SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, For Use
[X] Definitive proxy statement of the Commission Only
[ ] Definitive additional materials (as permitted by
[ ] Soliciting material pursuant to Rule 14a-11(c) Rule-14a-6(e)(2))
or Rule 14a-12
RICA FOODS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share
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(2) Aggregate number of securities to which transaction applies:
16,063,546
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$1.8125
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(4) Proposed maximum aggregate value of transaction:
$29,115,177
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(5) Total fee paid:
$5,832
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[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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RICA FOODS, INC.
95 MERRICK WAY
SUITE 507
CORAL GABLES, FLORIDA 33134
------------------------------
NOTICE OF PROPOSED ACTION BY WRITTEN CONSENT
------------------------------
TO THE STOCKHOLDERS
OF RICA FOODS, INC.:
THIS LETTER IS NOTICE that the Board of Directors of Rica Foods, Inc.,
a Nevada corporation (the "Company"), is soliciting consents from the
stockholders of the Company for the following purposes:
1. To consider and vote on the approval of a Stock Purchase Agreement that
provides for the Company to acquire the remaining outstanding shares of
common stock of Corporacion Pipasa, S.A. ("Pipasa"). The Company
currently owns a majority interest in Pipasa. In the acquisition of
Pipasa, the Company will issue 11,050,784 shares of its common stock to
the minority stockholder of Pipasa, Inversiones La Ribera, S.A., a
Costa Rican corporation owned by Calixto Chaves, the Company's
President, Chief Executive Officer and Chairman, as well as a major
stockholder of the Company. The agreement for the acquisition of Pipasa
is more fully described in the accompanying Consent Solicitation
Statement and is attached as Exhibit A thereto.
2. To consider and vote on the approval of a second Stock Purchase
Agreement that provides for the Company to acquire the remaining
outstanding shares of common stock of Corporacion As de Oros, S.A. ("As
de Oros"). The Company currently owns a majority interest in As de
Oros. In the acquisition of As de Oros, the Company will issue
5,012,762 shares of its common stock to the minority stockholder of
Pipasa, Comercial Angui, S.A. ("Angui"), a Costa Rican corporation and
major stockholder of the Company. The agreement for the acquisition of
As de Oros is more fully described in the accompanying Consent
Solicitation Statement and is attached as Exhibit B thereto.
No meeting will be held with respect to the solicitation of consents
from the stockholders of the Company. You are being asked to complete, sign and
mail to the Company at its principal executive offices, 95 Merrick Way, Suite
507, Coral Gables, Florida 33134, the enclosed form of Action by Written Consent
of the Stockholders. Only consents received prior to the close of business on
the date (the "Action Date") which is the earlier to occur of (i) the date on
which the Company receives approval and/or disapproval of both of the proposals
by the holders of a majority of the issued and outstanding shares of common
stock of the Company, or (ii) December 28, 1998 (unless extended by the Company
pursuant to a notice mailed to the stockholders), will be counted towards the
vote on the proposals.
The Board of Directors has fixed the close of business on Friday,
November 20, 1998 as the record date for determining which stockholders are
entitled to receive notice of and to vote on these proposals. The stock transfer
books of the Company will not be closed prior to the Action Date.
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In order to assure that your vote will be counted, please complete,
date, sign and return the enclosed form of Action by Written Consent of the
Stockholders promptly in the enclosed prepaid envelope. As of the Action Date,
the proposals which are the subject of this solicitation will either be
effective (if the Company has received the requisite number of executed
consents) or the solicitation period will have expired without approval of the
proposals. Your consent may be revoked at any time prior to the day before the
Action Date by filing with the Secretary of the Company a written revocation. An
instrument of revocation will be effective only upon its actual receipt by the
Company or its authorized agent at the Company's executive offices prior to the
Action Date.
The Board of Directors of the Company (other that Mr. Chaves and Mr.
Jorge Quesada, Pipasa's General Vice President, who abstained from the vote on
the acquisition of Pipasa) has unanimously approved the acquisition of Pipasa
and the acquisition of As de Oros, and recommends that you consent to the
approval and adoption of both acquisition agreements.
By Order of the Board of Directors
Monica Chaves
SECRETARY
Coral Gables, Florida
December 4, 1998
YOUR CONSENT IS IMPORTANT.
PLEASE SIGN AND RETURN THE ENCLOSED WRITTEN CONSENT PROMPTLY.
<PAGE>
RICA FOODS, INC.
95 MERRICK WAY, SUITE 507
CORAL GABLES, FLORIDA 33134
-----------------------------
CONSENT SOLICITATION STATEMENT
-----------------------------
The Board of Directors of Rica Foods, Inc., a Nevada corporation (the
"Company"), is furnishing this Consent Solicitation Statement to you in
connection with the solicitation of written consents from the holders of shares
(the "Shares") of the Company's common stock, par value $.001 per share (the
"Common Stock"). Only the stockholders of record at the close of business on
Friday, November 20, 1998 (the "Record Date") are entitled to notice of and to
vote on the proposed actions. The approximate date that the Board of Directors
is first mailing this Consent Solicitation Statement and the accompanying form
of Action by Written Consent of Stockholders (the "Consent") to stockholders is
December 4, 1998.
You should review the information provided in this Consent Solicitation
Statement in conjunction with the financial statements and notes thereto from
the Company's Annual Report on Form 10-KSB for the fiscal year ended September
30, 1997, as amended, and the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998, which have been enclosed with this Consent
Solicitation Statement and incorporated by reference herein. The Company's
principal executive offices are located at 95 Merrick Way, Suite 507, Coral
Gables, Florida 33134, and its telephone number is (305) 476-1757.
You are being asked to consider and vote on: (1) the approval of a
Stock Purchase Agreement (the "Pipasa Agreement"), dated as of September 28,
1998, and amended on November 9, 1998, between the Company and Inversiones La
Ribera, S.A. ("La Ribera"), a copy of which is attached to this Consent
Solicitation Statement as Exhibit A, and (2) the approval of a Stock Purchase
Agreement (the "As de Oros Agreement" and together with the Pipasa Agreement,
the "Acquisition Agreements"), dated as of September 28, 1998, and amended on
November 9, 1998, between the Company and Comercial Angui, S.A. ("Angui"), a
copy of which is attached hereto as Exhibit B. The Pipasa Agreement provides for
the acquisition (the "Pipasa Acquisition") of the remaining 1,840,000 shares of
Corporacion Pipasa, S.A. ("Pipasa") that are currently owned by La Ribera for
11,050,784 shares of the Common Stock of the Company. The As de Oros Agreement
provides for the acquisition (the "As de Oros Acquisition" and together with the
Pipasa Acquisition, the "Acquisitions") of the remaining 654,300 shares of
common stock of Corporacion As de Oros, S.A. ("As de Oros") that are currently
owned by Angui, for 5,012,762 shares of the Common Stock of the Company. La
Ribera is a Costa Rican corporation owned by Calixto Chaves, the Company's
President, Chief Executive Officer and Chairman, as well as a major stockholder
of the Company. Angui is a Costa Rican corporation owned by Antonio Echeverria,
and a major stockholder of the Company.
Pipasa is Costa Rica's largest poultry producer and marketer,
comprising approximately a 50% share of that country's poultry market. Pipasa
operates 33 farms and two processing plants throughout Costa Rica, and exports
poultry products to El Salvador, Honduras, Nicaragua and Colombia. Currently,
the Company owns 59.56% of Pipasa. As de Oros is Costa Rica's second largest
poultry producer, comprising approximately a 20% share of that country's poultry
market. In addition to the production and marketing of poultry and poultry
by-products, As de Oros is one of the leaders in the Costa Rican
<PAGE>
animal feed market, and owns a chain of fried chicken restaurants in Costa Rica
called Restaurantes As de Oros. Currently, the Company owns 56.4% of As de Oros.
The consummation of each of the Pipasa Acquisition and the As de Oros
Acquisition is subject to certain conditions, including approval by the holders
of a majority of the outstanding Shares of Common Stock of the Company. As of
the Record Date, there were 22,256,454 shares of Common Stock issued and
outstanding, of which Mr. Chaves and Angui held 5,979,945 and 2,447,058 Shares,
or 26.87% and 10.99%, respectively. Following the consummation of the
Acquisitions, Mr. Chaves and Angui will own 17,030,729 and 7,459,820 Shares, or
44.44% and 19.46%, respectively, of the Common Stock of the Company. The Shares
held by Mr. Chaves include Shares owned with his spouse, but exclude 837,971
Shares owned by his adult son and 400,000 Shares owned by his adult daughter.
For a discussion of the interests of certain officers, directors and major
stockholders of the Company and its subsidiaries in these two transactions, see
"Special Factors -- Interests of Certain Persons in the Acquisitions."
YOU ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS CONSENT SOLICITATION STATEMENT AND TO
CONSULT WITH YOUR PERSONAL FINANCIAL AND TAX ADVISORS AS NEEDED.
---------------------
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS DECEMBER 4, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Summary..............................................................1
General Information..................................................6
Voting; Required Vote...........................................6
Consents........................................................6
Special Factors......................................................7
Background of the Acquisitions..................................7
Recommendation of the Board of Directors; Reasons for
the Acquisitions..............................................8
Fairness Opinion ...............................................9
Interests of Certain Persons in the Acquisitions................9
The Acquisition Agreements..........................................10
The Pipasa Agreement...........................................10
The As de Oros Agreement.......................................12
Information Concerning Pipasa.......................................13
Financial Data for Pipasa...........................................13
Information Concerning As de Oros...................................13
Selected Financial Data for As de Oros..............................13
Information Concerning Mr. Chaves...................................14
Information Concerning Angui........................................14
Information Concerning The Company..................................14
Selected Consolidated Financial Data For The Company And Its
Subsidiaries......................................................15
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Company and Subsidiaries........16
General........................................................16
Results of Operations..........................................16
Liquidity and Capital Resources................................25
Cautionary Statements Relevant to Forward Looking
Information for the Purpose of Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995......25
Business of the Company and Its Subsidiaries........................27
Market for the Company's Common Stock and Related Stockholder
Matters...........................................................38
Dividends......................................................38
Information as to Stock Ownership...................................39
Independent Public Accountants......................................40
Documents Incorporated by Reference.................................40
Financial Statements...............................................F-1
EXHIBIT A - Pipasa Agreement
EXHIBIT B - As de Oros Agreement
EXHIBIT C - Form of Consent
(iii)
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SUMMARY
This is a summary of information that is discussed more completely in
other sections of this Consent Solicitation Statement. Because this is only a
summary, it does not contain all the information that may be important to you.
You should read the entire Consent Solicitation Statement and the Exhibits,
including the documents incorporated by reference in this Consent Solicitation
Statement, carefully before you decide how to vote.
Entity Soliciting Consents........ The Company - Rica Foods, Inc.
Entities to be Acquired........... Corporacion Pipasa, S.A. ("Pipasa") is
Costa Rica's largest poultry producer and
marketer, comprising approximately a 50%
share of that country's poultry market.
Pipasa operates 33 farms and two
processing plants throughout Costa Rica,
and exports poultry products to El
Salvador, Honduras, Nicaragua and
Colombia. Pipasa is currently owned
59.56% by the Company and 40.44% by
Inversiones La Ribera, S.A. ("La
Ribera"), a Costa Rican corporation which
is owned by Calixto Chaves, the Company's
President, Chief Executive Officer and
Chairman, as well as a major stockholder
of the Company.
Corporacion As de Oros, S.A. ("As de
Oros") is Costa Rica's second largest
poultry producer, comprising
approximately a 20% share of that
country's poultry market. In addition to
the production and marketing of poultry
and poultry by-products, As de Oros is
one of the leaders in the Costa Rican
animal feed market, and owns a chain of
fried chicken restaurants in Costa Rica
called Restaurantes As de Oros. As de
Oros is currently owned 56.38% by the
Company and 43.62% by Comercial Angui,
S.A. ("Angui"), a Costa Rican corporation
owned by Antonio Echeverria, and a major
stockholder of the Company.
Pipasa Agreement.................. The Company and La Ribera have entered
into a Stock Purchase Agreement, dated as
of September 28, 1998, and amended on
November 9, 1998 (the "Pipasa
Agreement"), pursuant to which the
Company will acquire the remaining
1,840,000 shares of the common stock of
Pipasa that are currently owned by La
Ribera for 11,050,784 shares of the
Common Stock of the Company. If the
stockholders of the Company approve the
Pipasa Agreement and the acquisition is
completed, Pipasa will be a wholly-owned
subsidiary of the Company.
1
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As de Oros Agreement.............. The Company and Angui, a major
stockholder of the Company, have entered
into a Stock Purchase Agreement, dated as
of September 28, 1998, and amended on
November 9, 1998 (the "As de Oros
Agreement"), pursuant to which the
Company will acquire the remaining
654,300 shares of the common stock of As
de Oros that are currently owned by
Angui, for 5,012,762 shares of the Common
Stock of the Company. If the stockholders
approve the As de Oros Agreement and the
acquisition is completed, As de Oros will
be a wholly-owned subsidiary of the
Company.
Action Date....................... Only consents received prior to the close
of business of the date (the "Action
Date") which is the earlier to occur of
(i) the date on which the Company
receives approval and/or disapproval of
both of the proposals by the holders of a
majority of the issued and outstanding
Shares of Common Stock of the Company, or
(ii) December 28, 1998 (unless extended
by the Company pursuant to a notice
mailed to the stockholders), will be
counted towards the vote on the
proposals.
Record Date....................... Only stockholders of record at the close
of business on Friday, November 20, 1998
are entitled to notice of and to vote on
the proposed actions. On that date there
were 22,256,454 Shares of the Company's
Common Stockoutstanding.
Purposes of the Consent
Solicitation.................... (1) To consider and vote upon the
approval and adoption of the Pipasa
Agreement (attached as Exhibit A), and
(2) to consider and vote upon the
approval and adoption of the As de Oros
Agreement (attached as Exhibit B).
Consents Required................. The approval of the Pipasa Agreement and
the As de Oros Agreement, respectively,
requires the consent of the holders of a
majority of the issued and outstanding
Shares of the Company's Common Stock.
Each Share is entitled to one vote. As of
the Record Date, Mr. Chaves and Angui
held 26.87% and 10.99%, respectively, of
the outstanding Common Stock. Both Mr.
Chaves and Angui have indicated that they
intend to vote to approve both
Acquisition Agreements. All Consents
properly executed, unless previously
revoked prior to the Action Date, will be
counted in accordance with the
instructions on such Consents. Unless
contrary
2
<PAGE>
instructions are indicated, Consents will
be voted FOR the approval and adoption of
the Pipasa Agreement and FOR the approval
and adoption of the As de Oros Agreement.
See "General Information - Voting;
Required Vote" and "- Consents."
Recommendation of the Board of
Directors....................... On August 31, 1998, the Board of
Directors of the Company (the "Board")
(other than Mr. Chaves and Mr. Jorge
Quesada, Pipasa's General Vice President,
who both abstained as to the Pipasa
Agreement) unanimously approved by
written consent both Acquisition
Agreements and the issuance by the
Company of up to 16,063,546 shares of the
Company's Common Stock in connection with
the consummation of the Acquisitions;
concluded that the Acquisitions are fair
to and in the best interest of the
Company's public stockholders; and
recommended that the Company's
stockholders approve and adopt both
Acquisition Agreements. On November 6,
1998, the Board approved amendments to
each Acquisition Agreement to provide
that the closing of the respective
Acquisitions would be subject to the
receipt of an opinion from an independent
Costa Rican firm that the Acquisitions
are fair to the Company's stockholders
from a financial point of view, and
subject to the approval of the
stockholders of the Company. The Board,
in reaching its decision, considered a
number of factors. See "Special
Factors-Recommendation of the Board of
Directors; Reasons for the Acquisitions."
THE BOARD (OTHER THAN MR. CHAVES AND MR.
QUESADA, WHO ABSTAINED AS TO THE PIPASA
AGREEMENT), HAS UNANIMOUSLY RECOMMENDED
THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE PIPASA AGREEMENT AND THE
AS DE OROS AGREEMENT.
Background of the Acquisitions.... For a description of the events leading
up to the approval of the Acquisition
Agreements by the Board, see "Special
Factors - Background of the
Acquisitions."
Reasons for the Acquisitions...... In reaching its decision, the Board
consulted with the Company's management,
and considered a number of factors,
including without limitation, the
Company's business, financial condition,
results of operations, and prospects;
Pipasa's and As de Oros'
3
<PAGE>
respective businesses, financial
conditions, results of operations and
prospects; the increased managerial
efficiencies which would result from the
consolidation of the three companies;
the ability to retain 100% of the
dividends from Pipasa and As de Oros;
the current and prospective environment
in which the Company operates; the
relative value to be received by the
Company in the consolidation of Pipasa
and As de Oros as wholly-owned
subsidiaries of the Company; and the
financial and other significant terms of
the Acquisition Agreements, including
the lack of negative U.S. tax
consequences for stockholders and
approval of certain of the Company's
stockholders who participated in the
negotiations of the Acquisitions. See
"Recommendation of the Board of
Directors; Reasons for the
Acquisitions."
Closing of the Acquisitions....... The Acquisitions are expected to close as
soon as practicable after the approval
and adoption of the Pipasa Agreement and
the As de Oros Agreement, but prior to
January 29, 1999.
Dissenters' Rights................ Under Nevada law, stockholders who do not
vote in favor of the Acquisitions do not
have the right to obtain a cash payment
for the "fair value" of their Shares.
Conditions to the Acquisitions.... The closing of each of the Acquisitions
is conditioned upon the fulfillment of
certain conditions contained in the
respective Acquisition Agreement,
including the approval and adoption of
the respective Acquisition Agreement by
the affirmative vote of the holders of a
majority of the issued and outstanding
Shares of the Company's Common Stock and
the receipt by the Board of a fairness
opinion from a financial advisor stating
that each respective Acquisition is fair
to the stockholders of the Company from a
financial point of view.
As of the Record Date, Mr. Chaves and
Angui held approximately 26.87% and
10.99%, respectively, of the outstanding
Common Stock. The Shares held by Mr.
Chaves include Shares owned with his
spouse, but exclude 837,971 Shares owned
by his adult son and 400,000 Shares owned
by his adult daughter. While the voting
interest of Mr. Chaves and Angui will not
assure the approval and adoption of both
of the Acquisition Agreements, the
affirmative vote of both Mr. Chaves and
Angui will influence significantly the
outcome of the consent solicitation.
4
<PAGE>
Both Mr. Chaves and Angui have indicated
that they intend to vote to approve both
Acquisition Agreements. See "General
Information -Voting; Required Vote."
Accounting Treatment.............. The Acquisitions will be accounted for
under the purchase method of accounting.
Tax Consequences for Stockholders. The transactions contemplated by the
Acquisition Agreements are not expected
to have any U.S. tax effects on the
stockholders of the Company, however, you
are urged to consult with your financial
advisor on any circumstances which may be
particular to you.
5
<PAGE>
GENERAL INFORMATION
VOTING; REQUIRED VOTE
The Board of Directors has fixed the close of business on November 20,
1998 as the Record Date for the consent solicitation, and only holders of the
Company's Common Stock of record at the close of business on that date are
entitled to notice of and to vote on the proposals described in this Consent
Solicitation Statement. As of that date, there were 22,256,454 Shares of the
Company's Common Stock outstanding and entitled to vote, held by approximately
1,000 holders of record. Each Share is entitled to one vote on all matters
presented to the stockholders in this consent solicitation statement.
The consent of the holders of a majority of the issued and outstanding
Shares of the Company's Common Stock is required for approval and adoption of
the Pipasa Agreement and the As de Oros Agreement. As of the Record Date, Mr.
Chaves and Angui, collectively, held approximately 37.86% of the outstanding
Common Stock. The Shares held by Mr. Chaves include Shares owned with his
spouse, but exclude 837,971 Shares owned by his adult son and 400,000 Shares
owned by his adult daughter. This voting interest will enable them, in the
aggregate, to have significant influence over the approval and adoption of both
the Pipasa Agreement and the As de Oros Agreement, however, it will not assure
the outcome of the consent solicitation. Both Mr. Chaves and Angui have
indicated that they intend to vote to approve both Acquisition Agreements.
The stockholders do not have any dissenters' rights of appraisal in
connection with the proposals contemplated herein.
CONSENTS
The Company's Board of Directors is soliciting the enclosed Consent.
Only Consents received prior to the close of business on the date (the "Action
Date") which is the earlier to occur of (i) the date on which the Company
receives consents for each of the proposals by the holders of a majority of the
issued and outstanding Shares of Common Stock of the Company, or (ii) December
28, 1998 (unless extended by the Company pursuant to a notice mailed to the
stockholders), will be counted towards the vote on the proposals.
Your Consent may be revoked at any time before the Action Date, by
filing with the Secretary of the Company a written revocation. Any written
notice revoking a Consent should be sent to the Company at 95 Merrick Way, Suite
507, Coral Gables, Florida 33134, Attention: Secretary.
All Shares represented by properly executed Consents received prior to
the Action Date, unless previously revoked, will be voted in accordance with the
instructions on the Consents. UNLESS CONTRARY INSTRUCTIONS ARE INDICATED,
CONSENTS WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE PIPASA AGREEMENT AND
FOR THE APPROVAL AND ADOPTION OF THE AS DE OROS AGREEMENT.
The Company will bear the cost of preparing, assembling and mailing
this Consent Solicitation Statement and all Exhibits, the Notice of Solicitation
of Consents of Stockholders and the enclosed Consent. The Company will request
banks, brokers and other custodians, nominees and fiduciaries to forward copies
of the consent solicitation materials to their principals and to request
authority for the execution of Consents, and may reimburse such persons for
their expenses in so doing. The Company does not expect to retain an outside
consent solicitor.
6
<PAGE>
In making your determination on how to vote, you should rely only on
the information contained in this document. The Company has not authorized
anyone to provide you with information that is different.
SPECIAL FACTORS
BACKGROUND OF THE ACQUISITIONS
BACKGROUND OF THE PIPASA ACQUISITION
In April 1996, the Company, at that time Quantum Learning Systems, Inc.
("Quantum"), entered into a reverse acquisition agreement to acquire at least
65% of the issued and outstanding shares of Pipasa. This transaction (the
"Initial Pipasa Acquisition") was structured such that Pipasa would become a
partially owned subsidiary of the Company and the former shareholders of Pipasa
would become the owners of approximately 82.4% of the Company, if 100% of the
shares of Pipasa were acquired. This transaction was approved by the
shareholders of the Company on August 5, 1996 and concluded on September 30,
1996 with the Company acquiring 59.56% of Pipasa for 15,573,571 Shares of Common
Stock of the Company.
At the time of the Initial Pipasa Acquisition, the Company and Mr.
Chaves considered the possibility of the Company acquiring Pipasa in its
entirety, and presented this proposal to the then current shareholders of
Quantum who approved the full acquisition. Due to several considerations,
including, but not limited to, the effect such a structure would have on the
Company's public float, however, the decision was made to acquire only 59.56% of
Pipasa.
In July 1998, the Company's Board of Directors and several of the
Company's stockholders, Miguel Angel Campos, Leonardo Lopez and Monsignor Angel
San Casimiro (the "Stockholder Group"), entered discussions of acquiring 100% of
Pipasa, with the management of Pipasa. The individuals who comprised the
Stockholder Group are neither officers nor directors of the Company, nor do any
of them have a financial interest in the Acquisitions distinct from the other
stockholders of the Company, but such individuals are familiar with the
operations of the Company and the Costa Rican poultry industry in general. The
management of Pipasa and the Board of Directors of the Company, including the
Stockholder Group, believed that the consolidation of Pipasa and the elimination
of the minority interests in the Company's financial statements would be in the
best interests of the Company.
On August 31, 1998, the Board approved the Pipasa Agreement by
unanimous written consent (except for Mr. Chaves and Mr. Quesada who abstained
from the vote) and authorized Mr. Chaves to execute the Pipasa Agreement on
behalf of the Company, which he did on September 28, 1998. On November 6, 1998,
after discussions with counsel to the Company, the Board approved amendments to
the Pipasa Agreement. The amendments provided that the closing of the Pipasa
Acquisition would be subject to the receipt of an opinion of an independent firm
that the Pipasa Acquisition was fair from a financial point of view to the
stockholders of the Company, and would be subject to the approval of the
stockholders of the Company. The fairness opinion will not be received prior to
the date of mailing of this Consent Solicitation Statement to stockholders. The
amendment to the Pipasa Agreement was executed by the respective parties on
November 9, 1998.
BACKGROUND OF THE AS DE OROS ACQUISITION
On February 26, 1998, the Company reached an agreement to acquire
56.38% of the total outstanding common stock of As de Oros and its wholly owned
subsidiaries, Restaurantes As, S.A. and Corasa Estudiantes S.A., from Angui for
$2.4 million in cash upon the maturity of a promissory note due
7
<PAGE>
January 2000 and 2,447,058 shares of Company Common Stock then valued at
approximately $2.6 million. This acquisition (the "Initial As de Oros
Acquisition") gave the Company approximately a 70% market share of the poultry
market in Costa Rica and a significant share of the animal feed market. Also,
the Initial As de Oros Acquisition provided the Company with additional
management expertise in the poultry industry, and greater retail presence
through As de Oros' chain of restaurants in Costa Rica.
At approximately the same time the Company's Board of Directors and the
Stockholder Group entered discussions of consolidating the interests of Pipasa,
Mr. Chaves, the Company and the Stockholder Group also commenced discussions
with Angui and its sole shareholder, Antonio Echeverria, concerning the
possibility of consolidating the interests of As de Oros. At that time, the
Company had concerns that the Company was forfeiting a substantial portion of
the potential cash dividends from As de Oros by having a minority shareholder.
On August 31, 1998, the Board approved the As de Oros Agreement by
unanimous written consent and authorized Mr. Chaves to execute the As de Oros
Agreement on behalf of the Company, which he did on September 28, 1998. On
November 6, 1998, after discussions with counsel to the Company, the Board
approved amendments to the As de Oros Agreement. The amendments provided that
the closing of the As de Oros Acquisition would be subject to the receipt of an
opinion of an independent firm that the As de Oros Acquisition was fair from a
financial point of view to the stockholders of the Company, and would be subject
to the approval of the stockholders of the Company. The fairness opinion will
not be received prior to the date of mailing of this Consent Solicitation
Statement to stockholders. The amendment to the As de Oros Agreement was
executed by the respective parties on November 9, 1998.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE ACQUISITIONS
The Company's Board believes that the Acquisitions are fair, and in the
best interests of, the Company and its stockholders. Accordingly, the Company's
Board has unanimously approved (except for Mr. Chaves and Mr. Quesada, who
abstained from the vote regarding the Pipasa Acquisition) the Acquisition
Agreements and recommends that the holders of the Company's Common Stock vote
FOR the approval of both of the Acquisition Agreements and the consummation of
the transactions contemplated thereby.
In reaching its decision, the Board consulted with the Company's
management and the Stockholder Group, and considered a number of factors,
including without limitation, the following:
(a) the Board's familiarity with and review of the Company's
business, financial condition, results of operations, and
prospects, including, without limitation, its potential growth
and profitability and the business risks associated therewith;
(b) Pipasa's and As de Oros' respective businesses, financial
conditions, results of operations, and prospects, including,
without limitation, the potential growth and profitability of
both Pipasa and As de Oros, and the business risks associated
therewith;
(c) the increased managerial and operational synergies created by
owning 100% of both Pipasa and As de Oros for the Company and
for the operations of both Pipasa and As de Oros;
8
<PAGE>
(d) the ability for the Company to retain 100% of the dividends
from both Pipasa and As de Oros;
(e) the current and prospective environment in which the Company
operates, including regional and local economic conditions and
the competitive environment in which the Company operates;
(f) the relative value to be received by the Company in the
consolidation of Pipasa and As de Oros as wholly-owned
subsidiaries of the Company; and
(g) the financial and other significant terms of the Acquisition
Agreements, including the fact that the Acquisitions would
not, except possibly in unusual circumstances, have an adverse
tax effect on the stockholders of the Company, that the
Stockholder Group approved the Acquisitions and that the
Company would receive a fairness opinion prior to closing the
Acquisitions.
In view of the wide variety of factors considered in connection with
its evaluation of the Acquisition Agreements, the Board found it impracticable
to, and did not, quantify or otherwise assign relative weights to the individual
factors considered in reaching their respective determinations. As a general
matter, the Company determined that each of the factors discussed in (a) through
(g) above were supportive of their conclusions that the Acquisitions are fair to
and in the best interests of the Company's public stockholders.
THE BOARD OF DIRECTORS (OTHER THAN MR. CHAVES AND MR. QUESADA, WHO
ABSTAINED AS TO THE PIPASA AGREEMENT) HAS UNANIMOUSLY APPROVED THE TERMS OF THE
ACQUISITIONS AND RECOMMENDED THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE PIPASA AGREEMENT AND FOR THE PROPOSAL TO APPROVE AND ADOPT THE AS
DE OROS AGREEMENT.
FAIRNESS OPINION
As of the date of this Consent Solicitation Statement, the Company has
not received an opinion as to the fairness from a financial point of view to the
Company's stockholders of the Pipasa Acquisition or the As de Oros Acquisition
from an independent evaluation firm. The fairness opinion is not being mailed
herewith. The Board must obtain such an opinion, which shall state that each of
the Acquisitions are fair to the stockholders of the Company from a financial
point of view, prior to closing either of the Acquisitions.
The Company has retained a business consulting firm in Costa Rica to
deliver such an opinion prior to the closing of the Acquisitions. The Company
retained this firm based upon its experience in the Company's industry and its
ability to determine the fairness of the Acquisitions from a financial point of
view while considering the business environment in which the Company operates in
Costa Rica.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITIONS
In considering the recommendation of the Board with respect to the
Acquisitions, stockholders should be aware that certain members of the Board,
the Company's management and other major stockholders of the Company have
interests that present them with actual and potential conflicts of interest.
9
<PAGE>
Mr. Chaves, the Chairman, Chief Executive Officer and President of the
Company, will indirectly acquire 100% of the consideration issued in connection
with the Pipasa Agreement. Mr. Chaves currently beneficially owns, directly and
indirectly, 5,979,945 Shares of the Company's Common Stock (approximately 26.87%
of the outstanding Shares). Upon consummation of the Pipasa Acquisition, Mr.
Chaves will beneficially own, directly and indirectly, 17,030,729 Shares, or
44.44% of the outstanding Common Stock of the Company. The Shares held by Mr.
Chaves include shares owned with his spouse, but exclude 837,971 Shares owned by
his adult son and 400,000 Shares owned by his adult daughter.
Angui, a major stockholder of the Company, will directly acquire 100%
of the consideration issued in connection with the As de Oros Agreement. Angui
currently beneficially owns 2,447,058 Shares of the Company's Common Stock
(approximately 10.99% of the outstanding Shares). Upon consummation of the As de
Oros Acquisition, Angui will beneficially own 7,459,820 Shares, or 19.46% of the
outstanding Common Stock of the Company.
The following table sets forth the ownership of Common Stock of the
Company for both Mr. Chaves and Angui prior to the Acquisitions, the number of
Shares which would be received by both parties in the Acquisitions, and the
number of Shares both parties would own upon the completion of the Acquisitions.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF NUMBER OF NUMBER OF PERCENTAGE OF
SHARES OWNED SHARES OWNED SHARES TO BE SHARES TO BE SHARES OWNED
PRIOR TO PRIOR TO ACQUIRED IN OWNED AFTER AFTER
NAME ACQUISITIONS ACQUISITIONS ACQUISITIONS ACQUISITIONS ACQUISITIONS
- ---------------------------- ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Calixto Chaves 5,979,945 26.87% 11,050,784 17,030,729 44.44%
Commercial Angui, S.A. 2,447,058 10.99 5,012,762 7,459,820 19.46
</TABLE>
THE ACQUISITION AGREEMENTS
The following is a summary of certain provisions of both (1) the Pipasa
Agreement and (2) the As de Oros Agreement. A conformed copy of each is attached
hereto as Exhibit A and Exhibit B, respectively, and incorporated by reference
herein. Such summary is qualified in its entirety by reference to the text of
the respective Acquisition Agreements.
THE PIPASA AGREEMENT
SALE AND PURCHASE OF SHARES
Pursuant to the Pipasa Agreement, the Company shall acquire and La
Ribera shall sell all of the remaining outstanding common stock of Pipasa,
representing 1,840,000 shares of Pipasa, for 11,050,784 shares of the Common
Stock of the Company. As agreed by the parties, the determination of the number
of shares was based upon the closing price of the Common Stock as reported on
the Nasdaq Stock Market on August 31, 1998. On such date, the price per share
was $1.25.
10
<PAGE>
CLOSING DATE
The Pipasa Acquisition will close as soon as practicable after the
Action Date, provided it has been approved by the stockholders, but prior to
January 29, 1999.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The respective obligations of La Ribera, on the one hand, and the
Company, on the other, to consummate the Pipasa Acquisition are subject to
certain conditions, among others: (i) the approval and adoption of the Pipasa
Agreement by the stockholders of the Company; (ii) the receipt of an opinion
from an independent firm that the Pipasa Acquisition is fair to the Company's
stockholders from a financial point of view; and (iii) all representations and
warranties of each of the parties still being true and correct as of the Closing
Date. The obligations of the Company to effect the Pipasa Acquisition are
subject to the following additional conditions: (i) there shall have occurred no
material adverse change in the business or financial condition of Pipasa since
the date of the Pipasa Agreement; (ii) no litigation, injunction, statute, rule
or regulation which could have a material adverse effect on the Company,
prohibits the consummation of the Pipasa Acquisition; (iii) the Company shall
have satisfactorily completed its due diligence; and (iv) Pipasa shall have
delivered to the Company an opinion of its legal counsel. The obligations of La
Ribera to effect the Pipasa Acquisition are subject to the additional condition
that all the covenants in the Pipasa Agreement are complied with or performed by
the Company at or before the closing of the Pipasa Acquisition.
The Pipasa Agreement contains various customary representations and
warranties of La Ribera and the Company, all of which survive the closing of the
Pipasa Acquisition. The representations of La Ribera relate to due organization,
corporate authorization, consents and approvals, no conflict with other
agreements, litigation, delivery and accuracy of financial statements, absence
of certain changes or events, certain tax matters, title to property and assets,
disclosure of accounts receivable, maintenance of insurance, validity of any
intangible personal property rights, compliance with laws and absence of
misrepresentations. The representations of the Company relate to due
organization, corporate authorization, enforcement of the Pipasa Agreement and
no conflict with other agreements.
La Ribera has agreed to conduct the business of Pipasa in the ordinary
and usual course prior to the Closing Date and will not solicit other buyers for
its stock or assets.
INDEMNIFICATION
The Pipasa Agreement provides that both parties will indemnify the
other from and against any demands, claims, actions or causes asserted against
one party due to a breach, inaccuracy or material misrepresentation by the other
party of any representation, warranty, covenant or agreement of that party. The
Company's indemnification obligations are not limited in time, however, La
Ribera's indemnification obligations apply only to events that occur before the
Closing Date or that should have been disclosed as of the Closing Date.
11
<PAGE>
THE AS DE OROS AGREEMENT
SALE AND PURCHASE OF SHARES
Pursuant to the As de Oros Agreement, the Company shall acquire and
Angui shall sell all of the remaining outstanding common stock of As de Oros,
representing 654,300 shares of As de Oros, for 5,012,762 shares of the Common
Stock of the Company. As agreed by the parties, the determination of the number
of shares was based upon the closing price of the Common Stock as reported on
the Nasdaq Stock Market on August 31, 1998. On such date, the price per share
was $1.25.
CLOSING DATE
The As de Oros Acquisition will close as soon as practicable after the
Action Date, provided it has been approved by the stockholders, but prior to
January 29, 1999.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The respective obligations of Angui, on the one hand, and the Company,
on the other, to consummate the As de Oros Acquisition are subject to the
following conditions, among others: (i) the approval and adoption of the As de
Oros Agreement by the stockholders of the Company; (ii) the receipt of an
opinion from an independent firm that the As de Oros Acquisition is fair to the
Company's stockholders from a financial point of view; and (iii) all
representations and warranties of each of the parties still being true and
correct as of the Closing Date. The obligations of the Company to effect the As
de Oros Acquisition are subject to the following additional conditions: (i)
there shall have occurred no material adverse change in the business or
financial condition of As de Oros since the date of the As de Oros Agreement;
(ii) no litigation, injunction, statute, rule or regulation which could have a
material adverse effect on the Company, prohibits the consummation of the As de
Oros Acquisition; (iii) the Company shall have satisfactorily completed its due
diligence; and (iv) Angui shall have delivered to the Company an opinion of its
legal counsel. The obligations of Angui to effect the As de Oros Acquisition are
subject to the additional condition that all the covenants in the As de Oros
Agreement are complied with or performed by the Company at or before the closing
of the As de Oros Acquisition.
The As de Oros Agreement contains various customary representations and
warranties of Angui and the Company, all of which survive the closing of the As
de Oros Acquisition. The representations of Angui relate to due organization,
corporate authorization, consents and approvals, no conflict with other
agreements, litigation, delivery and accuracy of financial statements, absence
of certain changes or events, certain tax matters, title to property and assets,
disclosure of accounts receivable, maintenance of insurance, validity of any
intangible personal property rights, compliance with laws and absence of
misrepresentations. The representations of the Company relate to due
organization, corporate authorization, enforcement of the As de Oros Agreement,
and no conflict with other agreements.
Angui has agreed to conduct the business of As de Oros in the ordinary
and usual course prior to the Closing Date and will not solicit other buyers for
its stock or assets.
INDEMNIFICATION
The As de Oros Agreement provides that both parties will indemnify the
other from and against any demands, claims, actions or causes asserted against
one party due to a breach, inaccuracy or material
12
<PAGE>
misrepresentation by the other party of any representation, warranty, covenant
or agreement of that party. The Company's indemnification obligations are not
limited in time, however, Angui's indemnification obligations apply only to
events that occur before the Closing Date or that should have been disclosed as
of the Closing Date.
INFORMATION CONCERNING PIPASA
Pipasa is Costa Rica's largest poultry producer and marketer,
comprising approximately a 50% share of that country's poultry market. Pipasa
operates 33 farms and two processing plants throughout Costa Rica, and exports
poultry products to El Salvador, Honduras, Nicaragua and Colombia. Currently,
the Company owns approximately 59.6% of the outstanding common stock of Pipasa,
with the remaining 40.4% owned by La Ribera. Stockholders should also read
"Business of the Company and its Subsidiaries" for a more complete description
of the business of Pipasa.
FINANCIAL DATA FOR PIPASA
Since the Company's acquisition of Pipasa on September 30, 1996, the
Company's operations have been comprised primarily of the operations of Pipasa.
For the year ended September 30, 1997 and the nine months ended June 30, 1998,
revenues of Pipasa have comprised 96% and 97%, respectively, of the Company's
total revenues. For this reason, the Company has not included in this Consent
Solicitation Statement separate financial data for Pipasa, nor has it included a
separate section for "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Pipasa. Stockholders should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company" and the Company's consolidated financial statements,
accompanying notes and other financial information included in this Consent
Solicitation Statement.
INFORMATION CONCERNING AS DE OROS
As de Oros is Costa Rica's second largest poultry producer, comprising
approximately a 20% share of that country's poultry market. In addition to the
production and marketing of poultry and poultry by-products, As de Oros is one
of the leaders in the Costa Rican animal feed market, and owns a chain of fried
chicken restaurants in Costa Rica called Restaurantes As de Oros. Currently, the
Company owns approximately 56.4% of the outstanding common stock of As de Oros,
with the remaining 43.6% owned by Angui. Stockholders should also read "Business
of the Company and its Subsidiaries" for a more complete description of the
business of As de Oros.
SELECTED FINANCIAL DATA FOR AS DE OROS
The following table sets forth selected consolidated financial data for
As de Oros for the nine months ended June 30, 1998 and 1997, and for each of the
two fiscal years in the period ended September 30, 1997. For that year, net
sales for As de Oros were $48.5 million and loss before income taxes was $1.6
million. The financial statements for the nine months ended June 30, 1998 and
1997 are not audited.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company" and the
13
<PAGE>
Company's consolidated financial statements, the As de Oros' financial
statements, the accompanying notes and other financial information included in
this Consent Solicitation Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
----------------------- ----------------------
1998 1997 1997 1996
-------- ------- ------- -------
(Unaudited) (dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $36,033 $35,905 $48,455 $49,473
Cost of sales 26,526 27,960 37,508 37,863
Income from operations 2,082 7,081 1,572 486
Income (loss) before income taxes 403 (1,663) (2,479) (2,437)
Earnings per common share .22 (1.19) (1.72) (1.73)
Total assets 17,074 16,051 15,205 18,810
Long term assets 6,379 6,152 6,340 8,308
Dividends per common share -- -- -- --
Weighted average number of common
shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000
</TABLE>
INFORMATION CONCERNING MR. CHAVES
Mr. Chaves founded the Company and has served as Chairman of the Board,
President and Chief Executive Officer since August 1996. Mr. Chaves is also the
founder and President of Pipasa. He currently owns, directly and indirectly,
5,979,945 shares, or approximately 26.87% of the outstanding Common Stock of the
Company. The Shares held by Mr. Chaves include Shares owned with his spouse, but
exclude Shares owned by his son and daughter.
INFORMATION CONCERNING ANGUI
Angui is a Costa Rican company, owned by Mr. Antonio Echeverria, who is
not otherwise affiliated with the Company. Currently, Angui owns 2,447,058
shares, or approximately 10.99% of the outstanding Common Stock of the Company.
INFORMATION CONCERNING THE COMPANY
The Company, formerly known as Costa Rica International, Inc., is a
Nevada corporation. In April 1996, the Company, at that time Quantum Learning
Systems, Inc., entered into a reverse acquisition agreement to acquire at least
65% of the issued and outstanding shares of Corporacion Pipasa, S.A. ("Pipasa").
This transaction was structured such that Pipasa would become a partially owned
subsidiary of the Company and the former shareholders of Pipasa would become the
owners of approximately 82.4% of the Company, if 100% of the shares of Pipasa
were acquired. This transaction was approved by the shareholders of the Company
on August 5, 1996 and concluded on September 30, 1996. The Company currently
owns 59.56% of the issued and outstanding common shares of Pipasa.
On February 26, 1998, the Company reached an agreement to acquire
56.38% of the total outstanding common stock of As de Oros and its wholly owned
subsidiaries, Restaurantes As, S.A. and Corasa Estudiantes S.A., from Angui, a
Costa Rican privately-owned company and the majority
14
<PAGE>
shareholder of As de Oros, for $2.4 million in cash upon the maturity of a
promissory note due January 2000 and 2,447,058 shares of Company Common Stock
then valued at approximately $2.6 million.
SELECTED CONSOLIDATED FINANCIAL DATA FOR THE COMPANY
AND ITS SUBSIDIARIES
The following table sets forth selected consolidated financial data for
the Company and its subsidiaries for the nine months ended June 30, 1998 and
1997 and for each of the three fiscal years in the period ended September 30,
1997. The financial statements for the nine months ended June 30, 1998 and 1997
are not audited.
The following consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements,
accompanying notes and other financial information included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1997, as
amended, and the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, YEAR ENDED SEPTEMBER 30,
------------------------------ --------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ -----------
(dollars in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 73,585 $ 51,320 $ 70,018 $ 61,535 $ 57,138
Cost of sales 55,258 38,725 53,206 45,446 40,635
Income from operations 4,453 3,462 3,961 5,167 5,801
Income before income taxes
and minority interests 2,918 2,553 2,382 3,015 3,754
Net income after
minority interests 1,124 1,166 926 1,649 2,085
Earnings per common share 0.04 0.01 0.04 --- ---
Pro forma earnings
per common share 0.04 0.01 0.04 0.09 .012
Total assets 63,312 36,555 36,554 38,208 38,208
Long term assets 35,481 20,099 5,252 3,593 3,593
Dividends per common share --- --- --- --- ---
Weighted average number of
common shares outstanding 20,983,726 19,916,867 19,776,063 15,573,571 15,573,571
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE COMPANY AND SUBSIDIARIES
GENERAL
Management is responsible for preparing the Company's financial
statements and related information that appears in this Consent Solicitation
Statement. Management believes that the financial statements fairly reflect the
form and substance of transactions and reasonably present the Company's
financial condition and results of operations in conformity with Generally
Accepted Accounting Principles in the United States. Management has included in
the Company's financial statement amounts that are based on estimates and
judgments, which it believes are reasonable under the circumstances. The
Company maintains a system of internal accounting policies, procedures and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.
The most significant events occurring during the nine months ended June
30, 1998 were: (i) the refinancing of part of the Company's subsidiaries'
short-term debt, with the Private Placement of an aggregate of US $20 million of
the Company's 11.71% Series A Senior Notes and Series B Senior Notes, both due
January 15, 2005, placed by Citicorp Securities Inc., and (ii) the acquisition
of a new subsidiary, As de Oros, a poultry and animal feed producer with a
significant market share of domestic and commercial animal feed among the Costa
Rican market. The Company reached an agreement to acquire 56.38% of the total
outstanding common stock of As de Oros and its wholly owned subsidiaries,
Restaurantes As, S.A. and Corasa Estudiantes S.A., from Angui, a Costa Rican
privately-owned company and the majority shareholder of As de Oros, for $2.4
million in cash upon the maturity of a promissory note due January 2000 and
2,447,058 shares of Company common stock then valued at approximately $2.6
million. As de Oros is the second largest poultry producer in Costa Rica, with
total annual sales of approximately $48.45 million and assets amounting to $17
million.
Prior to the acquisition of As de Oros, there were transactions between
Pipasa, a 59.56% owned subsidiary and As de Oros consisting of sales of raw
materials and finished products. These transactions have been eliminated for
consolidation purposes
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1997
Net income applicable to Common Stock was $922,627 and $936,962 for the
nine months ended June 30, 1998 and 1997, respectively, constituting a decrease
of 1.53%. The Company had net income per share of Common Stock during the nine
months ended June 30, 1998 of $0.04.
16
<PAGE>
The following table presents the Company's consolidated statement of
operations as a percentage of net sales:
<TABLE>
<CAPTION>
THE COMPANY AND SUBSIDIARIES
NINE MONTHS ENDED JUNE 30,
--------------------------
1998 1997 INCREASE (DECREASE)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.00% 100.00%
- -----------------------------------------------------------------------------------------------------
Cost of products sold 75.09% 75.46% (0.37%)
Selling, general and administrative 18.85 17.80 1.05
Operating profit 6.05 6.75 (0.70)
Interest expense 2.82 3.33 (0.51)
Income before taxes 3.96 4.97 (1.01)
Provision for income taxes 0.56 0.69 (0.13)
Net income before minority interest 3.40 4.28 (0.88)
- -----------------------------------------------------------------------------------------------------
</TABLE>
NET SALES
Net sales generated by the Company's operations for the nine months
ended June 30, 1998 and 1997 were $73.58 million and $51.31 million,
respectively, an increase of $22.2 million or 43%. This increase was mainly due
to volume increases in by-product sales, broiler sales, and exports and the
incorporation of sales of the recently acquired subsidiary, As de Oros. Sales of
each subsidiary are detailed as follows:
<TABLE>
<CAPTION>
THE COMPANY AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED JUNE 30,
-------------------------------------------
1998 1997 INCREASE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pipasa $58,770 $51,320 14.52%
As de Oros 14,815 -- --
- --------------------------------------------------------------------------------------------------
Total $73,585 $51,320 43.38%
- --------------------------------------------------------------------------------------------------
</TABLE>
Sales of animal feed increased $5.82 million or 117.90% during the nine
months ended June 30, 1998, compared to the same period of fiscal 1997. This
increase in sales was offset by a volume decrease in animal feed in the
Company's subsidiary, Pipasa. The Company's new subsidiary, As de Oros, has its
core business in the animal feed industry and, consequently, there are tonnage
increases with its incorporation into the Company.
Sales of chicken by-products increased 24.56% during the nine months
ended June 30, 1998 as compared to the same period of fiscal 1997. This is due
to a 4.54% increase in volume combined with price increases and a higher margin
sales mix of 20.06%. Sales mix is a factor of different by-products having
higher or lower margins.
Exports increased 16.79% during the nine months ended June 30, 1998
compared to the same period of fiscal 1997. This increase is due to a 0.58%
volume increase combined with a 16.21% price increase. The introduction of the
Company's exports to El Salvador has strengthened sales. Management
17
<PAGE>
intends to continue emphasizing exports to Central America, with its traditional
export products and with products from the recently acquired subsidiary.
Broiler chicken sales of $43.09 million for the nine months ended June
30, 1998, represent a 31.17% increase above total broiler sales during the nine
months ended June 30, 1997. This increase is due to a 32.65% increase in volume
offset by a 1.48% decrease due to exchange rate variations.
The newly acquired restaurant segment had sales of $2.84 million during
the four months ended June 30, 1998.
Sales of others, which include sales of animal feed and baby chicks to
integrated producers and commercial eggs, raw materials and baby chicks to third
parties, increased 27.21% during the nine months ended June 30, 1998 compared to
the same period of fiscal year 1997.
The following table presents sales increase by business segment, for
the nine months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
THE COMPANY AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED JUNE 30,
---------------------------------------------------
1998 1997 INCREASE INCREASE
--------------------------------------- ----------- (DECREASE) (DECREASE)
SEGMENT PIPASA AS DE OROS TOTAL PIPASA PIPASA CONSOLIDATED(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Animal feed $4,607 $6,157 $10,765 $4,940 (6.74%) 117.90%
By-products 6,660 514 7,174 5,757 15.68 24.60
Exports 1,920 -- 1,920 1,644 16.79 16.79
Broiler 37,936 5,163 43,098 32,857 15.46 31.17
Restaurants -- 2,841 2,841 -- 100.00
Others 7,648 140 7,788 6,122 24.92 27.21
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $58,770 $14,815 $73,585 $51,320 14.52 43.38
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes As de Oros
</FN>
</TABLE>
Cost of sales amounted to $55.25 million and $38.72 million during the
nine months ended June 30, 1998 and 1997, respectively, an increase of 42.69%.
This increase in cost of sales was due mainly to a volume increase and certain
other production factors, including lower yields in reproduction hen and
breeding divisions, imports of fertile eggs and chicken parts. This was offset
by the effect of a lower cost of raw materials, such as imported grains, and
higher efficiencies due to increased volume. As a percentage of sales, cost of
sales was 75.09% for the nine months ended June 30, 1998 compared to 75.46% for
the nine months ended June 30, 1997, a net decrease of 0.37%.
The recent hurricane season had no material adverse effect on the
operations of the Company. At this time, the Company does not anticipate the
recent hurricane season will have a material adverse effect on the buying
patterns of the Company's customers.
18
<PAGE>
GROSS PROFIT
Gross profit for the nine months ended June 30, 1998 and 1997 was $18.3
million and $12.54 million, respectively, an increase of $5.76 million or
45.51%. As a percentage of net sales, gross profit was 24.91% and 25.54% for the
first three quarters of fiscal years 1998 and 1997, respectively. The following
table shows gross profit as a percentage of net sales of each segment for the
nine months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
THE COMPANY AND SUBSIDIARIES
GROSS PROFIT
NINE MONTHS ENDED JUNE 30,
---------------------------------------
SEGMENT 1998 1997 INCREASE (DECREASE)
------------------ -------------------- -----------------------------
<S> <C> <C> <C>
Animal feed 21.90% 17.20% 4.70%
Chicken by-products 43.39 38.9% 4.44
Exports 30.03 27.31 2.72
Broiler 23.98 26.97 (2.99)
Restaurants 53.82 0.00 0.00
Others 5.32 3.16 2.16
-----------------------------------------------------------------------
Total Gross Profit 24.91% 24.21% 0.70%
-----------------------------------------------------------------------
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $4.55 million or
49.82% during the nine months ended June 30, 1998, compared to the nine months
ended June 30, 1997. As a percentage of net sales, this item increased from
17.80% during the first three quarters of fiscal year 1997 to 18.85% during the
same period of fiscal year 1998. The main factors to which this is attributable
include: amortization of goodwill and depreciation excess of fair market value
over book value of fixed assets acquired and the fact that the recently
incorporated segment, restaurants, has a higher selling expense ratio over net
sales, equivalent to approximately 41%, due to the nature of its business.
Selling expenses in the restaurant segment are approximately $859,000.
Other income and expenses increased by $626,707 or 68.95% when
comparing the nine months ended June 30, 1998 to the same period of fiscal year
1997. This increase was primarily due to an increase in interest expense and
exchange rate expense due to debt consolidation, offset by asset sales. As a
percentage of net sales, interest expense decreased from 3.33% to 2.82%. This
decrease was mainly due to the long-term debt restructuring that took place
during January and February 1998.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996
Results of operations for the period ended September 30, 1997, reveal a
year of a strong growth in sales and strategic acquisitions, and a decrease in
international prices for corn and in interest rates. Among these economic and
financial issues that directly affect the Company's profitability, through
Pipasa and in general the whole poultry industry in the area, is the weather
phenomenon El Nino which
19
<PAGE>
had a negative effect on the breeding of reproduction hens. This effect, among
others of minor relevance, increased Pipasa's cost of sales, due to a decrease
in incubation rates and an increase in the mortality rates in broiler chicken
and reproduction hens. Total sales for fiscal 1997 increased 13.80% when
compared to fiscal 1996. Exports increased by 94.60% during this fiscal year
when compared to fiscal 1996, due to a 96.21% increase in tonnage offset by a
1.61% decrease for exchange rate variances. Among the export activities, was a
temporary export sale to Honduras, which was announced in a press release, and
that represented steady sales of dressed pounds of chicken through July 1997.
To offset the negative effects of El Nino on yields, Pipasa's
management installed a "Controlled Environment" in the Broiler and Reproduction
Divisions. This technique involves creating regulated and controlled
temperatures among the farms where the reproduction and broiler birds are kept.
The effect on cost of sales of the weather-related technical problems has been
mitigated by a decrease in average Chicago Board of Trade prices of corn, the
main ingredient in the birds' diet, combined with a decrease in the amount of
corn used in the Company's feed formulation.
Cost of imported grains (corn and soybean meal) for the year ended
September 30, 1997 represented 40.45% of the total cost of sales of broiler
chicken and by-products, compared to 45.09% of the cost of sales in fiscal 1996.
During fiscal 1997, the United States Department of Agriculture
("USDA") declared Costa Rica free of Newcastle Disease, an honor shared only
with Chile, in Latin America. The declaration means that Costa Rican chicken
products meet the same stringent USDA standards relative to this disease which
are also imposed on U.S. poultry producers. The Company is in the process of
fulfilling the necessary requirements to obtain permits to export to USDA
regulated markets, such as compliance with the Hazard Analysis Critical Control
Points ("HACCP") standards and USDA certification of the Company's facilities.
The following table presents information related to the Company's
operation:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
1997 1996
--------------------- ---------------------
<S> <C> <C>
Net Sales $70,018,094 $61,535,457
Operational Profit $ 3,961,761 $ 5,167,302
</TABLE>
The following table presents certain items as a percentage of net sales
for the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
1997 1996
--------------------- ---------------------
<S> <C> <C>
Net Sales 100.00% 100.00%
Cost of Sales 75.99 73.85
Gross Profit 24.01 26.15
Sales Expenses 9.71 10.57
General and Adm. 8.64 7.18
Operational Profit 5.66 8.40
</TABLE>
20
<PAGE>
NET SALES
Net sales generated by the Company's operations for the year ended
September 30, 1997 were $70,018,094, an increase of $8,482,637 or 13.78%
compared with fiscal 1996. The following table shows sales amounts by segment
for the fiscal years ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS INCREASE(%)
----------------------------- -----------
PRODUCTS 1997 1996 96/97
- ------------------------------- --------- -------- -----------
<S> <C> <C> <C>
Chicken 44.28 41.24 7.38
By Products 7.92 7.07 12.02
Animal Feed 6.95 5.00 39.11
Exports 2.30 1.19 94.61
Others 9.00 7.03 21.38
Total 70.02 61.54 13.78
</TABLE>
Broiler chicken sales grew from $41,239,331 during fiscal 1996, to
$44,284,164 for fiscal 1997, an increase of 7.38%. This increase is due to a
4.72% increase in tonnage and the remaining 2.66% is due to sales price
increases.
By-products are the most profitable products of the Company. Total
sales of this segment were $7,923,545 during fiscal 1997, an increase of
$849,930 or 12.02% when compared with sales for fiscal 1996. This increase is
due to a 3.66% increase in tonnage and the remaining 8.36% is due to price
increases among the products within this segment (patties, sausages,
further-processed products and maquila).
Animal feed sales for commercial animal feed were $6,950,523 in fiscal
1997 and $4,996,541 during fiscal 1996, an increase of 39.11%. This sales
increase corresponds to a 27.80% increase in tonnage, with the remaining 11.31%
due to price increases. Also, Kanin and Mimados, the Company's pet food brands,
gained market share. Management has committed promotional and other resources to
these products, which are among the Company's most profitable.
The Company's exports were $2,325,043 during fiscal 1997, an increase
of $1,130,300 or 94.60%, when compared to fiscal 1996. This increase in exports
was primarily due to the combined result of an 11.88% increase in net sales of
chicken by-products due to a 13.44% increase in total dressed pounds, offset by
an exchange rate effect on prices of -1.56%; a 154.42% increase in broiler
chicken and chicken parts due to a 121.3% increase in tonnage with the remaining
33.12% due to price increase; and the introduction of the pet food Mimados
during the fourth quarter of the year.
A significant contributor to the increase in exports was a transaction
with Honduras, which represented a one-time export sale to that country, running
through July 1997. Management expects that the success in 1997 will lead to
future opportunities in this market, and an increase of its exports to Central
America. The Company has opened its own distribution facility in El Salvador,
which includes cold storage, offering sausage, pate, bologna and other chicken
and turkey products under the Company's popular Pipasa/trademark/,
Kimby/trademark/ and Supremo/trademark/ brands. Pipasa has been fortunate to
serve McDonalds restaurants as a supplier in Costa Rica for several years.
Thanks to the excellent service that the Company has given to this important
client, during fiscal year 1997, Pipasa has been selected by McDonalds as its
supplier for poultry products for all of Central America. Management expects
that this relationship will increase exports to these markets.
21
<PAGE>
Sales of others were $8,534,817 and $7,031,226 during fiscal 1997 and
fiscal 1996, respectively, an increase of $1,503,591 or 21.40%. This increase is
due to a 13.29% increase in tonnage and an 8.11% increase in prices.
The following table shows the Company's sales distribution, for fiscal
years 1997 and 1996:
<TABLE>
<CAPTION>
SEGMENT 1997 1996
- -------------------------- ----------- -----------
<S> <C> <C>
Chicken 63.25% 67.02%
By-products 11.32 11.50
Animal feed 9.93 8.12
Exports 3.32 1.94
Other 12.18 11.42
Total 100.00% 100.00%
</TABLE>
COST OF SALES
GENERAL. Fiscal 1997 cost of sales were $53,206,620, an increase of
$7,760,438 or 17.08% when compared to cost of sales during fiscal 1996. This
increase in cost of sales is due primarily to a 14.58% increase in tonnage
combined with the effect of a higher cost of raw materials and higher production
cost of broiler chicken and by-products segments. As a percentage of sales, cost
of sales was 75.99% for fiscal 1997 compared to 73.85% in fiscal 1996, an
increase of 2.14%. The most significant variations were in raw materials and
indirect costs. Labor costs remained relatively constant.
El Nino directly affected cost of sales as a percentage of net sales
for fiscal 1997. When mortality rates increased in the Reproduction and Broiler
Divisions, the Company's fertile egg incubation rate goal only reached 92% of
hatchery capacity, consequently, the available amount of baby chicks for growing
and processing was less than projected, causing a shortage of chicken pounds for
sale.
To satisfy demand it was necessary to import baby chicks for the
broiler (or growth) phase, leading to higher costs. This situation increased
unit prices and also affected the incubation rates. The goal for fiscal 1997 was
an 86.25% incubation rate, and the Company achieved 84%. The ideal mortality
rate standard for birds in their growing phase is 3.5%, and the Company
experienced average 4.60% mortality during fiscal 1997. As the new regulated and
controlled environments are implemented among the different farms, management
expects the mortality rates to decrease almost immediately. When implemented in
the Company's experimental farms, mortality in the growing phase (broiler
chicken) decreased from 5.15% to 4.69%, or a 9% improvement. In the reproduction
phase, the results were a decrease in mortality from 5.35% to 1.68% in August
1997, a 68.6% improvement. Management has been able to offset the effects of El
Nino throughout fiscal year 1998.
Management decided to change the breeding of its reproduction hens in
order to have breeds with more weight with fewer weeks of feeding and growing.
This change in breeding temporarily affected the incubation rates. Although this
breeding process requires an adjustment period, it has fulfilled expectations
concerning weight. Nevertheless, management estimates that the adjustment will
be completed during the next fiscal year. Other relevant facts that explain the
increase in cost of sales as a percentage of net sales are:
22
<PAGE>
/bullet/ Average soybean meal prices for 1997 increased by 28.70% when
compared to average prices in 1996.
/bullet/ Inventory reconversion: Broiler chicken stored in freezing
chambers that had to be reconverted to other cuts such as
breast, thighs and other chicken parts. This was necessary to
satisfy the demand increase from exports, as well as in the
domestic market for chicken and by-products.
/bullet/ Import of 6,100 boxes of fertile eggs, which represent 8.90%
of total produced eggs. These eggs had an incubation rate of
76.70%, versus an average 84.25% that the Company produces
locally.
/bullet/ Changes in diet formulation for the birds, with the purpose of
increasing weight.
Cost of sales for broiler chicken for fiscal 1997 was $32,554,735, an
increase of $3,738,587 or 12.97% compared to fiscal 1996. This difference is due
to a 4.72% increase in dressed pounds sold and the remaining increase was due to
an increase in unit production costs in the incubation and growing phases
explained above.
Cost of sales for chicken by-products was $4,870,400 during fiscal
1997, an increase of $232,938 or 5.02% compared with fiscal 1996. This is due to
an increase of 3.66% in tonnage and increases in cost production explained
above.
Cost of sales for animal feed was $5,767,286 for fiscal 1997, an
increase of $1,325,361 or 29.84% when compared with fiscal 1996. This difference
is due to a 27.80% increase in tonnage and the higher soybean meal prices.
Cost of sales for exports for fiscal 1997 was $1,719,261, an increase
of $831,185 or 93.59% when compared with fiscal 1996. This increase is due to a
94.60% increase in dressed pounds sold and higher production costs of the
products that were exported during fiscal 1997.
Cost of sales for others was $8,294,938 during fiscal 1997, an increase
of $1,632,367 or 24.5% when compared with fiscal 1996. This increase is due to a
13.29% increase in tonnage and increases in raw material costs.
Gross profit for fiscal 1997 was $16,811,474 or 4.49% higher than
fiscal 1996. As a percentage of net sales, gross profit decreased to 24.01%
during fiscal 1997 from 26.15% in fiscal 1996, due to the issues discussed
above. The following table shows gross profit for each segment for the years
ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
SEGMENT 1997 1996
- ------------------------------- ---------- ----------
<S> <C> <C>
Chicken 26.20% 30.12%
By-products 38.53 34.44
Animal feed 17.02 11.10
Exports 26.05 25.67
Other 2.81 5.24
</TABLE>
23
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses increased by $1,633,496, or 36.99%
during fiscal 1997, compared to fiscal 1996. As a percentage of net sales, this
item increased from 7.18% during fiscal 1996 to 8.64% during fiscal 1997. Among
the most significant increases were the amortization of the Company's
information system, which was internally developed, operating expenses and
professional external services such as legal and auditing fees.
SALES EXPENSES
Sales expenses increased by $294,244, or 4.52% for fiscal 1997,
compared with fiscal 1996. When the Coopemontecillos R.L. market portion was
absorbed, the Company was able to maintain its selling expense structure, and as
a result, this item as a percentage of net sales decreased from 10.57% during
fiscal 1996 to 9.71% during 1997.
OTHER INCOME/EXPENSES (NET)
Other income and expenses (net) decreased by $572,106 or 26.59% during
fiscal 1997, compared with fiscal 1996. The Company's interest revenues
increased by $387,049 or 88% during fiscal 1997, compared with fiscal 1996, and
income from "miscellaneous net" increased by $111,846 or 56.73% during fiscal
1997 when compared to fiscal 1996. Along with this increase, interest expense
decreased by $177,670 or 6.61% and exchange losses (gains) increased by $104,459
or 102.89%, respectively, during fiscal 1997, compared with fiscal 1996.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1995
The Company's revenues increased from $57,138,759 in fiscal 1995 to
$61,535,457 in fiscal 1996, an increase of approximately 7% over the previous
year. Pipasa experienced increased revenues in 1996 over the comparable previous
year period as a result of its successful efforts to increase the volume of
sales of its poultry products.
Pipasa's operating expenses increased to $10,921,973 for the fiscal
1996, from $10,702,149 for fiscal 1995. General and administrative expenses
increased slightly as a percentage of revenue, relative to the previous fiscal
year as a result of extraordinary expenses related to the Company, such as
professional fees and travel expenses which were advanced to the Company.
Pipasa generated net income before income tax of $3,015,940 for fiscal
year 1996, compared to net income before income tax of $3,754,349 for fiscal
1995. The reduction in net income resulted from rising grain prices during the
early part of fiscal year 1996. This rise in grain prices affected the cost of
sales and consequently reduced net income. Management decided not to pass to its
customers this increase in the sale prices of its products, because it
considered the increase in prices of the raw material a typical market
fluctuation and cost of doing business and did not want to negatively impact its
customers.
Management expects continued growth of revenues from its core business
activities. Management is continuing to expand its market operations and to cut
costs to maximize future profit potential.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is dependent upon cash flows from operations
and the ability to obtain additional financing from external sources.
The Company's cash and cash equivalents totaled $3.14 million as of
June 30, 1998, compared to $1.39 million as of September 30, 1997, a $1.75
million increase.
Cash provided by operating activities for the nine months ended June
30, 1998 was $1.68 million compared to $473,359 during the same period of fiscal
1997. This increase was primarily a result of a smaller decrease in notes and
accounts receivable due from a related party offset by a smaller increase in
accounts payable.
Cash used in investing activities for the nine months ended June 30,
1998 was $1.68 million as compared to $3.4 million for the same period of fiscal
1997. The majority of the 1998 expenditures related to the acquisition of
operating assets, including vehicles, fleet and plant machinery. The Company
also invested in the acquisition of As de Oros. This was partially offset by the
initial cash acquired from As de Oros and proceeds from sales of securities.
Cash provided by financing activities for the nine months ended June
30, 1998 was $1.35 million as compared to $(0.68) million for the same period
for fiscal 1997. The increase in 1998 is mainly due to new loans off-set by
payments of short term debt. Management expects to continue to finance
operations with its normal operating activities and external sources, and
expects that there will be sufficient resources available to meet the Company's
cash requirements through the next year.
As of June 30, 1998, working capital was $6.3 million compared to
working capital of $(2.2) million for the same period in 1997, constituting an
$8.5 million increase. The current ratios were 1.30 and 0.87 as of June 30, 1998
and 1997, respectively.
Leverage at June 30, 1998 was 4.46% compared to 3.29% as of September
30, 1997. The variation in these ratios is due to the combined effect of a 93%
increase of total liabilities and a 42% increase in stockholders equity.
Liabilities include debt of the Company's subsidiary, As de Oros.
Increase in stockholders' equity is mainly due to an increase in common
stock, additional paid in capital, higher retained earnings and a decrease due
to shares acquired by the Company which are held as treasury stock.
25
<PAGE>
CAUTIONARY STATEMENTS RELEVANT TO FORWARD LOOKING INFORMATION FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The Company and its representatives may from time to time make written
or oral forward-looking statements with respect to their current views and
estimates of future economic circumstances, industry conditions, Company
performance and financial results. These forward-looking statements are subject
to a number of factors and uncertainties, which could cause the Company's actual
results and experiences to differ materially from the anticipated results and
expectations expressed in such forward-looking statements. The Company cautions
readers not to place undue reliance on any forward-looking statements, which
speak only as of the date made. Among the factors that may affect the operating
results of the Company are the following: (i) fluctuations in the cost and
availability of raw materials, such as feed grain costs in relation to
historical levels; (ii) market conditions for finished products, including the
supply and pricing of alternative proteins, all of which may impact the
Company's pricing power; (iii) risks associated with leverage, including cost
increases due to rising interest rates; (iv) changes in regulations and laws,
including changes in accounting standards, environmental laws, occupational,
health and safety; (v) currency fluctuations; and (vi) the effect of, or changes
in, general economic conditions.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, as well as the discussion in Business of the Company and
its Subsidiaries and the information incorporated by reference herein, may
include certain forward-looking statements, within the meaning of Section 27E of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including (without limitations) statements
with respect to anticipated future operations and financial performance, growth
and acquisition opportunity and other similar forecasts and statements of
expectation. Words such as expects, anticipates, intends, plans, believes,
seeks, estimates and should and various of those words and similar expressions
are intended to identify these forward-looking statements. Forward-looking
statements made by the Company and its management are based on estimates,
projections, beliefs and assumptions of management at the time of such
statements and are not guarantees of future performance. The Company disclaims
any obligations to update or review any forward-looking statements based on
occurrence of future events, the receipt of new information or otherwise.
Actual future performance outcomes and results may differ materially
from those expressed in forward-looking statements made by the Company and its
management as a result a number of risks, uncertainties and assumptions.
Representative examples of these factors include (without limitation) general
industrial and economic conditions; cost of capital and capital requirements;
shifts in customer demands; and changes in the continued availability of
financing in amounts and upon terms necessary to support the Company's future
business.
26
<PAGE>
BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES
The Company's operations are largely conducted through Pipasa and As de
Oros, its two largest subsidiaries. Pipasa is the largest poultry company in
Costa Rica with approximately a 50% market share of the chicken meat market. The
main activities of Pipasa are the production and sale of broiler chickens,
poultry meat, processed chicken products, commercial eggs and premixed feed and
concentrate for livestock and domestic animals. Pipasa has been in the poultry
business for more than 27 years with more than 11 years of experience in
exports. It owns 38 urban and rural outlets throughout Costa Rica. Today, Pipasa
enjoys a vertically integrated operation, which begins with the fertilized egg
and ends with the preparation and distribution of fresh whole chickens to
fast-frozen and cooked chicken patties and sausages.
As de Oros is Costa Rica's second largest poultry producer, comprising
approximately a 20% share of that country's poultry market. In addition to the
production and marketing of poultry and poultry by-products, As de Oros is one
of the leaders in the Costa Rican animal feed market, and owns a chain of fried
chicken restaurants in Costa Rica called Restaurantes As de Oros.
The Company promotes its brand names through advertisements and
marketing events. The Company considers Pipasa to be among the most recognized
Central American chicken producers securing agreements to supply chicken in
Costa Rica to Burger King, Pizza Hut, Subway, KFC and Gerber Products and to
McDonalds in Central America. Within the last three years, the Company has
invested approximately $4.3 million in assets that have increased efficiency and
output, such as an automatic de-boning machine, a new incubation plant (regarded
as one of the most modern in Central America), a nipple-type drinking system to
feed birds and a new distribution fleet.
DISTRIBUTION NETWORK
The Company has a distribution fleet consisting of approximately 230
(including As de Oros) delivery trucks specially designed to deliver poultry
products. These trucks play an important role in the Company's export business,
as they give the Company the necessary fleet size to export to other countries.
These trucks deliver fresh products daily, thus maintaining the Company's
reputation for fresh quality products. Through its outlets, the Company is able
to distribute its products to customers in urban and rural areas who may not
have easy access to supermarkets. The majority of these outlets are owned by the
Company and are located in the urban areas.
EXCHANGE RATE RISK
The Company makes U.S. Dollar payments for its raw materials and bank
facilities. This U.S. Dollar expense component is not unique to the Company, as
all poultry producers in Central America must rely on U.S. companies for raw
materials like corn, soybean meal and reproduction birds. Given its U.S. Dollar
exposure, the Company actively manages its exchange rate risk. It uses a
financial model to determine the best strategy to mitigate against Colones
devaluation against the U.S. Dollar. The Company systematically increases its
yearly sales prices by a rate that runs in pace with Colon devaluation against
the U.S. Dollar. For the fiscal year 1997 and the nine months ended June 30,
1998, the national devaluation rate was 11.60% and 7.57%, respectively, and
correspondingly, the Company increased its prices 12.6% and 9.90%, respectively.
Management believes that the Company's strong market will allow for this type of
price increase without sacrificing demand and market share. The Company has
successfully passed along such increases for the last five years.
27
<PAGE>
Management plans to increase its export operations in order to increase
its U.S. Dollar revenue, as all export sales are made in U.S. Dollars. For the
nine months ended June 30, 1998, exports increased 16.9% compared to exports for
the same period in 1997.
COMMODITY RISK
The Company imports all of its corn, the primary ingredient in chicken
feed, from the United States. Movements in the price of corn can significantly
affect the Company's net profit margin. The Company has a department exclusively
dedicated to hedging its corn and soybean meal exposure and has been doing so
for the last six years. The Company is not involved in speculation and only
hedges known exposure. The department works closely with its broker dealers
FIMAT and Prudential Securities and confers with its internal hedging committee
in order to employ the best strategy to hedge corn exposure. The Company sets a
conservative target price for its corn, which is based on worst case assumption
(i.e. adverse weather conditions, thus high prices).
FOREIGN COMPETITION
The Company's local market share could potentially be threatened by
foreign competition. The Company believes that this likelihood is low for
several reasons. The Company has a strong reputation for producing high quality
products at a reasonable price. Secondly, Costa Ricans prefer fresh chicken to
frozen chicken and due to transportation constraints and distance, foreign
competitors would have to sell frozen chicken if they were to sell it in Costa
Rica.
The Agriculture Ministry in Costa Rica monitors all the chicken
entering the country, as it wants to prevent Newcastle Disease from entering the
country. The Costa Rican market is also protected by tariff agreements. Chicken
importers must pay duties as dictated by GATT agreements. These agreements were
reached during the GATT and Uruguay Round and are due to expire in 2004. They
provide that only 887 MT (metric tons) of whole chicken parts or chicken
derivatives can be imported to Costa Rica from countries outside of the Central
American Common Market. The Central American Common Market ("MCCA") which
originated in 1963, was the integration of the political and economic system of
the countries in Central America. The purpose for the integration was to create
a market large enough for industries to benefit from greater economies of scale.
Members of the MCCA include Costa Rica, Guatemala, Nicaragua, El Salvador and
Honduras. This quota is taxed 39% and amounts in excess of this quota are
subject to a 200% tariff. This tax rate was based on the additional cost of
producing poultry in Costa Rica compared to cost of production in the U.S.
COMMODITY RISK MANAGEMENT
The Company's greatest cost components are corn and soybean meal, which
are imported from the United States. The Company purchased approximately
$1,000,000 per month in corn through the Chicago Board of Trade ("CBOT"). Corn
and soybean meal purchases represent approximately 50% of total cost of goods
sold and 70% of raw material costs. The price of corn and soybean meal, like
most grain commodities, is fairly volatile and requires consistent and daily
hedging in order to minimize the effect of price increases on its profit margin.
The minimum contract size for corn purchased through the CBOT is 5,000 bushels
per contract (delivery dates are September, December, March, May and July) and
the tick size for corn is $0.0025. The tick size indicates the volatility of a
contract. In the case of corn, a tick size of $0.0025 means that for each
one-quarter cent move on a contract, the price of corn on one contract moves
$12.50.
28
<PAGE>
The Company has been actively hedging its exposure to corn since 1991.
It has a dedicated department whose sole responsibility is to evaluate, on a
daily basis, the price of corn and soybean meal. All hedging activities are
headed by the financial department, which has been trained at the CBOT and
attends regular seminars on commodities hedging strategies.
Hedging strategies must go through a hedging committee. The committee
consists of two analysts, as well as the Financial Director, Financial Manager
and General Vice President. The committee meets at least once a month to
evaluate the Company's exposure in corn and soybean meal. The Company's strategy
is to hedge against price increases in corn and soybean meal. It is not involved
in speculative trading. Contracts range from one month to six months. The
Company will buy directly from the spot market if market conditions are
favorable, but as a general rule, it purchases at least 50% of its corn through
contracts. The Company's hedging strategy is set by its yearly budget, which
determines how much corn and soybean meal it will need and the price it must pay
in order to meet budget forecasts. It uses an internal pricing model to run
sensitivity models. The Company bases its target prices on the worst case price
assumptions (i.e. high corn prices). The prices paid by the Company for corn had
fallen 3.4% below its budgeted prices as of September 1997. Prices for 1998 have
been below or equal to budgeted prices.
The Company has a $250,000 credit line with FIMAT and draws upon this
credit line in order to cover its initial margin deposit. The interest rate paid
on this line of credit is less than 10% on drawn amounts. The Company is in
constant contact with its brokers (at least three to four times a day) and
receives advice from the broker dealer's corn experts.
The Company's soybean meal purchases total approximately $600,000 a
month. The hedging strategies for soybean meal purchases are identical to that
of corn purchases, except that the Company purchases its soybean meal through a
Costa Rican company, Inolasa, in which the Company holds a 10% equity ownership
of the outstanding stock. In Costa Rica, there exists a 5% tax for soybean meal
imports, which is not levied if purchased through Inolasa. If for any reason
Inolasa cannot deliver the soybean meal to the Company, the Company can buy its
soybean meal directly from the CBOT. Thus far, the Company has never had to go
directly to the CBOT to purchase soybean meal. On a historical basis, the
Company's 1997 prices paid for soybean meal have been close to 5.0% below its
budgeted prices.
EXCHANGE RATE RISK MANAGEMENT
In addition to movements in the price of corn and soybean meal, due to
weather conditions or demand levels, the Company has exposure to fluctuations in
exchange rates, as payments for corn, soybean meal and reproduction birds are in
U.S. Dollars. The Company has an internal Economic Studies Division whose sole
function is to follow economic and industrial trends that influence foreign
exchange levels. This division examines areas such as poultry gross national
product, GNP, inflation, devaluation, export and import growth rates, growth in
real wages, unemployment and population rates.
The raw material purchases have an average payment period of 120 days,
hence exchange rate risk is for four months. During this time, accounts are paid
and costs are updated to reflect new exchange rates. In the event of a severe
devaluation of the Colon, or increases in international prices, the Company can
increase sales prices to recuperate its foreign exchange losses. In addition,
all of the Company's exports are denominated in U.S. Dollars (even exports
within Central America). Management expects that the strategy to increase
exports will increase the Company's U.S. Dollar
29
<PAGE>
revenues. Currently, the Company has financial liabilities of $6.0 million. The
Company uses a model to determine the maximum devaluation possible before it
considers taking on Colon-based debt. In effect, the Company borrows in U.S.
Dollars when the economies prove it to be less expensive than borrowing in
Colones.
PRICING
In Costa Rica, there are no laws against monopolies, however, there are
laws against monopolistic practices. Companies, which have a dominant market
share in Costa Rica, cannot arbitrarily increase prices in order to take
advantage of market position. Companies are also forbidden to work in
conjunction with their competitors in order to create price collusion. Given
these guidelines, the Company's pricing strategies are influenced by two main
factors: industry conditions and currency devaluation. As previously mentioned,
the Company will use its financial model to increase prices accordingly in order
to mitigate devaluation of the Colon. During the last 10 years, the Costa Rican
Colon has devalued an average of 13.5% per year, which the Company has mitigated
by increasing prices on average by 14.0% per year for its chicken, meat
by-products and animal feed segments.
In terms of consumer reaction to price increases within the chicken
broiler segment, there is little differentiation for customers between one
competitor and another. Instead, prices are set by the leader, which in the
Costa Rican market is the Company's subsidiary, Pipasa. As the market and price
leader, the Company has the flexibility to increase its prices without losing
significant market share. Given the consistent increase in chicken prices over
the past 12 years, the Company believes it has excellent data on consumer
reactions to price increases. In the Company's experience, a significant
increase in prices leads to a temporary decrease in demand that lasts
approximately two months.
MAIN BUSINESS SEGMENTS
Poultry is a popular food item in Costa Rica because of its easy
preparation, nutritional value and low price when compared to other meats in the
country. Per capita consumption of poultry has increased from 16.2 kilos (35.6
lb.) in 1994 to 18.0 kilos (39.6 lb.) in 1996, an 11.11% increase during the two
year period. Poultry is consumed in all social levels and is not defined by
geographic markets. The popularity of poultry in Costa Rica extends beyond
broiler chicken (whole chicken) and includes chicken by-products like sausages
and cold cuts.
The following is a brief description of the main business segments of
the Company:
BROILER CHICKEN
Sales of broiler chicken represented approximately 64% and 58% of the
Company's total sales during fiscal 1997 and the nine month period ended June
30, 1998, respectively. Gross margins for locally sold broilers as a percent of
total broiler chicken sales was 26.97% in 1997 and 24% for the nine months ended
June 30, 1998.
CHICKEN BY-PRODUCTs
Chicken by-products include sausages, bologna, chicken nuggets, chicken
patties, frankfurters, salami and pate. Chicken by-products represented a little
over 11% and 9.74% of the Company's total sales for fiscal 1997 and the nine
months ended June 30, 1998, respectively. Chicken by-products are a
30
<PAGE>
very profitable segment of the business, with gross margins as a percent of
total by-products sales of roughly 38%.
ANIMAL FEED
Animal feed is made with imported raw materials such as corn and
soybean meal, along with the unused portions of chicken and other vitamins and
minerals. It is marketed for consumption by cows, pigs, birds, horses and
domestic pets. Animal feed represented approximately 9.62% and 14.62% of the
Company's total sales during 1997 and the nine month period ended June 30, 1998,
respectively.
OTHERS
This segment includes sales of commercial eggs, fertile eggs, animal
feed and baby chicks to integrated producers, as well as raw materials and baby
chicks to third parties.
POULTRY RAISING PROCESS
The poultry raising process starts with the import of one-day old
parent hens from the United States. Once these hens reach their laying period,
which takes 20 weeks, they produce fertile eggs, which are then incubated in
order to produce baby chicks. The hatching period lasts 21 days, which is
divided into 19 days in hatching machines and two days in birth chambers. These
baby chicks are inoculated to prevent diseases. The chicks are then brought to
the Company's own raising house or to independent integrated producers who raise
the chicken to full size (typically a seven week process) providing basic
elements such as vitamins, formula and a balanced ration of feed. The integrated
producers are a group of 72 farmers who own their own land and facilities. They
have a long-term contract with the Company to raise the baby chicks to adult
birds with an average weight of 1.87 kilograms (4.1lb.). Integrated producers
supply 30% of the total chicken needed by the Company and are paid according to
the weight and quality of the chicken produced and the mortality rate of the lot
of chickens raised. The Company provides free veterinary services and offers
vaccines and chicken feed to the farmers at wholesale prices. Regardless of
whether the Company raises the chicken or integrated producers do, the chickens
are regularly inspected for immune deficiencies, vitamin levels and general
diseases. By working in conjunction with these integrated producers, the Company
has greater flexibility to increase or decrease the number of chickens raised
depending on the Company's growth objectives.
PROCESSING FACILITIES AND HEALTH GUIDELINES
Once the chickens reach the desired weight, they are then taken to the
processing plant. The Company's processing house is among the most sophisticated
and largest in the country. The plant size is approximately 6,205 square meters
and has the capacity to process 7,000 broilers per hour. The processing plant is
where the chicken is slaughtered and the meat packaged or processed to make
chicken by-products. As with all animal processing facilities, the processing
plant must be kept clean in order to prevent the spread of bacteria. For this
reason, the Company's employees are required to wear protective masks, caps,
boots, gloves and coats at all times while in the processing plant. Each time an
employee enters or leaves the processing plant, boots must be soaked and rinsed
with bleach. All bathroom facilities are located outside of the plant and are
equipped with foot operated faucets. All new employees are trained as to the
proper procedures required in handling and preparing food.
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<PAGE>
A government health inspector is at the plant 24 hours a day. The
government representatives inspect every step of the processing procedure and
send samples of the meat to government labs for analysis for bacteria and other
organisms. In addition to government inspectors, the Company has its own staff
of inspectors who also take samples of the meat at each step of the production
process. These samples are then sent to Pipasa's own labs for analysis. Because
Costa Rica has been declared free of Newcastle Disease, the Animal and Plant
Health Inspection Service (APHIS) surveys work in the Company's facilities to
ensure that Costa Rica continues to be free of Newcastle Disease. The Company
recently adopted the guidelines of HACCP which are expected to be fully
implemented in the future. HACCP is a prevention based food safety system used
widely throughout the food industry in Total Quality Management. It is a tool
used to assess hazards and to establish controls based on the prevention of food
contamination. For example, temperature must be carefully controlled as
microbial growth is encouraged between 4-60 degrees Celsius or 40-160 degrees
Fahrenheit. HACCP encourages employees to gain an in-depth understanding of
total food production. The employees thus take an active role in ensuring food
quality and safety. By identifying critical points in the process flow that
could lead to contamination of food products and applying control measures at
each point, the likelihood of a food borne illness is reduced.
BROILER CHICKENS CUSTOMERS
The Company's main brand names are Pipasa, Kimby, Mimados, Nutribel,
Pavo Supremo and Kanin, which includes mostly broiler chickens, chicken parts,
mixed cuts and breasts. Broiler chicken is a generic product that is directed to
customers of all social and economic levels. It is estimated that Costa Ricans
eat chicken at least once a week. Chicken is sold to institutional clients,
schools, hospitals, restaurants and small grocery stores. Pipasa currently
supplies Burger King, Subway, Pizza Hut, Gerber Products, Rostipollos and KFC in
Costa Rica. Pipasa was recently selected by McDonalds to be its poultry products
supplier for all of Central America.
CHICKEN BY-PRODUCTS CUSTOMERS
The Company's meat by-products are sold through the Kimby brand name
and are sold to all social and economic classes. The Kimby brand name is the
leading seller of chicken by-products in Costa Rica. These products are sold
mainly in supermarkets and sales of these products are predominantly driven by
price. The Kimby brand name is one of the leading sellers of chicken by-products
and the leading seller of chicken sausages in Costa Rica.
ANIMAL FEED CUSTOMERS
The Company's animal feed products are sold through the Nutribel brand
name. These clients are mainly big wholesalers and high scale breeders. This
customer group is focused on quality and price. Products marketed through the
Mimados brand name, a division within Nutribel, targets veterinarians, pet
stores and supermarkets. These clients are typically among the medium to higher
income levels. The leader in this market is Dos Pinos (33% market share) which
sells animal feed exclusively to co-operatives. The rest of this market is very
fragmented.
"OTHER" CUSTOMERS
Customers of this segment are mainly integrated producers, small
farmers and commercial egg distributors.
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<PAGE>
MARKETING
The Company has a dedicated division for marketing. The marketing
department's responsibility is to disseminate the Company's various products and
brand names. In addition to television and radio advertisements, the Company
works with its distribution centers to give away posters, T-shirts and hats that
promote the Company's product brand names. In Costa Rica, the Company's brand
names commonly appear on major billboards and bus stops. There are more
marketing techniques available for use in meat by-products, as these items can
be packaged in a more effective manner in order to draw customers.
DISTRIBUTION
The Company's distribution fleet consists of approximately 156 trucks.
The fleet delivers to over 11,200 clients. These trucks are specially designed
to deliver poultry and are equipped with refrigeration chambers. These vehicles
typically have a useful life of 5 years. The Company's products are sold not
only through supermarkets, but also through rural and urban retail outlets. A
majority of total distribution is conducted through its urban retail outlets, a
smaller portion through rural outlets and the remaining distribution is serviced
through the Company's processing plants. These retail outlets are dedicated to
the sale of the Company's products exclusively. Prices for products sold in
these retail outlets are identical to prices quoted in supermarkets. The
products sold are fresh as these retail outlets are typically situated near the
Company's processing facilities, which enables trucks to make deliveries on a
daily basis. Products may be sold by the unit or wholesale. The Company
currently has 29 urban distribution outlets and 9 rural outlets. The rural
outlets are strategically located near major roadways, and are equipped with
refrigeration chambers that allow for storage of chicken. The Company plans to
increase the capacity of these cold room storage facilities in order to meet
increased production plans (specifically for chicken by-products). The increased
capacity will enable distribution trucks to make more deliveries, as trucks can
simply return to the nearest agency to reload their trucks, as opposed to
returning to the main plant in order to reload.
EMPLOYEES, COMPENSATION AND INCENTIVES
The top management level at the Company has on average almost 15 years
of experience with the Company and has been able to grow Pipasa's market share
to approximately 50% and As de Oros' market share to approximately 20% by
creating efficient operations, making strategic acquisitions and producing high
quality products.
The success of the Employee's Solidarity Association (ASEPIPASA) and
the fact that there has never been a strike at the Company's facilities,
reflects the quality of the management team and its ability to keep its
employees satisfied. ASEPIPASA provides recreational facilities, healthcare and
pension benefits as well as financial services to the Company's employees. The
Company encourages its employees to make a career at the Company.
As of September 30, 1998, the Company had approximately 3,000 full-time
employees (including employees of As de Oros), of whom 55 were in management and
247 were in administration. Private companies typically support their own
workers' associations instead of organized unions, which provide certain
services such as credit, recreational facilities and subsidized housing, as well
as healthcare benefits. The Company's employees created ASEPIPASA in 1985. This
association sits on land donated by Mr. Chaves and is among the largest
solidarity associations in Costa Rica. The
33
<PAGE>
association has a swimming pool, soccer field, outdoor sports, sauna and a 1,000
seat gymnasium facility. At the Company, all the employees participate in the
association. This level of participation is a direct reflection of the quality
of services and benefits available to the Company's employees.
Salaries in Costa Rica are increased twice a year as dictated by the
government in order to counterbalance the effect of inflation and the cost of
living. By law, each year, companies are required to pay to the employees 8.33%
of an employee's yearly gross salary as severance which must be paid upon
termination of a labor contract without just cause to a maximum of eight years.
At the Company, employees have the option to have the 8.33% paid to ASEPIPASA as
part of a savings incentive program for as long as they work for the Company,
not just 8 years. Few other companies in Costa Rica offer this option. The
savings incentive program works as follows: Pipasa pays at each pay period to
ASEPIPASA 5% of the employee's wage for that pay period. 5% is then matched by
the employee. In February each year, the Company makes the final payment equal
to 3.33% of the employee's total yearly gross salary. Employees have the option
to deposit the remaining 3.33% due from the Company into pension fund Provida.
ASEPIPASA manages all the cash generated by the savings incentive program. It
invests in low risk vehicles like certificates of deposit and other AA rated or
better investment vehicles. Employees can borrow against the amount in their
savings at a local interest rate of 18% - 30%. Once an employee leaves the
Company, the employee is entitled to the total amount accumulated in their
severance and savings incentive account.
All employees are protected by obligatory insurance with the Caja
Costarricense de Seguro Social ("CCSS") and the Instituto Nacional de Seguros
("INS") which are the government's social security and insurance programs. All
companies in Costa Rica must pay the CCSS 21% and the INS 1.74% of each
employee's monthly salary. These contributions serve as a policy for healthcare
and employee accidents. This policy has unlimited coverage. For example, if an
employee were to suffer serious injury while at work, the CCSS and INS will
provide hospitalization, rehabilitation and medicine. The CCSS pays 70% of the
employee's normal salary during the periods in which he or she is unable to
work. In addition to these benefits, employees must pay a total of 9% of their
monthly salary to the CCSS in order to receive healthcare, pension and maternity
care benefits.
Employees are provided with a profit sharing program. If the Company
has a successful year and generates profits in excess of budgeted levels, the
Company will distribute a percentage of its net income to its employees. This
incentive is calculated monthly and distributed every two months.
In conjunction with a local university, the Company offers a business
administration program for its employees. The main goal of the program is
directed toward developing the Company's future management team. Classes are
held at the Company's facilities.
BACKLOG
At September 30, 1998, the Company had no backlog.
PROPRIETARY INFORMATION
The Company uses no material proprietary information in connection with
its operations.
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<PAGE>
ENVIRONMENTAL COMPLIANCE
The Company is not subject to any material costs for compliance with
any environmental laws in any jurisdiction in which it operates. However, in the
future, the Company could become subject to material costs to comply with
environmental laws in jurisdictions in which it does not now do business. At the
present time, the Company cannot assess the potential impact of any such
potential environmental regulation. The Company has been and is practicing for
several years sustainable environmental policies such as reforesting
approximately 500 hectares with hardwood trees, processing and recycling its
wastes, producing organic fertilizer and building oxidation lagoons and sewage
treatment plants.
GOVERNMENT REGULATION
The poultry hatcheries and processing plants are subject to regulation
under Costa Rican law regarding cleanliness and health standards. Exports of the
Company's poultry products are regulated in the countries in which the Company
makes sales. Such regulation is not considered to be a burden on the Company or
to have a material effect on the Company's ability to make a profit. Otherwise,
the Company is not subject to any material governmental regulation or approvals.
YEAR 2000 ISSUE
The Company has established a central committee to coordinate the
identification, evaluation and implementation of changes to computer systems and
applications necessary to achieve a year 2000 date conversion. These actions are
necessary to ensure that the systems and applications will recognize and process
the year 2000 and beyond. Minor areas of potential business impact have been
identified and are being measured, and initial conversion efforts are underway.
The Company also is communicating with suppliers, dealers, financial
institutions and others with which it does business to coordinate year 2000
conversion. The total cost of compliance and its effect on the Company's future
results of operations is being determined as part of the detailed conversion
planning.
DESCRIPTION OF PROPERTY
The following contains descriptions of the facilities utilized by the
Company in its operations. All facilities are owned by the Company.
PRODUCTION AREA
This area has the following divisions: Reproduction, Incubation,
Broiler Chicken and Reproduction Hen, Processing Plant, Further Processing and
Animal Feed Plant.
REPRODUCTION DIVISION
/bullet/ Present capacity of
production installed: 26,208,000 of fertile eggs
/bullet/ Location: The installations are located in Sardinal
de Puntarenas.
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<PAGE>
INCUBATION DIVISION
/bullet/ Present capacity of
production installed: 24,401,520 youngsters chicks/year
469,260 youngsters chicks/week
/bullet/ Location: The plant is located in Aranjuez de
Puntarenas.
This plant is one of the most modern incubation plants in Central
America, which allows for an expansion of its halls of incubation and hatching,
to increase production, and fulfill future needs of customers for many years.
ANIMAL FEED DIVISION
/bullet/ Location: (1) San Rafael de Alajuela
(2) Sardinal de Puntarenas
/bullet/ Present capacity installed: (1) 33 tons of animal feed per hour
(2) 13 tons of animal feed per hour
The plants perform the activities such as: Ground grains, flour mixing
and packing of different types of balanced food.
BROILER DIVISION
/bullet/ Present capacity: 20,500,000 youngsters/year
/bullet/ Location of the farms: 63 farms owned and located in the central
area of the country.
/bullet/ Youngsters are received one day after birth. During this time the
chicks receive three types of diet according to growth requirements.
This growing stage lasts 43 days.
PROCESS DIVISION
/bullet/ Present capacity of
process: 26,038,195 kilograms per year
/bullet/ Location of the farms: The plant is located in San Rafael de
Alajuela.
/bullet/ The process is divided into slaughter and pluck, coolers and retailers,
packing and cuts, subproducts.
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<PAGE>
FURTHER PROCESSING
/bullet/ Present capacity: 2,900 ton/year
/bullet/ Location: The plant is located in San Rafael de
Alajuela
/bullet/ The process is divided into sausage, formed, packing and hot zone (oven
and cooking tanks) areas.
MARKETING AREA
/bullet/ The chicken and further process products are distributed through nine
retail outlets using the vehicle fleet in rural zones and 27 owned
retailers in the central provinces of the country that carries all of
our products to more than 8,500 different clients. These include the
majority of the recognized supermarkets, suppliers, meat markets and
other clients.
ADMINISTRATIVE AREA
/bullet/ Headquarters of Pipasa are located in La Ribera de Belen, Heredia.
LEGAL PROCEEDINGS
No legal proceedings of a material nature to which the Company is a
party were pending during the reporting period, and the Company knows of no
legal proceedings of a material nature pending or threatened or judgments
entered against any director or officer of the Company in his capacity as such.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
37
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol RICA. The following tables set forth the market price range of
the Common Stock for each quarter during the years ended September 30, 1998 and
1997, and for the period from October 1, 1998 to December 3, 1998, based on the
high and low closing sale prices as reported on the Nasdaq SmallCap Market. Such
high and low sale prices reflect interdealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
-------------------------------
HIGH LOW
------------- ------------
<S> <C> <C>
FISCAL 1999
- -----------
First Quarter (10/1/98 to 12/3/98) $1.750 $1.437
FISCAL 1998
- -----------
First Quarter (10/1/97 to 12/31/97) $1.156 $1.125
Second Quarter (1/1/98 to 3/31/98) 1.906 1.844
Third Quarter (4/1/98 to 6/30/98) 1.781 1.719
Fourth Quarter (7/1/98 to 9/30/98) 1.688 1.563
FISCAL 1997
- -----------
First Quarter (10/1/96 to 12/31/96) $2.250 $2.125
Second Quarter (1/1/97 to 3/31/97) 1.625 1.500
Third Quarter (4/1/97 to 6/30/97) 1.638 1.500
Fourth Quarter (7/1/97 to 9/30/97) 1.500 1.375
</TABLE>
As of the Record Date, the Company had 22,256,454 shares of Common
Stock outstanding and approximately 1,000 holders of record of such stock, and
no shares of Preferred Stock outstanding.
Prior to the date hereof, there has not been a public trading market
for the common stock of either Pipasa or As de Oros.
As reported by Nasdaq, on October 13, 1998, the last full trading day
prior to the filing of the Company's Current Report on Form 8-K, dated October
14, 1998, announcing the signing of the Acquisition Agreements, the last sales
price for the Company's Common Stock was $1.50, and on December 3, 1998, the
last full trading day prior to the date of this Consent Solicitation Statement,
the last sales price was $1.7188.
DIVIDENDS
The Company has never paid any dividends on the Common Stock. The
Company does not anticipate paying cash dividends on the Common Stock in the
foreseeable future based on its expected operating cash flow requirements (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in each of the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1997, as amended,
and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1998. The Nevada General Corporation Law prohibits the Company from
paying dividends or otherwise distributing funds to its stockholders, except out
of legally available funds. The declaration and payment of dividends on the
Company's Common Stock and the amount thereof will be dependent upon the
Company's results of operations, financial condition, cash requirements, future
prospects and other factors deemed relevant by
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<PAGE>
the Board of Directors. No assurance can be given that the Company will pay any
dividends on the Common Stock.
Pipasa paid dividends to the Company in 1997. For 1996, Pipasa paid
dividends to the original stockholders of that company of approximately $1.18
million. Dividends for 1998 have not yet been declared.
INFORMATION AS TO STOCK OWNERSHIP
The following table sets forth, as of the Record Date, the number of
shares of Common Stock of the Company which were owned beneficially by (i) each
person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and nominee for director, (iii) certain
executive officers of the Company, and (iv) all directors and officers as a
group, prior to the Acquisitions and after the Acquisitions:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
AMOUNT AND NATURE SHARES OWNED AMOUNT AND NATURE SHARES OWNED
NAME AND ADDRESS OF OF BENEFICIAL OWNERSHIP PRIOR TO OF BENEFICIAL OWNERSHIP AFTER
BENEFICIAL OWNER(1) PRIOR TO ACQUISITIONS(2)(3) ACQUISITIONS(2) AFTER ACQUISITIONS(2)(3) ACQUISITIONS(2)
- ---------------------------------------- --------------------------- --------------- ------------------------ ---------------
<S> <C> <C> <C> <C>
Calixto Chaves ......................... 5,979,945(4) 26.87% 17,030,729(5) 44.44%
Commercial Angui, S.A................... 2,447,058 10.99% 7,459,820(6) 19.46%
c/o Bufete Chaverri, Soto & Asociados
Barrio Escalante de Cine Magaly,
400 Metros Este
San Jose, Costa Rica
Jorge M. Quesada ....................... 156,885(7) * 156,885(7) *
Monica Chaves .......................... 400,000(8) * 400,000(8) *
Luis Guinot, Jr......................... 0 0 0 0
Luis J. Lauredo......................... 0 0 0 0
Federico Vargas ........................ 0 0 0 0
Alfred E. Smith IV...................... 100,000 * 100,000 *
Jose Pablo Chaves ...................... 837,971 * 837,971 *
<FN>
- ------------------
* Indicates less than 1% of outstanding shares owned.
(1) Unless otherwise indicated, the address of each beneficial owner is
Costa Rica International, Inc., 95 Merrick Way, Suite 507, Coral
Gables, Florida 33134.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon
exercise of options, warrants and convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants and convertible securities that are held by such
person (but not those held by any other person) and that are
exercisable within 60 days from the date hereof have been exercised.
(3) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(4) Includes 2,583,945 shares of Common Stock owned of record by Atisbos de
Belen, S.A., a Costa Rican corporation wholly-owned by Mr. Chavez and
his wife, 2,500,000 shares of Common Stock owned of record by
Inversiones Leytor, S.A., a Costa Rican company wholly-owned by Mr.
Chaves, and 896,000 shares of Common Stock owned of record by OCC,
S.A., a Costa Rican company wholly-owned by Mr. Chaves and his wife.
Does not include 400,000 shares and 837,971 shares owned by his adult
daughter and adult son, respectively.
(5) Includes 11,050,784 shares of Common Stock to be acquired pursuant to
the Pipasa Acquisition.
(6) Includes 5,012,762 shares of Common Stock to be acquired pursuant to
the As de Oros Acquisition.
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<PAGE>
(7) Includes 156,885 shares owned by Jorque, S.A., a closely-held Costa
Rican company whose principal shareholders are the wife and adult son
of Mr. Calixto Chaves.
(8) Owned of record by Moninternacional, S.A., a Costa Rican corporation
owned by Monica Chaves, the adult daughter of Mr. Chaves Zamora. Mr.
Chaves disclaims any beneficial ownership of these shares.
</FN>
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Arthur Andersen is expected to be available prior
to the Active Date to respond to appropriate questions from stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
The Company has incorporated by reference in this Consent Solicitation
Statement the financial statements and notes thereto from the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1997 (pages 22 to 40),
and Quarterly Report on Form 10-Q for the period ended June 30, 1998 (pages 3 to
14). Both the Company's Form 10-KSB for the year ended September 30, 1997 and
Form 10-Q for the period ended June 30, 1998 have been included with this
Consent Solicitation Statement.
The Company undertakes to provide by first class mail, without charge,
to any person to whom a copy of this Consent Solicitation Statement has been
delivered, within one business day of the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
incorporated in this Consent Solicitation Statement by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference therein). The Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997, as amended, is accompanied by a list briefly
describing all the exhibits not contained therein. The Company will furnish any
exhibit upon the payment of a specified reasonable fee, which fee will be
limited to the Company's reasonable expenses in furnishing such exhibit.
Requests for such copies should be directed to Secretary, Rica Foods, Inc., 95
Merrick Way, Suite 507, Coral Gables, Florida 33134, telephone number (305)
476-1760.
By Order Of The Board of Directors
Monica Chaves
Secretary
Coral Gables, Florida
December 4, 1998
40
<PAGE>
CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
OF AS DE OROS AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1998
(IN THOUSANDS OF DOLLARS)
<S> <C>
Assets
Cash and cash equivalents $ 1,219
Notes and accounts receivables, net 3,844
Inventories, net (note 2) 4,711
Other current assets 921
-------------
Total current assets 10,695
-------------
Property, plant and equipment, net 5,257
Other assets 1,122
-------------
Total Assets $ 17,074
=============
Liabilities and Stockholders' Deficit
Short term notes payable (note 3) $ 2,171
Accounts payable 2,474
Other current liabilities 2,082
-------------
Total current liabilities 6,727
Long term debt (note 4) 12,060
-------------
Total Liabilities 18,787
-------------
Stockholders' Deficit
Common stock 4,657
Preferred nominal shares 1,003
Additional paid in capital 736
Accumulated deficit (5,218)
Foreign currency translation adjustment (2,891)
-------------
Total Stockholder's Deficit (1,713)
-------------
Total Liabilities and Stockholders' Deficit $ 17,074
=============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1998 1997
---- ----
<S> <C> <C>
Net sales $ 36,033 $ 35,905
Cost of sales 26,527 27,960
--------- ---------
Gross profit 9,506 7,945
--------- ---------
Operating expenses
Selling 5,398 5,177
Administrative 2,026 1,904
--------- ---------
Total operating expenses 7,424 7,081
--------- ---------
Operating income 2,082 864
Interest expense 1,217 1,849
Interest income (31) (56)
Exchange losses, net 818 560
Miscellaneous, net (325) 174
--------- ---------
Other expenses, net 1,679 2,527
--------- ---------
Net income (loss) 403 (1,663)
Preferred stock dividends (84) (110)
--------- ---------
Net income (loss) applicable to
common stock $ 319 $ (1,773)
========= =========
Earnings (loss) per share
Basic earnings (loss) per
common share $ 0.22 $ (1,19)
========= =========
Weighted average number of
common shares outstanding 1,500,000 1,500,000
========= =========
Diluted earnings (loss) per
common share $ 0.22 $ (1,19)
========= =========
Adjusted weighted average
number of shares 1,500,000 1,500,000
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30 1998 AND 1997
(DOLLARS IN THOUSANDS)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 403 $ (1,663)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities
Depreciation and amortization 357 661
Allowance for doubtful accounts 98 89
Allowance for renewal of production poultry 279 432
Cash provided by (used in) changes in:
Notes and accounts receivable (833) (1,195)
Due from related party (689) -
Inventories (919) 404
Prepaid expenses (107) 2
Accounts payable (1,494) 1,108
Accrued expenses 304 310
Long term receivable, trade (13) -
------- ---------
Net cash provided by (used in) operating activities (2,614) 148
------- ---------
Cash flow from investing activities:
Short-term investment 144 43
Additions to property, plant and equipment (374) (114)
Proceeds from sale of productive assets 227 -
Other assets (776) 228
------- ---------
Net cash provided by (used in) investing activities (779) 157
------- ---------
Cash flow from financing activities:
Short-term financing increase in notes
payable 3,454 221
Preferred cash dividends (110) (83)
Long term financing:
New loans 624
Payments (545) (811)
Due to related party 996 -
------- ---------
Net cash provided by (used in) financing activities 3,795 (49)
------- ---------
Effect of exchange rate changes on cash 42 (345)
Net increase (decrease) in cash 444 (89)
Cash balance at beginning of period 775 1,560
------- ---------
Cash balance at end of period $ 1,219 $ 1,471
======= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
F-3
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
AS DE OROS AND SUBSIDIARIES
AS OF JUNE 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated condensed financial statements include the accounts of
As de Oros. All significant inter-company balances and transactions
have been eliminated in consolidation.
(b) Accounting principles
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States of America ("GAAP").
(c) Uses of estimates
Management of the Company has made estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of assets
and liabilities to prepare financial statements in conformity with
GAAP. Actual results could differ from those estimates.
(d) Foreign currency translation
Most business transactions of As de Oros take place in the Republic of
Costa Rica, where the local currency is the colon. The parity of the
colon to the U.S. dollar is determined in a free exchange market
supervised by the Central Bank of Costa Rica. As of June 30, 1998, the
commercial exchange rate was (Colones) C256.85 to US$1.00.
The consolidated condensed financial statements have been translated to
US dollars on the basis of the colon as the functional currency, as
follows: assets and liabilities denominated in US dollars have been
stated at nominal dollar amounts; assets and liabilities denominated in
Costa Rican colones have been translated at the commercial exchange
rates prevailing at balance sheet dates; stockholders' deficit accounts
have been translated at exchange rates in effect when incurred or
realized (historical exchange rates); revenue and expenses have been
translated at average rates in effect during the nine months ended June
30, 1998 and 1997. Translation adjustments have been recorded as a
separate component of stockholders' deficit.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the weighted-average method, except for inventories in
transit which are valued at specific cost. The allowance for renewal of
production poultry is determined based on the estimated poultry
reproductive period.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost. Improvements to
property and equipment which extend their useful lives are capitalized.
Disbursements for maintenance, repairs and minor renewals are expensed
when incurred. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets: buildings-50
years; vehicles, machinery and equipment, furniture and
fixtures-between 5 and 20 years.
(g) Year 2000
As of June 30, 1998, As de Oros' management has established a committee
to coordinate the identification, evaluation and implementation of
changes to computer systems and applications necessary to achieve a
year 2000 date conversion. These actions are necessary to ensure that
the systems and applications will recognize and process the year 2000
and beyond. Minor areas of potential business impact have been
identified and are being measured, and initial conversion efforts are
underway. As de Oros is also communicating with suppliers, dealers,
financial institutions and others with which it does business to
coordinate year 2000 conversion. The total cost of compliance and its
effect on future results of operations is being determined as part of
the detailed conversion planning.
F-4
<PAGE>
(h) CONTINGENCIES
In 1997, Costa Rican tax authorities issued an assessment for fiscal
year 1995 seeking US$128,341 of additional income taxes. Authorities
have contested depreciation expense and income tax withholdings of
employees. The Company has appealed this decision and does not expect
that its resolution will result in material adverse effect on the
results of its operations or its financial position.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the final resolution of these matters will not have a
material effect on the Company's consolidated financial position,
results of operations, or liquidity.
The Company is committed to comply with several financial and
operational covenants incorporated into a debt agreement (see note 4),
and to review the relevant terms included in the agreement to prevent
the occurrence of events of default.
(2) INVENTORIES
As of June 30, 1998, inventories consist of the following (in thousands
of dollars):
Finished products $ 1,055
Poultry 719
Production poultry 1,088
Materials and supplies 376
Raw materials 915
In transit 708
----------
4,861
----------
Allowance for renewal of production poultry (150)
----------
Total $ 4,711
==========
(3) SHORT-TERM NOTES PAYABLES
Short-term notes payable consist of the following (In thousands of
dollars):
Loans payable $ 1,247
Bank overdrafts 735
Other 189
----------
Total $ 2,171
==========
(4) LONG-TERM DEBT
Long-term notes payables consist of the following (In thousands of
dollars):
Bank Loans $ 12,000
Other 88
----------
Total long-term debt 12,088
----------
Less, current installment on long term debt (28)
----------
Total $ 12,060
==========
The Company completed a private placement of US$20 million in notes
payable bearing interest at 11.71% per annum, comprised of US$8 million
in Series A Senior Notes and US$12 million in Series B Senior Notes,
all due upon maturity on January 15, 2005. The Series B Notes have been
used to refinance substantially all outstanding debt of As de Oros as
of February 1998.
The notes shall be payable annually in 5 consecutive principal
installments amounting to US$4,000,000 each (from the aggregate amount)
and have a 2-year grace period. The Company guarantees there will be no
significant organizational changes and that all federal and local laws
and regulations will be complied with. Financial and business
information for the Company and its subsidiaries will be remitted
periodically, as stipulated in the agreement. The Company is committed
to comply with several financial and operational covenants, as well as
to review the relevant terms included in the agreement to prevent the
occurrence of event of default.
F-5
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed financial statements have
been prepared to illustrate the effect of the acquisitions of the remaining
43.62% of As de Oros and 40.44% of Pipasa, in exchange of issuance of 5,012,762
and 11,050,784 restricted shares respectively. The acquisition is being
accounted for as a purchase for As de Oros. The acquisition of Pipasa is being
accounted for at the historical accumulated cost of the minority interest, on
the basis that the owner of the minority interest is a major shareholder of
Rica. The transactions are being presented as if they had taken place on October
1, 1996. The pro forma unaudited combined financial statements are presented
using the Company's audited consolidated condensed financial statements for that
period. All other pro forma financial statements presented are based on
unaudited financial statements. The pro forma adjustments and the assumptions on
which they are based, are described in the accompanying notes to the pro forma
financial statements.
The consummation of the acquisitions are subject to certain conditions, and
there can be no assurance that the acquisitions will be consummated, or if
consummated, that it will be consummated on the terms described herein or that
the financial condition or results of operations of the combined companies will
be as described herein.
The pro forma financial statements are presented for illustrative purposes only
and are not necessarily indicative of the consolidated financial position or
consolidated results of operations of the Company that would have been reported
had the transactions occurred on the dates indicated, nor do they represent a
forecast of the consolidated financial position of the Company at any future
date or the consolidated results of operations of the Company for any future
period. The pro forma financial statements, including the notes thereto, should
be read in conjunction with the consolidated financial statements of As de Oros,
included in the Company's form 8-K/A dated May 15, 1998 and the consolidated
financial statements of Rica Foods, Inc. included in its annual report on form
10-K for the year ended September 30, 1997 and its quarterly report on form 10-Q
for the quarter ended June 30, 1998.
F-6
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET, REFLECTING
RICA FOODS, INC., AFTER GIVING EFFECT TO THE ACQUISITIONS OF
AS DE OROS AND PIPASA (UNAUDITED)
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
COMBINED PRO
RICA FOODS, PRO FORMA FORMA BALANCE
INC. (1) ADJUSTMENTS SHEETS
------------- ----------- -------------
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 3,144 $ 3,144
Notes and accounts
receivable, net 9,070 9,070
Inventories, net 13,205 13,205
Other current assets 2,412 2,412
---------- ----------
Total Current Assets 27,831 27,831
---------- ----------
Property, plant and equipment, net 26,252 5,442 (6) 31,694
Other assets 6,560 6,560
Goodwill 2,669 3,130 (7) 5,799
---------- ----------
Total Assets $ 63,312 $ 71,884
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 7,026 $ 7,026
Accounts payable 9,224 9,224
Other current liabilities 5,269 5,269
---------- ----------
Total Current Liabilities 21,519 21,519
Long-term debt, excluding current
Installments 22,827 22,827
Deferred tax liability 2,027 1,633 (8) 3,660
---------- ----------
Total Liabilities 46,373 48,006
---------- ----------
Minority Interest 6,543 (5,539) (9) 4,327
3.323 (10)
Stockholders' Equity
Common stock 22 16 (5) 38
Preferred stock 3,323 (3.323)(10) -
Additional paid-in capital 11,973 12,462 (5) 24,435
Foreign currency
translation adjustment (5,493) (5,493)
Retained earnings 3,128 3,128
Due from stockholders (16) (16)
Treasury stock, at cost (2,541) (2,541)
---------- ----------
Stockholders' equity 10,396 19,551
---------- ----------
Total Liabilities and
Stockholders' Equity $ 63,312 $ 71,884
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements
F-7
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR
THE NINE MONTHS ENDED JUNE 30, 1998, REFLECTING RICA FOODS, INC.
AFTER GIVING EFFECT TO THE ACQUISITIONS OF AS DE OROS AND PIPASA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CORPORACION COMBINED PRO
RICA FOODS, AS DE OROS, PRO FORMA FORMA STATEMENT
INC. (2) S.A. (3) ADJUSTMENTS OF OPERATIONS
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 73,585 $ 20,518 (1,130) (11) $ 92,973
Cost of sales 55,258 15,187 378 (6) 69,693
--------- --------- -----------
(1,130) (11)
Gross profit 18,327 5,331 23,280
--------- --------- -----------
Operating expenses
Selling 8,039 2,776 238 (6) 11,029
(24) (11)
General and administrative 5,645 1,295 84 (6) 6,989
(35) (11)
Goodwill amortization 191 - 707 (7) 898
--------- --------- -----------
Total operating expenses 13,875 4,071 18,916
--------- --------- -----------
Operating income 4,452 1,260 4,364
Interest expense 2,079 1,135 3,214
Interest income (450) (41) (491)
Exchange losses, net 817 230 1,047
Miscellaneous, net (911) (81) 59 (11) (933)
--------- --------- -----------
Other expenses, net 1,535 1,243 2,837
--------- --------- -----------
Income before income taxes and
minority interest 2,917 17 1,527
Provision for income taxes 414 - (210) (8) 204
Income before minority interest 2,503 17 1,323
Minority interest 1,379 - (1,379) (9) -
--------- --------- -----------
Net income 1,124 17 1,323
--------- --------- -----------
Preferred stock dividend 202 81 283
Net income (loss) applicable to
common stock $ 922 $ (64) $ ,040
========= ========= ===========
Basic earnings per share $ .04
=========
Weighted average number of shares 20,896,977
==========
Diluted earnings per share $ 0.04
=========
Weighted average number of shares 20,983,726
==========
Pro forma basic earnings per share $ 0.03
===========
Pro forma weighted average number
of shares 36,960,523
===========
Pro forma diluted earnings per
share $ 0.03
===========
Pro forma adjusted weighted
average number of shares 37,047,272
===========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997, REFLECTING RICA FOODS, INC.
AFTER GIVING EFFECT TO THE ACQUISITIONS OF AS DE OROS AND PIPASA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA COMBINED PRO
YEAR ENDED PRO FORMA FORMA STATEMENT
SEP. 30, 1997(4) ADJUSTMENTS OF OPERATIONS
---------------- ----------- ---------------
<S> <C> <C> <C>
Net sales $ 116,613 $ 16,613
Cost of sales 89,199 337 (6) 89,536
------------- -------------
Gross Profit 27,414 27,077
------------- -------------
Operating expenses
Selling 12,814 212 (6) 13,026
General and administrative 9,685 75 (6) 9,760
Goodwill amortization 488 707 (7) 1,195
------------- -------------
Total operating expenses 22,987 23,981
------------- -------------
Operating income 4,427 3,096
Interest expense 5,199 5,199
Interest income (903) (903)
Exchange losses, net 978 978
Miscellaneous, net 356 356
------------- -------------
Other expenses, net 5,630 5,630
------------- -------------
Income (loss) before income
taxes and minority interest (1,203) (2,534)
Provision for income taxes 105 (187) (8) (82)
Income (loss) before minority
interest (1,308) (2,452)
Minority interest 1,165 (1,165) (9) -
------------- -------------
Net income (loss) (2,473) (2,452)
------------- -------------
Preferred stock dividend 267 267
Net income (loss) applicable to
common stock $ (2,740) $ (2,719)
============= =============
Pro forma basic loss per share $ (0.12) $ (0.08)
============= =============
Pro forma weighted average
number of shares 22,223,121 35,839,609
============= =============
Pro forma diluted loss per share $ (0.12) $ (0.08)
============= =============
Pro forma adjusted weighted
average number of shares 22,364,284 35,980,772
============= =============
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-9
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The pro forma financial statements and related notes give effect to the
acquisitions of 43.62% of As de Oros and 40.44% of Pipasa, accounted for as a
purchase and at the minority interest's historical cost, respectively. The pro
forma balance sheet assumes that the transactions were completed as of June 30,
1998 and the pro forma statements of operations assume that the transactions
were completed on October 1, 1996.
All interim financial data used to develop the pro forma balance sheet and
statements of operations are unaudited, but in the opinion of management,
reflect all adjustments necessary (consisting only of normal recurring entries)
for a fair presentation.
The unaudited pro forma statements of operations are not necessarily indicative
of operating results which would have been achieved had the transactions been
consummated as of October 1, 1996 and should not be construed as a
representation of future earnings.
The pro forma basic and diluted earnings (loss) per share, are based on the
weighted average number of common shares and common shares equivalents of Rica
Foods, Inc. including the issuance of 5,012,762 and 11,050,784 shares to acquire
the remaining 43.62% and 40.44% of As de Oros and Pipasa, respectively , during
the nine months ended June 30, 1998 and the year ended September 30, 1997.
The Company does not expect to adopt any material change to the accounting
policies used by either subsidiary, nor expects the acquisition of 100% of the
minority interests to result in any material changes concerning current income
taxes.
The following adjustments were recorded in the pro forma financial statements
(See pro forma statements for references listed hereon:
1. Reflects consolidated balance sheet of the Company as of June 30, 1998,
as filed on its quarterly report on form 10-Q for the quarter ended
June 30, 1998. Consolidation includes 100% balance accounts of As de
Oros and Pipasa as of that date, eliminating inter company accounts,
and reflecting corresponding minority interests.
2. Reflects consolidated statement of earnings of the Company for the nine
months ended June 30, 1998, as filed on its quarterly report on form
10-Q for the quarter ended June 30, 1998. The consolidation includes
Pipasa's results of operations for the nine months ended June 30 1998,
and As de Oros' results of operations from March 1, 1998 to June 30,
1998. The respective minority interest's shares of income are allocated
according to participation ownership.
3. Results of operations of As de Oros, for the 5 months ended February
28, 1998, which refers to the pre acquisition period.
4. Reflects the pro forma results of operations for the year ended
September 30, 1997 as filed on form 8-K/A, dated May 15, 1998, as if
the Company had acquired 56.38% of As de Oros, on October 1, 1996.
5. Reflects the issuance of 5,012,762 and 11,050,784 restricted shares of
the Company at a price of $1.567 per share, discounted at 10% due to
stock restriction, for a total of $7,069,498 and $15,584,921 for the
acquisition of 43.62% and 40.44% of the remaining outstanding common
stock of As de Oros and Pipasa, respectively. The shares are included
in the pro forma weighted average basic and diluted shares calculation.
6. Reflects excess of fair market value over book value of the net assets
acquired and its respective amortization. Excess fair market value over
book value was allocated to property, plant and equipment, and is
amortized over a period of approximately 10 years using the
straight-line method.
7. Reflects excess of purchase price over fair value of the 43.62% of As
de Oros' net assets acquired as of June 30, 1998 (goodwill) and its
respective amortization. Goodwill is amortized using the straight-line
method over a 5 year period.
8. Deferred tax liabilities originated by excess of fair market value over
book value of property, plant and equipment acquired, and the tax
effect of the amortization of these assets.
9. Eliminates allocation of income to the minority interest , and its
acquisition as of June 30, 1998. The minority interest income on the
pro forma statement of earnings for the year ended September 30, 1997
as filed in its annual report on form 10-K, reflects 12 months of
40.44% allocation of Pipasa's income to minority interest. The minority
interest income on the statement of earnings for the nine months ended
June 30, 1998, as filed in its quarterly report on form 10-Q, reflects
the allocation of 40.44% Pipasa's income for 12 months and 46.38% of As
de Oros' income 4 months of 46.38%.
F-10
<PAGE>
10. Reclassifies preferred shares of Pipasa to the minority interest. The
minority interest presented on the pro forma balance sheet consists of
preferred shares of both subsidiaries, owned by third parties.
11. Eliminates inter company transactions during the five months ended
February 28, 1998. As de Oros and Pipasa carried out transactions which
resulted in the recording of sales of products and income for services
provided between both subsidiaries.
F-11
<PAGE>
EXHIBIT A
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of September 28, 1998, and amended as of November 9, 1998, by and between RICA
FOODS, INC., a corporation organized under the laws of the State of Nevada (the
"BUYER"), and INVERSIONES LA RIBERA, S.A., a corporation organized under the
laws of the Republic of Costa Rica (the "SELLER").
WITNESSETH:
WHEREAS, the Seller owns forty point forty four percent (40.44%) of
the issued and outstanding shares of the common stock of Corporacion Pipasa,
S.A.. (the "COMPANY").
WHEREAS, the Company has authorized a total of five million, fifty
thousand (5,050,000) shares of common stock, par value of one thousand
(/cents/ 1.000) colones per share, of which four million, five hundred and
fifty thousand ($4,550,000) shares are issued and outstanding; and
WHEREAS, the Seller desires to sell, convey, transfer, assign and
deliver to the Buyer one million eight hundred forty thousand (1,840,000)
shares of common stock of the Company, issued and outstanding, which represent
forty point forty- four percent (40.44%) of the issued and outstanding shares
of common stock of the Company, all of which are owned by the Seller
(collectively, the "Shares"), upon and subject to the terms, covenants and
conditions herein set forth. Upon the transfer of the Shares to the Buyer, the
Buyer shall own one hundred percent (100%) of the total outstanding common
stock of the Company.
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby conclusively acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
1.1 SALE AND PURCHASE OF THE SHARES: Subject to the terms of this
Agreement, the Seller agrees to sell, assign, transfer, convey and deliver the
Shares to the Buyer, free and clear of any lien, security interest, encumbrance,
restriction, and claim of any kind whatsoever, and the Buyer agrees to purchase
the Shares from the Seller. The sale, assignment, transfer, conveyance and
delivery by the Seller of the Shares to the Buyer shall be effected on or before
January 31, 1999 by the Seller's delivery to the Buyer of the stock certificates
evidencing the shares duly endorsed for transfer or accompanied by stock powers
duly executed in blank, this agreement signed before a Notary Public under Costa
Rican law, as necessary to effectively vest in the Buyer all of the right, title
and interest of the Seller in and to the Shares. The parties may mutually agree
in writing, and pursuant to the mutual benefits provided by this Agreement, to
the delivery by the Buyer to the Seller of the stock certificates of the Company
after January 31, 1999, if so required and duly justified.
1.2 PURCHASE PRICE AND PAYMENT: In consideration of the sale,
assignment, transfer, conveyance and delivery of the Shares by the Seller to the
Buyer, and in reliance upon the representations, warranties and covenants made
herein by the Seller, the Buyer shall make payment in the aggregate amount of
thirteen million eight hundred thirteen thousand four hundred eighty dollars
<PAGE>
($13,813,480) (the "PURCHASE PRICE") payable in the voting stock the Buyer
represented by the issuance of 11,050,784 shares at a price of $1.25 per share,
the closing price of the stock of the Buyer as of August 31, 1998.
ARTICLE II
2.1 THE CLOSING: The transfer and delivery of the shares to be made
pursuant to this Agreement (the "CLOSING") shall take place on January 29, 1999,
or such other time and date as may be mutually agreed upon in writing by the
Seller and the Buyer (the "CLOSING DATE").
2.2 OBLIGATIONS OF SELLER AT CLOSING: At the Closing, the Seller shall
deliver to the Buyer stock certificates representing the Shares, duly endorsed
for transfer in blank, or accompanied by stock powers duly hereof executed in
blank, as described in Section 1.1.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby makes the following representations and warranties to
the Buyer, each of which shall be deemed material (and the Buyer, in executing,
delivering and consummating this Agreement, has relied and will rely upon the
correctness and completeness of each such representations and warranties
notwithstanding any independent investigation by the Buyer and/or the Buyer's
officers, directors, employees, representatives, agents and/or advisors):
3.1 ORGANIZATION AND EXISTENCE; AUTHORIZATION; ENFORCEABILITY.
(a) ORGANIZATION OF THE SELLER, GOOD STANDING. The Seller is a
corporation duly organized, validly existing and in good standing under
the laws of the Republic of Costa Rica with full corporate power and
authority to own, lease and operate its properties and assets and
conduct business in the manner in which such business is conducted. The
Seller has delivered to the Buyer true, correct and complete copies of
the Articles of Incorporation and By-laws of the Company.
(b) AUTHORIZATION. The Seller has full corporate power,
authority and capacity to enter into this Agreement and the agreements,
documents and instruments contemplated hereby and perform its
obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and all other agreements and transactions
contemplated hereby have been duly authorized and approved by the Board
of Directors and the shareholders of the Seller, if necessary, no other
corporate proceedings on its part are necessary to authorize this
Agreement and the transactions contemplated hereby, and this Agreement
constitutes a valid and biding Agreement of Seller enforceable in
accordance with its terms.
(c) NO CONFLICTS - SELLER: The execution, delivery and
performance of this Agreement by the Seller does not and will not
contravene, conflict with, or result in a violation or breach of any
provision of, or give any person or entity the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify any agreement,
indenture, mortgage, deed of trust or other instrument to which the
Seller is a party or to which the assets of the Seller are bound.
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3.2 LITIGATION. To the best of the Seller's knowledge, there is no
litigation or other actions, suits, proceedings or investigations pending, at
law or in equity, or before any governmental department, commission, board,
agency or instrumentality, or, to the best of the Seller's knowledge, threatened
against. To the best of the Seller's knowledge, no event has occurred or
circumstance exists that may give rise or serve as the basis for commencement of
any such action, suit, investigation or other proceeding.
3.3 FINANCIAL STATEMENTS. The Seller has furnished the balance sheets
for the Company as of June 30, 1998, together with the related unaudited income
statements, unaudited statements of stockholder's equity and statements of
changes in financial position for the fiscal years ending September 30, 1997, in
each case including the notes thereto, if any (collectively, the "Financial
Statements"). The Company's balance sheets (including the notes thereto) are
true and complete, and fairly present the financial condition of the Company as
of the respective dates thereof, and the other financial statements referred to
herein (including the notes thereto) fairly present the results of operations
and the financial position of the Company for the respective fiscal periods or
as of the respective dated therein set forth. Each of such statements (including
the notes thereto) has been prepared in accordance with United States generally
accepted accounting principles consistently applied, and do not and will not
fail to disclose any material, extraordinary or out-of-period items. The books
and records of the Company have been, and are being, maintained in all respects
in accordance with applicable legal and accounting requirements and reflect only
actual transactions, and the Financial Statements have been prepared in
accordance with such books of account and records.
3.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not been any
adverse change in the business, operations, properties, assets or financial
condition of the Company from that described in the Financial Statements, and as
of September 30, 1998. No fact or condition of any character exists or will
exist on the Closing Date that the Seller believes will cause such an adverse
change in the future as a result of occurrences, acts or omissions prior to the
Closing Date.
3.5 TAX MATTERS. The Company has duly filed with the appropriate
governmental agencies all information returns, tax returns and reports required
by any jurisdiction to be filed by it on or prior to the date hereof (including,
without limitation, estimated tax returns and returns with respect to employee
or employment-related taxes). Such returns are accurate and complete in all
respects. The Company has duly paid all taxes, assessments, fees, penalties,
interest and other governmental charges that have been incurred or are due or
claimed to be due from it by any federal, state, local, foreign or other taxing
authorities on or prior to the date of this Agreement (including, without
limitation, those due in respect to its properties, income, business, capital
stock, deposits, licenses, sales, payroll, unemployment insurance, retirement,
social security and occupational disability, as applicable). To the extent that
any taxes may be due from the Company for any period prior to the Closing, such
taxes will have been paid prior to the Closing Date. There are no tax liens of
any kind or nature upon the properties or assets of the Company, and there are
no disputes pending or claims asserted for taxes upon the Company or with
respect to any of the assets of the Company. No income, excise, sales and/or
federal, state, local, foreign or other tax returns are currently being audited
by the appropriate taxing authorities, and all prior audits have been concluded
and resolved.
3.6 PROPERTY-TITLE AND LEASES. The Company has good, valid and
marketable title, free and clear of any and all liens, claims, encumbrances,
charges, defaults, equities, assessments, rights of way, building or use
restrictions, exceptions, variances or other limitations of whatever kind or
character, except as disclosed to Buyer, to all of the real property and all
other property owned by it, except property and assets disposed of in the
ordinary course of business in accordance with the terms of this Agreement and
for no less than fair market value. All buildings, fixtures, equipment and other
property
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and assets held under leases or subleases by the Company with third parties are
held under valid instruments enforceable in accordance with their terms, except
as enforceability may be limited by applicable bankruptcy laws. The Company is
the lessee or sub-lessee in possession under each lease or sublease to which it
is a lessee or sub-lessee. All rentals due by the Company under each such lease
or sublease have been paid, and there is no default or any event or condition
which, with the giving of notice, lapse of time or occurrence or any further
event or condition, would become a default under any such lease or sublease, and
the Company is entitled to possession and quiet enjoyment of all such leased
properties in accordance with the terms of such instruments. All operating
facilities, buildings, furniture, equipment and other tangible property owned or
used by the Company are in good operating condition and repair. Such tangible
properties and all fixtures and improvements to real property owned or leased by
the Company, and the use thereof, conform in all respects with all applicable
building, zoning, environmental and other requirements, and do not materially
encroach in any respect on property of others. All necessary occupancy and other
certificates and permits for the occupancy and lawful use thereof and of the
equipment and furnishings therein have been issued and are in full force and
effect and no current use of any assets of the Company is dependent on a
nonconforming use or other permit which materially limit the Company's use
thereof.
3.7 RECEIVABLES. The Company shall not have accounts payable other than
the accounts disclosed to Buyer by Seller, and shall not have accounts
receivable other than the ones disclosed to Buyer by Seller, nor in excess of an
amount to be determined subsequent to the Buyer's due diligence and satisfactory
to the Buyer. All accounts and notes receivable reflected in, or arising since
the date of the most recent balance sheet, are included in the Financial
Statements, all of which are owned by the Company and have either been collected
or are collectible and will be collected in the ordinary course of business.
None of such receivables are subject to any right of rescission.
3.8 INSURANCE. The Company maintains insurance policies and bonds in
force in such amounts and against such liabilities and hazards as are
customarily maintained by companies engaged in a business similar to its
business. The Company is not liable for any material retroactive premium
adjustments. All premiums due on such policies have been paid and all such
policies are enforceable and in full force and effect, and the Company has not
received any notice of premium increases or cancellations.
3.9 INTANGIBLE PERSONAL PROPERTY. The Company validly holds and
possesses all patents, trademarks, service marks, copyrights, trade or corporate
names and licenses (collectively, "INTANGIBLE RIGHTS") which are required and
necessary for the Company to conduct its business as presently conducted. The
Company is the sole and exclusive owner of, and has the unrestricted right to
use, each of the Intangible Rights. No claims or demands have been asserted
against the Company with respect to any of the Intangible Rights and no
proceedings have been instituted, are pending or have been threatened which
challenge the rights of the Company with respect thereto.
3.10 COMPLIANCE WITH LAWS. The Company has conducted and is conducting
its business in compliance with all applicable legal requirements. Additionally,
the Company has not been and is not in violation of any permit, authorization,
concession, agreement, contract, corporate document or other legally enforceable
obligation.
3.11 NO MISREPRESENTATIONS. None of the information contained in the
representations and warranties set forth in this Agreement, or in any of the
documents, certificates or instruments delivered or to be delivered to any other
party prior to or after the execution hereof as required or permitted by any
provision of this Agreement, contains or will contain any untrue statement of a
material fact or omits or
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will omit to state a material fact necessary to make the statements contained
herein or therein not misleading as of the date hereof and as of the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
To induce the Seller to enter into this Agreement and to consummate the
sale of the Shares, the Buyer represents, warrants, covenants and agrees as
follows:
4.1 ORGANIZATION AND EXISTENCE: AUTHORIZATION; ENFORCEABILITY.
(a) ORGANIZATION OF THE COMPANY; GOOD STANDING. The Buyer is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Nevada, with full corporate power and
authority to own, lease or operate its properties and assets and
conduct its business a the manner in which it is currently conducted.
The Buyer has the corporate power and authority, will take all the
actions necessary and will obtain all necessary permits and
authorizations , if applicable, in order to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) AUTHORIZATION, ETC. The Buyer has full corporate power,
authority and capacity to enter into this Agreement and to carry out
the transactions contemplated hereby. The Board of Directors of the
Buyer has duly authorized and approved the execution, delivery and
performance of this Agreement, and the other agreements and
transactions contemplated hereby, and if other corporate proceedings on
the part of the Buyer are necessary to authorize this Agreement and the
transactions, contemplated hereby, will be obtained before the Closing
Date.
(c) ENFORCEMENT, ETC. This Agreement is a valid and binding
agreement of the Buyer enforceable in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency, fraudulent
transfer, reorganization moratorium and similar laws of general
applicability relating to or affecting creditor's rights and to general
equity principles. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the Buyer and any
successor of the Buyer by way of reorganization, merger, or
consolidation and any assignee of all or substantially all of its
business and assets.
(d) NO CONFLICT. The execution, delivery and performance of
this Agreement by the Buyer does not and will not violate or constitute
a breach of or default under any legal requirement or order of any
governmental entity to which the Buyer is subject or under any
agreement or instrument of the Buyer, or to which the Buyer is subject
or is a party or by which the Buyer is otherwise bound.
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ARTICLE V
CERTAIN AGREEMENTS AND COVENANTS OF THE PARTIES
Each and every obligation of the Buyer under this Agreement shall be
subject to the satisfaction by the Seller, on or before the Closing Date, of
each of the following conditions unless waived in writing by the Buyer:
5.1 ORDINARY COURSE. From the date hereof until January 31, 1999,
unless the prior written consent of the Buyer is first obtained, the Seller will
use its best efforts to preserve the value of the Company's assets and the
business operations of the Company, to preserve the goodwill of customers and
others having business relations with the Company, to maintain its properties in
good repair, working order and condition, to comply with all laws applicable to
it and the conduct of its business, to keep in force all licenses, permits and
authorizations held by the Company necessary or desirable for the conduct of the
Company's business, to keep in full force and effect at not less than their
present limits, all policies of insurance, and to make no material change in the
customary terms and conditions of such insurance policies.
5.2 NOTICE; REPRESENTATIVE. Seller will promptly give written notice to
Buyer upon becoming aware of any event or the impending or threatened occurrence
of any event which would cause or constitute a breach of any of its
representations and warranties contained or referred to in this Agreement, and
will use its best efforts to prevent the same or remedy the same promptly. The
Seller shall promptly notify the Buyer of any material change in the normal
course of business, operation or properties of the Company, or of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or threat of
litigation, and shall keep the Buyer fully informed of any and all such events.
5.3 ACTIONS; FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, the Seller shall (i), take all steps that are within its power
to cause to be fulfilled those of the conditions precedent to Buyer's
obligations to consummate the transactions contemplated hereby that are
dependent upon Seller's actions, and (ii) use its best efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws to consummate and make effective the
transactions contemplated by this Agreement and not to take any actions which
would be advise to such result. If at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of any such
agreements, Seller or the proper agents of Seller shall take all such necessary
action. In addition, the Seller and the Company shall at all times cooperate
with the Buyer to assist them in obtaining refunds, due the Company as a result
of any tax benefits granted to the Company.
5.4 NON-SOLICITATION. The Seller shall not take any actions to seek,
encourage, solicit or support any inquiry, proposal, expression of interest or
offer from any other person or entity in connection with or with respect to an
acquisition, combination or similar transaction, involving the Company and/or
the Shares or a substantial portion of the assets of the Company, and the Seller
will immediately inform the Buyer of the existence of any such inquiry,
proposal, expression of interest or offer and shall not, without the prior
written consent of the Buyer, furnish any information to or participate in any
discussions or negotiations with, any other entity, person or group (other than
the Buyer and its agents and representatives) regarding same. Neither the Seller
nor the Company shall accept any inquiry, proposal, expression of interest or
offer, execute any agreement, or enter into or
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consummate any transaction with respect to any of the foregoing and the Seller
shall take all actions necessary to ensure that the Company does not take any
such action.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE BUYER
Each and every obligation of the Buyer under this Agreement shall be
subject to the satisfaction by the Seller and the Company, on or before the
Closing Date, of each of the following conditions unless waived in writing by
the Buyer:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Seller and the Company contained in Section III and elsewhere in this
Agreement and all information contained in any exhibit, certificate, schedule or
attachment hereto or in any writing delivered by or on behalf of, the Seller or
the Company to the Buyer, shall be true and correct when made, and shall be true
in all material respects at and as of the Closing Date. The Seller and the
Company shall have performed and complied with all agreements, covenants and
conditions and shall have made all deliveries required by this Agreement to be
performed, delivered and complied with by them prior to the Closing Date.
6.2 CONSENT AND APPROVALS. On or before January 31, 1999, the Seller
and/or the Company (as the case may be) shall have received in writing all
required approvals, consents or acquiescence from all governmental and
regulatory agencies, secured parties or other third parties with respect to the
transactions contemplated by this Agreement. Buyer and Seller may agree in
writing an another closing date if and consents or approvals are pending at the
Closing Date.
6.3 NO PENDING OR THREATENED LEGAL CLAIM. No (i) litigation of any kind
shall be pending or threatened; (ii) preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or by any federal or
state governmental or regulatory body; or (iii) statute, rule, regulation or
executive order promulgated or enacted by any federal or state governmental
authority after the date of this Agreement, which has or could have a material
adverse effect on the business, properties, prospects or condition, financial or
otherwise, of the Company, prohibits the consummation of the transactions
contemplated by this Agreement, or affects in any way the Seller's right, title
and interest to the Shares or the Seller's ability to transfer the Shares to the
Buyer in accordance with the terms of this Agreement, shall be in effect pending
or threatened.
6.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
operations, the business, the financial condition or prospects of the Company
shall have occurred, no fact shall have arisen which has or reasonably could be
expected to have a material adverse effect on the Company, or its properties,
assets or the consummation of the transactions contemplated hereby, in each case
in the sole and absolute discretion of the Buyer.
6.5 DUE DILIGENCE. The Seller shall have provided Buyer under the terms
and conditions of the letter of intent and confidentiality agreement (the
"Agreements") with access to the Company's business, records and any information
which the Buyer deemed necessary, in its sole and absolute discretion, to
conduct a satisfactory due diligence examination, pursuant to which the Buyer
may, among other things, has, (i) evaluated the Company, its assets and
liabilities, (ii) satisfied itself, in its sole and absolute discretion, that
the Company's assets are being received in a satisfactory condition, (iii)
satisfied itself, in its sole and absolute discretion, that the Company does not
have any debts, liabilities or other obligations, whether absolute, contingent
or otherwise which have not been disclosed in writing by the
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Seller, or are reflected in the financial statements, and (iv) satisfied itself,
in its sole and absolute discretion, that the Company's licenses, permits and
authorizations required for the Company to operate its business are valid. Such
due diligence was completed by the Buyer fifteen (15) days before the execution
of this Agreement (the "Due Diligence Period").
6.6 SHARE CERTIFICATES AND OTHER DOCUMENTS. The Seller shall have
delivered to the Buyer stock certificates evidencing the Shares duly endorsed
for transfer or accompanied by stock powers duly executed in blank. The Buyer
shall have received from the Seller all such other documents and instruments,
duly executed where required or appropriate, as it may reasonably request in
connection with the transactions contemplated by this Agreement, as set forth in
Section 1.1.
6.7 OPINION OF SELLER'S COUNSEL. The Seller shall have delivered an
opinion of counsel in a form reasonably satisfactory to the Buyer.
6.8 CORPORATE ACTION. The Company's Board of Directors shall have
approved the transactions contemplated by this Agreement if such approval is
necessary under the Company's Articles of Incorporation or By-laws.
6.9 FAIRNESS OPINION. The Company shall have received an opinion from a
financial advisor stating that the transactions contemplated by this Agreement
are fair to the stockholders of the company from a financial prospective.
6.10 STOCKHOLDER APPROVAL. The stockholders of the Company shall have
approved this Agreement at a meeting of the stockholders or pursuant to a
consent solicitation.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF THE SELLER
Each and every obligation of the Seller under this Agreement shall be
subject to the satisfaction by the Buyer, on or before January 31, 1998, of each
of the following conditions, unless waived in writing by the Seller:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Buyer contained in Section IV and elsewhere in this Agreement and all
information contained in any exhibit, certificate, schedule or attachment hereto
or in any writing delivered by or on behalf of the Buyer to the Seller shall be
true and correct when made, and shall be true in all material respects at and as
of the Closing Date. The Buyer shall have performed and complied with all
agreements, covenants, and conditions and shall have made all deliveries
required by this Agreement to be performed, delivered and complied with by them
prior to the Closing Date.
7.2 COVENANTS PERFORMED. All of the covenants, terms and conditions of
this Agreement to be complied with and performed by the Buyer on or before the
Closing Date shall have been duly complied and performed.
7.3 PURCHASE PRICE. The Buyer shall have delivered to the Seller the
Purchase Price in accordance with Section 1.1 of this Agreement.
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7.4 FAIRNESS OPINION. The Company shall have received an opinion from a
financial advisor stating that the transactions contemplated by this Agreement
are fair to the stockholders of the company from a financial prospective.
7.5 STOCKHOLDER APPROVAL. The stockholders of the Company shall have
approved this Agreement at a meeting of the stockholders or pursuant to a
consent solicitation.
ARTICLE VIII
INDEMNIFICATION
8.1 OBLIGATIONS OF BUYER. The Buyer agrees to defend, indemnify and
hold harmless Seller from, against and in respect of any and all demands,
claims, actions or causes of action, losses, liabilities, damages, assessments,
deficiencies, taxes, cost and expenses, including, without limitation, interest,
penalties and reasonable attorney's fees and expenses (collectively "Claims"),
asserted against, imposed upon or paid, incurred or suffered by Seller as a
result of, arising from, in connection with or incident to any material breach
or material inaccuracy of any representation, warranty, covenant or agreement of
the Buyer in this Agreement or in any document, certificate or other instrument
related hereto.
8.2 OBLIGATIONS OF SELLER. Seller agrees to defend, indemnify and hold
harmless the Buyer from, against and in respect of any and all demands, claims
actions or causes of action, losses, liabilities, damages, assessments,
deficiencies, taxes, cost and expenses, including, without limitation, interest,
penalties and reasonable attorney's fees and expenses (collectively "Claims"),
asserted against, imposed upon or paid, incurred or suffered by the Buyer as a
result of, arising from, in connection with , or incident to (i) any breach or
inaccuracy of any representation, warranty, covenant or agreement of Seller in
this Agreement, or in any document, certificate or other instrument related
hereto, (ii) the inability, failure or refusal of Seller to act in good faith in
connection with this Agreement, or the transactions, agreements, documents and
instruments delivered herewith or contemplated hereby, at any time from the date
of this Agreement until the later in time of (a) the Closing Date, (b) the end
of the Due Diligence Period and (c) which as of the Closing Date have not been
undisclosed to the Buyer in writing.
8.3 INDEMNIFICATION PROCEDURE. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnification hereunder is referred to as the "Indemnified Party". An
Indemnified Party under this Agreement shall give prompt written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement. As to any claim by a third party, the
Indemnified Party may participate in the defense, compromise or settlement of
any such matter through the Indemnified Party's own attorneys and at the
Indemnifying Party's own expense; each of the indemnifying and the Indemnified
Party shall provide such cooperation and such reasonable access to its books,
records and properties as the other party shall reasonable request with respect
to any such matter; and the parties hereto agree to cooperate with each other in
order to ensure the proper and adequate defense thereof. The Buyer may setoff
against the amount of any other payments due to Seller hereunder or otherwise,
including, without limitation the Note, any and all amounts, due to the Buyer
pursuant to any and all claims that the Buyer may have against Seller hereunder
including, without limitation, with respect to the indemnification of the Buyer
hereunder by Seller.
An Indemnifying Party shall not make any settlement of any claims
without the written consent of the Indemnified Party which consent shall not be
unreasonably withheld. Without limiting the
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generality of the foregoing, it shall not be deemed unreasonable to withhold
consent to a settlement involving injunctive or other equitable relief against
the Indemnified Party or its assets, employees or business.
In a case where responsibility for a matter giving rise to a claim for
indemnification is shared by the parties, any of the parties may elect to
relieve the other of its obligations of indemnification with respect to such
matter and, subject to the provisions of this section, such electing party may
thereupon assume full control of the resolution of such matter. If such election
is not made, control shall also be shared.
ARTICLE IX
SURVIVAL OF TERMS; REPRESENTATIONS
9.1 SURVIVAL. The representations and warranties contained herein shall
be true and correct as of January 31, 1999 as though such representations and
warranties were made at and as of the Closing Date. All of these representations
and warranties shall survive the consummation of all of the transactions
contemplated by this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 BINDING AGREEMENT. This Agreement may not be transferred,
assigned, pledged or hypothecated all or in part by any party hereto without the
prior written consent of all the other parties hereto. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective assigns and successors in interest. No other person shall acquire or
have any right under or by virtue of this Agreement.
10.2 GOVERNING LAW. This Agreement, the rights and obligations of the
parties, and any other claims or disputes relating in anyway thereto will be
governed by and construed in accordance with the laws of the State of Florida.
10.3 COUNTERPARTS, HEADINGS, ETC. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. The
headings herein are for convenience of reference only and shall not be deemed a
part of this Agreement.
10.4 NOTICES. Any notice or other communication required or permitted
hereunder shall be deemed validly given, made or served if in writing and if
delivered in person or sent by facsimile transmission or registered or certified
mail to the intended recipient at the following address or to such other address
or number as shall be furnished in writing by any such party to the other:
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If to the Seller: Calixto Chaves
Inversiones La Ribera, S.A.
400 meters west of National Panasonic Plant,
San Rafael Alajuela.
If to the Buyer: Calixto Chaves
95 Merrick Way,
Suite 507,
Coral Gables,
Florida, 33134
10.5 AMENDMENT; SEVERABILITY. This Agreement may be amended only by an
agreement in writing signed by the parties hereto. In case any provision of this
Agreement shall be held invalid, illegal or unenforceable by any court, the
validity, legality and enforceability of the remaining provisions will not be
affected or impaired thereby.
10.6 ARBITRATION. Any dispute arising in connection with this Agreement
shall be exclusively settled by binding arbitration in the Spanish language in
Miami, Florida, in accordance with the Rules of Arbitration and Conciliation of
the International Chamber of Commerce. Notwithstanding any provision in these
rules, the arbitration panel at any such arbitration proceeding shall consist of
three arbitrators. One arbitrator will be designated by Buyer, another
arbitrator will be designated by Seller and the third arbitrator will be a
person mutually agreed upon by Buyer and Seller. The arbitration panel shall
render its decision in writing, and such written decision and conclusions with
respect to the disputes so settled shall be final and binding on the parties to
the arbitration proceeding and confirmation and enforcement of the awards so on
the parties to the arbitration proceeding and confirmation and enforcement of
the awards so rendered may be obtained and entered in any court having
jurisdiction thereof. Each of Buyer and Seller hereby irrevocably submits to the
jurisdiction of any such court for purposes of enforcement of the arbitration
panel's decision.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Seller:
By: /s/ CALIXTO CHAVES
-------------------------------
Calixto Chaves
President
Inversiones La Ribera, S.A.
Buyer:
By: /s/ CALIXTO CHAVES
-------------------------------
Calixto Chaves
President
Costa Rica International, Inc.
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EXHIBIT B
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of September 28, 1998, and amended November 9, 1998, by and between RICA FOODS,
INC., a corporation, organized under the laws of the State of Nevada (the
"BUYER"), and Comercial Angui, S.A., a corporation, organized under the laws of
the Republic of Costa Rica (the "SELLER").
WITNESSETH:
WHEREAS, the Seller owns forty three point sixty two percent (43.62%) of the
issued and outstanding shares of the common stock (the "Common Stock") of
Corporacion As de Oros, S.A.. (the "COMPANY").
WHEREAS, the Company has authorized a total of two million, (2.000.000) shares
of Common Stock, par value of one thousand (/cents/ 1,000) colones per share,
of which one million, five hundred thousand (/cents/ 1.500.000) shares are
issued and outstanding; and ;
WHEREAS, the Seller desires to sell, convey, transfer, assign and deliver to the
Buyer, six hundred and fifty four thousand three hundred (654,300) shares of
Common Stock , issued and outstanding, which represent forty three point sixty
two percent (43.62%) of the issued and outstanding shares of Common Stock of
The Company , all of which are owned by the Seller (collectively, the "Shares"),
upon and subject to the terms, covenants and conditions herein set forth. Upon
the transfer of the Shares to the Buyer, the Buyer shall own one hundred percent
(100%) of the total outstanding Common Stock of the Company.
NOW THEREFORE, for and in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby conclusively acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
1.1. SALE AND PURCHASE OF THE SHARES: Subject to the terms of this
Agreement, the Seller agrees to sell, assign, transfer, convey and
deliver the Shares to the Buyer, free and clear of any lien, security
interest, encumbrance, restriction, and claim of any kind whatsoever,
and the
1.2. Buyer agrees to purchase the Shares from the Seller. The sale,
assignment, transfer, conveyance and delivery by the Seller of the
Shares to the Buyer shall be effected on or before January 29, 1999 by
the Seller's delivery to the Buyer of the stock certificates evidencing
the shares duly endorsed for transfer or accompanied by stock powers
duly executed in blank, and this Agreement signed before a Notary
Public under Costa Rican law, as necessary to effectively vest in the
Buyer all of the right, title and interest of the Seller in and to the
Shares.
PURCHASE PRICE AND PAYMENT: In consideration of the sale, assignment, transfer,
conveyance and delivery of the Shares by the Seller to the Buyer, and in
reliance upon the representations, warranties and covenants made herein by the
Seller, The Buyer shall make payment in an aggregate amount of six million two
hundred sixty five thousand nine hundred fifty two dollars with fifty cents
($6,265,952.50) (the "PURCHASE PRICE"), payable in the voting stock of the
Buyer represented by the issuance of 5,012,762 (five million twelve thousand
seven hundred sixty two) shares at a price of $1.25 per share, which is the
closing price of the stock of the Buyer as of August 31, 1998.
<PAGE>
ARTICLE II
2.1 THE CLOSING: The transfer and delivery of the shares to be made
pursuant to this Agreement (the "Closing") shall take place at the offices of
Rica Foods, Inc, located in Costa Rica, on or before January 29, 1999, or such
other place, time and date as may be mutually agreed upon in writing by the
Seller and the Buyer (the "Closing Date").
2.2 OBLIGATIONS OF SELLER AT CLOSING: At the Closing, the Seller shall
deliver to the Buyer stock certificates representing the Shares, duly endorsed
for transfer in blank, or accompanied by stock powers duly executed in blank, as
described in Section 1.1. hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby makes the following representations and warranties to
the Buyer, each of which shall be deemed material (and the Buyer, in executing,
delivering and consummating this Agreement, has relied and will rely upon the
correctness and completeness of each such representations and warranties
notwithstanding any independent investigation by the Buyer and/or the Buyer's
officers, directors, employees, representatives, agents and/or advisors):
3.1 ORGANIZATION AND EXISTENCE; AUTHORIZATION; ENFORCEABILITY.
(a) ORGANIZATION OF THE SELLER; GOOD STANDING. The Seller is a
corporation duly organized, validly existing and in good
standing under the laws of the Republic of Costa Rica with
full corporate power and authority to own, lease and operate
its properties and assets and conduct its business in the
manner in which such business is conducted. The Seller has
delivered to the Buyer true, correct and complete copies of
the Articles of Incorporation and By-laws of the Seller.
(b) AUTHORIZATION. The Seller has full corporate power,
authority and capacity to enter into this Agreement and the
agreements, documents and instruments contemplated hereby and
perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and all
other agreements and transactions contemplated hereby have
been duly authorized and approved by the Board of Directors
and the shareholders of the Seller, if necessary. No other
corporate proceedings on its part are necessary to authorize
this Agreement and the transactions contemplated hereby and
this Agreement constitutes a valid and binding Agreement of
the Seller enforceable in accordance with its terms.
(c) NO CONFLICTS-SELLER: The execution, delivery and
performance of this Agreement by the Seller does not and will
not contravene, conflict with, or result in a violation or
breach of any provision of, or give any person or entity the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate or modify any Agreement, indenture, mortgage, dead
of trust or other instrument to which the Seller is a party or
to which the assets of the Seller are bound.
3.2 PENDING OR THREATENED LITIGATION. To the best of the Seller's
knowledge, there is no litigation or other actions, suits, proceedings or
investigations pending, at law or in equity, or before any
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governmental department, commission, board, agency or instrumentality, or, to
the best of the Seller's knowledge, threatened against. To the best of the
Seller's knowledge, no event has occurred or circumstance exists that may give
rise or serve as the basis for commencement of any such action, suit,
investigation or other proceeding.
3.3 FINANCIAL STATEMENTS. The Seller has furnished the unaudited
Balance Sheets for the Company as of June 30, 1998, together with the related
unaudited income statements, unaudited statements of stockholder's equity and
statements of changes in financial condition for the fiscal year ending
September 30, 1998, in each case including the notes thereto, if any
(collectively, the "Financial Statements"). The Company's Financial Statements
(including the notes thereto) are true and complete, and fairly present the
financial condition of the Company as of the respective dates thereof, and the
other financial statements referred to herein (including the notes thereto)
fairly present the results of operations and the financial condition of the
Company for the respective fiscal periods or as of the respective dates therein
set forth. The Financial Statements (including the notes thereto) have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, and do not fail to disclose any material,
extraordinary or out-of-period items. The books of account and records of the
Company have been, and are being, maintained in all respects in accordance with
applicable legal and accounting requirements and reflect only actual
transactions, and the Financial Statements have been prepared in accordance with
such books and account and records.
3.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not been any
adverse change in the business, operations, properties, assets or financial
condition of the Company from that described in the Financial Statements, and as
of August 31, 1998. No fact or condition of any character exists or will exists
on the Closing Date that the Seller believes will cause such an adverse change
in the future as a result of occurrences, acts or omissions prior to the Closing
Date.
3.5 TAX MATTERS. The Company has duly filed with the appropriate
governmental agencies all information returns, tax returns and reports required
by any jurisdiction to be filed by it on or prior to the date hereof (including,
without limitation, estimated tax returns and returns with respect to employee
or employment-related taxes). Such returns are accurate and complete in all
respects. The Company has duly paid all taxes, assessments, fees, penalties,
interest and other governmental charges that have been incurred or are due or
claimed to be due from it by any federal, state, local, foreign or other taxing
authorities on or prior to the date of this Agreement (including, without
limitation, those due in respect to its properties, income, business, capital
stock, deposits, licenses, sales, payroll, unemployment insurance, retirement,
social security and occupational disability, as applicable). To the extent that
any taxes may be due from the Company for any period prior to the Closing, such
taxes will have been paid prior to the Closing Date. There are no tax liens of
any kind or nature upon the properties or assets of the Company, and there are
no disputes pending or claims asserted for taxes upon the Company or with
respect to any of the assets of the Company
3.6 PROPERTY-TITLE AND LEASES. The Company has good, valid and
marketable title, free and clear of any and all liens, claims, encumbrances,
charges, defaults, equities, assessments, rights of way, building or use
restrictions, exceptions, variances or other limitations of whatever kind or
character, except as disclosed to the Buyer, to all of the real property and all
other property owned by it, except property and assets disposed of in the
ordinary course of business in accordance with the terms of this Agreement and
for no less than fair market value. All buildings, fixtures, equipment and other
property and assets held under leases or subleases by the Company with third
parties are held under valid instruments enforceable in accordance with their
terms, except as enforceability may be limited by applicable bankruptcy laws.
The Company is the lessee or sub-lessee in possession under each lease or
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sublease to which it is a lessee or sub-lessee. All rentals due by the Company
under each such lease or sublease have been paid, and there is no default or any
event or condition which, with the giving of notice, lapse of time or occurrence
or any further event or condition, would become a default under any such lease
or sublease, and the Company is entitled to possession and quiet enjoyment of
all such leased properties in accordance with the terms of such instruments. All
operating facilities, buildings, furniture, equipment and other tangible
property owned or used by the Company are in good operating condition and
repair. Such tangible properties and all fixtures and improvements to real
property owned or leased by the Company, and the use thereof, conform in all
respects with all applicable building, zoning, environmental and other
requirements, and do not materially encroach in any respect on property of
others. All necessary occupancy and other certificates and permits for the
occupancy and lawful use thereof and of the equipment and furnishings therein
have been issued and are in full force and effect and no current use of any
assets of the Company is dependent on a nonconforming use or other permit which
materially limit the Company's use thereof.
3.7 ACCOUNTS RECEIVABLE. The Company shall not have accounts payable
other than the accounts disclosed to Buyer by Seller and shall not have accounts
receivable other than the ones disclosed to Buyer by Seller, not in excess of an
amount to be determined subsequent to the Buyer's due diligence and satisfactory
to the Buyer. All accounts and notes receivable reflected in, or arising since
the date of the most recent balance sheet, are included in the Financial
Statements, all of which are owned by the Company and either been collected or
are collectible, and will be collected in the ordinary course of business. None
of such receivables are subject to any right of rescission.
3.8 INSURANCE. The Company maintains insurance policies and bonds in
force in such amounts and against such liabilities and hazards as are
customarily maintained by companies engaged in a business similar to its
business. The Company is not liable for any material retroactive premium
adjustments. All premiums due on such policies have been paid and all such
policies are enforceable and in full force and effect, and the Company has not
received any notice of premium increases or cancellations.
3.9 INTANGIBLE PERSONAL PROPERTY. The Company validly holds and
possesses all patents, trademarks, service marks, copyrights, trade or corporate
names and licenses (collectively, "Intangible Rights") which are required and
necessary for the Company to conduct its business as presently conducted. The
Company is the sole and exclusive owner of, and has the unrestricted Right to
use, each of the Intangible Rights. No claims or demands have been asserted
against the Company with respect to any of the Intangible Rights and no
proceedings have been instituted, are pending or have been threatened which
challenge the rights of the Company with respect thereto.
3.10 COMPLIANCE WITH LAWS. The Company has conducted and is conducting
its business in compliance with all applicable legal requirements. Additionally,
the Company has not been and is not in violation of any permit, authorization,
concession, agreement, contract, corporate document or other legally enforceable
obligation.
3.11 NO MISREPRESENTATIONS. None of the information contained in the
representations and warranties set forth in this Agreement, or in any of the
documents, certificates or instruments delivered or to be delivered to any other
party prior to or after the execution hereof as required or permitted by any
provision of this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading as of the date hereof
and as of the Closing.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
To induce the Seller to enter into this Agreement and to consummate the
sale of the Shares, the Buyer represents, warrants, covenants and agrees as
follows:
4.1 ORGANIZATION AND EXISTENCE: AUTHORIZATION; ENFORCEABILITY.
(a) ORGANIZATION OF THE COMPANY; GOOD STANDING. The Buyer
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, with full
corporate power and authority to own, lease or operate its
properties and assets and conduct its business in the manner
in which it is currently conducted.. The Buyer has the
corporate power and authority, will take all the actions
necessary and will obtain all necessary permits and
authorizations, if applicable, in order to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby.
(b) AUTHORIZATION, ETC The Board of Directors of the
Buyer has duly authorized and approved the execution, delivery
and performance of this Agreement, and the other agreements
and transactions contemplated hereby, and if other corporate
proceedings on the part of the Buyer are necessary to
authorize this Agreement and the transactions, contemplated
hereby, will be obtained before the Closing Date.
(c) ENFORCEMENT, ETC. This Agreement is a valid and
binding agreement of the Buyer enforceable in accordance with
its terms, subject, to enforceability, bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting
creditor's rights and general equity principles. This
Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the Buyer and any successor
of the Buyer by way of reorganization, merger, or
consolidation and any assignee of all or substantially all of
its business and assets.
(d) NO CONFLICT. The execution, delivery and performance
of this Agreement by the Buyer does not and will not violate
or constitute a breach of or default under any legal
requirement or order of any governmental entity to which the
Buyer is subject or under any agreement or instrument of the
Buyer, or to which the Buyer is subject or is a party or by
which the Buyer is otherwise bound.
ARTICLE V
CERTAIN AGREEMENTS AND COVENANTS OF THE PARTIES
Each and every obligation of the Buyer under this Agreement shall be
subject to the satisfaction by the Seller, on or before the Closing Date, of
each of the following conditions unless waived in writing by the Buyer:
5.1 ORDINARY COURSE. From the date hereof until January 29, 1999,
unless the prior written consent of the Buyer is first obtained, the Seller will
use its best efforts to preserve the value of the Company's assets and the
business operations of the Company, to preserve the goodwill of customers and
others having business relations with the Company, to maintain its properties in
good repair, working order and condition, to comply with all laws applicable to
it and the conduct of its business, to
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keep in force and effect all licenses, permits and authorizations held by the
Company necessary or desirable for the conduct of the Company's business, to
keep in full force and effect at not less than their present limits, all
policies of insurance, and to make no material change in the customary terms and
conditions of such insurance policies.
5.2 NOTICE; REPRESENTATIVE. Seller will promptly give written notice to
Buyer upon becoming aware of any event or the impending or threatened occurrence
of any event which would cause or constitute a breach of any of its
representations and warranties contained or referred to in this Agreement, and
will use its best efforts to prevent the same or remedy the same promptly. The
Seller shall promptly notify the Buyer of any material change in the normal
course of business, operation or properties of the Company, or of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or threat of
litigation, and shall keep the Buyer fully informed of any and all such events.
5.3 ACTIONS; FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, the Seller shall (i), take all steps that are within its power
to cause to be fulfilled those conditions precedent to Buyer's obligations to
consummate the transactions contemplated hereby that are dependent upon Seller's
actions, and (ii) use its best efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws to consummate and effect the transactions contemplated by this
Agreement and not to take any actions which would be adverse to such result. If
at any time after the Closing Date any further action is necessary or desirable
to carry out the purposes of this Agreement, Seller shall take, or cause to be
taken, all such necessary action. In addition, the Seller and the Company shall
at all times cooperate with the Buyer to assist, in obtaining refunds due to the
Company as a result of any tax benefits granted to the Company.
5.4 NON-SOLICITATION. The Seller shall not take any actions to seek,
encourage, solicit or support any inquiry, proposal, expression of interest or
offer from any other person or entity in connection with or with respect to an
acquisition, combination or similar transaction, involving the Company and/or
the Shares or a substantial portion of the assets of the Company, and the Seller
will immediately inform the Buyer of the existence of any such inquiry,
proposal, expression of interest or offer and shall not, without the prior
written consent of the Buyer, furnish any information to or participate in any
discussions or negotiations with, any other entity, person or group (other than
the Buyer and its agents and representatives) regarding same. Neither the Seller
nor the Company shall accept any inquiry, proposal, expression of interest or
offer, execute any agreement, or enter into or consummate any transaction with
respect to any of the foregoing and the Seller shall take all actions necessary
to ensure that the Company does not take any such action.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE BUYER
Each and every obligation of the Buyer under this Agreement shall be
subject to the satisfaction by the Seller and the Company, on or before the
Closing Date, of each of the following conditions unless waived in writing by
the Buyer:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Seller and the Company contained in Article III and elsewhere in this
Agreement and all information contained in any exhibit, certificate, schedule or
attachment hereto or in any writing delivered by or on behalf of, the Seller or
the Company to the Buyer, shall be true and correct when made, and shall be true
in all
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material respects at and as of the Closing Date. The Seller and the Company
shall have performed and complied with all agreements, covenants and conditions
and shall have made all deliveries required by this Agreement to be performed,
delivered and complied with by them prior to the Closing Date.
6.2 CONSENT AND APPROVALS. On or before January 29, 1999, the Seller
and/or the Company as the case may be shall have received in writing all
required approvals, consents or acquiescence from all governmental and
regulatory agencies, secured parties or other third parties with respect to the
transactions contemplated by this Agreement.
6.3 NO PENDING OR THREATENED LEGAL CLAIM. No (i) litigation of any kind
shall be pending or threatened; (ii) preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or by any federal or
state governmental or regulatory body; or (iii) statute, rule, regulation or
executive order promulgated or enacted by any federal or state governmental
authority after the date of this Agreement, which has or could have a material
adverse effect on the business, properties, prospects or condition, financial or
otherwise, of the Company, prohibits the consummation of the transactions
contemplated by this Agreement, or affects in any way the Seller's right title
and interest to the Shares or the Seller's ability to transfer the Shares to the
Buyer in accordance with the terms of this Agreement, shall be in effect pending
or threatened.
6.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
operations, the business, the financial condition or prospects of the Company
shall have occurred, and no fact shall have arisen which has or reasonably could
be expected to have a material adverse effect on the Company, or its properties,
assets or the consummation of the transactions contemplated hereby, in each case
in the sole and absolute discretion of the Buyer.
6.5 DUE DILIGENCE. The Seller shall have provided Buyer with access to
the Company's business, records and any information which the Buyer deemed
necessary, in its sole discretion, to conduct a satisfactory due diligence
examination, pursuant to which the Buyer has, among other things, (i) evaluated
the Company, its assets and liabilities, (ii) satisfied itself, in its sole and
absolute discretion, that the Company's assets were free of all Liens, or in a
satisfactory condition to the Buyer, (iii) satisfied itself, in its sole and
absolute discretion, that the Company does not have any debts, liabilities or
other obligations, whether absolute, contingent or otherwise, which have not
been disclosed in writing by the Seller, or are reflected in the Financial
Statements, and (iv) satisfied itself, in its sole and absolute discretion, that
the Company's licenses, permits and authorizations required for the Company to
operate its business are valid. Such due diligence was completed by the Buyer
about fifteen (15) days before the execution of this Agreement (the "Due
Diligence Period").
6.6 SHARE CERTIFICATES AND OTHER DOCUMENTS. The Seller shall have
delivered to the Buyer stock certificates evidencing the Shares duly endorsed
for transfer or accompanied by stock powers duly executed in blank. The Buyer
shall have received from the Seller all such other documents and instruments,
duly executed where required or appropriate, as it may reasonably request in
connection with the transactions contemplated by this Agreement, as set forth in
Section 1.1.
6.7 OPINION OF SELLER'S COUNSEL. The Seller shall have delivered an
opinion of counsel in a form reasonably satisfactory to the Buyer.
6.8 CORPORATE ACTION. The Company's Board of Directors shall have
approved the transactions contemplated by this Agreement if such approval is
necessary under the Company's Articles of Incorporation or By-laws.
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6.9 FAIRNESS OPINION. The Company shall have received an opinion from
a financial advisor stating that the transactions contemplated by this Agreement
are fair to the stockholders of the company from a financial prospective.
6.10 STOCKHOLDER APPROVAL. The stockholders of the Company shall have
approved this Agreement at a meeting of the stockholders or pursuant to a
consent solicitation.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF THE SELLER
Each and every obligation of the Seller under this Agreement shall be
subject to the satisfaction by the Buyer, on or before January 29, 1999, of each
of the following conditions, unless waived in writing by the Seller:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Buyer contained in Article IV and elsewhere in this Agreement and all
information contained in any exhibit, certificate, schedule or attachment hereto
or in any writing delivered by or on behalf of the Buyer to the Seller shall be
true and correct when made, and shall be true in all material respects at and as
of The Closing Date. The Buyer shall have performed and complied with all
agreements, covenants, and conditions and shall have made all deliveries
required by this Agreement to be performed prior to the Closing Date.
7.2 COVENANTS PERFORMED. All of the covenants, terms and conditions of
this Agreement to be complied with and performed by the Buyer on or before the
Closing Date shall have been duly complied with and performed.
7.3 PURCHASE PRICE. The Buyer shall have delivered to the Seller the
Purchase Price in accordance with Section 1.1 of this Agreement.
7.4 FAIRNESS OPINION. The Company shall have received an opinion from a
financial advisor stating that the transactions contemplated by this Agreement
are fair to the stockholders of the company from a financial prospective.
7.5 STOCKHOLDER APPROVAL. The stockholders of the Company shall have
approved this Agreement at a meeting of the stockholders or pursuant to a
consent solicitation.
ARTICLE VIII
INDEMNIFICATION
8.1 OBLIGATIONS OF BUYER. The Buyer agrees to defend, indemnify and
hold harmless Seller from, against and in respect of any and all demands,
claims, actions or causes of action, losses, liabilities, damages, assessments,
deficiencies, taxes, cost and expenses, including, without limitation, interest,
penalties and reasonable attorney's fees and expenses (collectively "Claims"),
asserted against, imposed upon or paid, incurred or suffered by Seller as a
result of, arising from, in connection with or incident to any material breach
or material inaccuracy of any representation, warranty, covenant or agreement of
the Buyer in this Agreement or in any document, certificate or other instrument
related hereto.
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8.2 OBLIGATIONS OF SELLER. Seller agrees to defend, indemnify and hold
harmless the Buyer from, against and in respect of any and all demands, claims
actions or causes of action, losses, liabilities, damages, assessments,
deficiencies, taxes, cost and expenses, including, without limitation, interest,
penalties and reasonable attorney's fees and expenses (collectively "Claims"),
asserted against, imposed upon or paid, incurred or suffered by the Buyer as a
result of, arising from, in connection with or incident to (i) any breach or
inaccuracy of any representation, warranty, covenant or agreement of Seller in
this Agreement, or in any document, certificate or other instrument related
hereto, (ii) the inability, failure or refusal of Seller to act in good faith in
connection with this Agreement, or the transactions, agreements, documents and
instruments delivered herewith or contemplated hereby, at any time from the date
of this Agreement until the later in time of (a) the Closing Date, or (b) the
end of the Due Diligence Period and (c) event which, as of the Closing Date,
have not been disclosed to the Buyer in writing.
8.3 INDEMNIFICATION PROCEDURE. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnification hereunder is referred to as the "Indemnified Party". An
Indemnified Party under this Agreement shall give prompt written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement. As to any claim by a third party, the
Indemnified Party, participate in the defense, compromise or settlement of any
such matter through the Indemnified Party's own attorneys and at the
Indemnifying Party's own expense; each of the Indemnifying Party and the
Indemnified Party shall provide such cooperation and such reasonable access to
its books, records and properties as the other party shall reasonable request
with respect to any such matter; and the parties hereto agree to cooperate with
each other in order to ensure the proper and adequate defense thereof. The Buyer
may setoff against the amount of any other payments due to Seller hereunder or
otherwise, including, without limitation, the Note, and any and all amounts, due
to the Buyer pursuant to any and all claims that the Buyer may have against
Seller hereunder including, without limitation, with respect to the
indemnification of the Buyer hereunder by Seller.
An Indemnifying Party shall not make any settlement of any claims
without the written consent of the Indemnified Party which consent shall not be
unreasonably withheld. Without limiting the generality of the foregoing, it
shall not be deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the Indemnified Party or its
assets, employees or business.
In a case where responsibility for a matter giving rise to a claim for
indemnification is shared by the parties, any of the parties may elect to
relieve the other of its obligations of indemnification with respect to such
matter and, subject to the provisions of this section, such electing party may
thereupon assume full control of the resolution of such matter. If such election
is not made, control shall also be shared.
ARTICLE IX
SURVIVAL OF TERMS; REPRESENTATIONS
9.1 SURVIVAL. The representations and warranties contained herein shall
be true and correct as of January 29, 1999 as though such representations and
warranties were made at and as of the Closing Date. All of these representations
and warranties shall survive the consummation of all of the transactions
contemplated by this Agreement.
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ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 BINDING AGREEMENT. This Agreement may not be transferred,
assigned, pledged or hypothecated all or in part by any party hereto without the
prior written consent of all the other parties hereto. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective assigns and successors in interest. No other person shall acquire or
have any right under or by virtue of this Agreement.
10.2 GOVERNING LAW. This Agreement, the rights and obligations of the
parties, and any other claims or disputes relating in anyway thereto will be
governed by and construed in accordance with the laws of the State of Florida.
10.3 COUNTERPARTS, HEADINGS, ETC. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. The
headings herein are for convenience of reference only and shall not be deemed a
part of this Agreement.
10.4 NOTICES. Any notice or other communication required or permitted
hereunder shall be deemed validly given, made or served if in writing and if
delivered in person or sent by facsimile transmission or registered or certified
mail to the intended recipient at the following address or to such other address
or number as shall be furnished in writing by any such party to the other:
If to the Seller: Antonio Echeverria
Ternerina
Hatillo Centro, de la Unidad
Sanitaria 500 metros al este.
If to the Buyer: Calixto Chaves
95 Merrick Way,
Suite 507,
Coral Gables,
Florida, 33134
10.5 AMENDMENT; SEVERABILITY: This Agreement may be amended only by an
agreement in writing signed by the parties hereto. In case any provision of this
Agreement shall be held invalid, illegal or unenforceable by any court the
validity, legality and enforceability of the remaining provisions will not be
affected or impaired thereby.
10.6 ARBITRATION. Any dispute arising in connection with this Agreement
shall be exclusively settled by binding arbitration in the Spanish language in
Miami, Florida, in accordance with the Rules of Arbitration and Conciliation of
the International Chamber of Commerce (the "Rules of Arbitration").
Notwithstanding any provision in the Rules of Arbitration, the arbitration panel
at any such arbitration proceeding shall consist of three arbitrators. One
arbitrator will be designated by Buyer, another arbitrator will be designated by
Seller and the third arbitrator will be a person mutually agreed upon by Buyer
and Seller. The arbitration panel shall render its decision in writing, and such
written decision and conclusions with respect to the disputes so settled shall
be final and binding on the parties to the
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arbitration proceeding and confirmation and enforcement of the awards so on the
parties to the arbitration proceeding and confirmation and enforcement of the
awards so rendered may be obtained and entered in any court having jurisdiction
thereof. Each of Buyer and Seller hereby irrevocably submits to the jurisdiction
of any such court for purposes of enforcement of the arbitration panel's
decision.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Seller:
By: /s/ Antonio Echeverria
------------------------------------
Antonio Echeverria
President
Comercial Angui, S.A.
By: /s/ Calixto Chaves
------------------------------------
Calixto Chaves
President
Costa Rica International, Inc.
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RICA FOODS, INC.
CONSENT OF STOCKHOLDERS TO ACTION WITHOUT A MEETING
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of Rica Foods, Inc. (the "Company"), hereby
consents, without prior notice and without a vote or meeting of stockholders,
with respect to all those shares of Common Stock, $0.001 par value, of the
Company which the undersigned holds, to (i) the approval and adoption of the
Stock Purchase Agreement, dated September 28, 1998, and amended on November 9,
1998, between the Company and Inversiones La Ribera, S.A., providing for the
acquisition by the Company of the remaining outstanding shares of capital stock
of Corporacion Pipasa, S.A. (the "Pipasa Agreement") and (ii) the approval and
adoption of the Stock Purchase Agreement, dated September 28, 1998, and amended
on November 9, 1998, between the Company and Commercial Angui, S.A., providing
for the acquisition by the Company of the remaining outstanding shares of
capital stock of Corporacion As de Oros, S.A. (the "As de Oros Agreement"), as
both are more fully described in the Company's Consent Solicitation Statement
dated December 4, 1998 (receipt of which is hereby acknowledged).
[x] Please mark consent as in this example.
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF RICA
FOODS, INC.
1. APPROVE AND ADOPT THE PIPASA AGREEMENT
CONSENT [ ] CONSENT WITHHELD [ ]
2. APPROVE AND ADOPT THE AS DE OROS AGREEMENT
CONSENT [ ] CONSENT WITHHELD [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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(CONTINUED FROM OTHER SIDE)
Please date and sign exactly as your name or names appear hereon. If more
than one owner, all should sign. Executors, administrators, trustees,
guardians, attorneys and corporate officers should indicate their fiduciary
capacity or full title when signing.
A consent executed by a stockholder may be revoked in writing at any time
prior to the time that consents sufficient to approve the Pipasa Agreement and
the As de Oros Agreement have been received by the Company, or, if earlier,
December 28, 1998.
Date:________________________________________
_____________________________________________
Signature
_____________________________________________
Signature
