Craig D. Hansen (AZ Bar No. 007405) craig.hansen@squiresanders.com Bradley A. Cosman (AZ Bar No. 026223) bradley.cosman@squiresanders.

com SQUIRE SANDERS (US) LLP One East Washington Street, Suite 2700 Phoenix, Arizona 85004 (602) 528-4000 Proposed Counsel to Debtors-In-Possession UNITED STATES BANKRUPTCY COURT DISTRICT OF ARIZONA In re COCOPAH NURSERIES OF ARIZONA, INC., et al.,1 Debtors. Chapter 11 Cases Case No. 2:12-bk-15292-EWH (Jointly Administered) OMNIBUS STATEMENT OF FACTS AND DECLARATION OF DUANE YOUNG IN SUPPORT OF FIRST DAY PLEADINGS Date of Hearing: Time of Hearing: This Filing Applies to: All Debtors Specified Debtors Duane Young, under penalty of perjury, states: 1. I am the Vice President and Secretary of Cocopah Nurseries of Arizona, Inc.

(Cocopah AZ, and together with its above-captioned Debtor Affiliates, the Debtors). 2. I make this affidavit on personal knowledge in my capacity as Vice President and

Secretary in connection with the Debtors voluntary petitions for relief under chapter 11,2 filed

The Debtors, together with the last four digits of each debtors federal tax identification are: Cocopah Nurseries of Arizona, Inc. (6117); Wm. D. Young & Sons, Inc. (0907); Cocopah Nurseries, Inc. (2955); and William Dale Young & Sons Trucking and Nursery (1652). 2 Unless otherwise indicated, all chapter and section references in this Motion are to Bankruptcy Code, 11 U.S.C. 101 et seq. All Rule references are to the Federal Rules of Bankruptcy Procedure.
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on July 9, 2012 (the Petition Date). The statements set forth below are true to the best of my personal knowledge and if called to testify to those statements, I would do so competently.3 3. This Declaration is submitted in support of factual allegations contained in the

following contemporaneously-filed Motion for an Order Authorizing and Directing Joint Administration and Use of Consolidated Caption and certain additional soon-to-be filed first-day motions (collectively, the First-Day Pleadings).4 EVENTS LEADING TO CHAPTER 11 FILING 4. The Debtors are a family-owned and operated agricultural enterprise with

operations in Arizona and California. The Debtors core business involves the cultivation of palm trees and other trees used for landscaping purposes, as well as the associated farming of citrus, dates, and other crops. 5. A congruence of factors has led to the filing of these chapter 11 cases. Most

emergent is the need to maintain uninterrupted access to water and electricity. The Debtors tree and crop assetswhich serve as collateral to the Debtors Prepetition Lenders5are dependent on continuous and uninterrupted access to water and electricity to survive in the severe desert conditions of Arizona and Central California. Moreover, being approximately two-thirds of the way into the annual fruit crops growing cycle, any interruption in water, electricity or other care for the tree and crop assets would put the Debtors entire crop in jeopardy.
3

Some of the information contained in this Declaration was provided to me by representatives of the Debtors, which I have relied on for purposes of preparing this Declaration. 4 All capitalized terms not defined in this Declaration have the same meanings ascribed to them in the corresponding pleadings. 5 As discussed in greater detail in the Capital Structure section below, the Debtors have somewhat unique debt structure with two separate senior secured credit facilitiesone facility with RaboBank, N.A. (Rabobank) and one facility with Wells Fargo, N.A. (Wells Fargo, and together with Rabobank, the Prepetition Lenders). The two separate facilities are secured by mostly-separate collateral pools, but together are secured by substantially all of the Debtors assets.
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6.

Of course, the water, electricity, labor and other care required by the trees has a

cost. As explained in greater detail below, the Debtors have experienced diminished liquidity and cash flows due to the significant and sustained contraction in residential, retail and commercial development. In order to maintain access to sufficient funds for utilities, payroll and other treecare expenses, the Debtors had been involved in protracted and extensive prepetition restructuring negotiations with the Prepetition Lenders. Just weeks before the Petition Date, those good-faith negotiations successfully culminated in agreements-in-principal with both Prepetition Lenders on respective term sheets for an out-of-court restructuringsuch agreements remaining subject to and contingent on customary resolution of certain terms and final documentation. Unfortunately, by the time the agreements-in-principal were reached, the Debtors liquidity was such that immediate additional protective advances from the Prepetition Lenders were necessary to meet payroll obligations and ensure continuous and uninterrupted access to utilities. 7. Notwithstanding the recent agreements-in-principal, both Prepetition Lenders

advised the Debtors that they would be unwilling to provide any requisite future protective advances except under terms of debtor-in-possession financing. That being the case, the Debtors began preparing these bankruptcies and working on consensual arrangements to bridge the financing gap until an orderly bankruptcy could be filed. As part of that process and as recently as last Friday, July 6, 2012, the Debtors were awaiting a term sheet for debtor-in-possession financing from the Prepetition Lenders. Instead, of receiving a draft term sheet the Debtors were informed today that Prepetition Lender Rabobank had initiated a state-court action to appoint a receiver. This unexpected development necessitated the immediate filing of these bankruptcy cases.

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8.

Another factor contributing to the necessity of these bankruptcies arises based on

the unique circumstances of having the Debtors assets split between two different collateral pools for two different lenders. This relatively uncommon arrangementas opposed to a more typical senior vs. junior creditor arrangementgives rise to unique intercreditor disputes. Moreover, the Debtors remain caught between, and impacted by, the Prepetition Lenders intercreditor disputes to some degree. Indeed, the term sheet proposals for the out-of-court restructuring were expressly conditioned upon the Prepetition Lenders being able to reach a mutually-agreeable form of intercreditor agreement. It is unclear whether that can happen here. The outstanding issues between the Prepetition Lenders include, among other things, claims that proceeds from one lenders collateral have been used pay costs related to the other lenders collateral, and disputes about the appropriate methodology for allocating overhead costs amongst the Prepetition Lenders respective collateral. In any event, resolution of the Prepetition Lenders intercreditor disputes will be a key component of these bankruptcies. 9. These factors, compounded with the Debtors overleveraged balance sheets, make

reorganization through a bankruptcy process necessary at this time. While the Debtors had hoped for a more orderly transition into bankruptcy, the end result is the same. This bankruptcy now provides both the Debtors and Prepetition Lenders with the benefits of transparency and accountability through a court-supervised process. First and foremost, the Debtors will utilize the protections of the Bankruptcy Code protect and enhance the Prepetition Lenders tree and crop collateral through uninterrupted access to water, electricity and other required care. From there, the Debtors remain optimistic that resumed discussions with the Prepetition Lenders will not only yield reasonable terms for debtor-in-possession financing but, ultimately, a consensual global resolution of their disputes.

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DESCRIPTION OF THE DEBTORS 10. The Debtors are market leaders in the palm tree industry and regions in which

they operate. The Debtors have a robust palm-tree inventory that enables the Debtors to be the principal provider of decorative palm trees for large and high profile real estate developments in California, Las Vegas, Arizona and beyond. Developments for which the Debtors were the primary provider of palm trees include the Arizona Center, the San Diego Convention Center, Almaden Boulevard in San Jose, California, the Kohl Center, and the Jamboree Center. 11. The Debtors tree and farming operations are scattered across approximately

14,000 noncontiguous acres in or near Buckeye, Hyder, and Yuma, Arizona, and approximately 9,000 noncontiguous acres in or near Indio, California. The ranches on which the farming is conducted range in size from approximately 2 to 1300 acres. The Debtors corporate headquarters is located in Indio, California. 12. The Debtors farming enterprise comprises four affiliated entities: (a) Cocopah Nurseries of Arizona, Inc. (Cocopah AZ) is an Arizona corporation formed in 1993 which owns and leases the real properties in Maricopa and Yuma counties. Cocopah AZ also as manages the tree and fruit farming operations on the Arizona properties.6 Cocopah Nurseries, Inc. (Cocopah CA) is a California corporation that owns and leases the Debtors real properties in California. William D. Young and Sons, Inc. (WDY) is a California corporation that manages and operates the Debtors California properties. WDY earns a management fee from Cocopah CA for WDYs management services in amount approximately equal to WDYs payroll and operating expenses. WD Young & Sons Trucking and Nursery (Trucking) is a California partnership that purchases mature trees from Cocopah AZ and Cocopah CA and then manages the sale process to the Debtors customers. The Debtors customers are primarily land developers and landscape architects

(b) (c)

(d)

The remaining Debtors are all affiliates of Cocopah AZ. Accordingly, venue for all of these chapter 11 cases is proper in this District under 28 U.S.C. 1408 and 1409.
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who purchase and plant palm trees in residential, retail, and commercial developments. 13. The Debtors currently collectively employ approximately 250 full-time salaried

and hourly employees. In addition, the Debtors currently collectively utilize approximately 50 250 contract laborers, depending on the season. 14. During the period from 2000 to 2006, the Debtors annual gross revenue ranged

from approximately $24 million to $51 million. The majority of that revenue was generated by the sale of palm trees. Palm trees reach peak value at approximately 10 years of age but can maintain peak value for approximately 30 years thereafter. The Debtors presently own more than 250,000 palm trees in various stages of the tree-growth cycle. 15. As a corollary to their tree-farming operations, the Debtors farm and harvest

citrus, dates, and other crops for additional revenue streams. Much of the Debtors farming and harvesting of citrus, dates and other crops is done in conjunction with sharecroppers whereby the sharecroppers provide all care and maintenance for the plants required above the ground (e.g. tie downs, thinning, bagging, de-thorning, pollination), while the Debtors provide all care and maintenance required on or below the ground (e.g. irrigation). Once the fruit has been harvested, it is delivered to a packing company where it is graded and sorted. The grading process for the fruit, and therefore payment from the packer to the Debtors, can take up to 10 months. During that time, the Debtors carry a receivable on their books from the packers.7 16. Beginning in 2007, the Debtors financial results began reflecting the weak real

estate market and the well-documented economic conditions. As residential, retail and commercial development significantly contracted, so too did the Debtors palm tree sales

When the crop is delivered to the packer, the crop is converted from inventory to a receivable on the Debtors financials.
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revenue. The Debtors gross revenues in fiscal years 2006 and 20078 were approximately $57 and $53 million, respectively, but by fiscal years 2008 and 2009, those revenues had fallen to approximately $41 million and $22 million, respectively. By 2010, the Debtors gross revenue were $23 million. Of course, the decreased revenue has had a negative material impact on the Debtors profitability and cash flows.9 By 2010, the Debtors financial distress caused defaults under the Debtors separateand largely mutually exclusivesecured lending obligations to the Prepetition Lenders. THE DEBTORS CAPITAL STRUCTURE 17. The Debtors have two separate senior secured credit facilities that are secured by

mostly-separate collateral pools between the Prepetition Lenders. Substantially all of the Debtors assetsincluding the Debtors tree inventory and cropsare encumbered by liens under the Rabobank credit facilities, the Wells Fargo credit facilities, or both. The Rabobank Facility 18. The Debtors, as borrowers, entered into a series of loan documents with

Rabobank, as lender, including that certain Amended and Restated Loan Agreement dated as of May 18, 2010, that certain Term Loan Agreement dated as of April 1, 2008, and that certain 2002 Master Agreement dated as of June 2, 2006 (each as modified or amended form time to time, and together with all related line of credit agreements, swap agreements, environmental indemnity agreements, deeds of trust, security agreements, and promissory notes, the Rabobank Loan Agreements).

8 9

The Debtors fiscal year ends on March 31st each year. The Debtors believe their deteriorating cash flows were exasperated by notices sent by the lenders to packing houses which owed the Debtors money on account of crops delivered. The notices directed the packing houses to remit payments owed to the Debtors directly to the lenders as proceeds of the lenders prepetition collateral.
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19.

The Debtors obligations under the Rabobank Loan Agreements are secured by

liens on, and security interests in, certain real and personal properties of the Debtors identified in the Rabobank Loan Agreements. 20. As of the Petition Date, there was no less than $70 million of indebtedness

outstanding under the Rabobank Loan Agreements and the Debtors were in default under the Rabobank Loan Agreements. The Debtors obligations under the Rabobank Loan Agreements are subject to guarantee agreements by certain members of the Young family and related family trusts. The Wells Fargo Facility 21. Cocopah CA, as borrower, also entered into a series of loan documents with

Wells Fargo, as lender, including that certain Amended and Restated Credit Agreement, dated as of January 25, 2010 (as modified or amended from time to time, and together with all swap agreements, environmental indemnity agreements, deeds of trust, security agreements, and promissory notes delivered in connection therewith, the Wells Fargo Loan Agreements). 22. The Debtors obligations under the Wells Fargo Loan Documents are secured by

liens on, and security interests in, certain real and personal properties of the Debtors identified in the Wells Fargo Loan Agreements. 23. As of the Petition Date, there was no less than $65 million of indebtedness

outstanding under the Wells Fargo Loan Agreements and the Debtors were in default under one or more of the Wells Fargo Loan Agreements. Cocopah CAs obligations under the Wells Fargo Loan Agreements are subject to guarantee agreements by the remaining three debtors, as well as by certain members of the Young family and related family trusts.

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Equity Ownership 24. The Debtors share common and overlapping equity ownership amongst members

of the Young family as follows:

Equity Ownership Percentages Duane Young 33.33% 33.33% 14.00% 25.00% Darl Young 33.33% 33.33% 14.00% 25.00% Gregston Young 33.33% 33.33% 14.00% 25.00% William D. Young N/A N/A N/A 25.00% William D. Young & Harriet M. Young Trust N/A N/A 58.00% N/A

Debtor Entity Cocopah AZ Cocopah CA WDY Trucking

STATEMENTS IN SUPPORT OF FIRST DAY PLEADINGS 25. The following statements are submitted in support of the First Day Pleadings and

are based upon personal knowledge or knowledge obtained from employees of the Debtors.10 A. 1. Motion for an Order Authorizing and Directing Joint Administration and Use of Consolidated Caption The Debtors are still working to complete the necessary First Day Motions and

will file them as soon as practicable prior to the requested hearing. 2. 13, 2012. Dated July 9, 2012. /s/ Duane Young Duane Young The Debtors have payroll and utility obligations coming due by this Friday, July

10

Capitalized terms not otherwise defined in this Statement retain the definition ascribed to them in the applicable underlying motion.
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