<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 27, 1996
-------------------------------------------------
- -
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from - to -
------------------------------ ------------------
- --
Commission File Number 1-6071
RYMER FOODS INC.
Incorporated in the State of Delaware IRS Employer
Identification No. 36-1343930
4600 South Packers Avenue
Suite 400
Chicago, Illinois 60609
312/927-7777
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
------- -------
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
------- -------
Registrant had 10,754,032 shares of common stock outstanding as of March 12,
1996.
- -------------------------------------------------------------------------------
This report consists of 18 pages.
1.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
January 27, October
1996 1995
-------- -------
(in thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Receivables, net $ 2,965 $ 4,678
Inventories 7,536 12,119
Assets held for sale, net 2,531 2,531
Other 628 766
-------- --------
TOTAL CURRENT ASSETS 13,660 20,094
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 1,693 1,441
Machinery and equipment 6,628 6,555
-------- --------
8,321 7,996
Less accumulated depreciation and amortization 6,277 6,008
-------- --------
2,044 1,988
OTHER:
Assets held for sale or lease 1,600 1,600
Other 763 920
-------- --------
$ 18,067 $ 24,602
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt:
Banks $ 3,999 $ 8,127
Senior Notes 19,765 18,133
Other 265 673
Accounts payable 664 829
Accrued liabilities 2,784 4,328
-------- --------
TOTAL CURRENT LIABILITIES 27,477 32,090
LONG-TERM DEBT:
Other 70 70
OTHER NON-CURRENT LIABILITIES 760 772
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par - 20,000,000 shares
authorized; 10,753,999 shares outstanding
in 1996 and 10,753,934 shares outstanding
in 1995 after deducting treasury shares of
225,118 in 1996 and 225,183 in 1995 10,754 10,754
Additional paid-in capital 44,363 44,363
Retained deficit (65,357) (63,041)
Notes receivable from sale of common shares
to related parties - (406)
TOTAL STOCKHOLDERS' DEFICIT (10,240) (8,330)
-------- --------
$ 18,067 $ 24,602
-------- --------
-------- --------
</TABLE>
See accompanying notes.
2.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------
January 27, January 28,
1996 1995
----------- -----------
(Restated)
(in thousands, except per share data)
<S> <C> <C>
Net sales $11,979 $21,979
Cost of sales 11,999 19,838
-------- --------
Gross profit (loss) (20) 2,141
Selling, general and administrative expenses 1,324 2,199
-------- --------
Operating loss (1,344) (58)
Interest expense 1,010 819
Other income (6) (184)
-------- --------
Loss from continuing operations (2,348) (693)
Income from discontinued operations 32 64
-------- --------
Net loss $(2,316) $ (629)
-------- --------
-------- --------
Per common share data:
Primary:
Loss from continuing operations $ (.22) $ (.06)
-------- --------
-------- --------
Net loss $ (.22) $ (.06)
-------- --------
-------- --------
Fully diluted:
Loss from continuing operations $ (.22) $ (.06)
-------- --------
-------- --------
Net loss $ (.22) $ (.06)
-------- --------
-------- --------
</TABLE>
See accompanying notes.
3.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------
Jan. 27, Jan. 28,
1996 1995
------------- -------------
(Restated)
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Income (loss) from continuing operations $ (2,348) $ (693)
Non-cash adjustments to income (loss):
Depreciation and amortization 268 146
Amortization of other assets 58 465
Other non-cash expense (income) - (6)
Provision for bad debts 79 250
Payment-in-kind interest
on Senior Notes 426 -
Net decrease (increase) to accounts receivable 1,634 (216)
Net decrease (increase) to inventories 4,583 (9,096)
Net decrease to other current and long-term assets 238 67
Net decrease to accounts payable and accrued expenses (501) (908)
-------- --------
Net cash flows from operating activities of
continuing operations 4,437 (9,991)
Net cash flows from operating activities of
discontinued operations 778 1,822
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES 5,215 (8,169)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (325) (49)
Other (6) (5)
Net cash flows from investing activities of discontinued
operations (4) (14)
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (335) (68)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line-of-credit facilities (4,128) 10,320
Principal payments on debt (2) (2,255)
Proceeds from borrowings - 14
Proceeds from issuance of common stock - 16
Net cash flows from financing activities
of discontinued operations (750) (2,350)
NET CASH FLOWS FROM FINANCING ACTIVITIES (4,880) 5,745
Net change in cash and cash equivalents - (2,492)
Cash and cash equivalents balance at beginning of year - 2,492
-------- --------
Cash and cash equivalents balance at end of first quarter $ - $ -
-------- --------
Supplemental cash flow information:
Interest paid $ 217 $ 1,263
-------- --------
-------- --------
Income taxes paid, net of refunds $ 5 $ 182
-------- --------
-------- --------
See accompanying notes.
</TABLE>
4.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows
in conformity with generally accepted accounting principles. The Company
operates on a fiscal year which ends on the last Saturday in October.
References in the following notes to years and quarters are references to
fiscal years and fiscal quarters. For further information refer to the
Consolidated Financial Statements and footnotes thereto included in Rymer
Foods Inc.'s (the Company's or Rymer's) Annual Report on Form 10-K for the
fiscal year ended October 28, 1995.
In management's opinion, the condensed consolidated financial statements
include all normal recurring adjustments which the Company considers
necessary for a fair presentation of the results for the period. Operating
results for the fiscal period presented are not necessarily indicative of
the results that may be expected for the entire fiscal year.
2. GOING CONCERN
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
In the first quarter of 1996, the Company reported a decrease in net sales
from continuing operations as compared to the first quarter of 1995 of 45%
principally due to the loss of certain major customers. In 1995, the
Company reported a net loss from continuing operations of $29.6 million,
the fourth loss from continuing operations before extraordinary item in the
last five years. In the first quarter of 1996, the Company was informed
that its supply contracts with restaurants owned by Darden Restaurants
would not be renewed. Sales to these restaurant chains comprised
approximately 15% of net sales from continuing operations in the first
quarters of both 1996 and 1995. At January 27, 1996, the Company had a
stockholders' deficit of $10.2 million.
As explained more fully in Note 6, the Company was not in compliance at
July 29, 1995, October 28, 1995 and January 27, 1996 with certain covenants
contained in the loan agreement between the Company and LaSalle National
Bank (LaSalle). It is likely that in 1996, the Company will continue to be
in violation of certain covenants contained in the loan agreement, unless
such covenants are modified or waived. The Company is renegotiating
certain of these covenants, but there is no assurance that it will be
successful in this regard. In addition, an event of default under the
LaSalle Agreement and a cross-default under the Senior Note Indenture
existed at January 27, 1996 and October 28, 1995 due to the non-payment of
certain notes to former affiliates in January 1996 (See Note 6). The
Company received a waiver of such event of default under the Indenture in
March 1996 with an effective date as of February 8, 1996.
These conditions raise substantial doubt about the Company's ability to
continue operating as a going concern. The accompanying condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Management believes that the Company's future success is dependent upon
reversing the sales decline experienced in 1995 and the first quarter of
1996, on the continued reduction of operating costs and on the success of
negotiations with its major lenders. The Company is pursuing new sales
opportunities while continuing to streamline its production process and to
reduce other costs. In addition, negotiations with the Company's lenders
are continuing. Significant expense and personnel reductions implemented
during the fourth quarter of 1995, including an approximate 20% reduction
of the Company's work force, are expected to reduce wage, salary and other
expenses by approximately $4.0 million in 1996.
5.
<PAGE>
3. RECEIVABLES
Receivables are net of allowances for doubtful accounts of $432,000 at
January 27, 1996 and $353,000 at October 28, 1995.
4. INVENTORIES
Inventories are stated principally at the lower of first-in, first-out cost
or market. The composition of inventories at January 27, 1996 and October
28, 1995 was:
<TABLE>
<CAPTION>
January 27, 1996 October 28, 1995
---------------- ----------------
(in thousands)
<S> <C> <C>
Raw materials $ 3,362 $ 6,415
Finished goods 4,174 5,704
----- ------
Total $ 7,536 $12,119
----- -------
----- -------
</TABLE>
5. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE OR LEASE
The accompanying consolidated financial statements reflect the operations
of the Company's Seafood subsidiary as a discontinued operation for
accounting principles.
RYMER INTERNATIONAL SEAFOOD On January 5, 1996, the Company announced
that it had signed an agreement in principle to sell the assets of Rymer
Seafood (Sale of Rymer Seafood) to an entity to be formed by the current
President of Rymer Seafood. The agreement specifies that the sales
price for the assets, based on balances as of January 27, 1996, will be
approximately $12.2 million, consisting of $1.5 million in cash, $1.5
million in a ten year subordinated note of the buyer and the assumption
by the buyer of approximately $7.5 million in bank debt and $1.7 million
of other current liabilities. During the fourth quarter of 1995, the
Company recorded a loss of $1.5 million to reduce the carrying value of
the net assets of Rymer Seafood to their estimated net realizable value
of $2.5 million. Consummation of the transaction is subject to a
variety of conditions, including negotiation of definitive documentation
and approval by the holders of 66 2/3% of the outstanding Common Stock
of the Company and the holders of a majority of Rymer's outstanding 11%
Senior Notes. The Company plans to proceed with solicitation of these
approvals and, if obtained, to complete the Sale of Rymer Seafood during
the third quarter of 1996.
RYMER CHICKEN - PLANT CITY
During 1992, the Company decided to place its idle Plant City chicken
facility and equipment for sale.
The facility has not yet been sold. In January 1996, the Company entered
into an agreement to lease the Plant City facility for a period of ten
years. The lease of the property is not expected to be finalized until
June 1996. The present value of the cash flows under the lease agreement
supports the carrying value of the property of $1.6 million. Rymer
Chicken-Plant City assets are classified as assets held for sale or lease
at both January 27, 1996 and October 28, 1995.
Reserves established in 1992 and 1993 are considered adequate to maintain
the idle facility. The Company incurred costs related to maintaining the
idle facility of approximately $14,000 during the first quarter of 1996 and
$44,000 during the first quarter of 1995 which were charged to the reserve
established for such losses during fiscal 1992 and 1993.
6.
<PAGE>
<TABLE>
<CAPTION>
January 27, October 28,
1996 1995
----------- -----------
(in thousands)
CURRENT ASSETS HELD FOR SALE
----------------------------
RYMER INTERNATIONAL SEAFOOD:
<S> <C> <C>
Receivables $ 5,424 $ 6,537
Inventories 7,584 6,866
Other current assets 9 8
------ ------
Total current assets 13,017 13,411
Net property, plant and
equipment 41 43
------ ------
Total assets 13,058 13,454
Less: current liabilities (9,055) (9,451)
------ ------
Net current assets held for sale
before loss on disposition 4,003 4,003
Less: reserve for loss on dis-
position of assets held for sale (1,472) (1,472)
------ ------
Net current assets held for sale $ 2,531 $ 2,531
------ ------
</TABLE>
Sales for the discontinued Rymer International Seafood operation reflected
in the accompanying condensed Consolidated Statements of Operations were
$16.8 million in the first quarter of 1996 and $13.9 million in the first
quarter of 1995.
6. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 27, October 28,
1996 1995
----------- -----------
<S> <C> <C>
Banks, with interest of 1/2% over
prime in 1996 and 1995 $ 3,999 $ 8,127
Senior Notes due December 15, 2000,
with interest at 18% 19,765 18,133
Other, including capitalized leases
and amounts to related parties
Due to former executives under restructured
employment and consulting agreements 255 656
Other 80 87
------ ------
24,099 27,003
Less amounts classified as current 24,029 26,933
------ ------
$ 70 $ 70
------ ------
------ ------
</TABLE>
As of January 27, 1996, October 28, 1995 and July 29, 1995, the Company was
in violation of certain covenants under its Loan and Security Agreement
with LaSalle. LaSalle agreed to waive these covenant violations for the
third quarter of 1995. The Company was charged a financing fee in
connection with execution of this waiver.
On January 5, 1996, LaSalle and the Company entered into the Forbearance
Agreement and Amendment. Under this agreement, which was subsequently
amended, LaSalle agreed to temporarily forbear from exercising its remedies
under the Loan and Security Agreement. In addition, the Loan Agreement was
amended to, among other things, reduce advance rates for inventories and,
for purposes of computing interest, loan payments are applied by the bank
on the second business day after available funds are received.
7.
<PAGE>
On February 7, 1996, LaSalle and the Company entered into an Amendment to
the Forbearance Agreement (Letter Agreement). In the Letter Agreement,
LaSalle agreed to waive certain financial covenant violations and the
resulting events of default as of October 28, 1995. The Forbearance
Agreement and the Letter Agreement were executed on the assumption that no
other events of default existed under the loan agreement. As discussed
below, the Company subsequently determined that another event of default
under the loan agreement existed at the time of the execution of these
agreements. This event of default related to the non-payment of certain
notes payable to former executives of the Company (the Affiliate Debt
default). On February 22, 1996, the Company received a letter from LaSalle
confirming that the waiver as of October 28, 1995 contained in the Letter
Agreement was valid for the events of default specified in the
Forbearance Agreement despite the subsequent determination of the Affiliate
Debt default. The Company remains in default under the LaSalle agreement,
however, due to non-payment of the Affiliate Debt.
LaSalle also agreed to amend the Loan and Security Agreement in order to
revise the next test date for the financial covenants to be as of
February 24, 1996. On March 12, 1996, the Company and LaSalle entered
into an Amendment to Loan Agreement that modified certain provisions of
the Loan and Security Agreement between the Company and LaSalle,
including covenants relating to financial amounts and ratios. The
Company expects to be in compliance with such financial covenants, as so
modified. However, there is no assurance that the Company will remain in
compliance with the covenants, as modified. LaSalle has the right, upon
the occurrence of an event of default, to terminate the credit facility
and declare all loans due and payable on demand. The Company's bank
indebtedness and indebtedness under the Senior Notes have been
classified as current liabilities at both January 27, 1996 and October
28, 1995.
In January 1996, the Company did not make required payments of $255,000
under notes payable due to former executives (Affiliate Debt). The
Affiliate Debt is related to certain amended employment and consulting
agreements between the Company and the former executives (See Note 11 to
the Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended October 28, 1995). The Company has deferred
payment of this debt in order to conserve cash for use in operation of its
business. The Company intends to continue to accrue interest on the debt
at 9.5%. The non-payment of the Affiliate Debt caused cross-defaults under
the Loan and Security Agreement with LaSalle and under the Senior Note
Indenture.While LaSalle has not waived this default, the Company believes
that it is LaSalle's intention not to take any action as a result of the
default. However, there can be no assurance that LaSalle will continue to
forbear from taking action as a result of these defaults.
In March of 1996, the Company entered into Supplement No. 1 to the
Indenture (Supplemental Indenture) with Continental Stock Transfer and
Trust Company as Trustee for the Senior Notes which was dated as of
February 8, 1996. The Supplemental Indenture, which received the approval
of a majority of the Senior Note holders, amended the Indenture to exclude
the non-payment of the Affiliate Debt, and the resulting cross-default
under any other debt that arises by reason of non-payment of the Affiliate
Debt, from the definition of events of default under the Indenture. If
another event of default occurs and continues under the Company's bank
agreement with LaSalle, however, it would constitute an event of default
under the Indenture, enabling the Trustee or the holders of 25% in
aggregate principal amount of the Notes to declare the Notes to be
immediately due and payable.
The Senior Notes were issued pursuant to the Indenture between the Company
and Continental Stock Transfer & Trust Company, as trustee (the Indenture).
The Senior Notes bear interest at 11% payable semi-annually in arrears on
June 15 and December 15. Through December 15, 1996, the Company may issue
additional Senior Notes in payment of interest to the extent that the
Company lacks sufficient available cash (as defined in the Indenture) to
pay the interest in cash. For interest paid by the issuance of additional
Senior Notes after June 15, 1993, and through December 15, 1996, the
interest rate will be increased to 18% per annum.
At January 27, 1996 and October 28, 1995, the Company had a bank loan of
$4.0 million and $8.1 million, respectively, outstanding under its line of
credit with LaSalle for Rymer Meat. In addition, as of January 27, 1996
and October 28, 1995, $7.5 million and $8.2 million, respectively, was
outstanding under the LaSalle line of credit for Rymer International
Seafood. According to the proposed agreement to sell Rymer Seafood, the
loan balance for Rymer Seafood is to be assumed by the buyers of Rymer
Seafood.
8.
<PAGE>
The Company's continuing Rymer Meat subsidiary had total lines of credit
available under notes payable of $6.3 million at January 27, 1996 and $11.7
million at October 28, 1995 of which $2.3 million and $3.6 million,
respectively, was unused.
The Company's discontinued Seafood subsidiary had total lines of credit
available under notes payable of $10.9 million at January 27, 1996 and
$10.8 million at October 28, 1995 of which $0.9 million and $1.1 million,
respectively, was unused.
Total availability under credit lines is reduced by the amount of letters
of credit outstanding. Letters of credit are used primarily for purchases
of seafood inventory from foreign sources. Rymer Seafood had letters of
credit outstanding totalling approximately $2.5 million and $1.5 million at
January 27, 1996 and October 28, 1995, respectively.
The following table summarizes the activity of the Company's Senior Notes
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Senior Notes originally issued in connection
with the 1993 Restructuring $19,977
Interest payment-in-kind on June 15, 1993 1,456
Mandatory redemptions:
June 1994 (1,050)
December 1994 (2,250)
-----
Senior Note principal outstanding at October 28, 1995 18,133
Interest payment-in-kind on December 15, 1995 1,632
-----
Senior Note principal outstanding at January 27, 1996 $19,765
------
------
</TABLE>
On December 15, 1995, the Company announced that, as permitted by the terms
of its 11% Senior Notes due December 15, 2000, it had elected to make its
December 15, 1995 interest payment on its Senior Notes by issuing
additional Senior Notes in a principal amount equal to the interest payment
due of $1,632,000. According to the Senior Note Indenture, such an
election requires the Company to pay its interest at a rate of 18% versus
the 11% rate applicable if the interest was paid in cash. Accordingly, the
Company recorded an additional interest charge of approximately $470,000 in
the fourth quarter of 1995 related to this interest payment. There is
doubt whether the Company will have funds available to pay its June 15,
1996 or December 15, 1996 Senior Note interest payments in cash.
Accordingly, the Company is accruing interest expense on the Senior Notes
at a rate of 18% for fiscal 1996.
The Company may seek to restructure the terms of its 11% Senior Notes in an
effort to improve its liquidity. There can be no assurances that such a
restructuring will occur.
The notes payable to former executives under the restructured employment
and consulting agreements were amended in connection with the Restructuring
(See Note 11 to the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended October 28, 1995). At
October 28, 1995, the balance consisted of unsecured notes totalling
$406,000 which bore interest at 9.5% per annum and matured on January 2,
1996 and non-interest bearing notes with a face value of $255,000 which
were due and payable on January 2, 1996. The Company did not make the
required payments under these notes, as discussed previously.
The interest bearing notes payable were equal to, and were offset on
January 2, 1996 against, notes receivable owed to the Company by the
executives under stock purchase agreements. The notes receivable also bore
interest at 9.5% per annum and were due January 1, 1996.
7. INCOME TAXES
In both 1996 and 1995, no provision for income taxes was recorded due to
the loss from operations. The components of the net deferred tax asset
recorded in the accompanying balance sheet as of January 27, 1996 has not
changed significantly from balances as of October 28, 1995. The Company
did not record any income
9.
<PAGE>
tax benefit during the first quarter of 1996 because of the uncertainty of
the utilization of the benefit. The Company continues to record a full
valuation allowance for its deferred tax asset so that the balance of the
net deferred tax asset at both January 27, 1996 and October 28, 1995 is
zero.
8. COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain of its customers to sell
merchandise over the next year for specified prices. The Company's
aggregate commitment under sales agreements was approximately $4.2 million
and $4.1 million at January 27, 1996 and October 28, 1995, respectively.
The Company also has agreements with certain of its suppliers to purchase
raw materials. The agreements extend for up to one year and provide the
price and quantity of materials to be supplied. The Company had purchase
commitments of approximately $2.9 million at both January 27, 1996 and
October 28, 1995.
10.
<PAGE>
Notes to Financial Statements (unaudited) -- cont'd.
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
ASSUMING PRIMARY DILUTION ASSUMING FULL DILUTION
------------------------- ----------------------
Thirteen Weeks Ended Thirteen Weeks Ended
-------------------- --------------------
January 27, January 28, January 27, January 28,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C> <C>
1 Average shares outstanding 10,754 10,741 10,754 10,741
2 Net additional shares outstanding
assuming exercise of stock options - 297 74 297
------- ------- ------- -------
3 Average number of common shares
outstanding 10,754 11,038 10,828 11,038
------- ------- ------- -------
------- ------- ------- -------
EARNINGS
4 Income from continuing
operations $(2,348) $ (693) $(2,348) $ (693)
------- ------- ------- -------
------- ------- ------- -------
5 Net loss $(2,316) $ (629) $(2,316) $ (629)
------- ------- ------- -------
------- ------- ------- -------
PER SHARE AMOUNTS
Loss from continuing
operations (line 4 / line 3) $ (.22) $ (.06) $ (.21)(a) $ (.06)
------- ------- ------- -------
------- ------- ------- -------
Net loss
(line 5 / line 3) $ (.22) $ (.06) $ (.22) $ (.06)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
NOTE - In all years, earnings per share was calculated using the treasury
stock method.
(a) Amount is anti-dilutive; accordingly, primary earnings per share is
disclosed for reporting purposes in accordance with generally accepted
accounting principles.
11.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's consolidated results from operations are generated by its meat
processing operation.
GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 2
to the condensed consolidated financial statements, certain conditions raise
substantial doubt about the Company's ability to continue operating as a going
concern. The accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
FIRST QUARTER OF 1996 VERSUS FIRST QUARTER OF 1995
Consolidated sales for the first quarter of 1996 of $12 million decreased from
the first quarter of 1995 by $10 million or 45%. Sales decreased primarily due
to reduced sales volume due to increased competition. A significant portion of
the sales volume decrease resulted from the termination of sales to a major
customer during the second quarter of 1995.
The Company experienced a decline in unit sales of approximately 49% primarily
due to increased competition. In addition, sales decreased partially as a
result of the Company's customers experiencing sales declines. Many restaurant
chains have experienced sales declines due to ever-increasing competitive
pressures in the casual dining segment of the foodservice market and due to
adverse weather conditions in certain areas of the country. The Company
experienced an increase of 6.6% in the average selling price primarily due to a
higher priced mix of products sold in 1996 as compared to 1995.
As compared to 1995, consolidated cost of sales decreased by $7.8 million or
39.5% while total gross profit decreased by $2.2 million or 100.9%. As a
percentage of sales, the gross margin decreased to (0.2%) as compared to 9.7% in
1995.
Gross profit decreased compared to 1995 primarily due to decreased unit sales.
The Company was unable to achieve reductions in certain factory expenses
proportionate to the decline in sales. Factory expenses declined by 20% as
compared to a 49% decrease in unit sales. The Company experienced increases in
maintenance and depreciation expense. Increased maintenance and building
improvements have been necessary primarily due to the age and condition of the
current Meat facility. The Company is depreciating the building improvements
over the building lease term which is through July 1996. Management is
currently evaluating alternative building facilities and intends to relocate to
a more efficient facility as soon as is practicable. Management is continuing
to streamline its operations. The hourly work force has declined by
approximately 24% at the end of the first quarter of 1996 versus 1995.
Selling, general and administrative expenses decreased by $875,000 or 39.8% in
1996 as compared to 1995. Administrative expenses decreased by $736,000. A
reduction in goodwill amortization of $290,000 was experienced as compared to
the first quarter of 1995 due to the required writedown of goodwill recorded in
the Company's 1995 fourth quarter. Reductions in salaries and related expenses
due to headcount reductions at the meat processing operation and of corporate
personnel contributed to the majority of the remaining decrease of $445,000.
Selling expenses decreased by $140,000 primarily due to a reduction in expenses
related to the Company's retail products sold in grocery and wholesale club
stores and reduced salary expenses due to decreases in personnel.
12.
<PAGE>
INTEREST EXPENSE
Interest expense increased by $191,000 or 23.3% as compared to 1995. This
increased was attributable to increased interest expense on the Company's 11%
Senior Notes. On December 15, 1995, the Company announced that, as permitted by
the terms of its 11% Senior Notes due December 15, 2000, it had elected to make
its December 15, 1995 interest payment on its Senior Notes by issuing additional
Senior Notes in a principal amount equal to the interest payment due. According
to the Senior Note Indenture, such an election requires the Company to pay its
interest at a rate of 18% versus the 11% rate applicable if the interest is paid
in cash. There is doubt whether the Company will have funds available to pay
its June 15, 1996 or December 15, 1996 Senior Note interest payments in cash.
Accordingly, the Company is accruing interest expense on the Senior Notes at a
rate of 18% for fiscal 1996. The Company recorded an additional interest charge
of approximately $335,000 in the first quarter of 1996 related to the increase
in the interest rate on the Senior Notes. After considering the increase in
Senior Note interest of approximately $335,000, interest expense decreased by
approximately $144,000 compared to 1995 due primarily to lower interest rates
on the credit line facility due to the replacement of the higher-cost former
credit facility with BA Business Credit Inc. with the LaSalle credit facility
on April 7, 1995.
The Company may also seek to restructure the terms of its 11% Senior Notes in an
effort to improve its liquidity. There can be no assurances that such a
restructuring will occur.
OTHER INCOME
The Company earned other income of $184,000 in 1995 which was comprised
primarily of consulting fees. The Company earned other income in 1996 of $6,000
consisting primarily of interest income.
DISCONTINUED OPERATIONS
On January 5, 1996, the Company announced that it had signed an agreement in
principle to sell the assets of Rymer Seafood (Sale of Rymer Seafood) to an
entity to be formed by the current President of Rymer Seafood. The agreement
specifies that the sales price for the assets, based on balances as of
January 27, 1996, would be approximately $12.2 million, consisting of $1.5
million in cash, $1.5 million in a ten year subordinated note of the buyer
and the assumption by the buyer of approximately $7.5 million in bank debt
and $1.7 million of other current liabilities. The Company recorded a loss
of $1.5 million during the fourth quarter of 1995 to reduce the carrying
value of the net assets of Rymer Seafood to their estimated net realizable
value of $2.5 million. The net assets of Rymer Seafood have been classified
as Assets Held For Sale on the consolidated balance sheets. Consummation of
the transaction is subject to a variety of conditions, including negotiation
of definitive documentation and approval by the holders of 66 2/3% of the
outstanding Common Stock of the Company and the holders of a majority of
Rymer's outstanding 11% Senior Notes. The Company plans to seek these
approvals and, if received, to complete the Sale of Rymer Seafood during the
third quarter of 1996.
The Company recorded income related to its discontinued seafood operation during
the first quarter of 1996 of $32,000 compared to income of $64,000 in 1995.
While Seafood sales increased by $2.9 million or 20.9% as compared to 1995, the
decrease in income reflects increased raw material costs and increased operating
expenses.
The Company continues to carry its idle Plant City, Florida property at its
estimated net realizable value of $1.6 million. In January 1996, the Company
entered into a preliminary agreement to lease the Plant City facility for a
period of ten years. The lease of this property is not expected to be finalized
until June 1996.
INCOME TAXES
In both 1996 and 1995, no provision for income taxes was recorded due to the
loss from operations.
13.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company makes sales primarily on a seven to thirty day balance due basis.
Purchases from suppliers have payment terms generally ranging from wire transfer
to fourteen days. Rymer International Seafood uses letters of credit for
purchases of imported seafood.
The Company's cash management techniques involve the use of zero balance
disbursement accounts. Check clearings are covered by advances from the
Company's credit lines. Thus, in the absence of excess funds classified as cash
equivalents, the Company's cash balances are credit balance accounts
representing outstanding checks. The Company classified such credit balances as
accounts payable in the condensed consolidated financial statements as of
January 27, 1996 and October 28, 1995.
On April 7, 1995, the Company replaced its credit facility of $20 million
provided by BA Business Credit, Inc. (BABC) and $12.5 million provided by
LaSalle with a $25 million credit facility provided by LaSalle. The credit line
facility, with an initial term of two years, has lower interest rates and
reduced lending restrictions as compared to the former facilities. The LaSalle
credit facility has an annual interest rate of 1/2% over Prime as compared to an
annual rate of 2% over Prime on the former BABC facility and 1% over Prime on
the former LaSalle facility.
As of January 27, 1996, October 28, 1995 and July 29, 1995, the Company was in
violation of certain financial covenants under its Loan and Security Agreement
with LaSalle. LaSalle agreed to waive these covenant violations for the third
quarter of 1995. The Company was charged a financing fee in connection with
execution of this waiver.
In response to the October 28, 1995 violations, on January 5, 1996, LaSalle and
the Company entered into a Forbearance Agreement and Amendment. Under this
agreement, which was subsequently amended, LaSalle agreed to temporarily forbear
from exercising its remedies under the Loan and Security Agreement. In
addition, the Loan Agreement was amended to, among other things, reduce advance
rates for inventories and, for purposes of computing interest, loan payments are
applied by the bank on the second business day after available funds are
received.
On February 7, 1996, LaSalle and the Company entered into an Amendment to the
Forbearance Agreement (Letter Agreement). In the Letter Agreement, LaSalle
agreed to waive certain financial covenant violations and the resulting events
of default as of October 28, 1995. The Forbearance Agreement and the Letter
Agreement were executed on the assumption that no other events of default
existed under the loan agreement. As discussed below, the Company subsequently
determined that another event of default under the loan agreement existed at the
time of the execution of these agreements. This event of default related to the
non-payment of certain notes payable to former executives of the Company (the
Affiliate Debt default). On February 22, 1996, the Company received a letter
from LaSalle confirming that the waiver as of October 28, 1995 contained in the
Letter Agreement was valid for the specified events of default despite the
subsequent determination of the Affiliate Debt default. The Company remains in
default under the LaSalle agreement, however, due to non-payment of the
Affiliate Debt.
In the Letter Agreement, LaSalle also agreed to amend the Loan and Security
Agreement in order to revise the next test date for the financial covenants
to be as of February 24, 1996. On March 12, 1996, the Company and LaSalle
entered into an Amendment to Loan Agreement that modified certain provisions
of the Loan and Security Agreement between the Company and LaSalle, including
covenants relating to financial amounts and ratios. The Company expects to be
in compliance with such financial covenants, as so modified. However, there
is no assurance that the Company will remain in compliance with the
covenants, as modified. LaSalle has the right, upon the occurrence of an
event of default, to terminate the credit facility and declare all loans due
and payable on demand. The Company's bank indebtedness and indebtedness under
the Senior Notes have been classified as current liabilities at both January
27, 1996 and October 28, 1995.
In January of 1996, the Company did not make required payments of $255,000 under
notes payable due to former executives (Affiliate Debt). The Affiliate Debt is
related to certain amended employment and consulting agreements between the
Company and the former executives (See Note 11 to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
October 28, 1995). The Company has deferred payment of this debt in order to
conserve cash for use in operation of its business. The Company intends to
continue
14.
<PAGE>
to accrue interest on the debt at 9.5%. The non-payment of the Affiliate Debt
caused cross-defaults under the Loan and Security Agreement with LaSalle and
under the Senior Note Indenture. While LaSalle has not waived this default, the
Company believes that it is LaSalle's intention not to take any action as a
result of the default. However, there can be no assurance that LaSalle will
continue to forbear from taking action as a result of these defaults.
In March of 1996, the Company entered into Supplement No. 1 to the Indenture
(Supplemental Indenture) with Continental Stock Transfer and Trust Company as
Trustee for the Senior Notes which was dated as of February 8, 1996. The
Supplemental Indenture, which received the approval of a majority of the Senior
Note holders, amended the Indenture to exclude the non-payment of the Affiliate
Debt, and the resulting cross-default under any other debt that arises by reason
of non-payment of the Affiliate Debt, from the definition of events of default
under the Indenture. If another event of default occurs and continues under the
Company's bank agreement with LaSalle, however, it would constitute an event of
default under the Indenture, enabling the Trustee or the holders of 25% in
aggregate principal amount of the Notes to declare the Notes to be immediately
due and payable.
At January 27, 1996 and October 28, 1995, the Company had a bank loan of $4.0
million and $8.1 million, respectively, outstanding under its line of credit
with LaSalle for Rymer Meat. In addition, as of January 27, 1996 and October
28, 1995, $7.5 million and $8.2 million, respectively, was outstanding under the
LaSalle line of credit for Rymer International Seafood. According to the
proposed agreement to sell Rymer Seafood, the loan balance for Rymer Seafood is
to be assumed by the buyers of Rymer Seafood.
The bank loan and other liabilities to be assumed by the buyer of Rymer Seafood
have been netted against the assets to be sold and are shown as Assets Held For
Sale, net in the Consolidated Balance Sheets. (See Note 5 to the condensed
consolidated financial statements.)
On December 15, 1995, the Company announced that, as permitted by the terms of
its 11% Senior Notes due December 15, 2000, it had elected to make its December
15, 1995 interest payment on its Senior Notes by issuing additional Senior Notes
in a principal amount equal to the interest payment due of $1,632,000.
According to the Senior Note Indenture, such an election requires the Company to
pay its interest at a rate of 18% versus the 11% rate applicable if the interest
is paid in cash. There is doubt whether the Company will have funds available
to pay its June 15, 1996 or December 15, 1996 Senior Note interest payments in
cash. Accordingly, the Company intends to accrue interest expense on the Senior
Notes at a rate of 18% for fiscal 1996.
The Company had a net working capital deficit at January 27, 1996 of $13.8
million which is a decrease in working capital of $1.8 million as compared to a
working capital deficit of $12 million at October 28, 1995. The decrease was
primarily due to a decrease in current assets of $6.4 million partially offset
by a decrease in current liabilities of $4.6 million.
Accounts receivable decreased by $1.7 million primarily due to decreased sales.
Inventories decreased by $4.6 million due to decreased purchasing along with
efforts by the Company to reduce inventories in order to reduce debt.
Current liabilities decreased due to a decrease in bank loans of $4.1 million, a
decrease in accrued liabilities of $1.5 million, and decreases in accounts
payable and other long-term debt of $0.2 million and $0.4 million, respectively.
These decreases were partially offset by an increase in the principal amount of
Senior Notes of $1.6 million.
The decrease in accrued expenses is primarily attributable to the payment of
Senior Note interest of $1.6 million on December 15, 1995 by the issuance of new
Senior Notes. Other long-term debt decreased due to the offset of note payables
of approximately $406,000 against notes receivable of approximately the same
amount on January 2, 1996. The notes receivable were classified as a reduction
of stockholders' equity as they related to stock purchase agreements.
Under its Senior Note Indenture, the Company made a mandatory redemption of its
Senior Notes of $2,250,000 on December 29, 1994 using funds available under bank
lines of credit.
15.
<PAGE>
Upon favorable conclusion of negotiations with LaSalle, of which there is no
assurance, availability under this facility is expected by management to provide
sufficient resources to meet its working capital needs through the next year.
The anticipated future cash flows of the Company may not be sufficient to retire
the Senior Notes upon maturity on December 15, 2000. Accordingly, the Company
may seek to restructure the terms of its 11% Senior Notes. There can be no
assurances that such a restructuring will occur. Furthermore, if a Senior Note
restructuring should occur, it would likely affect the equity capitalization of
the Company.
The Company's continuing Rymer Meat subsidiary had total lines of credit
available under notes payable of $6.3 million at January 27, 1996 and $11.7
million at October 28, 1995 of which $2.3 million and $3.6 million,
respectively, was unused.
The Company's discontinued Seafood subsidiary had total lines of credit
available under notes payable of $10.9 million at January 27, 1996 and $10.8
million at October 28, 1995 of which $0.9 million and $1.1 million,
respectively, was unused.
Total availability under credit lines is reduced by the amount of letters of
credit outstanding. Letters of credit are used primarily for purchases of
seafood inventory from foreign sources. Rymer Seafood had letters of credit
outstanding totalling approximately $2.5 million and $1.5 million at January 27,
1996 and October 28, 1995, respectively.
The Company has agreements with certain of its customers to sell merchandise
over the next year for specified prices. The Company's aggregate commitment
under sales agreements was approximately $4.2 million and $4.1 million at
January 27, 1996 and October 28, 1995, respectively. The Company also has
agreements with certain of its suppliers to purchase raw materials. The
agreements extend for up to one year and provide the price and quantity of
materials to be supplied. The Company had purchase commitments of approximately
$2.9 million as of both January 27, 1996 and October 28, 1995.
At October 28, 1995, the Company had an operating loss carryforward for tax
reporting purposes of approximately $31.2 million. See Note 8 to the
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended October 28, 1995 for expiration dates of the
carryforwards. The utilization of operating loss carryforwards is expected to
enhance future cash flow by reducing cash outlays which would otherwise be
required for income tax payments.
The Company anticipates a total of approximately $500,000 for capital
expenditures in 1996. The expenditures are primarily for planned improvements
at the Meat operation. There are no specific commitments outstanding related to
these planned expenditures.
SEASONALITY
The quarterly results of the Company are affected by seasonal factors. Sales
are usually lower in the fall and winter.
IMPACT OF INFLATION
Raw materials are subject to fluctuations in price. However, the Company does
not expect such fluctuations to materially impact its competitive position.
16.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed:
10.1 Supplement No. 1, dated as of February 8, 1996, to the Indenture dated
as of April 7, 1993 between Rymer Foods Inc. and Continental Stock
Transfer & Trust Company as Trustee for Rymer Foods Inc. 11% Senior
Notes due 2000 (filed herewith).
10.2 Amendment to Loan Agreement, dated as of February 24, 1996, by and
among Rymer Meat Inc., Rymer International Seafood Inc., Rymer Foods
Inc. and LaSalle National Bank (filed herewith).
11 Computations of earnings per share are included in the Notes to
Condensed Consolidated Financial Statements included in Item 1 of this
Form 10-Q.
Exhibits incorporated by reference:
13.1 Annual Report on Form 10-K of Rymer Foods Inc. for the fiscal year
ended October 28, 1995 (Incorporated by reference).
21.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 22
to the Annual Report of Form 10-K of Rymer Foods Inc. for the fiscal
year ended October 28, 1995.)
(b) Reports on Form 8-K:
None
17.
<PAGE>
RYMER FOODS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RYMER FOODS INC.
(Registrant)
By /s/ Edward M. Hebert
--------------------------------------------
Edward M. Hebert, Senior Vice President,
Chief Financial Officer and Treasurer
Date: March 12, 1996
18.
<PAGE>
RYMER FOODS INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
--------------
SUPPLEMENT NO. 1 DATED AS OF FEBRUARY 8, 1996
TO
INDENTURE
Dated as of April 7, 1993
-------------
11% Senior Notes due 2000
<PAGE>
THIS SUPPLEMENT NO. 1, dated as of February 8, 1996, amends that
certain INDENTURE, dated as of the 7th day of April, 1993 (the "Indenture"),
between Rymer Foods Inc., a corporation duly organized and existing under the
laws of the State of Delaware (hereinafter sometimes referred to as the
"Company") and Continental Stock Transfer & Trust Company, a New York
corporation (hereinafter sometimes referred to as the "Trustee").
WITNESSETH:
- - - - - -
WHEREAS, for its lawful corporate purposes, pursuant to the Indenture,
the Company has duly authorized an issue of its 11% Senior Notes due 2000
(hereinafter referred to as the "Notes"), of which there are approximately
$19,764,970 aggregate principal amount outstanding as of the date hereof
(Including Secondary Notes).
WHEREAS, the holders of record in excess of a majority of the
outstanding Notes have requested that the Trustee amend and modify the Indenture
in respects hereinafter set forth and have consented to this Supplement No. 1
have requested that the Trustee enter into the same pursuant to the annexed
consent and direction.
NOW, THEREFORE, it is agreed as follows:
1. Section 1.01 of the indenture is modified by adding the following
defined term to such Section after the definition of "Responsible Officer"
therein contained.
"Rymer Affiliate Debt" means (i) amy Debt owed to Barry Rymer arising under
or in respect of an Amended and Restated Contractual Agreement, dated
December 1, 1992, between Rymer Foods Inc, and Barry Rymer ( and any and
all guarantees thereof by any Subsidiary of the Company) in the principal
amount of $124,000, plus accrued interest thereon and (ii) and Debt owed to
Jeffrey Rymer arising under or in respect of an Amended and Restated
Contractual Agreement, dated October 13, 1992, between Rymer Foods inc, and
Jeffrey Rymer (and any and all guarantees thereof by any Subsidiary of the
Company) in the principal amount of $131,000 plus accrued interest thereon.
2. Section 7.01 (e) of the Indenture is amended and restated in its
endrety to read as follows:
(e) the continuance of any default, whether or not in respect of
payment, with respect to amy Debt of the Company or any Subsidiary of the
Company of the type specified in clauses (i), (ii), (iii) and (iv) of the
definition of Debt (other than a default under the Rymer Affiliate Debt and
other than any cross-defaults under any other Debt that arises by reason of
a default under the Rymer Affiliate Debt and other than any cross-defaults
under any other Debt that arises by reason of a default under the Rymer
Affiliate Debt, which are excluded from the operation of this clause (a))
after the expiration of any applicable period of grace or opportunity to
cure, including, without limitation, under either of the Replacement Credit
Agreements: or
-2-
<PAGE>
IN WITNESS WHEREOF, Rymer Foods Inc, has caused this Indenture to be
signed and acknowledged by its Chairman of the Board, President or one of
its Vice Presidents and Continental Stock Transfer & Trust Company has
caused this Indenture to be signed and acknowledged by one of its officers,
all as of the day and year first written above.
RYMER FOODS INC,
By: /s/
------------------------
Title:
------------------------
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: /s/
----------------------------
Title: Vice President
-------------------------
-3-
<PAGE>
<PAGE>
AMENDMENT TO LOAN AGREEMENT
This AMENDMENT TO LOAN AGREEMENT (this "Amendment"), dated as of February
24, 1996, is by and among RYMER MEAT INC., an Illinois corporation ("RMI"),
RYMER INTERNATIONAL SEAFOOD INC., an Illinois corporation ("RISI"), RYMER FOODS
INC., a Delaware corporation ("RFI") and LASALLE NATIONAL BANK, a national
banking association ("LASALLE"). RMI and RISI are sometimes hereinafter
collectively referred to as "BORROWERS" and individually, each as a "BORROWER").
R E C I T A L S
A. RISI, RMI, RFI (as guarantor) and LaSalle entered into that certain
Loan And Security Agreement dated as of April 7, 1995 (as amended prior to the
date hereof, the "Loan Agreement"), pursuant to which Lenders agreed, among
other things, to make revolving loans and other financial accommodations to
Borrowers.
B. RISI, RMI, RFI (as guarantor) and LaSalle entered into that certain
Forbearance Agreement and Amendment dated as of January 5, 1996 (as amended, the
"Forbearance Agreement and Amendment") pursuant to which, among other things:
(i) the parties thereto agreed to amend the Loan Agreement; and (ii) LaSalle
agreed temporarily to forbear from exercising certain rights with respect to the
"Specified Events of Default" (as defined in such Forbearance Agreement and
Amendment).
C. Each Borrower and RFI has requested that LaSalle agree to amend the
Loan Agreement as provided herein.
D. LaSalle, as Agent and Lender, is willing to agree to such request, but
only subject to the terms and conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the recitals set forth above, the
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
all parties hereto, and subject to the terms and conditions hereof, Borrower and
LaSalle agree as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth above are
incorporated herein, are acknowledged by each Borrower and RFI to be true and
correct and are made a part hereof.
2. DEFINITIONS. All capitalized terms used but not elsewhere defined
herein shall have the respective meanings ascribed to such terms in the Loan
Agreement, as amended by this Agreement.
3. INDUCEMENT. To induce LaSalle to enter into this Amendment:
(a) COMPLIANCE WITH LOAN DOCUMENTS. Each Borrower represents and
warrants that on the date hereof after giving effect to this Amendment (and
other than
-1-
<PAGE>
such Events of Default which are the Specified Events of Default or are
acknowledged by LaSalle in that certain letter dated as of February __,
1996 from LaSalle to the Borrower (collectively, the "Previously Disclosed
Events of Default")), it is in compliance with all of the terms and
provisions set forth in the Loan Agreement and no Event of Default and no
event which, upon notice or lapse of time, or both, would constitute an
Event of Default, has occurred and is continuing.
(b) REPRESENTATIONS AND WARRANTIES. Each Borrower represents and
warrants that: (i) on the date hereof, the representations and warranties
set forth in the Loan Agreement are true and correct, with the same effect
as though such representations and warranties had been made on the date
hereof, except to the extent that such representations and warranties are
limited by their terms to an earlier date; and (ii) except for the
Previously Disclosed Events of Default, Borrower is in compliance with all
of the terms and provisions of the Loan Agreement and no other Event of
Default has occurred and is continuing.
(c) AUTHORITY. Each Borrower and RFI represents and warrants that it
has full power and authority to enter into this Amendment, and has full
power and authority to incur and perform the obligations provided for under
this Amendment, all of which have been duly authorized by all proper and
necessary action, and that no consent or approval of any of Borrowers' or
RFI's directors, shareholders, creditors or of any public authority or
regulatory body is required as a condition to the validity or
enforceability of this Amendment.
(d) AMENDMENT AS BINDING AGREEMENT. Each Borrower and RFI represents
and warrants that this Amendment constitutes the valid and legally binding
obligation of it, fully enforceable against it in accordance with this
Amendment's terms.
(e) NO CONFLICTING AGREEMENTS. Each Borrower and RFI represents and
warrants that the execution and performance by it of this Amendment will
not: (i) violate any provision of law, any order of any court or other
agency of government, or the articles of incorporation or bylaws of it;
(ii) violate any indenture (including, without limitation, the Senior Note
Indenture), contract, agreement or other instrument to which it is a party,
or by which any of its property is bound, or be in conflict with, result in
a breach of or constitute (with due notice and/or lapse of time) a default
under, any such indenture, contract, agreement or other instrument; or
(iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of its respective property or
assets, other than in favor of LaSalle.
4. AMENDMENT OF THE LOAN AGREEMENT. The Loan Agreement is amended as set
forth below:
4.1 The definition of "TANGIBLE NET WORTH" set forth in Section 1.1
of the Loan Agreement is hereby amended by deleting such
definition in its entirety and inserting the following in lieu
thereof:
-2-
<PAGE>
"TANGIBLE NET WORTH - as of any date of determination
thereof, (A) (i) Net Worth PLUS (ii) the outstanding
principal balance of the Senior Notes MINUS (B) (i) the book
value of all intangible assets PLUS (ii) any LIFO reserve
MINUS (C) such adjustments as determined solely by LaSalle.
All such amounts shall be calculated on a consolidated basis
and all such amounts (other than those calculated pursuant
to (C)) shall be determined pursuant to GAAP, applied on a
basis consistent with the Borrower's previous financial
statements."
4.2 Section 1.1 of the Loan Agreement is hereby amended by inserting
the following new definition in the appropriate alphabetical
order:
"NET INCOME (OR NET DEFICIT) - as of any date of
determination thereof, the net income (or, if applicable,
net deficit) of RFI and its Subsidiaries (including, without
limitation, RMI and RISI), all as determined in accordance
with GAAP."
4.3 The definition of "BORROWING BASE" set forth in Section 1.1 of
the Loan Agreement is hereby amended by adding the following
sentence to the end of such definition:
"Notwithstanding anything in this Agreement to the contrary:
(i) at no time shall the amount of the Borrowing Base with
respect to Eligible Inventory of RMI exceed or be deemed to
exceed $4,750,000 (whether or not calculated pursuant to
(b)(ii)(x) or (b)(ii)(y) above); and (ii) upon the sale of
all or a material portion of the stock or assets of RISI, a
reserve shall be automatically made to permanently reduce
the otherwise available Borrowing Base as follows: The
otherwise available Borrowing Base shall be deemed
permanently reduced by an amount equal to $100,000 on each
of June 1, 1996, July 1, 1996, August 1, 1996, September 1,
1996 and October 1, 1996 (such that as of October 1, 1996,
the reserve made against the otherwise available Borrowing
Base shall be in the aggregate amount of $500,000 and shall
cause the otherwise available Borrowing Base to be
permanently reduced by such $500,000)."
4.4 Section 9.2(L) of the Loan Agreement is hereby amended by
deleting same in its entirety and inserting the following in lieu
thereof:
"(L) Make Capital Expenditures (including, without
limitation, by way of capitalized leases) which in the
aggregate, as to Borrowers and their Subsidiaries, exceed
$600,000.00 during any fiscal year."
-3-
<PAGE>
4.5 Section 9.3(A) of the Loan Agreement is hereby amended by (i)
deleting such Section (.3(A) in its entirety and inserting the
following in lieu thereof:
"(A) MINIMUM TANGIBLE NET WORTH. RFI shall have, as of
each of the dates listed below, a Consolidated Tangible Net
Worth of not less than the amount set forth opposite such
dates in the following schedule:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
February 24, 1996 $2,750,000
April 27, 1996 $1,450,000
July 27, 1996 $5,750,000
October 26, 1996 $7,000,000
The last day of each fiscal
quarter thereafter $7,000,000"
</TABLE>
4.6 Sections 9.3(B), (C), (D) and (E) of the Loan Agreement are
hereby amended by deleting each of the same in its entirety.
4.7 Section 9.3 of the Loan Agreement is hereby amended by adding as
Section 9.3(B) thereto the following:
"(B) MINIMUM CONSOLIDATED NET INCOME. RFI shall have as of
each of the dates listed below for the respective periods
indicated, a Consolidated Net Income of not less than the
amount set forth opposite such dates in the following
schedules:
-4-
<PAGE>
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
For the month ended
February 24, 1996 $(1,050,000)
For the fiscal quarter ended
April 27, 1996 $(2,400,000)
For the fiscal quarter ended
July 27, 1996 $ 15,000
For the fiscal quarter ended
October 26, 1996 $1,125,000
For each fiscal quarter
end thereafter $500,000.
</TABLE>
Provided, further, that RFI shall not have: (i) as of any
date prior to the end of its fiscal year ending October 26,
1996, a Consolidated Net Deficit for such fiscal year
through such date of greater than ($4,900,000); and (ii) for
the fiscal year ending October 26, 1996, a Consolidated Net
Deficit for such fiscal year of greater than ($3,300,000)."
4.8 Section 13 of the Agreement is hereby amended by adding thereto
the following Section 13.20:
"13.20 READJUSTMENT OF FINANCIAL COVENANTS. Borrower and
RFI each agrees that the financial covenants set forth in
Section 9.3 hereof shall be subject to adjustment by LaSalle
at any time that RISI's operations or the results thereof
are required by GAAP or deemed by RFI to be characterized as
continuing operations of RFI."
4.9 From and after the effective date hereof: (i) all references in
the Loan Amendment and the other Loan Documents to the Loan
Agreement shall be deemed to refer to the Loan Agreement, as
amended hereby; and (ii) all references in the Loan Documents to
a term defined in the Loan Agreement shall be deemed to refer to
such defined term, as amended hereby.
5. NO WAIVER OF SPECIFIED EVENTS OF DEFAULT. Nothing in this Amendment
shall be deemed to waive the Specified Events of Default, or, except as
expressly provided herein, limit or impair LaSalle's rights or remedies under
the Loan Agreement, the other Loan Documents, or applicable law, all of which
are hereby expressly reserved.
-5-
<PAGE>
6. CERTAIN AFFIRMATIONS BY BORROWERS AND RFI. Each Borrower and RFI
hereby agrees and acknowledges that LaSalle has performed all obligations and
duties owed to Borrowers and RFI, if any, as of the date hereof.
7. EVENT OF DEFAULT. Borrower hereby acknowledges and agrees that a
breach by Borrower of any term, provision, covenant or condition herein set
forth or herein required of Borrower to be kept or performed, shall constitute
an Event of Default under the Loan Documents.
8. COUNTERCLAIMS AND RELEASE. Each Borrower and RFI hereby represents
and warrants to, and covenants with, LaSalle that as of the date hereof: (a) it
has no actions, defenses, offsets or counterclaims of any kind or nature
whatsoever against LaSalle with respect to the Loan Agreement or any of the Loan
Documents, any amount owed to LaSalle or the performance or observance by
LaSalle of any warranty or covenant contained therein or any action previously
taken or not taken by LaSalle with respect thereto or with respect to any
security interest, encumbrance, lien or collateral in connection therewith to
secure the liabilities of Borrowers or RFI; and (b) LaSalle has fully performed
all obligations to Borrowers and RFI, if any, which it may have had or have on
and of the date hereof. Without limiting the generality of the foregoing, each
Borrower and RFI: (a) on its own behalf and on behalf of its representatives,
agents, employees, servants, officers, and directors, (b) to the extent such
claims could be made by the following parties claiming through such Borrower or
RFI and to the fullest extent permitted by applicable law, on behalf of partners
and shareholders and subsidiary, affiliated and related companies, and (c) on
behalf of successors and assigns (together, the "BORROWING GROUP") waives,
releases and forever discharges LaSalle, each Lender and its respective
officers, directors, subsidiary, affiliated and related companies, agents,
servants, employees, shareholders, representatives, successors, assigns,
attorneys, accountants, assets and properties, as the case may be (the "LENDER
GROUP") from and against all manner of actions, cause and causes of action,
suits, debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, obligations,
liabilities, costs, expenses, losses, damages, judgments, executions, claims and
demands, of whatsoever kind or nature, in law or in equity, whether known or
unknown, whether or not concealed or hidden, arising out of or relating to any
matter, cause or thing whatsoever, that any of the Borrowing Group, whether
individually and/or jointly or severally, may have had, or now have or that may
subsequently accrue against the Lender Group by reason of any matter or thing
whatsoever through the date hereof arising out of or in any way connected to,
directly, or indirectly, the Loan Agreement, this Amendment and/or any of the
other Loan Documents. Each Borrower and RFI hereby acknowledges and agrees that
LaSalle is specifically relying upon the representations, warranties, covenants
and agreements contained herein and that such representations, warranties,
covenants and agreements constitute a material inducement to enter into this
Amendment.
9. COSTS. Each Borrower, jointly and severally, shall pay or cause to be
paid to LaSalle all fees and expenses of LaSalle relating to this Amendment and
the transactions contemplated herein, including, without limitation, fees and
expenses of LaSalle's counsel (the "COSTS").
-6-
<PAGE>
10. NO CUSTOM; SECTION HEADINGS. This Amendment shall not establish a
custom or course of dealing, or waive, limit or condition the rights, defenses
and remedies of LaSalle under the Loan Agreement or the other Loan Documents,
all of which rights, defenses and remedies are expressly reserved. The section
headings and captions herein are for convenience of reference only and shall not
be deemed to limit, impair or affect the interpretation and construction of the
terms hereof.
11. REPRESENTATION BY COUNSEL. Each Borrower and RFI hereby represents
and warrants to LaSalle that throughout the negotiations, preparation and
execution of this Amendment and the closing hereunder, it has been represented
by competent legal counsel of its own choosing and that this Amendment was
entered into by its free will and pursuant to arm's-length negotiations.
12. SEVERABILITY. If any provision of this Amendment or the application
thereof to any party or circumstance is held invalid or unenforceable, the
remainder of this Amendment and the application of such provision or provisions
to the other parties and circumstances will not be affected thereby, the
provisions of this Amendment being severable in any such instance.
13. FULL FORCE AND EFFECT. Except as may be expressly set forth herein to
the contrary, the Loan Documents remain unmodified and all other terms and
conditions of the Loan Documents remain in full force and effect. Each Borrower
and RFI hereby reaffirms its respective obligations to fulfill and comply with
each of its covenants, duties and obligations under the Loan Agreement, the
Guaranty Agreement and each of the other Loan Documents, all in accordance with
the terms thereof.
14. COUNTERPARTS. This Amendment may be signed in counterparts, each of
which shall be deemed an original and all of which shall be deemed to constitute
one agreement.
15. MERGER; MODIFICATION. This Amendment embodies the entire agreement
between the parties hereto with respect to the matters addressed herein and
supersedes all prior oral and written and all contemporaneous oral
communications with respect to such matters. This Amendment shall not be
modified or amended or extended except in a writing signed by the parties
hereto.
16. DELIVERIES BY BORROWER/FURTHER ASSURANCES. Each Borrower and RFI
shall deliver the following to LaSalle, each in form and substance satisfactory
to LaSalle: (i) certified copies of resolutions adopted by its respective board
of directors authorizing the execution and delivery of this Amendment; and (ii)
such other instruments, documents, certificates, consents, waivers and opinions
as LaSalle reasonably may request.
17. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO ANY CONFLICT OF LAW PROVISIONS. FOR PURPOSES OF THIS SECTION 17, THIS
AMENDMENT SHALL BE DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ILLINOIS.
-7-
<PAGE>
18. WAIVERS BY BORROWERS AND RFI. EACH BORROWER AND RFI HEREBY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT PROCEEDING OR COUNTERCLAIM OF ANY
KIND ARISING OUT OF OR RELATED TO THIS AMENDMENT.
[Remainder of page intentionally left blank]
-8-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by each
of the parties hereto by a duly authorized officer of each such party on the
date first set forth above.
RYMER MEAT INC.
("Borrower")
/s/ Edward M. Hebert
----------------------------
By: Edward M. Hebert
---------------------
Title: V.P. Finance
-------------------
RYMER INTERNATIONAL SEA FOOD INC.
("Borrower")
/s/ Edward M. Hebert
----------------------------
By: Edward M. Hebert
---------------------
Title: V.P. Finance
-------------------
RYMER FOODS INC.
("Guarantor")
/s/ Edward M. Hebert
----------------------------
By: Edward M. Hebert
---------------------
Title: V.P. Finance
-------------------
LASALLE NATIONAL BANK ("Agent" and
"Lender")
/s/ Robert Corsentino
---------------------------
By: Robert Corsentino
---------------------
Title: SVP
------------------
-9-
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-26-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> JAN-27-1996
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<RECEIVABLES> 3,397
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<CURRENT-ASSETS> 13,660
<PP&E> 8,321
<DEPRECIATION> 6,277
<TOTAL-ASSETS> 18,067
<CURRENT-LIABILITIES> 27,477
<BONDS> 0
0
0
<COMMON> 10,754
<OTHER-SE> (20,994)
<TOTAL-LIABILITY-AND-EQUITY> 18,067
<SALES> 11,979
<TOTAL-REVENUES> 11,979
<CGS> 11,999
<TOTAL-COSTS> 1,324
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,010
<INCOME-PRETAX> (2,348)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,348)
<DISCONTINUED> 32
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,316)
<EPS-PRIMARY> (0.22)
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