FORM 10-Q

                          SECURITIES AND EXCHANGE COMMISSION

                                WASHINGTON, D.C. 20549

                    (X)  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                         OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the quarterly period ended     June 30, 1997

                                          OR

                    ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                         OF THE SECURITIES EXCHANGE ACT OF 1934

                    for the transition period from             to           

                    For Quarter Ended             Commission File Number

                       June 30, 1997                     1-7183        

                                       TEJON RANCH CO.                     

                    (Exact name of Registrant as specified in its charter)

               Delaware                               77-0196136            
          (State or other jurisdiction of (IRS Employer Identification No.)
           incorporation or organization)

          P.O. Box 1000, Lebec, California                          93243   
          (Address of principal executive offices)               (Zip Code)

          Registrant's telephone number, including area code.(805) 248-6774

          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    

          Total Shares of Common Stock issued and outstanding on June 30,
          1997, were 12,682,244.

                                   TEJON RANCH CO.

                                        INDEX

                                                                 Page No.

          PART I.   FINANCIAL INFORMATION

          Item 1.   Financial Statements

                    Unaudited Consolidated Statements of               3
                    Operations for the Three Months 
                    Ended June 30, 1997 and June 30, 1996
                    and Six Months Ended June 30,1997 and 
                    June 30, 1996

                    Unaudited Consolidated Balance Sheet               4
                    as of December 31, 1996 and June 30, 1997

                    Unaudited Consolidated Statements of               5
                    Cash Flows for the Six Months Ended 
                    June 30, 1997 and 1996

                    Notes to Unaudited Consolidated Financial          6
                    Statements

          Item 2.   Management's Discussion and Analysis of           10
                    Financial Condition and Results of Operations

          PART II.  OTHER INFORMATION

                    Item 5. Other Information                         15

                    Item 6. Exhibits and Reports on Form 8-K          16

                    SIGNATURES                                        17


                                       - 2 -
          PART I FINANCIAL INFORMATION

                           TEJON RANCH CO. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                       (In thousands, except per share amounts)
                                     (Unaudited)

                                         THREE MONTHS ENDED   SIX MONTHS ENDED
                                               June 30             June 30

                                           1997      1996      1997      1996
                                                         

           Revenues:
             Livestock                   $ 4,900   $ 3,269   $ 6,469   $ 3,818 

             Farming                         229        50       681        74 

             Oil & Minerals                  356       338       658       619 

             Commercial and Land Use         417       336       794       672 
             Interest Income                 349       319       672       647 

                                           6,251     4,312     9,274     5,830 

           Cost and Expenses:

             Livestock                     4,729     2,580     6,423     3,277 

             Farming                          99       369       543       747 
             Oil & Minerals                   70        40       115        83 

             Commercial and Land Use         660       588     1,177     1,068 

             General & Administrative
               Expense                       524       586     1,233     1,062 
             Interest Expense                192        54       263       104 

                                           6,274     4,217     9,754     6,341 

           Operating Income (Loss)           (23)       95      (480)     (511)


           Income Tax Expense (Benefit)      (17)       38      (188)     (204)

           Net Income (Loss)             $    (6)  $    57   $  (292)  $  (307)

           Earnings (Loss) Per Share     $  0.00   $  0.00   $ (0.02)   $(0.02)
           Cash Dividends Paid
             Per Share                   $ 0.025   $ 0.025   $ 0.025   $ 0.025 

          See Notes to Consolidated Condensed Financial Statement
TEJON RANCH CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) June 30, 1997 December 31, 1996* ASSETS (Unaudited) CURRENT ASSETS Cash & Cash Equivalents $ 89 $ 693 Marketable Securities 17,654 20,127 Accounts & Notes Receivable 4,430 4,303 Inventories: Cattle 5,935 3,082 Farming 2,966 191 Other 483 157 Prepaid Expenses & Other 1,322 1,319 Total Current Assets 32,879 29,872 PROPERTY & EQUIPMENT-NET 20,842 16,270 OTHER ASSETS 1,162 1,227 TOTAL ASSETS $ 54,883 $ 47,369 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade Accounts Payable $ 996 $ 488 Other Accrued Liabilities 68 569 Other Current Liabilities 9,596 4,129 Total Current Liabilities 10,660 5,186 LONG-TERM DEBT 4,300 1,800 DEFERRED CREDITS 2,713 2,651 Total Liabilities 17,673 9,637 STOCKHOLDERS' EQUITY Common Stock 6,341 6,341 Additional Paid-In Capital 387 387 Retained Earnings 30,643 31,253 Defined Benefit Plan-Funding Adjustment, net of taxes (256) (256) Marketable Securities- Unrealized Gain, Net 95 7 Total Stockholders' Equity 37,210 37,732 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 54,883 $ 47,369 See Notes to Consolidated Condensed Financial Statements. * The Balance Sheet at December 31, 1996 has been derived from the audited financial statements at that date.
TEJON RANCH CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) SIX MONTHS ENDED June 30 1997 1996 OPERATING ACTIVITIES Net Loss $ (292) $ (307) Items Not Affecting Cash: Depreciation and Amortization 676 541 Deferred Income Taxes 0 134 Gain on Sale of Investments (4) 0 Changes in Operating Assets and Liabilities Receivables, Inventories and Other Assets, Net (5,686) 2,362 Current Liabilities, Net (789) (846) NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (6,095) 1,884 INVESTING ACTIVITIES Acquisition of Champion Feeders (3,874) 0 Maturities and Sales of Marketable Securities 4,085 5,484 Funds Invested in Marketable Securities (1,460) (5,503) Property and Equipment Expenditures (1,734) (947) Net Change in Breeding Herds 59 (60) Other (31) 3 NET CASH (USED IN) INVESTING ACTIVITIES $(2,955) $(1,023) FINANCING ACTIVITIES Proceeds From Revolving Line of Credit 14,740 6,698 Payments of Revolving Line of Credit (8,477) (7,184) Borrowing of Long-Term Debt 2,500 0 Cash Dividend Paid (317) (317) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,446 (803) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (604) 58 Cash and Cash Equivalents at Beginning of Year 693 44 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89 $ 102 See Notes to Consolidated Condensed Financial Statements.
TEJON RANCH CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) June 30, 1997 NOTE A - BASIS OF PRESENTATION The summarized information furnished by Registrant pursuant to the instructions to Part I of Form 10-Q is unaudited and reflects all adjustments which are, in the opinion of Registrant's Management, necessary for a fair statement of the results for the interim period. All such adjustments are of a normal recurring nature. The results of the period reported herein are not indicative of the results to be expected for the full year due to the seasonal nature of Registrant's agricultural activities. Historically, the largest percentage of revenues are recognized during the third and fourth quarters. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. NOTE B - CALCULATIONS OF EARNINGS PER SHARE Earnings per share is calculated using the weighted average number of common shares outstanding during the period. Common shares outstanding for the three month and six month periods ended June 30, 1997 and 1996 were 12,682,244. Registrant has a Stock Option Plan providing for the granting of options to purchase a maximum of 230,000 shares of Registrant's Common Stock to employees, advisors and consultants of Registrant. At June 30,1997, options to purchase 179,000 shares are outstanding at prices equal to the fair market value at date of grant (159,000 shares at $16.00 per share, and 20,000 shares at $15.00 per share). Stock options granted will be treated as common stock equivalents in accordance with the treasury method when such amounts would be dilutive. Fully diluted common shares outstanding for the three month period ended June 30, 1997 and 1996 were 12,698,081 and 12,685,361 respectively. Fully diluted common shares outstanding for the six month period ended June 30, 1997 and 1996 were 12,690,756 and 12,684,228, respectively. There is no change in earnings per share based on the fully diluted common shares outstanding. NOTE C - MARKETABLE SECURITIES Registrant has elected to classify its securities as available- for-sale per Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, and therefore is required to adjust securities to fair value at each reporting date. Marketable securities consist of the following at: June 30 December 31 1997 1996 Estimated Estimated Fair Fair Cost Value Cost Value Marketable securities: (in thousands) U.S. Treasury and agency notes $ 10,403$ 10,564 $ 13,156$ 13,158 Corporate notes 7,092 7,090 6,960 6,969 $ 17,495$ 17,654 $ 20,116$ 20,127
As of June 30, 1997, the cumulative fair value adjustment is a $159,000 unrealized gain. The cumulative fair value adjustment to stockholders' equity, net of a deferred tax of $64,000, is an unrealized gain of $95,000. Registrant's gross unrealized holding gains equal $217,000, while gross unrealized holding losses equal $58,000. On June 30, 1997, the average maturity of U.S. Treasury and agency securities was 1.2 years and corporate notes was 1.7 years. Currently, Registrant has no securities with a remaining term to maturity of greater than five years. Market value equals quoted market price, if available. If a quoted market price is not available, market value is estimated using quoted market prices for similar securities. Registrant's investments in Corporate notes are with companies with a credit rating of A or better. NOTE D - COMMODITY DERIVATIVES USED TO HEDGE PRICE FLUCTUATIONS Registrant uses commodity contracts to hedge its exposure to price fluctuations on its purchased stocker cattle and cattle feed costs. The objective is to protect or create a future price for stocker cattle that will provide a profit or minimize a loss once the cattle are sold and all costs are deducted and to protect Registrant against market declines. To help achieve this objective Registrant uses the cattle futures and cattle options markets to hedge the price of cattle. Registrant also hedges to protect against fluctuations in feed cost by using the corn futures and options markets. Feed costs are hedged in order to protect against large pricing increases in feed costs. Registrant continually monitors any open futures and options contracts to determine the appropriate hedge based on market movement of the underlying asset. The option and futures contracts used typically expire on a quarterly or semi-annual basis and are structured to expire close to or during the month the stocker cattle are scheduled to be sold. The risk associated with hedging is that hedging imposes a limit on the potential profits from the sale of cattle if cattle prices begin to increase dramatically. The costs of buying and selling options and futures contracts reduce profits. Any payments received and paid related to options contracts are deferred in and reflected as an asset on the balance sheet in prepaid expenses until contracts are closed or expire and were approximately $56,000 at June 30, 1997. There were 180 outstanding option contracts at June 30, 1997. Cattle futures contracts are carried off-balance sheet until the contracts are settled. Realized losses associated with closed contracts equal to $164,000 are currently included in cattle inventory and will be recognized in cost of sales when the cattle are sold during the third and fourth quarters of 1997. The following table identifies the cattle futures contract amounts outstanding at June 30, 1997 (in thousands, except number of Contracts): Cattle Hedging Estimated Activity Original Fair Value Estimated Commodity Contract Contract At Gain Future/Option No. Expiration (Bought) Settlement (Loss) at Description Contracts Date Sold (Buy) Sell Settlement Cattle futures 130 Aug. 97 $ 3,343 $(3,351) $(8) sold 50,000 lbs. per 37 Oct. 97 1,021 (1,005) 16 contract 34 Dec. 97 963 (964) (1) Cattle Options- 50 Aug. 97 12 (6) 6 Calls Sold, 40,000 lbs. 40 Oct. 97 10 (4) 6 per contract Cattle Options- 50 Aug. 97 (30) 11 (19) Puts bought, 40,000 lbs. per contract 40 Oct. 97 (21) 14 7
Estimated fair value at settlement is based upon quoted market prices at June 30, 1997. NOTE E - ACQUISITION OF ASSETS On March 10, 1997, Registrant completed the purchase of certain assets from Champion Feeders, Inc., a cattle feedlot company in western Texas. The assets purchased include land, a feed mill, cattle pins, office and shop buildings, all rolling stock, inventory and intangibles. No debt or material liabilities of Champion Feeders, Inc. were assumed in the purchase of these assets. The purchase price for these assets is $3.5 million plus inventory value of $358,000, as of February 28, 1997 and will be accounted for as a purchase. The purchase price of the assets was based upon a dollar value per head of capacity at the feedyard and the fair market value of assets purchased. The purchase price was allocated based on estimated fair value at date of acquisition. The excess of the purchase price over the fair market value of tangible assets acquired was immaterial. The purchase of these assets allows the Company to begin to meet its long-term objective of becoming more vertically integrated within the beef industry. The assets purchased will allow Registrant to own and operate a cattle feedyard operation in western Texas. The following unaudited pro forma information presents a summary of consolidated results of operations of Registrant as if the acquisition had occurred as of January 1, 1996. Six Months Ended June 30 (In thousands except per share amounts) 1997 1996 Total Revenue $ 11,977 $ 14,416 Net Operating Income (Loss) (151) (304) Net (Loss) (40) (183) Net (Loss) Per Share $ 0.00 $ 0.01
NOTE F - CONTINGENCIES Registrant leases land to National Cement Company of California, Inc. ("National") for the purpose of manufacturing portland cement from limestone deposits on the leased acreage. National and Lafarge Corporation (the successor to the previous operator) have been ordered to clean up and abate certain hazardous waste sites on the leased premises. Registrant has been named secondarily responsible and would be ordered to perform cleanup work if National and Lafarge fail to do so. Under existing lease agreements, National or Lafarge is required to indemnify Registrant for costs and liabilities incurred in connection with the cleanup order depending on when the release of hazardous waste occurred. Due to the financial strength of National and its parent company, which guaranteed National's obligations, and Lafarge, Registrant believes that it is remote there will be a material effect on Registrant. As an unrelated matter, Registrant has recently become aware that soils contaminated by gasoline, diesel fuel, and heavy metals are present on the premises leased from Registrant by Truckstops of America for a truck stop and gas station. Registrant has become actively engaged in the regulatory oversight activities of the Kern County Environmental Health Services Department, which has named Registrant as a secondarily responsible party with respect to the underground diesel storage tanks that have leaked, and of the Central Valley Regional Water Quality Control Board. Registrant has demanded the cleanup of the contaminated soils. This demand has been made on the current tenant, and the guarantors of the lease, Standard Oil of Ohio and BP Oil & Exploration, Inc. Registrant has entered into settlement discussions with the foregoing parties, is currently working with them on a jointly approved investigation plan, and is hopeful that this dispute can be resolved without resorting to litigation. Because of the financial strength of Standard Oil of Ohio and BP Oil & Exploration, Inc. Registrant believes it is remote that this matter will have a material effect on Registrant. For a further discussion refer to Registrant's 1996 Form 10-K, Part I, Item 3, - "Legal Proceedings". There have been no changes since the filing of the 1996 Form 10-K. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Results of Operations This Management's discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements that are subject to many uncertainties and may turn out not to be accurate. These forward looking statements are subject to factors beyond the control of Registrant (such as weather and market forces) and with respect to Registrant's future development of its land, the availability of financing and the ability to obtain various governmental entitlements. No assurance can be given that any such projections will turn out to be accurate. Total revenues, including interest income, for the first six months of 1997 were $9,274,000 compared to $5,830,000 for the first six months of 1996. The growth in revenues during 1997 is primarily attributable to increases in livestock and farming operations revenues. The increase in livestock revenues is due primarily to the new cattle feedlot located near Hereford, Texas that was purchased on March 10, 1997. The revenues from the feedlot were approximately $5,205,000 for the four months Registrant has owned the feedlot. Revenues at the feedlot are derived from the sale of grain and other types of feed rations to customers that are feeding cattle at the feedlot. This increase in revenues within the livestock division was partially offset by a decline in cattle sales revenues due to 6,321 fewer head of cattle being sold in 1997, which resulted in cattle sales revenues being $2,603,000 less than 1996. The difference in the number of cattle sold in 1997 compared to 1996 is due to the timing of sales of cattle and to Registrant maintaining ownership of stocker cattle at feedlots for sale in August and September to take advantage of improving prices. Registrant continues to hedge the future sales price of cattle using commodity contracts. See Note D - Commodity Contracts Used to Hedge Price Fluctuations, for further information. Farming revenues increased due to the receipt of additional crop proceeds related to the 1996 grape, walnut, and pistachio crops. The receipt of these proceeds results from increases in crop prices that were reflected in the final settlement payments received during 1997. Operating activities during the first six months of 1997 resulted in a net loss of $292,000, or $.02 per share, compared to a net loss of $307,000, or $.02 per share, for the same period in 1996. The reduction in the net loss when compared to 1996 is due to the increase in revenues as described above which was partially offset by increased livestock and general and administrative expenses. The increase in livestock expense is due primarily to the operations of the new feedlot. Expenses at the feedlot for the period from acquisition through June 30, 1997 were approximately $5,000,000. This increase in livestock expense was partially offset by a decrease in cost of sales on cattle ($1,933,000) due to fewer head of cattle being sold as described above. General and administrative costs have increased when compared to 1996 due to higher staffing costs and professional service fees. Staffing costs increased in 1997 due to the timing of hiring a new chief executive officer. Total revenues for the second quarter of 1997, including interest income, were $6,251,000 compared to $4,312,000 for the second quarter of 1996. The increase in second quarter revenues is due to additional revenue from the new feedlot which was partially offset by reduced cattle sales due to the timing of sales as described above. During the second quarter of 1997 Registrant had a net loss of $6,000, or $.00 per share, compared to net income of $57,000, or $.00 per share for the same period of 1996. The decrease in net income compared to 1996 is due to reduced cattle sales revenues and to increased livestock expenses resulting from the purchase of the feedlot. The increase in livestock expense due to the feedlot was partially offset by lower cost of sales on cattle due to fewer head of cattle being sold. Registrant believes that cattle prices should continue to improve throughout 1997 based on estimates of lower supplies during the latter part of 1997 and the continued increase in demand due to export growth. Based on industry estimates it appears that the price per pound expected to be received by Registrant for its almonds will be less than that received in 1996 by an estimated $.50 per pound. This lower price will reduce almond revenues when compared to 1996 almond crop revenues. All of Registrant's crops appear to be doing very well with the exception of the walnut orchards, which are expected to have yields lower than 1996 levels, but walnut prices may be higher due to statewide production estimates being less than the previous year. Actual production numbers will not be known until harvest is completed. Harvest for Registrant's crops will begin during August. Registrant has been advised that final approvals were received for the construction of a major crude oil pipeline through ranch lands. During December 1995 Registrant completed negotiations with respect to an easement agreement related to this pipeline. Construction of this pipeline has commenced on portions of the right of way. The pipeline company has informed Registrant that it expects to close the easement purchase transaction in August, which must occur before the pipeline company may commence construction on ranch lands. Registrant continues to be involved in various environmental proceedings related to leased acreage. For a further discussion refer to Note E - Contingencies. Prices received by Registrant for many of its products are dependent upon prevailing market conditions and commodity prices. Therefore, Registrant is unable to accurately predict revenue, just as it cannot pass on any cost increases caused by general inflation, except to the extent reflected in market conditions and commodity prices. The operations of the Registrant are seasonal and results of operations cannot be predicted based on quarterly results. Liquidity and Capital Resources Registrant's cash, cash equivalents and short-term investments totaled approximately $17,743,000 at June 30, 1997, compared to $20,820,000 on December 31, 1996, a decrease of 15%. Working capital as of June 30, 1997 was $22,225,000 compared to $24,686,000 as of December 31,1996. Cash and short-term investments declined during 1997 due to increases in cattle and farming inventories because of the timing of sales and to the purchase of the cattle feedlot. Working capital uses during 1997 have been for property and equipment expenditures, the purchase of a cattle feedlot and dividend payments. The assets of the cattle feedlot were purchased on March 10, 1997 for $3,500,000 plus an additional $358,000 in beginning inventories. Registrant funded this purchase with cash and short-term lines of credit. During the second quarter Registrant refinanced the funding of the purchase of the feedlot with a $2.5 million term loan, with an interest rate of 8.50%, secured by feedlot assets. This debt is expected to be paid out of cash flows generated at the feedlot. Registrant has a revolving line of credit of $6,000,000 that as of June 30, 1997 had an outstanding balance of $3,108,000 at an interest rate of 8.50%. Registrant also has a short-term line of credit outstanding of $5,900,000 from an investment banking firm at an interest rate of 6.05%. Registrant's short-term borrowing needs increased during the quarter due to the timing of cattle sales, which are expected to occur during the third quarter, and to the feedlot's financing of customer receivables. The lines of credit are expected to be paid down throughout the year from the proceeds of cattle and crop sales. The revolving lines of credit are used as a short-term cash management tool. The accurate forecasting of cash flows by Registrant is made difficult due to the fact that commodity markets set the prices for the majority of Registrant's products, the fact that the cost of water changes significantly from year-to-year as a result of changes in its availability and the fact that adverse weather conditions can significantly affect farming and cattle operations. Registrant, based on its past experience, believes it will have adequate cash flows over the next twelve months to fund internal operations. Registrant is currently evaluating the possibility of new farming developments, expansion of the cattle herd, and commercial development along the Interstate 5 corridor. These potential new projects would be funded from current cash resources and from additional borrowings. Registrant has traditionally funded its growth and capital additions from internally generated funds. Management believes that the combination of net earnings, short-term investments and borrowing capacity will be sufficient for its near term operations. Item 8. Financial Statements and Supplementary Data. The response to this Item is submitted in a separate section of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. Impact of Accounting Change None PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information In April 1997 the Board of Directors of the Company approved agreements with seven employees, including the six executive officers of the Company, providing for payment of certain benefits if their employment is terminated in connection with certain transactions relating to the control of the Company. This action was taken because of the announcement by The Times Mirror Company that it was considering disposition of all or a portion of its shares of Common Stock of the Company. The agreements entered into provide benefits if the employee's employment is terminated (subject to certain exceptions) in anticipation of, or within two years after, (1) a change in ownership of 28% or more of the outstanding shares of Common Stock of the Company accompanied or followed within one year by a change in a majority of the Board of Directors of (2) certain acquisitions of the business of the Company substantially as a whole. The principal benefits consist of payments equal to salary and bonus for up to two and one-half years after terminations of employment. In July 1997 the Company announced that The Times Mirror Company and the Times Mirror Foundation had sold their shares of Common Stock of the Company, representing approximately 31% of the total shares outstanding, to {Third Avenue Value Fund, Third Avenue Small Cap Fund, Carl Marks Strategic Investments LP and certain related purchasers.} Also in anticipation of the sale of the shares by The Times Mirror Company, the Company amended options to purchase an aggregate of 79,000 shares outstanding under its 1992 Stock Option Plan to change the vesting of the options. Prior to the amendment the options were to become exercisable as to 100% of the shares nine years after the date of grant and were to expire ten years after the date of grant. The amendments provide for the options to become exercisable as to 10% of the shares on the first anniversary of the date of grant, 15% of the shares on each of the second and third anniversaries of the date of grant, and 30% of the shares on each of the fourth and fifth anniversaries of the date of the grant. As a result of these amendments options to purchase an aggregate of 67,000 shares became presently exercisable. Also, at the time of the amendments were adopted there were outstanding options to purchase an aggregate of 159,000 shares with exercise prices higher than the current trading prices of the Company's Common Stock, and the option amendments reduced the exercise price of those options to $16 per share, which was the closing price of the Common Stock on the American Stock Exchange on the date of the amendments. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 10.4 Tejon Ranch Co. Amended Stock Option Agreement 10.5 Tejon Ranch Co. Officer Severance Agreement 27 Financial Data Schedule (Edgar) (b) Reports - None SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEJON RANCH CO. (Registrant) BY /s/ ALLEN E. LYDA Date Allen E. Lyda Vice President, Finance & Treasurer EXHIBIT INDEX Exhibit No. Exhibit Description 10.4 Tejon Ranch Co. Amended Stock Agreement 10.5 Tejon Ranch Co. Officer Severance Agreement 27 Financial Data Schedule (Edgar)
 

5 6-MOS DEC-31-1997 JUN-30-1997 89 17,654 4,430 0 9,384 32,885 35,969 (15,127) 54,883 10,660 0 0 0 6,341 30,869 54,883 9,274 9,274 8,258 8,258 1,233 0 263 (480) (188) (292) 0 0 0 (292) (.02) (.02)
EXHIBIT 4.2
                             TEJON RANCH CO.
                         STOCK OPTION AGREEMENT
                             PURSUANT TO THE
                   1992 EMPLOYEE STOCK INCENTIVE PLAN
                                    
      This Incentive Stock Option Agreement ("Agreement") is made and entered
into as of the Date of Grant indicated below by and between Tejon Ranch Co., a
Delaware corporation (the "Company"), and the person named below as Optionee.

       WHEREAS, Optionee is an employee, officer or director of the Company
and/or one or more of its subsidiaries;

       WHEREAS, pursuant to the Company's 1992 Employee Stock Incentive Plan
(the "1992 Plan"), the Compensation Committee of the Board of Directors of the
Company administering the 1992 Plan (the "Committee") approved the grant to
Optionee of an option to purchase shares of the Common Stock, par value $.50
per share, of the Company (the "Common Stock"), on the terms and conditions
set forth in a Stock Option Agreement entered into by Optionee and the Company
as of the Date of Grant;

       NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby amend and restate their
agreement as so amended:

       1.   Grant of Option; Certain Terms and Conditions.  The Company hereby
grants to Optionee, and Optionee hereby accepts, as of the Date of Grant
indicated below, an option (the "Option") to purchase the number of shares of
Common Stock indicated below (the "Option Shares") at the Exercise Price per
share indicated below.  The Option shall become exercisable on and after the
Vesting Dates indicated below as to the number of shares indicated with
respect to each such Vesting Date, except as otherwise provided in Section 3. 
The Option shall expire at 5:00 p.m., Los Angeles, California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement.

Optionee:
Date of Grant:
Number of shares purchasable:
Exercise Price per share:
Expiration Date:
Vesting Dates:

     2.   Incentive Stock Option; Internal Revenue Code Requirements.  The
Option is intended to qualify as an incentive stock option under Section 422
of the Internal Revenue Code (the "Code") except to the extent that the
aggregate Fair Market Value (determined as of the Date of Grant) of the shares
of Common Stock with respect to which the Option is exercisable for the first
time by Optionee during any calendar year (under the 1992 Plan and all other
stock option plans of the Company and its subsidiaries) exceeds $100,000. 
Such excess shares are intended to be treated as shares issued pursuant to an
Option that is not an incentive stock option described in Section 422 of the
Code, in accordance with Section 422(d) of the Code.  The number of such
excess shares as to which this option is not intended to be treated as an
incentive option is ______.

     The "Fair Market Value" of a share of Common Stock or other security on
any day shall be equal to the last sale price, regular way, per share or unit
of such other security on such day or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
American Stock Exchange or, if the shares of Common Stock or such other
security are not listed or admitted to trading on the American Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of Common Stock or such other security are listed or admitted
to trading or, if the shares of Common Stock or such other securities are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System or such other system
then in use or, if on any such date the shares of Common Stock or such other
security are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
market in shares of Common Stock or such other security selected by the Board
of Directors.

     3.   Acceleration and Termination of Option.

          (a)  Termination of Employment.

               (i)  Definition of Termination.  In the event that Optionee
shall cease to be an employee of the Company or any of its subsidiaries
voluntarily or involuntarily or for any reason whatever, such event is
referred to in this Agreement as a "Termination" of Optionee's "Employment."

               (ii) Normal Termination.  If Optionee's Employment is
Terminated for any reason other than those enumerated in this Section
3(a)(ii), then the Option shall terminate three (3) months from the date of
such Termination of Employment but in no event later than the Expiration Date. 
During such three month period, the Option shall be exercisable only if the
date of Termination of Employment is after the ninth anniversary of the Date
of Grant.

               (iii)     Death or Permanent Disability.  In the event of a
Termination of Optionee's Employment by reason of the death of Permanent
Disability (as hereinafter defined) of Optionee, the Option shall terminate on
the first anniversary of the date of such Termination of Employment or the
Expiration Date, whichever is earlier.

     "Permanent Disability" shall mean the inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.  The Optionee shall not be deemed to have a Permanent
Disability unless proof of the existence thereof shall have been furnished to
the Committee in such form and manner, and at such times, as the Committee may
require.  Any determination by the Committee that Optionee does or does not
have a Permanent Disability shall be final and binding upon the Company and
Optionee.

          (b)  Death or Permanent Disability Following Termination of
Employment.  Notwithstanding anything to the contrary in this Agreement, if
Optionee shall die or suffer a Permanent Disability at any time after the
Termination of his or her Employment and prior to the Expiration Date, then to
the extent that the Option was exercisable on the date of such death or
Permanent Disability the Option shall terminate on the earlier of the
Expiration Date or the first anniversary of the date of such death.

          (c)  Acceleration of Option Upon a Change of Control.  The Option
shall become fully exercisable with respect to all Option Shares in the event
of a Change of Control.  A "Change of Control" shall mean the first to occur
of the following events:

               (i)  a reorganization, merger or consolidation of the
Company, the issuance or transfer of securities of the Company in one
transaction or series of related transactions or any other transaction or
series of related transactions in each case if and only if as a result of the
transaction or transactions persons other than the shareholders immediately
prior to such transaction or transactions shall own 80% or more of the voting
securities of the Company or its successor after the transaction;

               (ii) the sale or transfer by the Company of all or
substantially all of its property and assets in a single transaction or series
of related transactions; or

               (iii)     the dissolution or liquidation of the Company.

          (d)  Discretionary Acceleration.  The Committee, in its sole
discretion, may accelerate the exercisability of the Option for any reason,
including without limitation in the event of death or disablement of Optionee
or termination of employment of Optionee by the Company other than for cause.

          (e)  Other Events Causing Termination of Option.  Notwithstanding
anything to the contrary in this Agreement, the Option shall terminate in the
event of the occurrence of an event referred to in clause (ii) or (iii) of
paragraph (c) above or a merger or consolidation referred to in clause (i) of
paragraph (c) above (a "Termination Event") (even if such Termination Event
occurs after an event referred to in clause (i) of said paragraph (c) above
which is not a Terminating Event) unless the terms of any such transaction
constituting the Terminating Event otherwise provide.  Such termination shall
occur on the 30th day following any such Terminating Event (or such later date
as the Board of Directors or the Committee shall determine) unless the Board
of Directors or the Committee (i) sets an earlier date which is at least ten
days prior to the occurrence of the Terminating Event, (ii) notifies the
Optionee in writing at least ten days before the occurrence of the Terminating
Event of the setting of such date and (iii) accelerates the exercisability of
the Option to the extent it would otherwise be exercisable for any part of the
thirty day period after such event pursuant to Section 1 or pursuant to
paragraph (c) above so that, to such extent, the Option could be exercised for
a period of at least ten days prior to the occurrence of the Terminating
Event.  In such event where the requirements of clauses (i), (ii) and (iii) of
the preceding sentence are met, the Option shall expire immediately upon the
occurrence of the Terminating Event.

     4.   Adjustments.  In the event that the outstanding securities of the
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, reclassification, dividend (other
than a cash dividend paid out of earned surplus) or other distribution, stock
split, reverse stock split or the like, or in the event that substantially all
of the property and assets of the Company are sold, then, the Committee shall
make appropriate and proportionate adjustments in the number and type of
shares or other securities or cash or other property that may thereafter be
acquired upon the exercise of the Option; provided, however, that any such
adjustments in the Option shall be made without changing the aggregate
Exercise Price of the then unexercised portion of the Option.

     5.   Exercise.  The Option shall be exercisable during Optionee's
lifetime only by Optionee or by his or her guardian or legal representative,
and after Optionee's death only by the person or entity entitled to do so
under Optionee's last will and testament or applicable intestate law.  The
Option may only be exercised by the delivery to the Company of a written
notice of such exercise pursuant to the notice procedures set forth in Section
7 hereof, which notice shall specify the number of Option Shares to be
purchased (the "Purchased Shares") and the aggregate Exercise Price for such
shares (the "Exercise Notice"), together with payment in full of such
aggregate Exercise Price as follows:

          (a)  by the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly endorsed or accompanied
by a duly executed stock power, which delivery effectively transfers to the
Company good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on the
basis of the aggregate Fair Market Value thereof on the date of such
exercise), provided that the Company is not then prohibited from purchasing or
acquiring such shares of Common Stock; and/or

          (b)  by reducing the number of shares of Common Stock to be
issued and delivered to Optionee upon such exercise (such reduction to be
valued on the basis of the aggregate Fair Market Value (determined on the date
of such exercise) of the additional shares of Common Stock that would
otherwise have been issued and delivered upon such exercise), provided that
the Company is not then prohibited from purchasing or acquiring such shares of
Common Stock.

     The balance of the Exercise Price not paid by an exchange of shares
pursuant to (a) or (b) above shall be paid in cash or by a cashier's or
certified bank check payable to the Company.

     The Optionee will be obligated to pay the Exercise Price in the manner
contemplated by (a) and/or (b) above and will be permitted to pay the Exercise
Price in cash only to the extent that it cannot be paid in the manner provided
in (a) and (b) above.  Notwithstanding the foregoing, the Optionee shall be
obligated to pay the Exercise Price in the manner contemplated by (a) above
only to the extent that he or she owns shares of Common Stock beneficially,
has the power to dispose of those shares and such disposition contemplated by
(a) above would not constitute a "disqualifying disposition" of shares
resulting in a loss of the special tax treatment afforded incentive stock
options.

     6.   Payment of Withholding Taxes.

          (a)  If the Company is obligated to withhold an amount on account
of any federal, state or local tax imposed as a result of the exercise of the
Option, including, without limitation, any federal, state or other income tax,
or any F.I.C.A., state disability insurance tax or other employment tax, then
Optionee shall, concurrently with such exercise, pay such amount (the
"Withholding Liability") to the Company in cash or by a cashier's or certified
bank check payable to the Company; provided, however, that, in the discretion
of the Committee, the Optionee may, pursuant to an irrevocable election of
Optionee (a "Withholding Election") made on or prior to the date of such
exercise, instead pay all or any part of the Withholding Liability in the
following manner:

               (i)  by the delivery to the Company of a certificate or
certificates representing shares of Common Stock, duly endorsed or accompanied
by a duly executed stock powers, which delivery effectively transfers to the
Company good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on the
basis of the aggregate Fair Market Value thereof on the date of such
exercise), provided that the Company is not then prohibited from purchasing or
acquiring such shares of Common Stock; and/or

               (ii) by reducing the number of shares of Common Stock to be
issued and delivered to Optionee upon such exercise (such reduction to be
valued on the basis of the aggregate Fair Market Value (determined on the date
of such exercise) of the additional shares of Common Stock that would
otherwise have been issued and delivered upon such exercise), provided that
the Company is not then prohibited from purchasing or acquiring such shares of
Common Stock.

          (b)  The Committee shall have sole discretion to approve or
disapprove any Withholding Election and may adopt such rules and regulations
as are consistent with and necessary to implement the foregoing.  The
Committee may permit Optionee to make a Withholding Election to pay
withholding taxes in excess of the minimum amount required by law, provided
that the amount of withholding taxes so paid does not exceed the estimated
total federal, state and local tax liability of Optionee attributable to such
exercise.

     7.   Notices.  Any notice given to the Company shall be addressed to
the Company at P.O. Box 1000, Lebec, California 93243, Attention:  President,
or at such other address as the Company may hereinafter designate in writing
to Optionee.  Any notice given to Optionee shall be sent to the address set
forth below Optionee's signature hereto, or at such other address as Optionee
may hereafter designate in writing to the Company.  Any such notice shall be
deemed duly given when delivered personally or five days after mailing by
prepaid certified or registered mail return receipt requested.

     8.   Stock Exchange Requirements; Applicable Laws.  Notwithstanding
anything to the contrary in this Agreement, no shares of stock issuable upon
exercise of the Option, and no certificate representing all or any part of
such shares, shall be purchased, issued or delivered if (a) such shares have
not been admitted to listing upon official notice of issuance on each stock
exchange upon which shares of that class are then listed or (b) in the opinion
of counsel to the Company, such issuance or delivery would cause the Company
to be in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the Company.

     9.   Restrictions on Transferability.

          (a)  Neither the Option nor any interest therein may be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner other than by will or the laws of descent and distribution.

          (b)  By accepting the Option, the Optionee for himself or herself
and his or her transferees by will or the laws of descent and distribution,
represent and agree that all shares of Common Stock purchased upon exercise of
the Option will be acquired for investment and not with a view to the
distribution thereof unless they have been registered under the Securities Act
of 1933, and will otherwise be acquired, held and disposed of and held in
accordance with the restrictions of said Act and the rules and regulations of
the Securities and Exchange Commission thereunder, that the Company may
instruct its transfer agent to restrict further transfer of said shares in its
records except upon receipt of satisfactory evidence that such restrictions
have been satisfied, that upon each exercise of any portion of the Option, the
certificates evidencing the purchased shares shall bear an appropriate legend
on the face thereof evidencing such restrictions, and that the person entitled
to exercise the same shall furnish evidence satisfactory to the Company
(including a written and signed representation) to the effect that the shares
are being acquired subject to such restrictions.

     10.  1992 Plan.  The Option is granted pursuant to the 1992 Plan, as in
effect on the Date of Grant, and is subject to all the terms and conditions of
the 1992 Plan, as the same may be amended from time to time; provided,
however, that no such amendment shall deprive Optionee, without his or her
consent, of the Option or of any of Optionee's rights under this Agreement.
The interpretation and construction by the Committee of the 1992 Plan, this
Agreement, the Option and such rules and regulations  as may be adopted by the
Committee for the purpose of administering the 1992 Plan shall be final and
binding upon Optionee.  Until the Option shall expire, terminate or be
exercised in full, the Company shall, upon written request therefor, send a
copy of the 1992 Plan, in its then-current form, to Optionee or any other
person or entity then entitled to exercise the Option.

     11.  Stockholder Rights.  No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement and the Option
Shares have been issued.

     12.  Employment Rights.  No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Optionee any right to continue
in the employ of the Company or any of its subsidiaries, (b) affect the right
of the Company and each of its subsidiaries to terminate the employment of
Optionee, with or without cause, or (c) confer upon Optionee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the 1992 Plan.  The Optionee
hereby acknowledges and agrees that the Company and each of its subsidiaries
may terminate the employment of Optionee at any time and for any reason, or
for no reason, unless Optionee and the Company or such subsidiary are parties
to a written employment agreement that expressly provides otherwise.

     13.  Effect on Other Agreement.  This Agreement supersedes the Stock
Option Agreement between the Optionee and the Company previsouly entered into
with respect to the Option and dated as of the Date of Grant.

     14.  Governing Law.  This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware.

     IN WITNESS WHEREOF, the Company and Optionee have duly executed this
Agreement as of the Date of Grant.


TEJON RANCH CO.OPTIONEE
By: ______________________________      ______________________________
     Name:                              Signature
     Title:

                                   ______________________________
                                   Street Address
                                   ______________________________
                                   City, State and Zip Code
                                   ______________________________
                                   Social Security Number


SEVERANCE AGREEMENT

This Severance Agreement is entered into this 16th day of July,
1997 between Tejon Ranch Co., a
Delaware corporation (the "Company") and EMPLOYEE NAME (the
"Executive").

RECITALS

The Company considers it essential and in the best interest of
its stockholders to foster the
continuous employment of key management personnel.  The Company
further recognizes that, as in the
case of many publicly held corporations, the possibility of a
change of control of the Company may
exist and that such possibility, and the uncertainty and
questions which it may raise among
management, may create concerns for, and the distraction of,
management personnel and may even result
in departures which might have otherwise not have taken place,
all to the detriment of the Company and
its stockholders.  The Company now desires to take steps to
reinforce and encourage the continued
attention and dedication of members of the Company's management,
including the Executive, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from
the possibility of a change of control of the Company.

AGREEMENT

1.    Payment of Severance Benefits Upon Change of Control.  In
the event of a Change of Control of the Company (as defined in
Section 3) during the two-year period from the date of this
Agreement, Executive shall be entitled to the Severance Benefits
set forth in Section 2, but only if:

      a.  the Executive's employment by the Company or the
          successor owner of its business is terminated
          by the Company or such successor without Cause (as
          defined in Section 4) during the two years
          after the occurrence of the Change of Control;

      b.  the Executive terminates his or her employment with 
          the Company or its successor for Good Reason
          (as defined in Section 5) during the two years after 
          the occurrence of the Change of Control;

      c.  the Executive's employment by the Company is 
          terminated by the Company within three months prior
          to the Change in Control and such termination (i) was
          at the request of a third party who had
          taken steps to effect the Change in Control at the 
          time of the request of (ii) otherwise arose
          in connection with or in anticipation of the Change in 
          Control; or

    d.    the Executive terminates his or her employment with 
          the Company for Good Reason during the
          period commencing three months prior to the Change in
          Control and the event referred to in Section 5 (a),
          (b) or (c) constituting Good Reason (i) occurs at the
          request of a third party who had taken steps to effect
          the Change in Control at the time of the request or
          (ii) otherwise arose in connection with or in
          anticipation of the Change in Control.

Any resignation by the Executive at the request of the Board of
Directors shall be treated as a termination by the Company
pursuant to (a) or (c) above (whichever is applicable) but shall
not necessarily mean that the requirements of (c)(i) or (ii) have
been satisfied.  The effective date of any termination of
employment referred to in (a) or (c) above shall be the date
specified by the Company or the successor owner of its business,
and the effective date of any termination of employment referred
to in (b) or (d) above shall be the date specified in the notice,
the date specified by the Executive orally or, if no such date is
specified orally, the date the Executive ceases working for the
Company or the successor owner of its business on a full time
basis.


2.    Definition of Severance Benefits.

2.1   Amount of Benefits.  Except as provided in Section 2.2, the
Severance Benefits

     a.   continuation of payments equal to the Executive's base 
          salary (at the greater of the rate in effect
          immediately prior to the Change in Control or the rate
          in effect immediately prior to the termination of his
          or her employment) for a period of 30 full months
          after the effective date of termination of the
          Executive's employment as described in Section 1, such 
          payments to be made on the same dates the Executive's
          salary would have been paid if his or her employment
          had not terminated;

     b.   payments equal to the Executive's Three-Year Average 
          Bonus (as defined in Section 6), for each of the two
          full fiscal years commencing after the effective date
          of the termination of his or her employment plus a
          payment equal to one-half of the Executive's Three-Year
          Average Bonus for the third full fiscal year commencing
          after such termination, such payments to be made on the
          dates the Executive's bonuses for those years would
          have been paid if his or her employment had not
          terminated;

     c.   a payment equal to either (i) a prorated portion of the 
          Executive's bonus for the year in which the effective
          date of termination of the Executive's employment
          occurs based upon the number of days in the year prior
          to such termination of employment as compared to the
          full year, but only if all performance and other 
          criteria for earning the bonus have been satisfied as
          of the date of termination (other than the criterion
          that the Executive continue to be employed) or (ii) if
          such performance criteria have not been established or
          satisfied as of the effective date of termination, then
          such prorated portion of the Executive's Three-Year
          Bonus, such payment to be made in the case of either
          (i) or (ii) above on the date the Executive's bonus for
          the year of termination would have been paid if his or
          her employment had not terminated; continuation of the
          Company's contribution to health and life insurance
          benefits for the period from the effective date of
          termination of employment until the earlier of
          expiration of the period of salary continuation
          referred to in (a) above or the date the Executive
          becomes employed on a full-time basis by another
          employer and is covered by a medical plan provided by
          such employer with no remaining applicable exclusions
          for pre-existing conditions;

     e.   if the Executive has the right to use a Company car or
          a country club membership at the expense of the
          Company, continuation of such use for a period of three
          months after the effective date of termination of the
          Executive's employment; and

     f.   if the Executive's principal residence is a house owned
          and provided by the Company, continuation of the use of
          such residence rent-free for a period of three months
          after termination of Executive's employment, the right
          to rent such residence for an additional three months
          at a monthly rent of $750 and the right to rent such
          residence for an additional two months at a monthly
          rental of $1,500.

In addition to the foregoing Severance Benefits, the Executive
will continue to be entitled to his or her benefits under the
Company's existing Pension Plan and Supplemental Executive
Retirement Plan as determined in accordance with the terms of
those plans taking into account the termination of the
Executive's employment.  If the Executive has been credited with
more than 15 years of service under such plans as of the
effective date of termination of his or her employment, he or she
shall also be credited with additional years of service under the
plans for the period of salary continuation referred to in (a)
above to the extent such credit is permitted by the plans.

Notwithstanding (a) through (f) above, in the case of termination
of employment prior to the occurrence of a Change of Control, the
Company shall have no obligation to pay or provide any
Severance Benefits prior to the occurrence of the Change of
Control and, to the extent Section 1(c) or (d) applies, the
amount of Severance Benefits shall be determined as if the
Executive's employment terminated effective upon the occurrence
of the Change of Control, except that the Company shall have
no obligation to provide the benefits in (e) or (f) above to the
extent that, upon the occurrence of the Change in Control, those
benefits would have already terminated had they commenced on the
date of termination of employment.

Notwithstanding (b) and (c) above, the benefits set forth in
those subparagraphs shall not be payable if the Executive had
been advised, prior to the Change in Control, that he or she
would not be eligible to earn a bonus for the year in which the
termination of employment becomes effective.

2.2   Reduction of Amount of Severance Benefits.  In the event
the Company determines that payment of any of the Severance
Benefits would result in the imposition of any tax imposed by
Section 4999 of the Internal Revenue Code of 1986 (or any
successor statute) and the regulations thereunder, the Severance
Benefits shall be reduced to such extent as the Company
determines is necessary to avoid the imposition of any such tax. 
Such reductions shall first be made in the bonus payments
referred to in Section 2.1(b) in reverse chronological order and
thereafter, if necessary, to the payments referred to in Section
2.1(c) and the salary payments referred to in Section 2(a) in
that order of priority and each in reverse chronological order.

2.3   Resolution of Disagreements.  The Company shall make its
determination as to whether any reduction in Severance Benefits
is required pursuant to Section 2.2 within 15 days after the
termination of the employment of the Executive and again promptly
after the Executive exercises any stock options and shall deliver
to the Executive written notice of the determination together
with the Company's detailed calculations supporting its
conclusion.  If the Executive does not agree with the Company's
determination, he or she shall notify the Company in writing
of that disagreement within 30 days after receipt of the
Company's notice and detailed calculations.  Failure to give such
notice of disagreement shall be deemed to constitute acceptance
of the determination by the Company and such determination shall
become final and binding on the parties.  The notice by the
Executive shall set forth in reasonable detail why the Executive
disagrees with the determination made by the Company and shall be
accompanied by the Executive's detailed calculations supporting
his or her conclusion.  If the Company and the Executive have not
resolved their disagreement within ten days after the Company
receives the Executive's notice and detailed calculations, the
Company and the Executive shall refer the matter to the firm then
serving a s the independent certified public accountants of the
Company, whose determination shall be final and binding on both
parties.  The Company will endeavor to cause the accounting firm
to give both the Executive and the Company written notice of its
determination accompanied by its detailed calculations.  If the
Company does not then have a firm serving as its independent
certified public accountants or if the firm then serving in that 
capacity refuses to resolve the matter or fails to provide
written notice of its determination accompanied by its detailed
calculations within 30 days after the matter is referred to it,
then either party will have the right to commence an arbitration
pursuant to Section 13 to resolve the matter.  The fees and
expenses of the accounting firm will be paid by the Company.

If the Company determines that payment of the full Severance
Benefits will result in the imposition of a tax as provided
above, the Company will have the right to withhold from the
payment of Severance Benefits the amount of any reduction
determined by it in accordance with Section 2.2.  If the
Executive disagrees with the determination by the Company, the
Company shall have the right to continue to withhold the payments
of such amounts until the matter is finally resolved.  If such
resolution indicates that the Company's determination was
incorrect, the Company shall promptly pay to the Executive any
amount of Severance Benefits which would not have been withheld,
with interest forthe period that the payment was withheld at the
reference rate then in effect of the Bank of America National
Trust and Savings Association.  If such final resolution
indicates that the Company did not
withhold sufficient funds from the payment of Severance Benefits,
the Executive shall promptly refund to the Company any amount
which should have been withheld with interest determined as
provided above.

3.    Definition of Change of Control.

3.1   Events Constituting Change of Control.  For purposes of
this Agreement, a "Change of Control" of the Company shall be
deemed to have occurred if any one of the following events
occurs:

     a.   except as provided in Section 3.3, the acquisition by 
          any person or group of beneficial ownership of 28% or
          more of the outstanding shares of Common Stock of the
          Company or, if there are then outstanding any other
          voting securities of the Company, such acquisition of
          28% or more of the combined voting power of the then
          outstanding voting securities of the Company entitled
          to vote generally in the election of directors, but
          only if at the time of the acquisition or within one
          year thereafter the Board of Directors of the Company
          (if the Company continues to own its business), or the
          Board of Directors of any successor owner of its
          business consists of a majority of directors who are
          not Incumbent Directors;

     b.   the Company sells all or substantially all of its
          assets (or consummates any transaction having
          a similar effect) or the Company merges or consolidates
          with another entity or completes a reorganization,
          except that:

               i.   no such transaction shall be deemed to
                    constitute a Change of Control if the holders
                    of the voting securities of the Company
                    outstanding immediately prior to the
                    transaction own immediately after the
                    transaction in approximately the same
                    proportions more than 72% of the
                    combined voting power of the voting
                    securities of the entity purchasing the
                    assets or surviving the merger or
                    consolidation or, in the case of a
                    reorganization, more than 72% of the combined
                    voting power of the voting securities of the
                    Company; and

               ii.  no such transactions shall be deemed to
                    constitute a Change of Control if:

                    A.   the holders of the voting securities of
                         the Company outstanding immediately
                         prior to the transaction own immediately
                         after the transaction in approximately
                         the same proportions less than 72% but
                         more than 50% of the combined voting
                         power of the voting securities of the
                         entity purchasing the assets or
                         surviving the merger or consolidation
                         or, in the case of a reorganization,
                         less than 72% and more than 50% of the
                         combined voting power of the voting
                         securities of the Company unless

                    B.   at the time of the acquisition or within
                         one year thereafter the Board of
                         Directors of the Company (if the Company
                         continues to own its business), or the
                         Board of Directors of any successor
                         owner of its business consists of a
                         majority of directors who are not
                         Incumbent Directors;

     c.   the Company is liquidated; or

     d.   The Board of Directors of the Company (if the Company
          continues to own its business) or the board of
          directors or comparable governing body of any successor
          owner of its business (as a result of a transaction
          which is not itself a Change of Control) consists of a
          majority of directors or members who are not Incumbent
          Directors.

For purposes of this Agreement, any Change of Control as a result
of an event described in (a), (b), (c) or (d) above will be
deemed to have occurred upon the occurrence of f the event unless
in the case of (a) or (b)(ii) the requisite change in the
majority of the Board of Directors or the Company or the
successor owner of its business does not occur at the time, in
which event the Change of Control, if any, will be deemed to
occur upon such change in the majority of such Board of Directors
(provided that such change occurs within the one year period
referred to above).

3.2   Definition of Incumbent Directors.  For purposes of Section
3.1 and subject to the last sentence of this Section 3.2,
"Incumbent Directors" include only those persons who are:

               i.   serving as directors of the Company on the
                    date of this Agreement, 

               ii.  elected by a majority of the directors
                    referred to in (i) or selected by a majority
                    of such directors to be nominated for
                    election by the stockholders and are elected
                    or 

               iii. elected by a majority of the directors 
                    referred to in (i) or (ii) or selected by a
                    majority of such directors to be nominated
                    for election by the stockholders and are
                    elected.

Notwithstanding the foregoing, directors elected or selected as
provided in (ii) or (iii) above after an event described in
Section 3.1(a) or 3.1(b)(ii) shall not be Incumbent Directors
unless they satisfy all of the following requirements:

A.    they were elected to fill a vacancy resulting from the
resignation of or the failure to re-nominate a director who is
then 70 years of age or older or to replace a director who has
died or ceases to be a director (by resignation, removal or
otherwise) as a result of physical or mental disability;

B.    they are not, officers, directors or employees of (or hold
any comparable position with respect to), or have record or
beneficial ownership of more than one percent (1%) of the
outstanding shares or other equity interests of, any person or
member of any group which acquires Common Stock or other voting
securities of the Company as described in Section 3.1(a) or
3.1(b)(ii) or any affiliate of any such person or member, or a
spouse or relative of any such officer, director, employee,
record or beneficial owner, person, member of a group or
affiliate;

C.    during the five years prior to their becoming directors,
they have not had any relationship with any person or member of
any group which acquires Common Stock or other voting securities
of the Company as described in Section 3.1(a) or 3.1(b)(ii) or
any affiliate of any such person or member that would be required
by Item 404(b) of Regulation S-K or any successor provision to be 
disclosed in proxy statement for such person, member or affiliate
if such person, member or affiliate were subject to the rules of
the Securities and Exchange Commission applicable to the
solicitation of proxies and had solicited proxies for a fiscal
year while, or the fiscal year immediately after, such
relationship existed; and

D.    they have not been suggested, designated or selected for
nomination as a director by any officer, director, employee,
record or beneficial owner, person, member of a group, affiliate,
spouse or relative referred to in (B) above (except that merely
participating as a director of the Company in a vote of the
directors of the Company to elect, nominate or designate for 
nomination a candidate for a directorship shall not mean that the
candidate was "suggested, designated or selected for nomination"
by such director within the meaning of this Clause D).


3.3   Exception for Certain Acquisitions of Stock.  Section
3.1(a) shall not include any acquisition of beneficial ownership
of Common Stock or other voting securities of the Company (i)
directly from the Company or (ii) by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
entity controlled by the Company.  In the event of the redemption
of outstanding shares of Common Stock or other voting securities
by the Company, any resulting increase in the percentage of
outstanding shares or other voting securities beneficially owned 
by any person or group shall be taken into account in determining
whether the percentage in Section 3.1(a) has been met or exceeded
except as provided in the following sentence.  No acquisition of
additional outstanding shares of Common Stock or other voting
securities of the Company by Ardell Investment Company, M.H.
Sherman Company, The Times Mirror Company or the Times Mirror
Foundation and no increase in the percentage of outstanding
shares or other voting securities beneficially owned by any of
them resulting from any redemption of shares or other voting
securities by the Company shall result in a Change of Control
pursuant to Section 3.1(a) unless, in either case, the resulting
increase in the percentage of beneficial ownership of Ardell
Investment Company and M.H. Sherman Company in the aggregate or
by The Times Mirror Company and the Times Mirror Foundation in
the aggregate exceeds 10%.

3.4   Definition of Person, Acquisition, Group and Beneficial
Ownership.  For purposes of this Agreement the term "person"
shall have the meaning set forth in the Securities Exchange Act
of 1934 and the terms "acquisition," "group," and "beneficial
ownership" shall have the meanings set forth in Rules 13d-3 and
13d-5 of the Rules of the Security and Exchange Commission
adopted under the Securities Exchange Act of 1934.

4.    Definition of Termination for Cause.  The Executive's
employment shall be deemed to have been terminated for "Cause" if
such employment terminates as a result of:

a.    the death of the Executive;

b.    the Executive becoming unable to perform the essential
duties of his or her position, even with reasonable
accommodation, as a result of any physical or mental condition
for a period of more than ninety (90) consecutive days or for
ninety (90) nonconsecutive days in any three hundred sixty-five
(365) day period; or

c.    the Executive's professional dishonesty; willful
misconduct; breach of fiduciary duty involving self-dealing or
personal profits; intentional failure to perform duties or abide
by Company policies, in each case to the extent such duties or
policies have been communicated to the Executive in writing or
their existence is otherwise known to the Executive and the
Executive has not cured such failure within a reasonable time
after notice of such failure is given to him
or her; conviction, entry of a plea of guilty or nolo contendere
in connection with any alleged violation or an actual violation
of any law, rule, regulation (other than traffic violations or  
similar offenses) or any cease-and-desist or other court order;
involvement in any legal proceeding which, in the opinion of
legal counsel to the Company, would be required to be disclosed
pursuant to Item 401(d) of Regulation S-K of the Securities and
Exchange Commission; any non-prescription use of any controlled
substance or the use of alcohol or any other non-controlled
substance which the Board of Directors of the Company reasonable
determines renders the Executive unfit to serve in his or her
capacity as an officer of the Company; or any act or omission
which has a material adverse effect on the public image,
reputation or integrity of the Company.

5.    Definition of "Good Reason".  For purposes of this
Agreement the Executive shall be deemed to have terminated his or
her employment for "God Reason" if such a termination results
from:

a.    a substantial reduction in the duties and responsibilities
of the Executive below those he or she had in the position he or
she held immediately prior to the Change in Control;

b.    the Company shall require the Executive to have as his or
her principal location of work any location which is not within
75 miles of Lebec, California.

c.    the Company shall (i) reduce the base salary of the
Executive by more than 5% or (ii) change the objective criteria
for calculating the annual bonus that can be earned by the
Executive or, if no such objective criteria exists, change the
amount of the annual bonus such that, in either case, the
Executive cannot reasonably be expected to earn in salary and
bonus combined (taking into account any reduction in salary
referred to in (i) above) at least 90% of the average amount he
or she had earned in salary and bonus combined for the last thee
full fiscal years preceding the year for which the bonus is
changed or such lesser number of full fiscal years during which
the Executive has been employed by the Company; or

d.    the Company fails to require a successor to expressly
assume this Agreement as required in Section 9 below.

If objective criteria for calculating the amount of the annual
bonus of the Executive are not established prior to or during the
year for which the bonus is paid, then the calculation in (c)(ii)
above shall be based on the actual amount of the bonus when it is
determined and the 180 day periodreferred in the following
paragraph shall not begin to run until the amount of the bonus is
known to the Executive.

Notwithstanding the foregoing, none of the events referred to in
(a) through (c) above shall constitute Good Reason unless the
Executive gives written notice to the Company of his or her
election to terminate his or her employment for such reason
within 180 days after he or she becomes aware of the existence of
facts or circumstances constituting Good Reason.  Such notice
shall set forth in reasonable detail the facts and circumstances
constituting the Good Reason and, if the Good Reason is a curable
condition, shall provide the Company with 30 days to cure such
condition.  The notice shall also specify the date when the
termination of employment is to become effective (if the Good
Reason is not curable or is curable and not cured within the 30
days), which date shall be not less than 60 days and not more
than 180 days from the date the notice is given.

6.    Definition of "Three-Year Average Bonus".  For purposes of
determining the amount of the Severance Benefit referred to in
Section 2.1(b) and (c) (subject to the last paragraph of Section
2.1), an Executive's "Three-Year Average Bonus" shall be deemed
to be the average of the bonuses paid for the three most recent
full fiscal years preceding the date of termination of the
Executive's employment, or, if the Executive was not an executive
officer of the Company during such three year period or could not
have earned a bonus during such three year period, then (subject
to the last paragraph of Section 2.1) the average annual bonus
for such shorter time that he or she was an executive officer of
the Company and could have earned a bonus.  Notwithstanding the
foregoing, if all performance and other criteria for earnings the
bonus for the year in which termination of the Executive's
employment occurs have been satisfied as of the effective date of
such termination (other than the criterion that the Executive
continued to be employed), then the full bonus for that year and
the two most recent full fiscal years shall be averaged to
determine the Three-Year Average Bonus.

7.    Employment At Will.  The employment relationship
contemplated by this Agreement is an at will relationship under
which either the Executive or the Company has the right at any
time to terminate the employment relationship with or without
Cause or Good Reason and without notice, subject only to the
payment of the Severance Benefits set forth in Section 2 to the
extent that they become payable under the terms of this
Agreement.  Nothing in this Agreement is intended to create a
term of employment for a period of years or otherwise.

8.    Mitigation.  The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of
any Severance Benefit provided for in this Agreement be reduced
by any compensation earned by Executive as a result of employment
by another employer, except as provided in Section 2.1(d). 
Notwithstanding the foregoing, in the event that the Executive is
entitled, by operation of any applicable law, to unemployment
compensation benefits or benefits under the Worker Adjustment 
and Retraining Act of 1988 (known as the "WARN" Act) in
connection with the termination of his or her employment in
addition to those required to be paid to him or her under this
Agreement, then to the extent permitted by applicable statutory
law governing severance payments or notice of termination of
employment, the Company shall be entitled to offset the amounts
payable hereunder by the amounts of any such statutorily mandated
payments.

9.    Assumption of Agreement.  The Company will require any
successor (whether by purchase of assets, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
all of the obligations of the Company under this Agreement.

10.   Assignment and Successors in Interest.  This Agreement is
personal to the Executive and is not assignable by him or her. 
This Agreement shall inure to the benefit of and be enforceable
by the Executive and his or her personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.

11.   Withholding Taxes.  Any payments provided for hereunder
shall be paid net of any applicable withholding required under
federal, state or local law.

12.   Covenants of Executive.  During the period that Executive
is receiving payments described in Section 1(a) above, he or she
will not solicit any employees to accept employment for any other 
person or entity and will not disclose to any person or entity,
except as necessary to enforce this Agreement or as required by
law, any information concerning the Company or its business that
Executive knows to be of a confidential or non-public nature.

13.   Notice.  All notices, requests, demands and other
communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when personally
delivered, in the case of the Company to an executive officer
other than the Executive, or when mailed by United States mail,
postage prepaid, return receipt requested, addressed, in the case
of the Company to 4436 Lebec Road, Lebec, California 93243 or, in
the case of the Executive to the address set forth beneath his or
her signature hereto, or such other address as my be provided by
either party as to himself, herself or itself in the manner set
forth above.

14.   Arbitration.  Except as provided in Section 2.3, all
disputes or controversies arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Los
Angeles or Bakersfield, California in accordance with the rules
of the American Arbitration Association then in effect, provided
that the arbitrator or arbitrators shall decide the dispute or 
controversy in accordance with California law as applied to this
Agreement.  Judgement may be entered on the arbitrator's award in
any court having jurisdiction.

15.   Governing Law.  The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws
of the State of California applicable to the agreements between
residents of California to be performed entirely within
California.

16.   Attorneys' Fees.  In the event of any litigation or
arbitration arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover his, her or its
reasonable attorneys' fees incurred in connection therewith.

17.   Entire Agreement.  This Agreement sets forth the entire
agreement of the parties with respect to the subject matter
contained herein and supersedes all prior agreements, promises,
covenants, arrangements, commitments, communications,
representations, or warranties, whether oral or written.

18.   Waiver.  No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by parties hereto. 
No waiver by either party hereto at any time of any breach by the
other party or of any right or remedy under this Agreement shall
constitute a waiver of any other breach, right or remedy, 
whether or not similar in nature.

19.   Counterparts.  This Agreement may be executed in two
counterparts each of which shall be deemed an original but both
of which together shall constitute one and the same instrument.


TEJON RANCH CO.

By:   /s/ Robert A. Stine                 /s/ EMPLOYEE SIGNATURE

                                                Employee Address