumptions concerning the
properties, including assumptions concerning the amount of rent paid by tenants
on the properties, rental rates, expenses of owning and maintaining the
properties, occupancy rates by tenants and renewals by existing tenants of their
leases. For example, the appraisals assume lease renewals by major tenants.
There can be no assurances that the Company's significant existing tenants, or
future significant tenants, will renew their leases or enter into new leases
with the Company either at all or on terms that are economically favorable to
the Company, and if one or more major tenants do not renew the leases upon
expiration of current leases and new tenants are not found for the space at
comparable or more favorable rental rates, or if renewals are on economic terms
less favorable to the Company than the existing lease
terms, then the lower occupancy rate and/or lower returns to the Company from
future leases could substantially reduce the value of the properties. Similarly,
the assumptions utilized in the appraisal concerning the rent per square foot
paid by tenants for different portions of the properties could prove erroneous,
overstating the amount of income from the properties and resulting in a lower
value for the properties. Any one or more of the assumptions utilized in the
appraisal could prove different from actual circumstances, and the differences
could result in a significantly lower value for the properties than the amounts
reflected in the appraisals. The Company makes no representations or assurances
concerning the accuracy of the appraisals. The Company did not provide any
substantive input into the valuation process other than providing access to the
properties or consult with the appraiser concerning the assumptions or
procedures utilized by the appraiser. The actual value of the property could
differ materially from, and could be materially less than, the values reflected
in the appraisals. In addition, the real estate market in general, and in
Northern California in particular, is volatile, and properties can experience
significant decreases in value. The values reached in the appraisals do not
necessarily bear a relationship to, or represent, the price or range of prices
that a third party buyer might be willing to offer or pay to purchase the North
Property or the South Property, and as of the date of this Report on Form 8-K
the Company has not solicited or received any indications of interest or offers
to purchase either property.
MetroPCS Shares. As the Company has previously reported in its filings
with the Securities and Exchange Commission, the Company holds an investment in
MetroPCS Communications, Inc. ("MetroPCS"), a privately held telecommunications
company, through its ownership of shares of Series D Preferred Stock of
MetroPCS.
As the Company previously reported in its Annual Report on Form 10-K for
the year ended June 30, 2005, pursuant to a cash tender offer made by certain
third parties to purchase shares of MetroPCS Series D Preferred Stock and common
stock, the Company tendered 20% of the shares of MetroPCS Series D Preferred
Stock that it holds. The Company's total original investment in all of the
MetroPCS shares that it holds is approximately $3 million, and the price per
share offered in the tender offer was approximately three times the original
investment amount per share paid by the Company for its MetroPCS shares,
including the cumulative unpaid dividends of $562,529 as of June 30, 2005.
Based on the price per share offered in the tender offer, the remaining
MetroPCS shares held by the Company would have a value of approximately
$7,200,000. There can be no assurance, however, that the Company will be able to
achieve liquidity for its remaining MetroPCS shares in the future at the price
offered in the tender officer or at any other price.
All of the shares tendered by the Company have been accepted for purchase,
the purchasers have deposited the funds representing the purchase price for
shares accepted for tender with the depositary, and the Company expects to
receive, in the near future, gross proceeds of approximately $1,800,000 from
sale of the shares. The Company believes that, after applying available net
operating losses for federal and state tax purposes, the net proceeds from the
sale of the MetroPCS shares will be approximately $1,600,000.
Item 9.01 Financial Statements and Exhibits
None
SIGNATURE
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 hereunto duly authorized.
SONOMAWEST HOLDINGS, INC.
Date: October 24, 2005 By: /s/ Walker R. Stapleton
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Walker R. Stapleton
Chief Executive Officer