UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-24124
FRESH AMERICA CORP.
6600 LBJ FREEWAY, SUITE 180
DALLAS, TX 75240
(972) 774-0575
INCORPORATED IN: IRS EMPLOYER
TEXAS IDENTIFICATION NO.: 76-0281274
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $0.01 Par Value Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
Based on the closing price reported on the Nasdaq National Market on March 24,
2000, the aggregate market value of common stock held by nonaffiliates of the
registrant was approximately $20,974,000.
The number of common shares outstanding of the registrant was 5,243,404 as
of March 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's proxy statement for the 2000 annual meeting of
shareholders are incorporated in Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Fresh America Corp. ("Fresh America", or the "Company", "we", "us", or
"our") provides procurement, processing, repacking, warehousing and distribution
services of fresh produce and other refrigerated products for a wide variety of
customers in the retail, food service and food distribution businesses.
Additional services such as "just-in-time" inventory planning, system
integration and customer support are also provided as areas of unique
specialization. Because of the perishable nature of fresh fruits and vegetables,
distribution requires specialists such as Fresh America that can maintain the
"cold chain" of distribution to ensure safety, quality and yield for the wide
variety of products available in today's marketplace. As one of the largest
distributors of fresh produce in North America, the Company serves over 4,000
customers in 42 states and Canada through 16 distribution and processing
facilities located in Arizona, California, Florida, Georgia, Illinois, Indiana,
Pennsylvania, Texas and Ontario, Canada.
The Company was founded in 1989 and commenced operations by delivering
produce to one Sam's Club ("Sam's" or "Clubs"), a division of Wal-Mart Stores,
Inc. The success of the initial venture in Houston, Texas allowed the Company to
rapidly expand its relationship with Sam's and provide produce for 375 Sam's
Clubs in the Midwest, Northeast, Southeast and Southwest at the peak of the
distribution agreement. Pursuant to the terms of the agreement, Sam's has
withdrawn 40 Clubs per year from service since 1997 as Wal-Mart or Sam's
distribution centers opened to provide direct service to Wal-Mart Supercenters
and/or Sam's Clubs. Currently, the Company services 238 Sam's in the Midwest,
Northeast and Southwest. The Sam's distribution agreement expires on November
30, 2000 and is not being renewed. See the following discussion in this section
under "Sam's Club" for further information on the Sam's distribution agreement.
With the Sam's agreement set to expire on November 30, 2000, the Company
began in 1995 to implement a strategy that would attract new customers over a
wider geographical area and diversify its customer base into other areas of
produce distribution. In executing its strategy, the Company completed 16
acquisitions from 1995 through 1998 and added various customer alliances
involving fresh produce procurement, warehousing, distribution and/or marketing.
Through these acquisitions and new customer relationships, the Company expanded
its cold chain distribution network to become national in scope, diversified its
customer and supplier relationships and expanded its value-added processing
capabilities.
Also in accordance with its strategy to diversify and to enhance its
national presence, the Company announced in May 1999 its intent to merge with
Fresh Point Holdings, Inc. ("FreshPoint"), a Dallas-based produce distribution
company approximately the same size as the Company with a primary emphasis on
distributing to the food service industry. Concurrent with the merger process,
the Company and the produce industry began to experience the effects of industry
consolidation in the retail arena and the effect of changes in the sourcing and
supply of product. During 1999, the Company experienced the following events:
substantially lower commodity pricing on staple items such as onions, melons and
bananas; the unavailability of certain products such as citrus fruits associated
with the 1998-1999 winter freeze in California; underperformance of three of the
Company's 1998 acquisitions located in the Southwest United States, all of which
experienced weakness in various commodity markets that were key to their
respective businesses; the loss of several broadline food service distributors
and other customers as a result of the pending merger with Fresh Point;
extensive Company resources dedicated to the proposed merger; and the inability
of certain operations to attain the necessary margins required to maintain
consistent profitability for the Company. As a result of the above events, the
merger agreement with FreshPoint was terminated in October 1999.
2
<PAGE>
When the termination of the merger agreement became likely, the Company
initiated the steps necessary (please see the caption "Strategy" below) to
redirect its resources away from a capital intensive acquisition strategy to one
that further enhances and better leverages its existing infrastructure while
utilizing excess cash flow to reduce debt. The Company feels that these efforts
will directly benefit ongoing operations in 2000 and help mitigate the pending
loss of revenue and operating income when the Sam's distribution agreement
expires.
Subsequent to December 31, 1999, the Company entered into agreements with
both a bank (the "Senior Lender") and an insurance company (the "Subordinated
Lender") to restructure its borrowing facilities. Additionally, the Company's
Subordinated Lender has entered into an agreement to purchase $5.0 million of
12% redeemable cumulative preferred stock of the Company. Such Subordinated
Lender will also be receiving warrants to purchase approximately 7% of the
Company's outstanding stock (on a fully diluted basis) at $3.25 per share.
Funding of the preferred stock is scheduled to occur by the end of April,
subject to a detailed purchase agreement satisfactory to such lender and the
Company and certain other conditions. These actions significantly strengthen the
Company's balance sheet as well as provide additional working capital to fund
its operations and growth. In addition to the measures described above, the
Company has engaged a major international bank as its exclusive financial
advisor to raise additional capital through the private placement of equity
and/or debt securities. See "Management's Discussion and Analysis - Liquidity
and Capital Resources".
STRATEGY
During much of 1999, the Company was under a definitive agreement to merge
with FreshPoint. The merger would have doubled the size of the Company and
strengthened its emerging position in specialty food service distribution while
continuing its focus and success in retail and wholesale related distribution,
including value-added services and program sales and distribution. Upon
termination of the merger agreement, which became effective in October of 1999,
the Company decided to divest most of its specialty food service operations due
to insufficient local market presence and poor performance. The Company has
evolved from a multi-channel provider of produce to one focused on areas of
proven performance and success primarily in wholesale/retail sales and
distribution. As a result, Fresh America is better positioned to leverage its
existing capabilities and capitalize on the industry's current trends in such
areas as retail consolidation, distribution consolidation, food safety,
technology, global sourcing, branded produce and supply chain management.
The Company is focused on leveraging the infrastructure of its existing
businesses to further diversify and broaden its customer base, geographic
coverage, market penetration and service offerings. Management has developed a
number of important strategies considered key to the success of the business:
(i) adhere to its proven operating model requiring high food safety standards
while providing quality products with high yields at reasonable prices, (ii)
actively support and enhance customer and supplier relationships, (iii) maintain
a low operating cost structure, (iv) utilize technology for competitive
advantage, and (v) proactively pursue alliances and internal expansions.
The Company intends to expand its value-added operations, particularly in
the area of tomato repack, outsource relationships through national programs,
import of specialty products and logistics services to both internal and
external customers. The Company will also expand its use of technology to
achieve enhanced supply chain management resulting in increased efficiency and
value while reducing exposure to commodity price fluctuations. As the retail,
food service and food distribution companies continue to consolidate and look
for value beyond low prices, supply chain management will become an increasingly
important component of the Company's national distribution capabilities.
Continuing emphasis on food safety and the cold chain required for proper
produce distribution align the Company well with national trends in consumption
and government regulation.
3
<PAGE>
As the Company's customer base grows, the Company will seek strategic
alliances with other companies that help fill any resulting gaps in its
distribution network. In the near term, this will result in a slower, more
controlled pace of growth than in prior years and allow more focus on leveraging
the existing infrastructure and enhancing efficiencies in its current base of
operations.
On January 20, 2000, Fresh America announced a long-term joint venture
agreement with Pacific Tomato Growers ("Pacific") to open two tomato ripening
and repackaging facilities to be located in Palmetto, Florida and Tracey,
California. Pacific is contributing the two facilities and equipment and the
Company is contributing its operating expertise, distribution and marketing
capabilities. Each party will contribute up to $100,000 of initial working
capital with no further contributions anticipated at this time.
After the termination of the Sam's agreement in November of 2000, the
Company plans to continue operations from three of the five related distribution
centers. Centers in Chicago, Illinois, Atlanta, Georgia and Dallas, Texas will
provide needed capacity for internal expansion and program growth in these
markets. The Company plans to exercise a clause to terminate its lease on a
distribution center in Cincinnati, Ohio and sell the facility in Houston, Texas.
Fresh America is moving its accounting and administrative functions that
are currently located at the Houston, Texas facility to its executive offices in
Dallas, Texas. The move is intended to enhance communication and effectiveness
of the Company's corporate offices and better position the Houston facility for
sale.
Executing this strategy requires little or no additional capital for
growth and allows operating cash flow to be used to reduce debt and strengthen
the Company's balance sheet. In addition to its operating cash flow and the
potential sale of the Houston facility, the Company expects a net operating loss
carryback refund of approximately $3.6 million for Federal income taxes paid in
1998 and 1997, which will be used to reduce its bank debt.
ACQUISITIONS / DIVESTITURES
During 1995 to 1998, the Company completed 16 acquisitions that greatly
expanded its distribution and service capabilities while diversifying its
customer base. Six of these acquisitions in the specialty food service business
never achieved sufficient market presence and were closed or sold during the
last six months of 1999. One of those operations (Tomahawk) that operated on the
Atlanta, Georgia produce market relocated its remaining tomato repacking
operation to the Company's Lawrenceville, Georgia facility that was primarily
dedicated to providing produce under the Sam's distribution agreement. The
tomato operation, coupled with expanding program distribution, lessened
dependence on the Sam's business and positioned the Lawrenceville facility for
continuing operations after this facility's remaining Sam's Clubs were withdrawn
from service in December 1999.
In February of 2000, Allied-Perricone, Inc., formerly known as Sam Perricone
Citrus Company ("Perricone"), closed its market operation in Los Angeles,
California and continues to operate its brokerage business in Walnut Creek and
Visalia, California.
4
<PAGE>
The table below identifies the acquisitions, their primary area(s) of
distribution and specialization and, where appropriate, the date divested:
<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY LOCATION PRIMARY SERVICES(a) DATE DIVESTED
- ------------- --------------------------------------- ---------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
September 1995 Lone Star Produce, Inc. Austin, TX 1 November 1999
November 1996 Produce Plus, Inc.b Houston, TX 1
January 1997 Chef's Product Team Los Angeles, CA 1 October 1999
March 1997 One More Tomato, Inc.b Houston, TX 3
May 1997 Pittman Produce of Orlando, Inc. Orlando, FL 1 September 1999
August 1997 C. Kalil Fruit & Vegetable, Inc.b Houston, TX 1,2,3
September 1997 Bano Quality Produce, Inc. Baton Rouge, LA 1,3 November 1999
December 1997 Premier Produce, Inc. San Antonio, TX 1 October 1999
December 1997 Tomahawk Produce, Inc. Atlanta, GA 1,2,3 September 1999
January 1998 Hereford Haven, Inc. d/b/a Martin Bros. Dallas, TX 2,3
February 1998 Francisco Distributing Co. Norwalk, CA 2
March 1998 Ontario Tree Fruits Ltd. and Affiliates Toronto, Ontario 2
August 1998 Jos. Notarianni & Co. Scranton, PA 2,3
October 1998 King's Onion House Phoenix, AZ 2,3
October 1998 Thompson's Produce Company Pensacola, FL 1,3
November 1998 Sam Perricone Citrus Company Los Angeles, CA 2 February 2000c
</TABLE>
(a) Primary Services: 1. Specialty Food Service; 2. Retail/Wholesale;
3. Value-Added.
(b) Subsequent to their acquisition dates, these companies were integrated into
one location in Houston, Texas in order to reduce costs and increase
efficiencies.
(c) Perricone closed its market operation in Los Angeles, California and
continues to operate its brokerage business in Walnut Creek and Visalia,
California.
For more information, see Note 3 to the accompanying consolidated financial
statements.
NATURE OF BUSINESS
The Company now focuses on providing produce and related products and
services in four primary areas of specialization: programs, retail/wholesale,
logistics and value-added processing and repacking. In 1999, the Company made a
decision to reduce its presence in specialty food service by divesting six
operations that lacked sufficient market presence and were underperforming.
Within each of the aforementioned areas of specialization, the Company provides
a broad array of services, which may include centralized purchasing, processing,
repacking, warehousing, distribution, inventory planning, system integration and
customer support. An expanded description of these areas of specialization
follows.
PROGRAMS. Due to the specialized handling requirements associated with
fresh fruits and vegetables and Fresh America's integrated distribution network
and related services, Fresh America is uniquely positioned to offer specialized
services to various retail, wholesale and distribution companies. These services
allow customers, such as Sam's Club, Dole Fresh Vegetables, Inc. and CKE
Restaurants/MBM Corporation to outsource certain aspects of their fresh produce
distribution function to Fresh America primarily for the purpose of eliminating
the infrastructure required to perform those activities.
In its program distribution business, the Company is typically compensated
on a fee for service or a predetermined margin basis. For example, with respect
to the Sam's Club program, the Company coordinates the purchase, transportation
and consolidation of produce based on the requirements of each Sam's location.
Fresh America purchases the produce and coordinates the shipment to one of its
distribution centers where it is combined with other produce and shipped to the
Sam's location by the Company's trucks or third-party carriers. For its
services, the Company earns a predetermined margin in a cost-plus arrangement.
5
<PAGE>
RETAIL/WHOLESALE. The Company sells produce and provides distribution
services to national and regional retail or wholesale accounts which include
supermarkets, independent grocers and other purchasers of fresh produce and
other food products. Fresh America provides a variety of services, which include
procuring, repackaging, warehousing and distributing of fresh produce for these
customers. The Company also imports specialty produce from various global
sources including Italy, Spain, Morocco, Argentina, Chile and Mexico. Produce is
generally distributed to central warehouses or, on a limited basis, directly to
the retail location.
VALUE-ADDED CAPABILITIES. The Company performs certain value-added
functions for customers that complement the other services it provides. These
functions include produce ripening and repackaging activities, the assembly and
preparation of fruit baskets and party trays of precut vegetables and the
processing and packing of various produce items. Certain operations employ
highly specialized ripening, sorting and packing equipment designed to increase
efficiency and decrease costs. The Company has expanded its position as one of
the largest tomato ripeners and repackers in the United States with its recently
announced joint venture with Pacific Tomato Growers. The joint venture will
operate from Palmetto, Florida and Tracey, California, the primary tomato
growing regions in the United States.
LOGISTICS. In late 1999, the Company expanded its logistics management
services, previously provided exclusively for Sam's, to both internal and
external customers. The service currently operates 184 trucks weekly
representing approximately 9,000 truck lanes a year. These services are targeted
for customers that can provide weekly commitments on a consistent basis for a
year round flat rate as well as customers that call randomly for load assistance
on a flat percentage basis. Internal services are provided on an as-needed basis
at combined rates less than available through other sources.
SPECIALTY FOOD SERVICE. Food service customers include restaurants,
hotels, schools, hospitals and other institutions. Produce is purchased by the
Company and shipped to a number of customers. Distribution of produce to food
service accounts generally requires a higher level of service, entailing as many
as six deliveries a week. The Company is de-emphasizing this area of
specialization in the future to better leverage the Company's strengths in the
other areas. See Item 7 - Management's Discussion and Analysis of Financial
Condition and Operating Results for further discussion.
PRODUCTS. The Company provides and procures approximately 500 items in
several product categories, including fresh produce, refrigerated prepackaged
produce, and processed foods. Fresh produce includes staple items such as
apples, lemons, lettuce, bananas, oranges, grapefruit, onions, tomatoes,
potatoes and garlic, and seasonal items such as strawberries, blueberries,
cherries, grapes, peaches, plums, avocados and watermelons. Refrigerated
prepackaged produce includes chopped lettuce and presliced fruits and
vegetables, including party trays of fresh, precut vegetables. Processed foods
include prepackaged salads, prepared salads and a limited selection of salad
dressings. The Company also provides certain specialty types of produce. For
example, Francisco Distributing Co. ("Francisco") ships and repackages mangos,
peppers and honey dew melons in the United States, while the Ontario Tree Fruits
Ltd. group of companies ("OTF") imports various specialty items such as
chestnuts, clementines and numerous other varieties of tree fruits.
WAREHOUSE AND DISTRIBUTION. The Company conducts its operations out of 16
operating facilities located in Arizona, California, Florida, Georgia, Illinois,
Indiana, Pennsylvania, Texas and Ontario, Canada. In addition, the Company
maintains executive offices in Dallas, as well as an administrative and
accounting office currently located in Houston, Texas. The Company is in the
process of transitioning its accounting and administrative functions to its
executive office in Dallas, Texas.
Each distribution center employs between 20 and 200 employees, most of
whom are involved in receiving and shipping, as well as driving the Company's
transportation fleet. The distribution centers are designed for receiving, cold
storage, sorting and shipping, and are positioned to allow the Company to
distribute perishable products by truck to its customers throughout the
respective regional geographical area. Fresh America has approximately 1 million
square feet of warehousing and processing space.
6
<PAGE>
Fresh America's products are delivered from its distribution centers to
customers utilizing Fresh America's fleet of leased and owned tractors,
refrigerated trailers and refrigerated trucks, as well as third party trucking
companies.
PURCHASING. Fresh America employs purchasing agents in most of its
operating locations who purchase produce directly from growers, shippers and
grower cooperatives.
The Company selects its suppliers carefully and regularly monitors their
ability to provide quality products at competitive prices. As a result of its
substantial volume of purchases, the Company is able to obtain fresh produce of
premium size, quality and appearance at very competitive costs. In many cases,
the Company purchases produce only from selected warehouses within a supplier's
system, based on management's assessment of the quality provided by the
particular warehouses. Produce is usually acquired for delivery within four
days, and the Company generally does not operate under contractual supply
agreements for its produce. Although purchases by Fresh America frequently
constitute a significant portion of a particular supplier's sales, no single
supplier accounts for more than ten percent of Fresh America's costs of goods
sold. Management believes that all of the items stocked in its inventory are
available from numerous suppliers at competitive prices.
In addition, the Company has a central buying department and logistics
group located in Dallas to handle certain requirements of its program business,
to purchase certain staple items common to all business units, to enhance its
buying power and to manage transportation for certain customers.
QUALITY CONTROL. The Company focuses on quality and freshness at each step
of the receipt, processing and distribution process. Because most of the
products delivered by the Company are perishable, proper handling, including
maintenance of constant temperature and humidity, is critical to the control of
product spoilage. Equally important is the Company's ability to accurately order
the correct quantity of each product to meet the demands of its customers.
Although the nature of the Company's business is such that some amount of its
inventory will be lost through spoilage, management attempts to minimize this
expense. Produce is transported to and from the Company's operating locations in
refrigerated, temperature-monitored trucks. When produce is to be received, the
Company's personnel inspect the products to ensure that quality specifications
have been satisfied. Accepted items are immediately stored in product specific,
temperature controlled environments. Purchased product typically spends no more
than three days in the Company's facilities before delivery to a specific
customer.
PERSONNEL. Fresh America refers to its employees as "associates" and
attempts to maintain a team spirit among all of its associates. Management
believes that the Company's relations with its associates are good. As of March
24, 2000 the Company employed a total of approximately 1,098 full-time
associates and 8 part-time associates, including approximately 53 corporate
associates and 1,053 regional associates. Certain operations of the Company have
collective bargaining agreements with their warehouse associates.
COMPETITION. The Company operates in highly competitive markets, and its
success will be largely dependent on its ability to provide quality products at
the best possible prices. The produce industry is highly fragmented and is
primarily comprised of small, family-owned operations serving local and regional
markets. The Company also competes with national food service and wholesale food
distribution companies, some of which have substantially greater financial
resources than the Company.
7
<PAGE>
SAM'S CLUB
Sam's is the Company's largest customer, and accounted for 31%, 37%
and 55% of the Company's sales for fiscal years 1999, 1998 and 1997,
respectively. Currently, the Company provides service to 238 Sam's Clubs. The
Company's distribution relationship with Sam's is governed by the terms and
conditions of a five-year agreement (the "Agreement"), which became effective
December 1, 1995 and expires on November 30, 2000. Sam's has elected not to
renew the contract and is expected to begin internal distribution of produce for
all of its clubs beginning in December of 2000. The Company will continue to
supply certain produce items to Sam's on a non-contractual basis. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") under the caption "Outlook and Uncertainties" for further
information about the Company's relationship with Sam's.
ITEM 2. PROPERTIES.
The Company's headquarters and executive offices occupy 8,238 square feet
of leased space in an office building in Dallas, Texas. The Company is leasing
an additional 6,980 square feet of space adjacent to its executive office to
accommodate the relocation of the accounting and administrative groups from its
owned distribution center on Cutten Road in Houston, Texas. As of March 24,
2000, the Company conducts its operations from the following facilities:
<TABLE>
<CAPTION>
OWNED/
LOCATION SQUARE FOOTAGE LEASED EXPIRATION DATE
----------------------------------------------------- -------------- ------- ----------------------
<S> <C> <C> <C>
Arlington, TX 105,000 Leased 03/31/01
Chicago, IL 145,289 Leased 07/31/07
Houston, TX - Cutten Road 50,000 Owned -
Houston, TX - West Loop 80,496 Leased 04/30/08
Lawrenceville, GA 64,000 Leased 01/18/02
Milton, Ontario 50,000 Owned -
Norwalk, CA - Blackburn Street 60,000 Leased 08/03/03
Norwalk, CA - Leyva Street 110,000 Leased 05/30/03
Panama City, FL 10,000 Leased Monthly
Pensacola, FL 71,500 Leased 04/13/13
Phoenix, AZ 104,000 Leased 09/30/10
Richmond, IN 37,000 Owned -
Rio Rico, AZ 16,000 Leased Monthly
Scranton, PA - Genet Street (2 buildings) 6,500 Owned -
Toronto, Ontario 23,000 Leased Perpetual leasehold
Wilkes-Barre, PA 50,000 Leased 06/01/01
</TABLE>
During 1999, the Company sold or closed the operations of certain
facilities (Please see Item 1 - "Strategy" under the "Business" caption) that it
currently owns or is obligated by a lease. Such properties are not listed above,
as they are not currently being used in operations, but aggregate approximately
112,150 square feet of leased space (with expiration dates ranging from 7 months
to 2.4 years as of December 31, 1999) and 10,000 square feet of owned space. The
Company has subleased certain of these properties to third parties and is
currently working to sublease the remaining properties or negotiate buyouts with
the landlords. During 1999, the Company pledged its owned facilities as
collateral security for its senior credit facility. See discussion of debt
arrangements under the caption "Liquidity and Capital Resources" in Item 7 -
MD&A.
8
<PAGE>
Management believes that its existing facilities are adequate for
the Company's present level of operations, although some consolidation is
possible due to overlap or modernization of facilities, and are generally
capable of accommodating growth within each existing geographic territory.
Expansion into a new geographic territory would require the Company to open one
or more additional operating facilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to, from time to time, various claims, disputes,
legal actions and other proceedings involving product liability, contracts,
equal employment opportunity, occupational safety and various other matters. In
the opinion of management, the outcome of any pending matters should not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the Nasdaq Stock Market
under the symbol FRES. As of March 24, 2000 the Company had 66 holders of record
for its common stock. The Company estimates that there were in excess of 1,000
beneficial owners of its common stock as of that date. The high and low sales
prices for the common stock on the Nasdaq Stock Market for each quarter of
fiscal 1998 and 1999 are shown below:
HIGH LOW
------ -------
1998
First Quarter 23 7/8 17 1/4
Second Quarter 24 1/4 16 3/16
Third Quarter 21 11 5/8
Fourth Quarter 17 9 1/2
1999
First Quarter 23 1/2 15 3/4
Second Quarter 20 5/8 12 1/2
Third Quarter 14 1/2 5
Fourth Quarter 6 11/16 3 3/8
The Company has never declared or paid cash dividends on its common stock.
The Company currently intends to retain sufficient earnings to support
operations and to finance expansion, and therefore, does not anticipate paying
cash dividends on its common stock in the foreseeable future. The payment of
cash dividends in the future will depend upon such factors as the Company's
earnings, capital requirements, capital structure, financial condition,
contractual restrictions and other factors deemed relevant by the Board of
Directors. In addition, the Company's current senior credit facility prohibits
the payment of cash dividends on its common stock.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA.
The following selected consolidated financial and operating data should be
read in conjunction with Item 7 - MD&A and Item 8-Financial Statements and
Supplementary Data contained herein. The consolidated statement of operations
and consolidated balance sheet data for each of the fiscal years in the
five-year period ended December 31, 1999 are derived from the audited financial
statements of the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1)
---------------------------------------------------------------
DEC. 31, JAN. 1, JAN. 2, JAN. 3, JAN. 5,
1999 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA (2): (In thousands, except per share amounts)
Net sales ..................................................... $ 669,875 $ 609,490 $ 429,524 $ 323,775 $ 207,120
Cost of sales ................................................. 591,977 537,556 386,161 291,810 177,013
--------- --------- --------- --------- ---------
Gross profit .................................................. 77,898 71,934 43,363 31,965 30,107
Selling, general and administrative expenses .................. 66,756 51,936 32,734 23,517 24,738
Provision for bad debt ........................................ 6,031 1,230 82 156 --
Depreciation and amortization ................................. 6,244 3,987 1,805 1,534 876
Disposition costs and write-offs on closed operations ......... 13,520 -- -- -- --
Transaction costs and other ................................... 4,655 1,395 -- -- --
--------- --------- --------- --------- ---------
Total operating costs and expenses ............................ 97,206 58,548 34,621 25,207 25,614
--------- --------- --------- --------- ---------
Operating income (loss) ....................................... (19,308) 13,386 8,742 6,758 4,493
Other income (expense) ........................................ (5,313) (2,123) 389 (32) (188)
--------- --------- --------- --------- ---------
Income (loss) before taxes .................................... (24,621) 11,263 9,131 6,726 4,305
Income tax expense (benefit) .................................. (2,630) 5,041 3,921 2,500 1,350
--------- --------- --------- --------- ---------
Net income (loss) ............................................. $ (21,991) $ 6,222 $ 5,210 $ 4,226 $ 2,955
========= ========= ========= ========= =========
Earnings (loss) per share - basic ............................. $ (4.20) $ 1.27 $ 1.19 $ 1.00 $ 0.72
========= ========= ========= ========= =========
Earnings (loss) per share - diluted ........................... $ (4.20) $ 1.20 $ 1.12 $ 0.94 $ 0.69
========= ========= ========= ========= =========
FISCAL YEAR ENDED (1)
---------------------------------------------------------------
DEC. 31, JAN. 1, JAN. 2, JAN. 3, JAN. 5,
1999 1999 1998 1997 1996
--------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA: (In thousands)
Working capital ............................................... $ 12,246 $ 28,474 $ 11,219 $ 11,284 $ 8,219
Property, plant and equipment, net ............................ 24,440 23,900 13,581 10,100 9,216
Total assets .................................................. 134,481 158,099 79,964 45,769 42,407
Long-term debt, less current portion .......................... 32,843 35,985 6,193 547 610
Shareholders' equity .......................................... 29,771 50,562 29,335 22,310 17,407
</TABLE>
(1) The Company's fiscal year is a 52-week or 53-week period ending on the
Friday closest to calendar year end. Consequently, Fiscal 1995 is a 52-week
and 5 day period. Fiscal 1996 through fiscal 1999 are 52-week periods.
(2) As discussed in Item 1 - Business and in Note 3 to the accompanying
financial statements, the Company made several acquisitions from 1995
through 1998 and several divestitures in 1999 that affect the comparability
of information reflected in the selected financial data.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table presents the components of the consolidated statements
of operations as a percentage of sales for the periods indicated and includes
the results of operations for all acquired companies from their date of
acquisition, except that OTF's results of operations are included for all
periods since it has been accounted for as a pooling of interests. See Note 3 to
the accompanying financial statements. The fiscal years ended December 31, 1999
(fiscal 1999), January 1, 1999 (fiscal 1998) and January 2, 1998 (fiscal 1997)
are all 52-week periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ................................ 100.0% 100.0% 100.0%
Cost of sales ............................ 88.4 88.2 89.9
------------ ------------ ------------
Gross profit ............................. 11.6 11.8 10.1
Selling, general and administrative ...... 10.0 8.5 7.7
Provision for bad debt ................... 0.9 0.2 0.0
Depreciation and amortization ............ 0.9 0.7 0.4
Disposition costs and write-off on ....... 2.0 0.0 0.0
Transaction costs ........................ 0.6 0.2 0.0
Settlements of lawsuits .................. 0.1 0.0 0.0
------------ ------------ ------------
14.5 9.6 8.1
------------ ------------ ------------
Operating income (loss) .................. (2.9) 2.2 2.0
Other income (expense) ................... (0.8) (0.4) 0.1
------------ ------------ ------------
Income (loss) before taxes ............... (3.7) 1.8 2.1
Income tax expense (benefit) ............. (0.4) 0.8 0.9
------------ ------------ ------------
Net income (loss) ........................ (3.3%) 1.0% 1.2%
============ ============ ============
</TABLE>
COMPARISON OF FISCAL 1999 TO FISCAL 1998
NET SALES. Net sales increased $60.4 million, or 9.9%, to $669.9 million
in fiscal 1999 from $609.5 million in fiscal 1998. Such increase was primarily
attributable to acquisitions made during or subsequent to the third quarter of
1998. This increase was somewhat offset by weak commodity prices during the
second half of fiscal 1999. Sam's, the Company's largest customer, represented
30.5% of net sales in fiscal 1999 compared to 36.5% in fiscal 1998. Fourth
quarter sales decreased to $151.1 million compared to $176.6 million in the
comparable 1998 period, reflecting the effect of certain divestitures and the
reduction of 40 Sam's Clubs. See Note 13 to the accompanying consolidated
financial statements.
COST OF SALES. Cost of sales increased $54.4 million, or 10.1% to $592.0
million in fiscal 1999 from $537.6 million in fiscal 1998, primarily reflecting
the increase in net sales above. As a percentage of net sales, cost of sales
increased slightly to 88.4% from 88.2%, which in turn decreased the Company's
gross profit percentage to 11.6% from 11.8%. The Company's margins were
negatively affected by weak commodity markets in the industry on such staples as
onions, melons and bananas as well as the unavailability of citrus product
associated with last winter's freeze.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $14.8 million, or 28.5% to $66.7
million in fiscal 1999 from $51.9 million fiscal 1998. The increase is primarily
due to $14.9 million of SG&A expenses related to acquisitions made during or
subsequent to the third quarter of 1998.
PROVISION FOR BAD DEBT. The Company's provision for bad debt increased
$4.8 million to $6.0 million in fiscal 1999 from $1.2 million in fiscal 1998. In
fiscal 1999, the Company recorded an additional provision for bad debt amounting
to $1.9 million related to the closure or sale of six of its food service
operations. The Company also recorded charges totaling $2.1 million related to
certain distribution agreements. The remaining increase was primarily due to the
recent downturn in the industry. See Note 6 to the accompanying consolidated
financial statements.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$2.2 million, or 56.6% to $6.2 million in fiscal 1999 from $4.0 million fiscal
1998. The increase was primarily due to goodwill amortization related to
acquisitions made subsequent to or during the latter part of fiscal 1998 and
increased depreciation related to the Company's computer system that was
implemented in its core operations in October 1998.
DISPOSITION COSTS AND WRITE-OFFS ON CLOSED OPERATIONS. During 1999, the
management of the Company decided to improve its cost structure, streamline
operations and divest underperforming assets. The Company's plan included moving
its accounting and administrative functions located in Houston, Texas to its
executive offices in Dallas, Texas. This process will be substantially completed
in 2000. Additionally, in 1999 the Company decided to close or sell several of
its underperforming food service operations and a wholesale market operation.
These operations were located in Los Angeles and San Francisco California;
Orlando, Florida; Atlanta, Georgia; Baton Rouge, Louisiana and Austin and San
Antonio, Texas. The food service operations in Orlando, Los Angeles and Atlanta
were closed during the third quarter of 1999, while the San Antonio and San
Francisco operations were closed in October 1999. The Austin and Baton Rouge
food service operations were sold in November 1999. The Company's Los Angeles
market operation was closed February 4, 2000. As a result of the above
transactions, the Company recorded goodwill impairment of $10.6 million,
recorded impairment charges to reduce the carrying value or incurred losses on
the sale of property and equipment of $1.0 million and incurred closure costs
(consisting primarily of lease commitments and severance costs) of $2.0 million.
TRANSACTION COSTS. On May 3, 1999, the Company and FreshPoint entered into
a definitive agreement pursuant to which FreshPoint would have merged with and
into the Company. The transaction was to be accounted for as a reverse
acquisition with FreshPoint as the accounting acquirer. Effective in October
1999, the agreement was terminated by the Company and FreshPoint. During fiscal
1999, the Company recorded merger-related expenses of $3.9 million, which
consisted primarily of investment banking fees, legal and professional fees,
severance costs and stay-to-close incentives associated with planned reductions
in work force. Fiscal 1998 included $1.4 million in transaction costs related to
the acquisition of OTF.
SETTLEMENTS OF LAWSUITS. In fiscal 1999, the Company settled a lawsuit,
which, including legal costs, amounted to $0.6 million. The lawsuit involved a
dispute over the Company's alleged improper solicitation of employees while
starting up a new business in 1998. Additionally, the Company settled two
lawsuits with former employees amounting to $0.2 million.
OPERATING INCOME (LOSS). As a result of the foregoing factors, the Company
incurred an operating loss of $19.3 million in fiscal 1999 compared to operating
income of $13.4 million in fiscal 1998.
OTHER INCOME (EXPENSE). Interest expense increased $2.7 million to $5.7
million in fiscal 1999 from $3.0 million in fiscal 1998 due to increased
borrowings to help finance acquisitions that were made during the latter part of
fiscal 1998 and, to a lesser extent, increased interest rates during 1999.
Interest income decreased
12
<PAGE>
$0.7 million to $0.3 million in fiscal 1999 from $1.0 million in fiscal 1998
primarily due to interest recognized by OTF in fiscal 1998 related to a settled
insurance claim that had been in dispute for several years.
INCOME TAX EXPENSE (BENEFIT). The effective tax rate for fiscal 1999 was
10.7% compared to 44.8% in fiscal 1998. The difference is primarily attributable
to a valuation allowance of $4.6 million that was recorded against the Company's
deferred tax assets and the tax effect of $2.0 million related to the write off
of non-deductible goodwill. See Note 9 to the accompanying financial statements.
NET INCOME (LOSS). As a result of the foregoing factors, the Company
incurred a net loss of $22.0 million in fiscal 1999 compared to net income of
$6.2 million in fiscal 1998.
COMPARISON OF FISCAL 1998 TO FISCAL 1997
NET SALES. Net sales increased $180.0 million, or 41.9%, to $609.5 million
in fiscal 1998 from $429.5 million in fiscal 1997. The increase was primarily
due to: a) acquisitions made in late 1997 and during 1998 which represented
$153.3 million of the sales increase, and b) expansion and increase in sales of
several distribution programs amounting to $22.8 million. As a percentage of
total net sales, Sam's represented 36.5% in fiscal 1998 compared with 54.8% in
fiscal 1997.
COST OF SALES. Cost of sales increased by $151.4 million, or 39.2%, to
$537.6 million in fiscal 1998 from $386.2 million in fiscal 1997, primarily
reflecting the increase in net sales explained above. As a percentage of net
sales, cost of sales decreased to 88.2% from 89.9%, which in turn increased the
Company's gross profit percentage to 11.8% from 10.1%. The increase in gross
profit percentage is primarily due to acquisitions made during the last quarter
of fiscal 1997 and during fiscal 1998, which expanded the Company's distribution
and cross-selling capabilities resulting in higher profit margins. Such
acquisitions represented 25.1% of total net sales in fiscal 1998. Additionally,
gross profit from the Sam's contract increased to 9.9% in fiscal 1998 from 8.9%
in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by
$19.2 million or 58.7% to $51.9 million in fiscal 1998, from $32.7 million in
fiscal 1997. The increase is primarily due to SG&A expenses related to acquired
businesses ($15.6 million) and, to a lesser extent, additional headcount and
other costs required to support the Company's increased acquisition, integration
and operating activities.
PROVISION FOR BAD DEBT. The Company's provision for bad debt increased
$1.1 million to $1.2 million in fiscal 1998 from $0.1 million in fiscal 1997 due
primarily to the acquisitions made during 1997 and 1998. Prior to acquiring such
companies, the Company's business was primarily Sam's Clubs and other
contractual relationships, which involved minimal bad debt.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$2.2 million, or 120.9% to $4.0 million in fiscal 1998 from $1.8 million in
fiscal 1997. The increase was primarily due to goodwill amortization related to
acquisitions made subsequent to or during the latter part of fiscal 1997.
TRANSACTION COSTS. In 1998, the Company expensed transaction costs of $1.4
million related the acquisition of OTF, which was accounted for as a pooling of
interests. There were no such similar costs in fiscal 1997.
OPERATING INCOME. As a result of the factors discussed above, which
include $1.4 million of nonrecurring transaction costs in fiscal 1998, operating
income increased by $4.7 million, or 53.1% to $13.4 million in fiscal 1998 from
$8.7 million in fiscal 1997. Operating income, as a percentage of net sales,
remained relatively consistent at 2.2% in fiscal 1998 compared to 2.0% in fiscal
1997.
13
<PAGE>
OTHER INCOME (EXPENSE). Interest expense increased $2.5 million to $3.0
million in fiscal 1998 from $0.5 million in fiscal 1997 due to increased
borrowings to help finance acquisitions that were made in fiscal 1998. Interest
income increased $0.7 million to $1.0 million in fiscal 1998 from $0.3 million
in fiscal 1997 primarily due to interest recognized by OTF in fiscal 1998
related to a settled insurance claim that had been in dispute for several years.
INCOME TAX EXPENSE (BENEFIT). The effective tax rate increased to 44.8% in
fiscal 1998 from $42.9% in fiscal 1997 primarily due to net non-cash transaction
costs of $0.5 million related to the acquisition of OTF that were not deductible
for income tax purposes.
NET INCOME. As a result of the factors discussed above, net income
increased by $1.0 million, or 19.4% to $6.2 million in fiscal 1998 from $5.2
million in fiscal 1997. As a percentage of net sales, net income decreased to
1.0% from 1.2%.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased $2.8 million to $4.4
million for fiscal 1999 compared to $1.6 million in fiscal 1998. The increase
was due to a reduction in accounts receivable of $17.1 million, which provided
more cash, but was offset to a large extent by a decrease in accounts payable of
$13.4 million.
Cash used in investing activities decreased $14.9 million to $8.4 million
in fiscal 1999 from $23.3 million in fiscal 1998. The decrease from the prior
year is due primarily to the acquisitions that were made in fiscal 1998.
Although earnout payments were made related to the Francisco acquisition, the
Company made no acquisitions in fiscal 1999.
Cash provided by financing activities decreased $14.2 million to $6.0
million in fiscal 1999 compared to $20.2 million in fiscal 1998. The decrease in
cash flows from financing activities compared to the prior year is primarily due
to borrowings used to finance acquisitions made in fiscal 1998.
At December 31, 1999, the Company had working capital of $12.2 million
compared to $28.5 million at January 1, 1999. The decrease in working capital is
primarily due to the restructuring of the payment schedule of its senior secured
revolving credit facility with a major U.S. bank ("Revolver"), the use of
substantial amounts of working capital to fund merger activities and the
Company's fiscal 1999 operating loss.
The Company is party to a senior secured revolving credit facility
agreement with the Senior Lender and a subordinated note agreement with the
Subordinated Lender. The Company was not in compliance with certain covenants
under the agreement with the Senior Lender during fiscal 1999 and was not in
compliance with certain covenants under both agreements at December 31, 1999.
Subsequent to December 31, 1999, the Company entered into an amendment (the
tenth amendment to the Revolver) of the agreement with the Senior Lender that
waived the instances of noncompliance and established new terms, including terms
for repayment of the outstanding borrowings, obtained waivers from the
Subordinated Lender for instances of noncompliance at December 31, 1999 and
anticipated future instances of noncompliance through January 1, 2001, and
entered into a commitment agreement with the Subordinated Lender to provide
additional financing through the purchase of $5.0 million of the Company's 12%
redeemable cumulative preferred stock ("Preferred Stock"), and to restructure
the existing subordinated notes.
The Company's Revolver provides for borrowings of up to $22.0 million as
of December 31, 1999 with outstanding borrowings as of that date of $21.2
million. The available and outstanding Revolver balance was reduced to $21.0
million as of March 31, 2000. Available borrowings under the Revolver will be
further reduced by scheduled principal reductions of $1.0 million on June 30,
2000, $2.0 million on September 30, 2000, and $2.0 million on December 31, 2000.
In addition to the scheduled principal reductions described above, all proceeds
from any income tax refunds or disposition of assets or subsidiaries and a
minimum of one-half of any proceeds from the issuance of debt or equity
securities (other than the Preferred Stock) must be
14
<PAGE>
used to further permanently reduce available and outstanding bank borrowings.
Repayment of the Revolver balance is due in February 2001. Under the amended
agreement, interest will accrue at prime plus 3% (currently 12%) through the
expiration of the agreement in February 2001. The Company must also comply with
certain minimum earnings before interest, taxes, depreciation and amortization
("EBITDA") requirements and capital expenditure restrictions. The amendment also
requires the deferral of interest payments to the Subordinated Lender until the
earlier of May 1, 2001 or such time that the Subordinated Lender funds the
purchase of the Preferred Stock.
The Subordinated Lender holds notes totaling $20.0 million, bearing
interest at 12%, payable semi-annually in May and November. Principal payments
of $6.7 million each are due in May 2001 and 2002 with the remainder due in May
2003. In connection with the waivers provided to the Company, the Subordinated
Lender also agreed to defer receipt of interest payments and waive such
nonpayment of interest as an event of default until the earlier of May 1, 2001
or the funding of the Preferred Stock.
Under the terms of the commitment agreement with the Subordinated Lender,
which is contingent upon the execution of a formal purchase agreement containing
customary representations, warranties, covenants and conditions, the lender is
to purchase $5.0 million of Preferred Stock, the funding of which is scheduled
to occur by April 30, 2000. In conjunction with the purchase and funding of the
Preferred Stock, the terms of the commitment agreement provide that the
repayment terms of the subordinated notes will be modified such that the entire
balance will be due in a single payment 7 years from the date of the funding of
the Preferred Stock. The terms of the commitment agreement also decrease the
exercise price of 155,483 warrants previously issued to the Subordinated Lender
from $22.70 to $3.25 per share and extend the expiration date of the warrants to
approximate the modified maturity date of the subordinated notes. In connection
with the purchase of the Preferred Stock, the Subordinated Lender will also be
receiving warrants to purchase a number of common shares equal to approximately
7% of the Company's outstanding common stock (on a fully-diluted basis) at $3.25
per share.
Upon funding of the Preferred Stock, the agreement with the Senior Lender
will be further amended to include additional scheduled principal reductions of
$1.5 million in 2000, eliminate the minimum EBITDA requirement and limit the
monthly Revolver balance to predetermined amounts in excess of a computed
borrowing base.
Failure of the Company to comply with the terms of the amended agreement
with the Senior Lender or the agreement with the Subordinated Lender could
result in a default under the terms of the agreements. Upon the occurrence of an
event of default, the lenders would be entitled to declare the amounts
outstanding, including accrued interest to be immediately due and payable. If
repayment of the Company's debt was to be accelerated, the Company cannot be
certain that its assets or liquidity would be sufficient to repay such debt.
In addition to the Company's revolving credit facility, the Company's
Canadian subsidiaries have revolving credit facilities of up to CDN $20.0
million ($13.9 million) which is payable upon demand. The Canadian facilities
had an outstanding balance of CDN $13.1 million ($9.1 million) as of December
31, 1999.
Management believes that the combination of cash generated from ongoing
operating activities and the realization of recent reductions in overhead
expenses, and the effects of the amendment to Revolver will enable the Company
to meet its obligations as they come due in 2000. Furthermore, management
anticipates closing of the financing arrangements with the Subordinated Lender
and continuing its efforts to complete the refinancing of the remaining Revolver
balance on or before the February 2001 maturity date.
15
<PAGE>
The Company has also retained Rabobank International ("Rabobank") as its
exclusive financial advisor to raise additional capital through the private sale
of equity or debt securities. The Company expects that any such capital raised
would be used primarily to refinance existing debt and possibly the Preferred
Stock. The Company also intends to arrange a new senior debt facility to replace
the current facility which expires in February 2001. There can be no assurance
that Rabobank will be able to raise additional capital or that the Company will
be able to arrange a new senior credit facility.
NEW ACCOUNTING STANDARDS
The Company is assessing the reporting and disclosure requirements of
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. The statement, as amended by SFAS No. 137, is effective for
financial statements for fiscal years beginning after June 15, 2000. The Company
has not yet determined the impact SFAS No. 133 will have on its financial
statements. The Company will adopt the provisions of SFAS No. 133, if
applicable, in the first quarter of fiscal 2001.
QUARTERLY RESULTS AND SEASONALITY
The Company's business is somewhat seasonal, with its greatest quarterly
sales volume historically occurring in the fourth quarter. With the change in
the current mix of business resulting from the Company's divestitures of certain
specialty food service operations, the termination of the Sam's agreement in
November 2000 and the increasing effect of global sourcing, seasonal
fluctuations may diminish in future years. A substantial portion of the
Company's produce sales consists of staple items such as apples, oranges,
grapefruit, potatoes and onions, which are strongest during the fall, winter and
spring. The supply and quality of these items declines during the summer,
although lower sales of these items are partially replaced by more seasonal
products such as peaches, plums, nectarines, strawberries and melons. Sales of
refrigerated, prepackaged products, such as vegetable trays, are strongest
during the fourth quarter holiday season. In any given quarter, an adverse
development such as the unavailability of high quality produce or harsh weather
conditions could have a disproportionate impact on the Company's results of
operations for the full year. See Note 11 to the accompanying financial
statements for certain quarterly information for the Company's two most recent
fiscal years.
INFLATION
Although the Company cannot determine the precise effects of inflation,
management does not believe inflation has had a material effect on its sales or
results of operations. However, independent of normal inflationary pressures,
the Company's produce products are subject to fluctuating prices which result
from factors discussed in "Quarterly Results and Seasonality" above.
OUTLOOK AND UNCERTAINTIES
The Company is subject to a number of risks. The risks described below are
not the only ones that we face. Additional risks that we do not yet know of or
that we currently think are immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial condition,
results of operations and common stock price could be materially adversely
affected.
This Annual Report and the information incorporated by reference in this
Annual Report contain forward-looking statements. These statements refer to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "anticipates," "plans," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms and other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors,
16
<PAGE>
including the risks outlined below. These factors may cause our actual results
to differ materially from those expressed in forward-looking statements made or
incorporated by reference in this Annual Report, or in any other SEC filings or
public statements we may make. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
OUR LEVERAGE IS SUBSTANTIAL, MAKING IT MORE DIFFICULT TO RESPOND TO
CHANGING BUSINESS CONDITIONS. After giving effect to our refinancing agreements,
including the sale of the Preferred Stock, as of December 31, 1999 on a proforma
basis, we would have $62.3 million of debt, consisting primarily of our senior
credit facility, subordinated debt, Canadian revolving credit facility and $5.0
million of redeemable preferred stock. We also may have additional debt or
preferred stock if Rabobank is successful in raising private capital for us. The
degree to which we are leveraged:
o could materially limit or impair our ability to obtain additional
financing or refinancing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other
purposes;
o will require us to dedicate a substantial portion of our cash flow
to the payment of principal and interest on our indebtedness and
dividends on our preferred stock, which reduces the availability of
cash flow to fund working capital, capital expenditures and growth
opportunities; and
o will increase our vulnerability to economic downturns, limit our
ability to with stand competitive pressures and reduce our
flexibility in responding to changing business and economic
conditions.
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR INDEBTEDNESS
AND PREFERRED STOCK; OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND
OUR CONTROL. Our ability to make scheduled payments with respect to indebtedness
and preferred stock will depend upon, among other things:
o our ability to achieve significant and sustained growth in cash flow;
o successful operation of our business;
o produce commodity pricing;
o our ability to expand or generate new customer relationships to
offset the loss of our Sam's business in November 2000; and
o our ability to complete additional financings.
Each of these factors is affected by economic, financial, competitive and
other factors, many of which are beyond our control. If we are unable to
generate sufficient cash flow to service our indebtedness or preferred stock, we
may have to reduce or divest certain operations, restructure or refinance our
indebtedness or preferred stock or seek additional equity capital.
POTENTIAL ADVERSE EFFECT OF EXPANDING OUR BUSINESS. Our management has
stated its intention to expand and diversify our customer base, geographic
coverage, market penetration and service offerings through leveraging the
infrastructure of our existing businesses. These opportunities will be subject
to all of the risks inherent in the establishment of a new product or service
offering, including intense competition, lack of sufficient customer demand or
change in customer tastes, inadequate assured sources of quality product supply
and unforeseen complications, delays and cost increases. Some of our prior
acquisitions were not successfully integrated into our business and there can be
no assurance that we will succeed in integrating such new business into our
existing infrastructure.
LOSS OF SAM'S CLUB AS A CUSTOMER WILL ADVERSELY AFFECT OUR BUSINESS. Sam's
Club, a division of Wal-Mart Stores, Inc. ("Sam's"), is our primary customer and
accounted for approximately 31%, 37% and 55% of our sales for fiscal 1999, 1998
and 1997, respectively. Our relationship with Sam's is governed by the terms and
conditions of a five-year agreement (the "Agreement") that became effective
December 1, 1995 and
17
<PAGE>
expires on November 30, 2000. Under the terms of the Agreement, Sam's has
withdrawn 40 clubs per year from service since 1997 as Wal-Mart or Sam's Club
distribution centers opened to provide direct service to Wal-Mart Supercenters
and/or Sam's Clubs. Currently, we provide service to 238 Clubs. Our expansion
strategy was designed in part to reduce our dependence on Sam's over the
five-year term of the Agreement through strategic acquisitions as well as the
expansion of program sales and distribution and value-added products.
The loss of Sam's business after the agreement expires will adversely
affect our revenues and related profitability beyond November 30, 2000. Sam's
currently contributes approximately one-third of our revenue base. While the
loss of Sam's business will mean the elimination of substantial related
operating expenses, our operating income may be reduced to a greater extent than
our revenues because we may not be able to eliminate all of our Sam's related
expenses and because the Sam's business has been one of our higher operating
margin programs.
THE TERMS OF OUR SENIOR SECURED REVOLVING CREDIT FACILITY AND SUBORDINATED
DEBT IMPOSE RESTRICTIONS ON OUR OPERATIONS. The terms and conditions of our
senior secured revolving credit facility impose restrictions that affect, among
other things, our ability to incur debt, make capital expenditures, merge, sell
assets, make distributions, or create or incur liens. Availability of our credit
facility is also subject to scheduled principal reductions and minimum levels of
EBITDA. Our ability to comply with these requirements can be affected by events
beyond our control and there can be no assurance that we will achieve operating
results that comply with the provisions of the credit agreement. A breach of
these covenants could result in a default under our credit facility. In the
event of a default, the bank could elect to declare the outstanding principal
amount or our credit facility, all interest thereon and all other amounts
payable under our credit facility to be immediately due and payable. Our
subordinated debt also contains various restrictions which if not complied with
could result in a default and possible acceleration of such debt.
Our ability to satisfy our debt obligations will depend upon our future
operating performance, which will be affected by prevailing economic, financial
and business conditions and other factors, some of which are beyond our control.
WE MAY NOT BE ABLE TO RAISE NEEDED FUNDS. During the last six months of
1999 to enhance cash flow, we reduced overhead levels, closed or sold
underperforming operations and redirected resources away from a
capital-intensive acquisition strategy to a strategy that further enhances and
better leverages our existing infrastructure. During 2000, we intend to sell our
Houston distribution center previously dedicated to our Sam's business and we
expect to also receive a substantial tax refund for Federal income taxes paid in
1997 and 1998. Subsequent to December 31, 1999, we received commitments from our
Subordinated Lender to purchase $5.0 million of Preferred Stock and extend the
payment terms of their debt. These actions, coupled with our operating cash
flow, will be used to make mandatory reductions to our Revolver during 2000.
We also intend to further strengthen our balance sheet by issuing
additional preferred equity and refinancing our senior debt. There can be no
assurance that we will be able to generate sufficient cash flow or raise
additional debt or equity capital on satisfactory terms in order to refinance
our senior credit facility and expand our business. Changes in interest rates,
market liquidity, stock prices and general market conditions may all affect our
ability to raise funds.
POTENTIAL ADVERSE EFFECTS OF PRICE AND QUALITY FLUCTUATIONS. Prices of
high quality fresh produce are extremely volatile based on available supply,
which can be significantly affected by factors such as weather, disease and
level of agricultural production. Both our sales and profitability could be
negatively affected during periods of exceptionally high, low or volatile prices
or when we cannot obtain sufficient high quality produce. During periods of
lower produce prices, our operating income is adversely affected because we have
less gross margin to cover operating expenses.
18
<PAGE>
WE OPERATE IN HIGHLY COMPETITIVE MARKETS. We operate in highly competitive
markets, and our success will be largely dependent on our ability to provide
quality products at the lowest possible prices. We compete with food service
companies, produce distribution companies and wholesale food distribution
companies, some of which have substantially greater financial resources. There
can be no assurance that we will be able to compete successfully with current or
future competitors.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. Our future
success will depend to a significant extent on the efforts and abilities of our
senior management. The loss of the services of one or more of our senior
managers could have a material adverse effect on us.
WE HAVE A SEASONAL BUSINESS. Our business is seasonal, with our highest
sales and net income historically occurring during our fourth fiscal quarter.
Any adverse development affecting our operations during this period, such as the
unavailability of high quality produce or harsh weather conditions, could have a
disproportionate impact on our results of operations for the full year.
YEAR 2000
The Company experienced no significant disruption to its operations as a
result of Year 2000 issues related to information systems and software
applications. There have been no indications that any third party upon which the
Company relies, including vendors, suppliers, and financial institutions, has
experienced any Year 2000 problems which would have a material impact on the
future operations or financial results of the Company. The Company previously
had not incurred any material cost, whether internal or external, related to
addressing its Year 2000 issues and does not expect any significant future
disruptions related to Year 2000 issues either internally or from third parties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE RISK. Our Canadian operations are subject to foreign
currency risk; however, we have not experienced any material foreign currency
transaction gains or losses during the last three fiscal years. Foreign currency
translation adjustments are recorded to our consolidated shareholders' equity
under accumulated comprehensive income. We manage foreign currency risk by
maintaining portfolios of currency denomination in the currency for which it is
required to make payment.
INTEREST RATE RISK. Our senior credit facilities accrue interest at a
market rate at the time of borrowing plus an applicable margin on certain
borrowings. The interest rate is based on the lending bank's prime rate. We
manage our borrowings under our credit facilities each day in order to minimize
interest expense. The impact on the Company's results of operations of a one
percentage point interest rate change on the outstanding balance of the variable
rate debt as of December 31, 1999 and 1998 would be approximately $300,000 and
$200,000, respectively.
COMMODITY PRICING RISK. For reasons discussed previously, prices of high
quality produce can be extremely volatile. In order to reduce the impact of
these factors, we generally set our prices based on current delivered cost.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements and Financial Statement Schedules.
PAGE
------
Independent Auditors' Report.........................................F-2
Consolidated Balance Sheets as of December 31, 1999 and January 1,
1999...............................................................F-3
Consolidated Statements of Operations for fiscal years ended
December 31, 1999, January 1, 1999 and January 2, 1998.............F-4
Consolidated Statements of Shareholders' Equity for fiscal years
ended December 31, 1999, January 1, 1999 and January 2, 1998.......F-5
Consolidated Statements of Cash Flows for fiscal years ended
December 31, 1999, January 1, 1999 and January 2, 1998.............F-6
Notes to Consolidated Financial Statements...........................F-7
Financial Statement schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
related notes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the directors and executive officers of the Company will
be set forth under the caption "Executive Officers and Directors" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders
tentatively scheduled for June 22, 2000 (the "Proxy Statement"). Such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation will be set forth under the
caption "Executive Compensation and Other Information" in the Company's Proxy
Statement. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to ownership of equity securities of the Company by certain
beneficial owners and management will be set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions will be
set forth under the caption "Certain Relationships and Related Transactions" in
the Company's Proxy Statement. Such information is incorporated herein by
reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K.
A. Documents filed as a part of this report.
1. Financial Statements.
2. Financial Statement Schedules - None.
3. Exhibits - The exhibits listed in the accompanying Exhibit Index are
filed or incorporated by reference as part of this report.
B. Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1999, which
ended on December 31, 1999.
21
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Articles of Incorporation of Fresh America (Incorporated by
reference exhibit 3.1 to the Company's Registration Statement on Form
S-1 [Commission File Number 33-77620]).
3.2 Restated Bylaws of Fresh America Corp. (Incorporated by reference to
exhibit 3.2 to the Company's Registration Statement on Form S-1
[Commission File Number 33-77620]).
*4.1 Specimen of Common Stock Certificate. (Incorporated by reference to
exhibit 4.1 to the Company's Registration Statement on Form S-1
[Commission File Number 33-77620]).
10.1 Fresh America Corp. 1993 Stock Option Award Plan (Incorporated by
reference to exhibit 10.3 to the Company's Registration Statement on
Form S-1 [Commission File Number 33-77620]).
10.2 Form of Option Agreement entered into pursuant to the Stock Option Plan
(Incorporated by reference to exhibit 10.4 to the Company's Registration
Statement on Form S-1 [Commission File Number 33-77620]).
10.3 Fresh America Corp 1996 Stock Option and Award Plan as Amended and
Restated effective May 22, 1998 (Incorporated by reference to exhibit
4.3 to the Company's Form S-8 [Commission File Number 333-60601 dated
August 4, 1998]).
10.4 Agreement, dated as of August 28, 1995 between Sam's Club, a division of
Wal-Mart Stores, Inc. and Fresh America Corp. (Incorporated by reference
to exhibit 10.1 to the Company's Form 10-Q for the quarterly period
ended September 29, 1995).
10.5 Restated Business Loan Agreement between Fresh America Corp. and Bank of
America Texas, N.A. dated February 2, 1998. (Incorporated by reference
to exhibit 99.1 to the Company's Form 8-K dated February 17, 1998).
10.6 Asset Purchase Agreement dated as of February 2, 1998, by and among
Francisco Acquisition Corp., Fresh America Corp, Francisco Distributing
Company, LLC, and the owners named therein. (Incorporated by reference
to exhibit 2.1 to the Company's Form 8-K dated February 17, 1998).
10.7 Securities Purchase Agreement between Fresh America Corp. and John
Hancock Mutual Life Insurance Company dated as of May 4, 1998
(Incorporated by reference to exhibit 10.1 to the Company's Form 10-Q
for the quarterly period ended July 3, 1998).
10.8 Note Agreement between Fresh America Corp. and John Hancock Mutual Life
Insurance Company dated as of May 4, 1998 (Incorporated by reference to
exhibit 10.2 to the Company's Form 10-Q for the quarterly period ended
July 3, 1998).
10.9 Warrant Agreement between Fresh America Corp. and John Hancock Mutual
Life Insurance Company dated as of May 4, 1998 (Incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q for the quarterly
period ended July 3, 1998).
10.10 Second Amendment to the Restated Business Loan Agreement between Fresh
America Corp. and Bank of America Texas, N.A. dated as of May 14, 1998
(Incorporated by reference to exhibit 10.4 to the Company's Form 10-Q
for the quarterly period ended July 3, 1998).
22
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.11 Third Amendment to the Restated Business Loan Agreement between Fresh
America Corp. and Bank of America Texas, N.A. dated as of March 4, 1999.
10.12 Eighth Amendment to the Restated Business Loan Agreement between Fresh
America Corp. and Bank of America Texas, N.A. dated as of October 31,
1999.
10.13 Ninth Amendment to the Restated Business Loan Agreement between Fresh
America Corp. and Bank of America Texas, N.A. dated as of November 15,
1999.
21.1 List of Subsidiary Corporations.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule.
* Pursuant to Item 601(b)(4)(iii), the Company has not filed as exhibits
instruments defining the rights of holders of long-term debt where the total
amount of the securities authorized thereunder do not exceed 10% of the
Company's and its subsidiaries' total assets on a consolidated basis. The
Company agrees to furnish a copy of such instruments to the Commission upon
request.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FRESH AMERICA CORP.
(Registrant)
Date: APRIL 14 ,2000 By /S/ COLON WASHBURN
-------------- --------------------
Colon Washburn,
Director and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/S/ THOMAS M. HUBBARD Date: APRIL 14, 2000
- ----------------------------------------------------- --------------
Thomas M. Hubbard
Director
/S/ LAWRENCE V. JACKSON Date: APRIL 14, 2000
- ----------------------------------------------------- --------------
Lawrence V. Jackson
Director
/S/ SHELDON I. STEIN Date: APRIL 14, 2000
- ----------------------------------------------------- --------------
Sheldon I. Stein
Director
/S/ DAVID I. SHEINFELD Date: APRIL 14, 2000
- ----------------------------------------------------- --------------
David I. Sheinfeld,
Chairman and President
/S/ JOHN GRAY Date: APRIL 14, 2000
- ----------------------------------------------------- --------------
John Gray
Executive Vice President and
Chief Financial Officer
/S/ ROGER S. HUNTINGTON Date: APRIL 14, 2000
- ----------------------------------------------------- --------------
Roger S. Huntington
Principal Accounting Officer
24
<PAGE>
FINANCIAL
STATEMENTS
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Fresh America Corp.:
We have audited the accompanying consolidated balance sheets of Fresh America
Corp. and subsidiaries as of December 31, 1999 and January 1, 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fresh America Corp.
and subsidiaries as of December 31, 1999 and January 1, 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
March 24, 2000, except as to Note 8
which is as of April 14, 2000
F-2
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1999 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................................. $ 3,197 $ 1,171
Accounts receivable, net .............................................................. 58,885 80,674
Advances to growers ................................................................... 3,296 2,238
Inventories ........................................................................... 10,624 11,450
Prepaid expenses ...................................................................... 1,618 2,504
Deferred income taxes ................................................................. -- 338
Income tax receivable ................................................................. 5,900 363
--------------- ---------------
Total current assets ............................................................... 83,520 98,738
Property, plant and equipment, net ........................................................ 24,440 23,900
Notes receivable from shareholders ........................................................ 359 178
Goodwill, net of amortization of $2,491 and $1,557, respectively .......................... 23,497 33,005
Other assets .............................................................................. 2,665 2,278
--------------- ---------------
Total assets .............................................................................. $ 134,481 $ 158,099
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt ................................... $ 24,446 $ 14,807
Accounts payable ...................................................................... 39,277 51,979
Accrued salaries and wages ............................................................ 2,191 1,460
Other accrued expenses ................................................................ 5,360 2,018
--------------- ---------------
Total current liabilities .......................................................... 71,274 70,264
Long-term debt, less current portion ...................................................... 32,843 35,985
Deferred income taxes ..................................................................... 295 1,070
Other liabilities ......................................................................... 298 218
--------------- ---------------
Total liabilities .................................................................. 104,710 107,537
--------------- ---------------
Shareholders' Equity:
Common stock $.01 par value. Authorized 10,000,000 shares; issued
5,243,404 and 5,202,511, respectively .............................................. 52 52
Additional paid-in capital ............................................................ 32,555 31,672
Foreign currency translation adjustment ............................................... (28) (345)
Retained earnings (accumulated deficit) ............................................... (2,808) 19,183
--------------- ---------------
Total shareholders' equity ......................................................... 29,771 50,562
Commitments and contingencies
--------------- ---------------
Total Liabilities and Shareholders' Equity ................................................ $ 134,481 $ 158,099
=============== ===============
</TABLE>
The notes to consolidated financial statements are
an integral part of these statements.
F-3
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .................................................................... $ 669,875 $ 609,490 $ 429,524
Cost of sales ................................................................ 591,977 537,556 386,161
------------ ------------ ------------
Gross profit .......................................................... 77,898 71,934 43,363
------------ ------------ ------------
Selling, general and administrative expenses ................................. 66,756 51,936 32,734
Provision for bad debt ....................................................... 6,031 1,230 82
Depreciation and amortization ................................................ 6,244 3,987 1,805
Disposition costs and write-offs on closed operations ........................ 13,520 -- --
Transaction costs ............................................................ 3,850 1,395 --
Settlements of lawsuits ...................................................... 805 -- --
------------ ------------ ------------
Total operating costs and expenses ....................................... 97,206 58,548 34,621
------------ ------------ ------------
Operating income (loss) ............................................... (19,308) 13,386 8,742
------------ ------------ ------------
Other income (expense):
Interest expense ......................................................... (5,783) (3,048) (487)
Interest income .......................................................... 340 1,010 362
Other, net ............................................................... 130 (85) 514
------------ ------------ ------------
(5,313) (2,123) 389
------------ ------------ ------------
Income (loss) before income taxes ............................................ (24,621) 11,263 9,131
Income tax expense (benefit) ................................................. (2,630) 5,041 3,921
------------ ------------ ------------
Net income (loss) ..................................................... $ (21,991) $ 6,222 $ 5,210
============ ============ ============
Earnings (loss) per share:
Basic .................................................................... $ (4.20) $ 1.27 $ 1.19
============ ============ ============
Diluted .................................................................. $ (4.20) $ 1.20 $ 1.12
============ ============ ============
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL FOREIGN CURRENCY RETAINED EARNINGS TOTAL
PAID-IN TRANSACTION (ACCUMULATED SHAREHOLDERS'
COMMON STOCK CAPITAL ADJUSTMENT DEFICIT) EQUITY
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at January 3, 1997 ........$ 43 $ 14,856 $ 6 $ 7,725 $ 22,630
Stock issued in acquisitions ....... 1 1,110 -- -- 1,111
Exercise of employee stock options . 1 542 -- -- 543
Other .............................. -- -- -- 26 26
Net income ......................... -- -- -- 5,210 5,210
Foreign currency translation
adjustments ..................... -- -- (185) -- (185)
--------------- --------------- --------------- --------------- ---------------
Comprehensive income ........... 5,025
---------------
Balances at January 2, 1998 ........ 45 16,508 (179) 12,961 29,335
Stock issued in acquisitions ....... 7 13,434 -- -- 13,441
Exercise of employee stock options . -- 488 -- -- 488
Issuance of warrants related to
subordinated debt ................ -- 1,242 -- -- 1,242
Net income ......................... -- -- -- 6,222 6,222
Foreign currency translation
adjustments ..................... -- -- (166) -- (166)
--------------- --------------- --------------- --------------- ---------------
Comprehensive income ........... 6,056
---------------
Balances at January 1, 1999 ........ 52 31,672 (345) 19,183 50,562
Stock issued in acquisitions ....... -- 500 -- -- 500
Exercise of employee stock options . -- 50 -- -- 50
Repricing of an employee's options . -- 333 -- -- 333
Net loss ........................... -- -- -- (21,991) (21,991)
Foreign currency translation
adjustments ...................... -- -- 317 -- 317
--------------- --------------- --------------- --------------- ---------------
Comprehensive loss ............. (21,674)
---------------
Balances at December 31, 1999 ......$ 52 $ 32,555 $ (28) $ (2,808) $ 29,771
=============== =============== =============== =============== ===============
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ (21,991) $ 6,222 $ 5,210
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities, excluding the effects of
acquisitions:
Bad debt expense ............................................... 6,031 1,230 82
Depreciation and amortization .................................. 6,244 3,987 1,805
Noncash disposition and write-offs on closed operations ........ 11,529 -- --
Noncash transaction costs ...................................... 340 519 --
Noncash interest expense ....................................... 548 354 --
Deferred income taxes .......................................... (437) 655 91
Other .......................................................... 148 (28) (324)
Change in assets and liabilities:
Accounts receivable ........................................ 17,054 (18,491) (8,052)
Growers advances ........................................... (1,056) (1,175) --
Inventories ................................................ 1,047 (1,576) 10
Prepaid expenses ........................................... 343 1,343 (721)
Other assets ............................................... (5,852) (244) (675)
Accounts payable ........................................... (13,428) 13,508 4,637
Accrued expenses and other current liabilities ............. 3,833 (4,699) (2,140)
------------ ------------ ------------
Total adjustments ..................................... 26,344 (4,617) (5,287)
------------ ------------ ------------
Net cash provided by (used in) operating activities ... 4,353 1,605 (77)
------------ ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net ...................... (6,731) (6,118) (4,713)
Cost of acquisitions, exclusive of cash acquired ..................... (2,644) (17,176) (6,672)
Proceeds from sale of equipment ...................................... 1,007 -- 354
------------ ------------ ------------
Net cash used in investing activities .................................... (8,368) (23,294) (11,031)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from revolving line of credit ................................... 89,079 124,572 34,906
Repayments of revolving line of credit ................................... (79,460) (117,777) (26,569)
Proceeds from short term indebtedness .................................... 22 5,449 --
Repayments of short term indebtedness .................................... (3,481) (11,808) --
Proceeds from shareholder loans ...................................... -- -- 1,046
Additions to long-term indebtedness .................................. 748 20,017 154
Payments of long-term indebtedness ................................... (982) (703) (373)
Net proceeds from exercise of employee stock options ................. 50 498 543
Other ................................................................ -- -- (89)
------------ ------------ ------------
Net cash provided by financing activities ............. 5,976 20,248 9,618
------------ ------------ ------------
Effect of exchange rate changes on cash .................................. 65 (113) (32)
Net increase (decrease) in cash and cash equivalents .. 2,026 (1,554) (1,522)
Cash and cash equivalents at beginning of year ........................... 1,171 2,725 4,247
------------ ------------ ------------
Cash and cash equivalents at end of year ................................. $ 3,197 $ 1,171 $ 2,725
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................... $ 5,418 $ 1,753 $ 437
Cash paid for income taxes ........................................... $ 3,809 $ 5,420 $ 3,093
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JANUARY 1, 1999
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Fresh America Corp ("Fresh America", or the "Company") provides
procurement, processing, re-packing, warehousing and distribution services of
fresh produce and other refrigerated products for a wide variety of customers in
the retail, food service and food distribution businesses.
The Company was founded in 1989 and commenced operations by delivering
produce to one Sam's Club ("Sam's"), a division of Wal-Mart Stores, Inc.
("Wal-Mart"). The success of the initial venture in Houston, Texas allowed the
Company to rapidly expand its relationship with Sam's. Today, under an exclusive
supply agreement serviced from 4 distribution centers, the Company procures,
warehouses and distributes produce and other perishable products to 238 Sam's
Clubs in the Midwest, Northwest and Southwest. See Note 2 for further
information on the Sam's relationship.
Fresh America made 16 acquisitions from 1995 through 1998 and added
various customer alliances involving fresh produce procurement, warehousing,
distribution and/or marketing. Through these acquisitions and new customer
relationships ("programs"), the Company expanded its cold chain distribution
network to become national in scope, diversified its customer and supplier
relationships and expanded its value-added processing capabilities. During 1999,
the Company also reduced overhead levels, closed or sold certain
under-performing business units and redirected its resources away from a
capital-intensive acquisition strategy to a strategy that further enhances and
better leverages its existing infrastructure and uses cash flow to reduce debt.
The following are the significant accounting policies followed by Fresh
America in the preparation of the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Fresh America Corp. and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
FISCAL YEAR - The Company's fiscal year is a 52-week or 53-week period
ending on the Friday closest to the calendar year end. The fiscal years ended
December 31, 1999, (fiscal 1999), January 1, 1999 (fiscal 1998) and January 2,
1998 (fiscal 1997) were 52-week periods.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the Company considers all highly liquid investments with original maturities of
less than three months to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS- THE Company defines the fair value of
a financial instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties. Financial instruments included
in the Company's financial statements include cash and cash equivalents,
accounts receivable, notes receivable from shareholders, other assets, accounts
payable and other current liabilities, notes payable and long-term debt. Unless
otherwise disclosed in the notes to the consolidated financial statements, the
carrying value of financial instruments is considered to approximate fair value
due to the short maturity and characteristics of those instruments. The carrying
value of long-term debt approximates fair value as terms approximate those
currently available for similar debt instruments.
INVENTORIES - Inventories are stated at the lower of cost or market with
cost determined on a first-in, first-out basis.
F-7
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT - Depreciation of plant and equipment is
calculated on the straight-line method over the estimated useful lives of the
assets (from 5 to 40 years). Plant and equipment held under capital leases and
leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
IMPAIRMENT OF LONG-LIVED ASSETS - If facts and circumstances indicate that
long-lived assets may be impaired, an evaluation of recoverability is performed
by comparing the estimated future cash flows associated with the asset to the
asset's carrying amount to determine if a write-down is necessary. If such asset
is considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
asset.
GOODWILL - Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, generally 15 to 20 years. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
STOCK OPTION PLAN - The Company accounts for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. The
Company also provides certain proforma disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" had been applied.
REVENUE RECOGNITION - During November 1995, the Company commenced
operations under its current Agreement with Sam's and, as a consequence,
recognizes revenue upon delivery of product. For all other customers, revenue is
recognized at such time as the product has been delivered or the service has
been rendered.
INCOME TAXES - Deferred tax assets and liabilities are established for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities, and for operating loss and tax credit
carryforwards, at enacted tax rates expected to be in effect when such amounts
are realized or settled. See Note 9 - Income Taxes for additional information.
EARNINGS PER SHARE - Basic earnings per share ("EPS") is calculated by
dividing net income (available to common shareholders) by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
F-8
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Shares used in calculating basic and diluted EPS are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Weighted average common shares
outstanding - basic ................................................................. 5,243 4,898 4,376
Dilutive securities:
Common stock options ................................................................ -- 149 190
Contingent shares related to acquisitions ........................................... -- 157 73
-------- -------- --------
Weighted average shares common outstanding - diluted .................................. 5,243 5,204 4,639
======== ======== ========
</TABLE>
The number of weighted average common shares outstanding used in the
computation of diluted EPS includes the effect of dilutive options using the
treasury stock method. For fiscal years 1999, 1998 and 1997, there are 497,000,
125,000 and 5,000 options and warrants, respectively, to purchase common stock
that were not included in the computation of diluted EPS because to do so would
have been antidilutive for the fiscal years presented.
COMPREHENSIVE INCOME - SFAS No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income and its
components. Components of comprehensive income are net income and all other
nonowner changes in equity such as the change in the cumulative foreign currency
translation adjustment. This statement requires that an enterprise: (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the shareholders'
equity section of a balance sheet.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS - Certain amounts previously reported have been
reclassified to conform to current year presentation.
NEW ACCOUNTING STANDARDS - The Company is assessing the reporting and
disclosure requirements of Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement, as amended by SFAS No. 137,
is effective for financial statements for fiscal years beginning after June 15,
2000. The Company has not yet determined the impact SFAS No. 133 will have on
its financial statements. The Company will adopt the provisions of SFAS No. 133,
if applicable, in the first quarter of fiscal 2001.
NOTE 2. AGREEMENT WITH SAM'S CLUB.
The Company's relationship with Sam's is governed by the terms and
conditions of a five-year agreement (the "Agreement"), which became effective
December 1, 1995 and expires on November 30, 2000. Sam's has formally notified
the Company that it will begin internal distribution of produce for all its
clubs beginning in December of 2000. Therefore, the Agreement will not be
renewed.
F-9
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Each year since 1997, Sam's has elected to exercise its existing option
under the Agreement to distribute produce directly with respect to 40 clubs,
thereby reducing the number of clubs to which the Company distributes.
Accordingly, the Company has conducted its operations assuming that Sam's would
withdraw 40 clubs per year.
The Agreement transfers ownership of the product to Sam's as it enters the
clubs and complete operational authority within the produce departments of each
club. Accordingly, Sam's assumes all costs and liabilities related to the
operation of the departments, including all in-club personnel costs,
merchandising and sales costs, customer returns and credits, and product shrink.
Under the Agreement, the Company invoices Sam's for product delivered to the
clubs in accordance with purchase orders issued by Sam's.
Sam's Club is the Company's largest customer, and accounted for
approximately 31%, 37% and 55% of the Company's sales for fiscal years 1999,
1998 and 1997, respectively. Receivables from Sam's included in trade accounts
receivable as of December 31, 1999 and January 1, 1999 totaled $14,421,000 and
$16,338,000 respectively.
NOTE 3. ACQUISITIONS.
ACQUISITION UNDER THE POOLING OF INTERESTS METHOD OF ACCOUNTING.
On March 4, 1998, the Company acquired Ontario Tree Fruits Limited and its
affiliated companies (collectively, "OTF") by exchanging 609,713 shares of its
common stock or exchangeable common stock for all of the capital stock of OTF
and certain residual equity interests. OTF imports and distributes fresh produce
to large retail chains and hundreds of independent grocers and wholesalers in
Canada and the Northeastern United States.
The acquisition of OTF constituted a tax-free reorganization and has
been accounted for as a pooling of interests. Accordingly, in 1998 all prior
period consolidated financial statements presented were restated to include the
combined results of operations, financial position and cash flows of OTF as
though it had always been a part of the Company.
There were no transactions between OTF and the Company prior to the
combination, and immaterial adjustments were recorded to conform OTF's
accounting policies to those of the Company. Certain reclassifications were made
to the OTF financial statements to conform to the Company's presentations.
In connection with the acquisition of OTF, the Company incurred
nonrecurring transaction costs of approximately $1,000,000 (net of tax), which
were expensed in the first quarter of 1998. The nonrecurring transaction costs
included approximately $519,000 of non-cash expenses (net of tax) related to the
issuance of 52,342 shares (which were included in the total 609,713 shares
issued) of the Company's common stock to the financial advisors of OTF.
F-10
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITIONS UNDER THE PURCHASE METHOD OF ACCOUNTING.
On February 2, 1998, the Company acquired substantially all of the net
operating assets and the business of Francisco Distributing Company, L.L.C.
("Francisco"), a produce marketing, distribution and repackaging company based
in Norwalk, California. As consideration for the net assets received, the
Company paid $5,575,000 in cash, 285,437 shares of Company common stock valued
at $19.27 per share based on the market value of the stock at the time of the
transaction, and contingent consideration subject to a minimum of $2.5 million
with a maximum of $16.6 million based on the pre-tax earnings of the business of
Francisco for the 1998 and 1999 fiscal years subject to certain adjustments. The
minimum contingent payments were recorded as a liability and were payable in
cash, common stock or a combination of cash and common stock. In January 1999,
the Company paid $1,000,000 in satisfaction of the minimum amount due for the
contingent payment related to fiscal 1998. The payment was made in the form of
$500,000 cash and issuance of 35,540 shares of common stock valued at $14.07 per
share. The remaining 1998 contingent payment of $5.3 million was paid in cash in
the second quarter of 1999. The 1999 contingent payment of $1.5 million was paid
in cash in January 2000.
On August 14, 1998, the Company acquired by merger all of the capital
stock of Jos. Notarianni & Co. ("Notarianni"), a produce distribution and
value-added company based in Scranton, Pennsylvania. As consideration, the
Company paid $5,390,000 in cash and issued 292,951 shares of Company common
stock valued at $19.15 per share based on the market value of the stock at the
time of the transaction. On December 14, 1998, the agreement was amended to
reduce the number of shares issued by 165,000 in exchange for a contingent
payment of 1.4 times Notarianni's average annual pretax earnings over a
three-year period beginning October 3, 1998. Any contingent payment will be
payable in cash or common stock at the Company's sole discretion.
Effective October 3, 1998, the Company acquired substantially all of the
net operating assets and the business of King's Onion House, Inc. ("King"), a
produce distribution and value-added company based in Phoenix, Arizona. As
consideration for the net assets received, the Company paid $4,000,000 in cash,
issued 164,667 shares of Company common stock valued at $14.57 per share based
on the market value of the stock at the time of the transaction, and a
contingent payment of 1.7 times King's average annual pretax profit over a
three-year term beginning October 3, 1998. Any contingent payment will be
payable by 50 percent cash and 50 percent common stock. On December 23, 1998,
the agreement was amended to reduce the number of shares issued by 89,193 in
exchange for the return of certain assets totaling $700,000 and the issuance of
a $600,000 promissory note to the former owner of King. The promissory note was
paid in installments (along with accrued interest at 7.75%) of $200,000 on April
12, 1999 and $400,000 on January 5, 2000.
Effective October 30, 1998, the Company acquired all of the capital
stock of Allied Perricone, Inc., formerly known as Sam Perricone Citrus Company
("Perricone"), a wholesale distributor of produce based in Los Angeles,
California. As consideration, the Company paid cash of $1,765,300, issued
119,301 shares of common stock valued at $14.67 per share based on the market
value of the stock at the time of the transaction, promissory notes totaling
$3,500,000 and contingent payments. The promissory notes are payable in two
installments (plus accrued interest at 7.75%), 50 percent due on the first
anniversary of the agreement and 50 percent due on the second anniversary of the
agreement. The contingent payments will be equal to 67% of pretax earnings of
Perricone for each of three consecutive 12-month periods beginning October 2,
1998. The notes and any contingent payment will be payable by 50 percent cash
and 50 percent common stock. The first installment, which was due October 31,
1999, has not been paid by the Company pending resolution of certain matters
which are currently being negotiated.
F-11
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During fiscal 1997, the Company acquired all of the capital stock of
two businesses and substantially all of the net assets of six other businesses.
These acquisitions were accounted for using the purchase method of accounting
and were acquired through the payment of $4,300,000 in cash, issuance of 54,000
shares of the Company's common stock (valued at $1,100,000), and assumption of
$4,800,000 in liabilities. Part of the consideration given in the acquisition of
Hereford Haven, Inc. d/b/a/ Martin Bros. (included in the fiscal 1997
acquisitions above), included a contingent payment of an amount equal to 4 times
average pretax earnings for fiscal 1998 through 2000. The payment will be due
March 31, 2001 and is payable up to 75% in stock at the Company's election.
For those acquisitions accounted for using the purchase method of
accounting, the results of operations of the acquired companies are included in
the consolidated financial statements of the Company from their respective
acquisition dates. At the acquisition dates, the purchase price was allocated to
assets acquired and liabilities assumed based on their relative fair market
values. The excess of total purchase price over fair values of the net assets
acquired was recorded as goodwill, which is being amortized over a 15 to 20 year
period. The 1998 and 1997 acquisitions resulted in $24,131,000 and $8,325,000 of
goodwill, respectively.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the acquired businesses
("Acquisitions") discussed above as if the acquisitions occurred as of the
beginning of 1998, after giving effect to certain adjustments, including
amortization of goodwill, decreased interest income, increased interest expense
and related income tax effects. The pro forma financial information below (in
thousands, except per share amount), does not necessarily reflect the results of
operations that would have occurred had the Company and Acquisitions constituted
a single entity during such periods.
1998
---------
Net sales $ 739,939
=========
Net income $ 7,877
=========
Earnings per share - diluted $ 1.44
=========
NOTE 4. TERMINATION OF MERGER.
On May 3, 1999, the Company, and Dallas-based, privately held FreshPoint
Holdings, Inc. ("FreshPoint") entered into a definitive agreement pursuant to
which FreshPoint would have merged with and into the Company. The transaction
was to be accounted for as a reverse acquisition with FreshPoint as the
accounting acquirer. Effective in October 1999, the agreement was terminated by
the Company and FreshPoint. The Company and FreshPoint each agreed to pay their
respective expenses in connection with the contemplated transaction. The Company
incurred merger-related expenses of $3,850,000 in fiscal 1999. The expenses
consisted primarily of legal and professional fees, severance costs and
stay-to-close incentives associated with planned reductions in work force.
F-12
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. DISPOSITION COSTS AND WRITE-OFFS ON CLOSED OPERATIONS.
Related to the termination of the merger with FreshPoint, the management
of the Company decided to improve its cost structure, streamline operations and
divest the Company of underperforming assets. The Company's plan includes moving
its accounting and administrative functions located in Houston, Texas to its
executive offices in Dallas, Texas. This process, which will involve the
termination of 16 employees, will be substantially completed in 2000.
Additionally, in 1999 the Company decided to close or sell several of its
underperforming food service operations and a wholesale market operation. These
operations are located in Los Angeles and San Francisco, California, Orlando,
Florida, Atlanta, Georgia, Baton Rouge, Louisiana, and Austin and San Antonio,
Texas. The food service operations in Orlando, Los Angeles and Atlanta were
closed during the third quarter, while the San Antonio and San Francisco
operations were closed in October 1999. The Austin and Baton Rouge food service
operations were sold in November 1999. The Company's Los Angeles market
operation was closed February 4, 2000. As a result of the above transactions,
the Company recorded the following charges in fiscal 1999 (in thousands):
Impairment of goodwill $10,553
Loss on disposition of property and equipment 976
Closure costs:
Liability for future lease 1,161
Severance 412
Other 418
-------
$13,520
=======
As of December 31, 1999, $117 for lease commitments and $417 for other
closure costs had been paid.
NOTE 6. ACCOUNTS RECEIVABLE.
Accounts receivable consist of (in thousands):
DECEMBER 31, JANUARY 1,
1999 1999
----------- -----------
Accounts receivable $ 61,478 $ 82,371
Less allowance for doubtful accounts (2,593) (1,697)
----------- -----------
$ 58,885 $ 80,674
=========== ===========
The following table summarizes the activity in the Company's allowance
for doubtful accounts in fiscal 1997 through 1999 (in thousands):
<TABLE>
<CAPTION>
BALANCE AT BEGINNING BAD DEBT ACQUIRED BALANCE AT END OF
FISCAL YEAR OF PERIOD EXPENSE COMPANIES WRITE-OFFS PERIOD
----------- -------------------- -------- --------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
1999 $1,697 $6,031 $ - $(5,135) $2,593
1998 943 1,230 700 (1,176) 1,697
1997 42 82 864 (45) 943
</TABLE>
F-13
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1999 1999
--------------- ---------------
<S> <C> <C>
Land ................................................................................... $ 727 $ 727
Buildings .............................................................................. 5,328 5,223
Machinery, furniture, fixtures and equipment ........................................... 18,010 14,581
Trucks and trailers .................................................................... 4,586 5,862
Leasehold improvements ................................................................. 7,177 7,212
--------------- ---------------
35,828 33,605
Less accumulated depreciation and amortization ......................................... (11,388) (9,705)
--------------- ---------------
Property, plant and equipment, net ..................................................... $ 24,440 $ 23,900
=============== ===============
</TABLE>
NOTE 8. DEBT AND LIQUIDITY.
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1999 1999
--------------- ---------------
<S> <C> <C>
Subordinated note, net of unamortized discount of $737 and $1,056, respectively .............. $ 19,263 $ 18,944
Revolver ..................................................................................... 21,237 12,400
Canadian Revolver ............................................................................ 9,088 7,779
Notes related to acquisitions (see Note 3) ................................................... 5,644 9,415
Mortgage note payable, prime plus 1/4% due in monthly payments through March 2000;
secured by land and building ........................................................... 332 340
Various equipment loans with interest rates from 6.75% to 14%; maturities of one to 5 years .. 1,725 1,914
--------------- ---------------
Total debt ................................................................................... 57,289 50,792
Current portion .............................................................................. 24,446 14,807
--------------- ---------------
Long-term debt, less current portion ......................................................... $ 32,843 $ 35,985
=============== ===============
</TABLE>
The Company is party to a senior secured revolving credit facility
agreement (the "Revolver") with a bank (the "Senior Lender") and a subordinated
note agreement with an insurance company (the "Subordinated Lender"). The
Company was not in compliance with certain covenants under the agreement with
the Senior Lender during fiscal 1999 and was not in compliance with certain
covenants under both agreements at December 31, 1999. Subsequent to December 31,
1999, the Company entered into an amendment (the tenth amendment to the
Revolver) of the agreement with the Senior Lender that waived the instances of
noncompliance and established new terms, including terms for repayment of the
outstanding borrowings, obtained waivers from the Subordinated Lender for
instances of noncompliance at December 31, 1999 and anticipated future instances
of noncompliance through January 1, 2001, and entered into a commitment
agreement with the Subordinated Lender to provide additional financing through
the purchase of $5.0 million of the Company's 12% redeemable cumulative
preferred stock ("Preferred Stock"), and to restructure the existing
subordinated notes.
F-14
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's Revolver provides for borrowings of up to $22.0 million as
of December 31, 1999 with outstanding borrowings as of that date of $21.2
million. The available and outstanding Revolver balance was reduced to $21.0
million as of March 31, 2000. Available borrowings under the Revolver will be
further reduced by scheduled principal reductions of $1.0 million on June 30,
2000, $2.0 million on September 30, 2000, and $2.0 million on December 31, 2000.
In addition to the scheduled principal reductions described above, all proceeds
from any income tax refunds or disposition of assets or subsidiaries and a
minimum of one-half of any proceeds from the issuance of debt or equity
securities (other than the Preferred Stock) must be used to further permanently
reduce available and outstanding bank borrowings. Repayment of the Revolver
balance is due in February 2001. Under the amended agreement, interest will
accrue at prime plus 3% (currently 12%) through the expiration of the agreement
in February 2001. The Company must also comply with certain minimum earnings
before interest, taxes, depreciation and amortization ("EBITDA") requirements
and capital expenditure restrictions. The amendment also requires the deferral
of interest payments to the Subordinated Lender until the earlier of May 1, 2001
or such time that the Subordinated Lender funds the purchase of the Preferred
Stock.
The Subordinated Lender holds notes totaling $20.0 million, bearing
interest at 12%, payable semi-annually in May and November. Principal payments
of $6.7 million each are due in May 2001 and 2002 with the remainder due in May
2003. In connection with the waivers provided to the Company, the Subordinated
Lender also agreed to defer receipt of interest payments and waive such
nonpayment of interest as an event of default until the earlier of May 1, 2001
or the funding of the Preferred Stock.
Under the terms of the commitment agreement with the Subordinated Lender,
which is contingent upon the execution of a formal purchase agreement containing
customary representations, warranties, covenants and conditions, the lender is
to purchase $5.0 million of Preferred Stock, the funding of which is scheduled
to occur by April 30, 2000. In conjunction with the purchase and funding of the
Preferred Stock, the terms of the commitment agreement provide that the
repayment terms of the subordinated notes will be modified such that the entire
balance will be due in a single payment 7 years from the date of the funding of
the Preferred Stock. The terms of the commitment agreement also decrease the
exercise price of 155,483 warrants previously issued to the Subordinated Lender
from $22.70 to $3.25 per share and extend the expiration date of the warrants to
approximate the modified maturity date of the subordinated notes. In connection
with the purchase of the Preferred Stock, the Subordinated Lender will also be
receiving warrants to purchase a number of common shares equal to approximately
7% of the Company's outstanding common stock (on a fully-diluted basis) at $3.25
per share.
Upon funding of the Preferred Stock, the agreement with the Senior Lender
will be further amended to include additional scheduled principal reductions of
$1.5 million in 2000, eliminate the minimum EBITDA requirement and limit the
monthly Revolver balance to predetermined amounts in excess of a computed
borrowing base.
Failure of the Company to comply with the terms of the amended agreement
with the Senior Lender or the agreement with the Subordinated Lender could
result in a default under the terms of the agreements. Upon the occurrence of an
event of default, the lenders would be entitled to declare the amounts
outstanding, including accrued interest to be immediately due and payable. If
repayment of the Company's debt was to be accelerated, the Company cannot be
certain that its assets or liquidity would be sufficient to repay such debt.
F-15
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additionally, OTF has a demand agreement with a Canadian bank to provide
revolving credit facilities (the "Canadian Revolver") of up to CDN $20.0 million
($13.9 million), subject to certain covenant and borrowing base requirements.
The Canadian Revolver is collateralized by substantially all assets of OTF.
Interest on borrowings accrue at U.S. prime plus 0.75% (9.25% at December 31,
1999) or Canadian prime plus 0.75% (7.25%), depending on the denomination of the
borrowings. The Canadian Revolver had an outstanding balance of CDN $13.1
million ($9.1 million) as of December 31, 1999.
Management believes that the combination of cash generated from ongoing
operating activities and the realization of recent reductions in overhead
expenses, and the effects of the amendment to the Revolver will enable the
Company to meet its obligations as they come due in 2000. Furthermore,
management anticipates closing of the financing arrangements with the
Subordinated Lender and continuing its efforts to complete the refinancing of
the remaining Revolver balance on or before the February 2001 maturity date.
The aggregate maturities of long-term debt, which reflect the terms of the
amended senior secured revolving credit facility agreement as discussed above,
for the five fiscal years subsequent to December 31, 1999 are as follows (in
thousands): 2000 - $24,446; 2001 - $19,249; 2002 - $6,734; 2003 - $6,769 and
2004 - $91.
NOTE 9. INCOME TAXES.
The components of income tax expense (benefit) consisted of (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Foreign ..................................................... $ 2,190 $ 1,709 $ 1,001
Federal ..................................................... (3,979) 2,346 2,455
State ....................................................... (404) 331 374
Deferred ........................................................ (437) 655 91
--------------- --------------- ---------------
$ (2,630) $ 5,041 $ 3,921
=============== =============== ===============
</TABLE>
Income tax expense (benefit) differed from the amount computed by applying the
U.S. federal income tax rate to income (loss) before income taxes as a result of
the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Federal income tax expense (benefit) at statutory rates .....................$ (8,617) $ 3,942 $ 3,105
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the valuation allowance
for deferred tax assets ................................................ 4,586 -- --
Nondeductible goodwill amortization and impairment ........................ 2,092 -- --
Tax rate and other differences related to Canadian subsidiaries ........... 490 573 557
Non-deductible transaction costs .......................................... -- 233 --
State income taxes, net of federal income tax benefit ..................... (262) 215 247
Adjustment to prior year's estimated provision ............................ (947) -- --
Other ..................................................................... 28 78 12
--------------- --------------- ---------------
$ (2,630) $ 5,041 $ 3,921
=============== =============== ===============
</TABLE>
F-16
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1999 1999
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ................................................... $ 2,863 $ 115
Accruals not currently deductible .................................................. 2,318 224
Other .............................................................................. 32 148
--------------- ---------------
Total deferred tax assets ....................................................... 5,213 487
Less valuation allowance ........................................................... (4,586) --
--------------- ---------------
Net deferred tax asset ............................................................. 627 487
--------------- ---------------
Deferred tax liabilities:
Income not currently taxable ....................................................... 295 716
Property, plant and equipment depreciation ......................................... 451 374
Goodwill ........................................................................... 176 129
--------------- ---------------
Total deferred tax liabilities .................................................. 922 1,219
--------------- ---------------
Net deferred tax liability ............................................................. $ (295) $ (732)
=============== ===============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent primarily upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Based
upon current projections for future U.S. taxable income over the periods which
the deferred tax assets are deductible, management believes that it is more
likely than not that its deferred tax assets related to U.S. operations will not
be realized and a valuation allowance for such assets is required at December
31, 1999.
At December 31, 1999, the Company has a net operating loss ("NOL")
carryforward for federal income tax purposes of approximately $7,500,000
available to reduce future income taxes. If not utilized to offset future
taxable income, the NOL carryforward will expire, $286,000 in 2006 through 2007
and $7,214,000 in 2019.
During 1992, the Company experienced an "ownership change" as defined by
the Internal Revenue Code of 1986. After an ownership change, utilization of a
loss corporation's NOL carryforward is limited annually to a prescribed rate
times the value of the loss corporation's stock immediately before the ownership
change. In general, an ownership change occurs if ownership of more than 50% in
value of the stock of the loss corporation changes during the three-year period
proceeding the test date. The Company's NOL carryforward, which expires in 2006
and 2007, is limited to the use of approximately $193,000 on an annual basis.
NOTE 10. OPTIONS AND WARRANTS.
In July 1993, the Company adopted the Fresh America Corp. 1993 Stock
Option and Award Plan (the "1993 Plan"), which reserved 450,000 shares of the
Company's common stock for issuance to employees and directors. At January 2,
1998, options for 8,177 shares were available for issuance. Effective May 22,
1998, the 1993 Plan was frozen, which prevents any additional options from being
granted under the plan.
F-17
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1996, the Company adopted the Fresh America Corp. 1996 Stock
Option and Award Plan (the "1996 Plan"), which reserved 150,000 shares of the
Company's common stock for issuance to employees and directors. Effective May
22, 1998, the Company amended and restated the 1996 Plan, which increased the
number of shares reserved from 150,000 to 625,000. At December 31, 1999 and
January 1, 1999, options for 467,000 and 472,000 shares, respectively, were
available for issuance.
Options under the 1993 and 1996 Plans are granted at an exercise price
equal to at least 100% of the fair market value of the Company's common stock on
the date of grant. Unless determined otherwise by the Company's Board of
Directors, each non-employee director is automatically granted an option to
purchase 5,000 shares of common stock each year. Such option grants vest
immediately and will expire in ten years if not exercised. Options granted to
employees generally vest in one year from the date of grant and expire within
ten years if not exercised. The Plans restrict the rights to exercise based on
employment status and percentage of stock ownership in accordance with Section
422 of the Internal Revenue Code.
The following table summarizes stock option activity under the Plans for fiscal
1997 through fiscal 1999:
<TABLE>
<CAPTION>
WEIGHTED
STOCK OPTIONS OPTION PRICE RANGE AVERAGE
--------------------------- -------------------------- EXERCISE
ISSUED EXERCISABLE LOW HIGH PRICE
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At January 3, 1997 ................................ 397,509 305,509 $ 0.02 $ 17.75 $ 7.56
Granted ....................................... 51,500 14.00 25.50 15.61
Exercised ..................................... (115,670) 0.02 11.75 3.56
Canceled ...................................... (7,000) 14.00 14.00 14.00
----------
At January 2, 1998 ................................ 326,339 291,839 $ 3.55 $ 25.50 $ 10.11
Granted ....................................... 78,500 12.75 19.88 16.51
Exercised ..................................... (30,140) 3.55 11.75 7.11
Canceled ...................................... (1,000) 14.00 14.00 14.00
----------
At January 1, 1999 ................................ 373,699 315,199 $ 3.55 $ 25.50 $ 11.69
Granted ....................................... 20,000 13.75 13.75 13.75
Exercised ..................................... (5,353) 3.55 14.00 9.41
Canceled ...................................... (54,250) 5.00 17.75 13.63
----------
At December 31, 1999 .............................. 334,096 319,096 $ 3.55 $ 25.50 $ 11.53
==========
</TABLE>
F-18
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about the Company's stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE --------------------------------------
RANGE OF NUMBER OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE NUMBER EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES DEC. 31, 1999 LIFE EXERCISE PRICE AT DEC. 31, 1999 EXERCISE PRICE
- ------------------------- --------------------- --------------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$3.55 to $5.00 46,343 4.4 years $4.58 46,343 $4.58
$5.01 to $7.00 38,253 4.9 $5.91 38,253 $5.91
$7.01 to $9.00 34,500 4.5 $8.93 34,500 $8.93
$9.01 to $11.00 15,000 4.4 $9.90 15,000 $9.90
$11.01 to $13.00 76,500 7.3 $12.08 61,500 $10.00
$13.01 to $15.00 49,000 8.0 $13.90 49,000 $13.90
$17.01 to $19.00 53,500 7.9 $17.40 53,500 $17.40
$19.01 to $21.00 20,000 8.6 $19.88 20,000 $19.88
$23.01 to $25.50 1,000 8.0 $25.50 1,000 $25.50
--------------------- ------------------
334,096 319,096
===================== ==================
</TABLE>
The Company has adopted the disclosure-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's two stock option plans been determined for grant dates subsequent to
January 1, 1995 based on the fair value at the grant date of awards consistent
with the provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
FISCAL YEAR
---------------------------------------
(In thousands, except
earnings per share data)
1999 1998 1997
---------- ---------- ----------
Net income (loss) - as reported ........ $ (21,991) $ 6,222 $ 5,210
Net income (loss) - pro forma .......... $ (22,319) 5,801 4,808
Earnings (loss) per share - as reported:
Basic ....................... (4.20) 1.27 1.19
Diluted ..................... (4.20) 1.20 1.12
Earnings (loss) per share - pro forma:
Basic ....................... (4.26) 1.18 1.10
Diluted ..................... (4.26) 1.11 1.04
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for fiscal 1999, 1998 and 1997 for both plans: no dividend
yield; expected volatility of 136% in 1999, 95% in 1998 and 78% in 1997;
risk-free interest rates of 5.9% in 1999, 4.2% to 5.6% in 1998 and 5.7% in 1997;
and expected lives of three to five years. The weighted average fair value per
share of the options granted during fiscal 1999, 1998 and 1997 is estimated to
be $12.23, $12.29 and $9.18, respectively. As of December 31, 1999, the
weighted-average remaining contractual life of outstanding options was 6.5
years.
F-19
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. EMPLOYEE BENEFIT PLAN.
Effective January 1, 1992, the Company adopted the Fresh America Corp.
401(k) Profit Sharing Plan (the "Plan"), which provides for the Company, at its
option, to make a matching contribution of up to 6% of each qualifying
employee's annual earnings. The Company's matching contribution under the Plan
was $343,000, $301,000 and $111,000 for the fiscal years 1999, 1998 and 1997,
respectively.
NOTE 12. CONTINGENCIES AND COMMITMENTS.
The Company is obligated under certain noncancelable operating leases
(with initial or remaining lease terms in excess of one year). The future
minimum lease payments under such leases as of December 31, 1999 are (in
thousands):
Fiscal years ending:
2000 $8,274
2001 6,659
2002 4,634
2003 3,253
2004 2,651
Thereafter 10,605
-------
Total minimum lease payments $36,076
=======
Rental expense amounted to approximately $12,569,000, $9,036,000 and
$5,048,000 for the fiscal years 1999, 1998 and 1997 respectively, of which
approximately $5,653,000, $3,616,000 and $2,463,000 relates to truck and trailer
rental which is included in cost of sales.
The Company is involved in various 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.
F-20
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED).
Summarized quarterly financial data is as follows (in thousands, except earnings
per share data):
<TABLE>
<CAPTION>
FISCAL 1999(A)
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST QTR. SECOND QTR. THIRD QTR. FOURTH QTR.
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................................ $ 173,427 $ 194,102 $ 151,220 $ 151,126
Gross profit ............................................. 22,006 23,691 14,472 17,729
Gross margin ............................................. 12.7% 12.2% 9.6% 11.7%
Net income (loss) ........................................ $ 1,181 $ 1,253 $ (11,445) $ (12,980)
Earnings (loss) per share - basic ........................ 0.23 0.24 (2.18) (2.48)
Earnings (loss) per share - diluted ...................... 0.22 0.23 (2.18) (2.48)
FISCAL 1998(A)
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST QTR. SECOND QTR. THIRD QTR. FOURTH QTR.
------------ ------------ ------------ ------------
Net sales ................................................ $ 133,007 $ 159,598 $ 140,259 $ 176,626
Gross profit ............................................. 14,520 17,442 15,437 24,535
Gross margin ............................................. 10.9% 10.9% 11.0% 13.9%
Net income ............................................... $ 454 $ 1,960 $ 589 $ 3,219
Earnings per share - basic ............................... 0.10 0.41 0.12 0.63
Earnings per share - diluted ............................. 0.10 0.40 0.11 0.59
</TABLE>
(a) Each quarter in the 52-week year contains 13 weeks.
NOTE 14. SEGMENT AND RELATED INFORMATION.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," establishes standards for the way public business enterprises
report information about products and services. It is impractical for the
Company to report the revenues from external customers for each product and
service or each group of products and services. The management of the Company
measures performance based on the gross margins and pretax income generated from
each of the Company's operations. Pretax income for the purpose of management's
analysis does not include corporate overhead such as selling, general and
administrative expenses and income tax expense. Since the business units have
similar economic characteristics and are engaged in procurement, processing and
distribution of produce, they have been aggregated into one reportable segment
for reporting purposes. See Note 2 - "Agreement with Sam's Club" for discussion
of the Company's major customer.
F-21
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized information regarding the Company's significant operations in
different geographic areas, including domestic operations, as of and for the
three fiscal years ended December 31, 1999 follows (in thousands):
LONG-LIVED
NET SALES ASSETS
---------- ----------
December 31,1999
United States ............................. $ 576,658 $ 46,976
Canada .................................... 93,217 3,985
---------- ----------
Total ............................... $ 669,875 $ 50,961
========== ==========
January 1, 1999
United States ............................. $ 523,566 $ 55,924
Canada .................................... 85,924 3,437
---------- ----------
Total ............................... $ 609,490 $ 59,361
========== ==========
January 2, 1998
United States ............................. $ 349,304 $ 20,791
Canada .................................... 80,220 3,815
---------- ----------
Total ............................... $ 429,524 $ 24,606
========== ==========
F-22
EXHIBIT 10.12
EIGHTH AMENDMENT TO RESTATED BUSINESS LOAN AGREEMENT
AND WAIVER
THIS EIGHTH AMENDMENT TO RESTATED BUSINESS LOAN AGREEMENT AND WAIVER (the
"Amendment") is entered into as of October 31, 1999, between FRESH AMERICA
CORP., a Texas corporation ("BORROWER"), the "SUBSIDIARY/DEBTORS" (herein so
called) named on the signature pages of this amendment, and BANK OF AMERICA,
N.A., formerly Bank of America NT & SA, successor in interest by merger with
Bank of America, N.A., formerly NationsBank, N.A. ("BANK").
Borrower and Bank entered into the Restated Business Loan Agreement dated
February 2, 1998 (as amended, extended, renewed, or restated, the "LOAN
Agreement"), providing Borrower with a revolving line of credit. Borrower has
requested Bank to amend certain provisions of the Loan Agreement as provided in
PARAGRAPH 2 below, and Bank has, upon and subject to the terms of this
amendment, agreed to those amendments. Accordingly, for adequate and sufficient
consideration, Bank, Borrower, and Subsidiary/Debtors hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and defined in the Loan
Agreement shall have the meanings set forth in the Loan Agreement except as
otherwise provided herein.
2. AMENDMENTS. The Credit Agreement is amended as follows:
(A) SECTION 2.1(A) is entirely amended as follows:
DURING THE AVAILABILITY PERIOD DESCRIBED BELOW, THE BANK WILL
PROVIDE A LINE OF CREDIT TO THE BORROWER. THE AMOUNT OF THE
LINE OF CREDIT (THE "REVOLVING FACILITY COMMITMENT") IS, FROM
NOVEMBER 1, 1999, THROUGH NOVEMBER 15, 1999, $22,000,000, AND,
THEREAFTER, $20,000,000, WHICH AMOUNT IS (I) NOT SUBJECT TO
ANY ADJUSTED BORROWING BASE RESTRICTIONS OR REDUCTIONS FROM
NOVEMBER 1, 1999, THROUGH NOVEMBER 15, 1999, BUT (II) SUBJECT
TO ADJUSTED BORROWING BASE RESTRICTIONS AND REDUCTIONS AT ALL
TIMES AFTER NOVEMBER 15, 1999, IN ACCORDANCE WITH THE TERMS OF
THIS AGREEMENT.
(B) SECTION 10.3 is amended to add subsection (i) thereto to read as
follows:
(I) ON OR BEFORE FRIDAY OF EACH WEEK, BORROWER'S WEEKLY FLASH
REPORT OF REVENUES FOR THE PREVIOUS WEEK.
1
<PAGE>
3. WAIVERS. Subject to the terms and conditions hereof, Bank hereby
waives, but only during the Waiver Period (hereinafter defined), the Specified
Defaults (hereinafter defined); PROVIDED, HOWEVER, that Bank's waiver of the
Specified Defaults and its rights and remedies as a result of the occurrence
thereof shall not constitute and shall not be deemed to constitute a waiver of
any other Default or Potential Default, whether arising as a result of further
violations of any provision of the Loan Agreement previously violated, or a
waiver of any rights and remedies arising as a result of such other Defaults or
Potential Defaults. As used herein, "WAIVER PERIOD" shall mean the period
commencing on the effective date of this Amendment and terminating on the
earlier to occur of (i) any further Default or Potential Default, and (ii)
November 15, 1999. As used herein, "SPECIFIED DEFAULTS" shall mean the failure
of Borrower to observe the covenants set forth in Section 10.4, Section 10.5,
Section 10.6, Section 10.7, Section 10.8, and Section 10.11 of the Loan
Agreement for the fiscal quarter ended October 1, 1999. At the end of the Waiver
Period, the waiver of the Specified Defaults will automatically terminate.
4. CONDITIONS PRECEDENT. This Amendment will not become effective until
Bank has received counterparts of this amendment duly executed and delivered by
Bank, Borrower, and each other party named on the signature page below.
5. CONTINUED EFFECT. Except to the extent provided herein, all terms,
provisions, and conditions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and are hereby ratified and confirmed,
and the Loan Agreement and the other Loan Documents shall remain enforceable and
binding in accordance with their respective terms. Borrower and each
Subsidiary/Debtor confirms and agrees that the other Loan Documents, and the
guaranties, liens, and security interests granted therein, shall continue to
assure and secure Borrower's obligations and indebtedness to Bank, direct or
indirect, arising pursuant to the Revolving Note and the Loan Agreement, whether
or not such other Loan Documents shall be expressly affected by this Amendment.
All references in the Loan Documents to the Loan Agreement shall hereafter be
deemed to be references to the Loan Agreement affected by this Amendment.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one and the same
document, and each party hereto may execute this Amendment by signing any of
such counterparts. Telecopies of signatures shall be binding and effective as
originals.
7. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and inure
to be the benefit of, the parties hereto and their respective heirs,
administrators, successors and assigns.
8. NO ORAL AGREEMENTS. THIS WRITTEN DOCUMENT AND THE DOCUMENTS EXECUTED IN
CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES IN RESPECT
OF THE MATTERS COVERED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
10. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to all
provisions of the Loan Agreement applicable to Loan Documents, all of which are
incorporated in this Amendment by reference the same as if set forth in this
Amendment verbatim.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
2
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Eighth Amendment
to Restated Business Loan Agreement and Waiver to be executed as of the date
first written above.
BANK OF AMERICA, N.A. (formerly
Bank of America NT & SA, successor FRESH AMERICA CORP., as BORROWER
in interest by merger with Bank of
America, N.A., formerly
NationsBank, N.A.), as BANK
By /S/ WILLIAM E. LIVINGSTONE, IV By /S/ JOHN H. GRAY
--------------------------------- --------------------------------------
William E. Livingstone, IV John H. Gray, Executive Vice President
Managing Director
CONSENT AND AGREEMENT
To induce Bank to enter into this Amendment the undersigned jointly and
severally (a) consent and agree to this Amendment's execution and delivery, (b)
ratify and confirm that all guaranties, assurances, liens, and subordinations
granted, conveyed, or assigned to Bank under the Loan Documents (as they may
have been renewed, extended, and amended) (i) are not released, diminished,
impaired, reduced, or otherwise adversely affected by this Amendment, and (ii)
continue to guarantee, assure, secure, and subordinate other debt to the full
payment and performance of all present and future obligations under the Loan
Documents, and (c) waive notice of acceptance of this consent and agreement,
which consent and agreement binds the undersigned and their successors and
permitted assigns and inures to Bank and its successors and permitted assigns.
COLUMBIA MARKETING SERVICES, INC.,
JNC ACQUISITION CORP.,
FRESH AMERICA ARIZONA, INC.,
FRESH AMERICA CALIFORNIA, INC.,
ELEANOR CORPORATION,
TORONTO CORPORATION,
FRESH AMERICA LOUISIANA, INC.,
FRESH AMERICA GEORGIA, INC.,
FRESH AMERICA FLORIDA, INC.,
HEREFORD HAVEN, INC.,
FRANCISCO ACQUISITION CORP.,
SAM PERRICONE CITRUS CO., each as a SUBSIDIARY/DEBTOR
By /S/ JOHN H. GRAY
John H. Gray, Vice President of each of the above companies
3
EXHIBIT 10.13
NINTH AMENDMENT TO RESTATED BUSINESS LOAN AGREEMENT
AND WAIVER AND AMENDMENT TO BUSINESS LOAN SECURITY
AGREEMENT AND BUSINESS LOAN CONTINUING GUARANTY
THIS NINTH AMENDMENT TO RESTATED BUSINESS LOAN AGREEMENT AND WAIVER AND
WAIVER AND AMENDMENT TO BUSINESS LOAN SECURITY AGREEMENT AND BUSINESS LOAN
CONTINUING GUARANTY (the "Amendment") is entered into as of November 15, 1999,
between FRESH AMERICA CORP., a Texas corporation ("BORROWER"), the
"SUBSIDIARY/DEBTORS" (herein so called) named on the signature pages of this
Amendment, and BANK OF AMERICA, N.A., formerly Bank of America NT & SA,
successor in interest by merger with Bank of America, N.A., formerly
NationsBank, N.A. ("BANK").
Borrower and Bank entered into the Restated Business Loan Agreement dated
February 2, 1998 (as amended, extended, renewed, or restated, the "LOAN
AGREEMENT"), providing Borrower with a revolving line of credit. Borrower has
requested Bank to amend certain provisions of the Loan Agreement as provided in
PARAGRAPH 2 below and the other Loan Documents as provided herein, and provide
certain waivers as provided in Paragraph 3 below, and Bank has, upon and subject
to the terms of this Amendment, agreed to those amendments and waivers.
Accordingly, for adequate and sufficient consideration, Bank, Borrower, and
Subsidiary/Debtors hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and defined in the Loan
Agreement shall have the meanings set forth in the Loan Agreement except as
otherwise provided herein.
2. AMENDMENTS. The Loan Agreement is amended as follows:
(A) SECTION 2.1(A) is entirely amended as follows:
DURING THE AVAILABILITY PERIOD DESCRIBED BELOW, THE BANK WILL
PROVIDE A LINE OF CREDIT TO THE BORROWER. THE AMOUNT OF THE
LINE OF CREDIT (THE "REVOLVING FACILITY COMMITMENT") IS, FROM
NOVEMBER 15, 1999, THROUGH MARCH 14, 2000, $22,000,000, FROM
MARCH 15, 2000, THROUGH MARCH 29, 2000, $21,500,000, ON MARCH
30, 2000, $21,000,000, AND, THEREAFTER, $20,000,000, WHICH
AMOUNT IS (I) NOT SUBJECT TO ANY ADJUSTED BORROWING BASE
RESTRICTIONS OR REDUCTIONS FROM NOVEMBER 15, 1999, THROUGH
MARCH 31, 2000, BUT (II) SUBJECT TO ADJUSTED BORROWING BASE
RESTRICTIONS AND REDUCTIONS AT ALL TIMES AFTER MARCH 31, 2000,
IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
(B) SECTION 2.3 is entirely amended as follows:
PURPOSE. THE LINE OF CREDIT WILL BE USED FOR WORKING CAPITAL
AND GENERAL CORPORATE PURPOSES OF THE COMPANIES.
(C) SECTIONS 2.4(A) AND (B) are entirely amended and a new SECTION
2.4(E) is added to read as follows:
1
<PAGE>
(A) THE BORROWER WILL PAY INTEREST ON ALL AMOUNTS BEARING
INTEREST BASED ON THE REFERENCE RATE ON NOVEMBER 15,
1999, AND ON THE LAST DAY OF EACH MONTH THEREAFTER UNTIL
PAYMENT IN FULL OF ALL PRINCIPAL OUTSTANDING UNDER THE
REVOLVING FACILITY COMMITMENT.
(B) ANY AMOUNT BEARING INTEREST AT THE EURODOLLAR RATE (AS
DESCRIBED BELOW) WILL BE REPAID AT THE END OF EACH
APPLICABLE INTEREST PERIOD, PROVIDED THAT (I) NO
INTEREST PERIOD MAY END AFTER THE EXPIRATION DATE, AND
(II) IF ANY INTEREST PERIOD IS GREATER THAN ONE MONTH,
THEN ACCRUED INTEREST IS ALSO DUE AND PAYABLE ON THE
DATE ONE MONTH AFTER THE COMMENCEMENT OF THE APPLICABLE
INTEREST PERIOD.
(E) THE BORROWER WILL PAY ON MARCH 15, 2000, MARCH 30, 2000,
AND MARCH 31, 2000, PRINCIPAL OUTSTANDING UNDER THE
REVOLVING NOTE TO THE EXTENT THAT THE PRINCIPAL AMOUNT
THEREOF OUTSTANDING ON SUCH DATES PLUS THE OUTSTANDING
AMOUNTS OF ANY LETTERS OF CREDIT ON SUCH DATES
(INCLUDING THE FACE AMOUNT OF ALL UNDRAWN AND
UNCANCELLED LETTERS OF CREDIT AND AMOUNTS DRAWN ON
LETTERS OF CREDIT AND NOT YET REIMBURSED), EXCEEDS THE
REVOLVING FACILITY COMMITMENT ON SUCH DATES.
(D) SECTIONS 6.2(A) AND (D) are entirely amended as follows:
(A) PRESENT AND FUTURE ACCOUNTS RECEIVABLE, INVENTORY,
MACHINERY, EQUIPMENT, FIXTURES, CONTRACT RIGHTS,
PATENTS, TRADEMARKS, LICENSES, OTHER GENERAL
INTANGIBLES, INSTRUMENTS, CHATTEL PAPER, AND DOCUMENTS
OF EACH PRESENT AND FUTURE COMPANY, TOGETHER WITH ALL
PROCEEDS AND PRODUCTS THEREOF, PURSUANT TO THE SECURITY
AGREEMENT; INCLUDING WITHOUT LIMITATION BORROWER'S
RIGHTS TO PAYMENT UNDER THE SAM'S CONTRACT;
(D) FEE SIMPLE INTERESTS OF ANY PRESENT AND FUTURE COMPANY
IN ANY REAL PROPERTY (OTHER THAN THE REAL PROPERTY OWNED
BY BORROWER IN WHICH BANK ONE, TEXAS, N.A. HAS A FIRST
LIEN), PURSUANT TO MORTGAGES OR DEEDS OF TRUST, AS THE
CASE MAY BE, IN FORM AND SUBSTANCE ACCEPTABLE TO THE
BANK.
(E) SECTION 10.3(E) is entirely amended as follows:
2
<PAGE>
(E) MONTHLY WITHIN THIRTY (30) DAYS AFTER THE LAST DAY OF
THE APPLICABLE MONTH, A BORROWING BASE REPORT SETTING
FORTH THE RESPECTIVE AMOUNTS OF ACCEPTABLE RECEIVABLES,
ACCEPTABLE GROWER CONTRACT RECEIVABLES, AND ACCEPTABLE
INVENTORY AS OF THE LAST DAY OF EACH CALENDAR MONTH OR
ANY MORE RECENT DATE FOR WHICH SUCH INFORMATION MAY BE
AVAILABLE, TOGETHER WITH THE CALCULATION OF THE ADJUSTED
BORROWING BASE. ANY BORROWING BASE REPORT WHICH HAS BEEN
TIMELY DELIVERED SHALL REMAIN IN EFFECT UNTIL THE NEXT
BORROWING BASE REPORT IS TIMELY DELIVERED.
(F) SECTION 10.11 is entirely amended as follows:
CAPITAL EXPENDITURES. NO COMPANY SHALL MAKE CAPITAL
EXPENDITURES OTHER THAN PERMITTED CAPITAL EXPENDITURES.
"PERMITTED CAPITAL EXPENDITURES" MEANS FOR ANY FISCAL MONTH,
COMMENCING WITH NOVEMBER 1999, A TOTAL AMOUNT OF CAPITAL
EXPENDITURES THAT DOES NOT EXCEED $250,000.
(G) SECTION 10.13(J) is entirely amended as follows:
INVESTMENTS IN OTHER PERSONS MADE ON OR PRIOR TO NOVEMBER 15,
1999; PROVIDED THAT SUCH INVESTMENTS DO NOT IN THE AGGREGATE
EXCEED $2,000,000.
(H) SECTION 10.14 is amended to add the following sentence at the
end thereof:
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NO
PERMITTED ACQUISITION SHALL OCCUR ON OR AFTER NOVEMBER 15,
1999, WITHOUT THE PRIOR WRITTEN CONSENT OF THE BANK.
(I) SECTION 10.15 is entirely amended as follows:
THE BORROWER SHALL CAUSE EACH OF ITS PRESENT AND FUTURE
SUBSIDIARIES OTHER THAN UNRESTRICTED SUBSIDIARIES (WHETHER AS
A RESULT OF ACQUISITION, CREATION, OR OTHERWISE) TO PROMPTLY
AND FULLY COMPLY WITH SECTIONS 6.1 AND 6.2 AND SHALL CAUSE ITS
ACCOUNTS RECEIVABLE, INVENTORY, EQUIPMENT, GENERAL
INTANGIBLES, CAPITAL STOCK, AND OTHER ASSETS OR EQUITY
SECURITIES OWNED BY ANY COMPANY TO BECOME SUBJECT TO THE LIENS
REQUIRED BY SECTION 6.2. ANY SUBSIDIARY OF THE BORROWER FORMED
OR ACQUIRED AFTER NOVEMBER 15, 1999, MUST BE A WHOLLY OWNED
DIRECT OR INDIRECT SUBSIDIARY OF THE BORROWER, UNLESS SUCH
SUBSIDIARY IS WHOLLY OWNED BY A DIRECT SUBSIDIARY OR
COMBINATION OF DIRECT SUBSIDIARIES OF THE BORROWER.
(J) SECTION 10.25(D) is entirely amended as follows:
3
<PAGE>
SALE, ASSIGN, LEASE, TRANSFER, OR OTHERWISE DISPOSE OF ANY OF
ITS ASSETS (INCLUDING, WITHOUT LIMITATION, EQUITY INTERESTS IN
ANY REPORTING COMPANY) EXCEPT, WITHOUT DUPLICATION (I) SALES
AND DISPOSITIONS OF INVENTORY IN THE ORDINARY COURSE OF
BUSINESS, (II) SALES OF ASSETS WHICH ARE OBSOLETE OR ARE NO
LONGER IN USE AND WHICH ARE NOT SIGNIFICANT TO THE
CONTINUATION OF THAT COMPANY'S BUSINESS, (III) SALES OF ASSETS
(A) OBTAINED AS THE RESULT OF MERGERS AND CONSOLIDATIONS
PERMITTED UNDER THIS AGREEMENT AND PERMITTED ACQUISITIONS AND
(B) WHICH ARE UNNECESSARY TO THAT COMPANY'S BUSINESS
OPERATIONS, (IV) SALES AND DISPOSITIONS FROM ANY COMPANY TO
ANY OTHER COMPANY, (V) DISPOSITIONS OF ASSETS WHERE
SUBSTANTIALLY SIMILAR ASSETS HAVE BEEN OR ARE SIMULTANEOUSLY
BEING ACQUIRED, (VI) ARMS-LENGTH SALES AND DISPOSITIONS FROM
ANY COMPANY TO ANY UNRESTRICTED SUBSIDIARY IN THE ORDINARY
COURSE OF BUSINESS ON CUSTOMARY TRADE TERMS, AND (VII)
DISPOSITIONS OF ASSETS ON OR PRIOR TO NOVEMBER 15, 1999, THE
NET PROCEEDS OF WHICH DO NOT EXCEED $500,000 IN ANY FISCAL
YEAR. PROVIDED, HOWEVER, WITH RESPECT TO ANY SALES OTHER THAN
SALES OF INVENTORY IN THE ORDINARY COURSE OF BUSINESS THE BANK
SHALL RECEIVE AT LEAST FIVE (5) BANKING DAYS PRIOR WRITTEN
NOTICE, AND WITH RESPECT TO SUBSECTIONS (II), (III), AND (VI),
THE PROCEEDS OF ALL SUCH SALES (OTHER THAN THE SALE OF CERTAIN
ASSETS IN LOUISIANA FOR APPROXIMATELY $350,000 AND THE SALE OF
CERTAIN ASSETS IN AUSTIN, TEXAS, FOR APPROXIMATELY $400,000
WHICH SALES CLOSED IN NOVEMBER 1999), EXCLUSIVE OF REASONABLE
EXPENSES OF SELLING, SHALL BE IMMEDIATELY APPLIED TOWARDS THE
REPAYMENT OF THE OUTSTANDING PRINCIPAL BALANCE OF THE
REVOLVING NOTE, AND THE AMOUNT OF SUCH PROCEEDS SHALL ALSO
CONSTITUTE A PERMANENT REDUCTION IN THE REVOLVING FACILITY
COMMITMENT.
(K) SECTION 10.25 is hereby amended to add immediately following
Section 10.25(j) the following subsection (k), and subsection
(l), and subsection (m) to read as follows:
(K) AMEND OR MODIFY ANY AGREEMENT OR OBLIGATION RELATED TO
ANY PAYMENT OF PRINCIPAL, INTEREST, EARN OUT,
CONTINGENCY PAYMENT, OR OTHER OBLIGATION OWED BY ANY
REPORTING COMPANY TO ANY PERSON AS THE RESULT OF THE
INCURRENCE OF SUCH OBLIGATIONS IN CONNECTION WITH A
PERMITTED ACQUISITION OR THE ACQUISITION BY A REPORTING
COMPANY OF SUBSTANTIALLY ALL OF THE BUSINESS (OR PART OF
A BUSINESS) OF A PERSON, WHETHER PURSUANT TO AN ASSET
ACQUISITION OR A STOCK PURCHASE, WHICH DOES NOT QUALIFY
AS A PERMITTED ACQUISITION BUT WHICH THE BANK HAS
OTHERWISE PERMITTED, IF SUCH AMENDMENT OR MODIFICATION
WOULD INCREASE THE OBLIGATIONS OF THE OBLIGOR OR CONFER
ADDITIONAL RIGHTS UPON THE HOLDER THEREOF OR OTHERWISE
ADVERSELY AFFECT THE INTERESTS OF THE BANK. FURTHERMORE,
THE BORROWER WILL GIVE TO THE BANK NO LESS THAN THREE
(3) BANKING DAYS WRITTEN NOTICE PRIOR TO MAKING ANY SUCH
PAYMENT ON OR AFTER NOVEMBER 15, 1999.
(L) PERMIT THE ADJUSTED BORROWING BASE TO AT ANY TIME ON OR
AFTER NOVEMBER 15, 1999, BE LESS THAN $13,131,400.
(M) MODIFY THE TREASURY MANAGEMENT ARRANGEMENTS AS IN EFFECT
WITH THE BANK ON NOVEMBER 15, 1999, OR OPEN ANY
ADDITIONAL DEPOSIT ACCOUNTS WITHOUT PROVIDING TO THE
BANK PROMPT NOTICE THEREOF.
4
<PAGE>
3. WAIVERS. Subject to the terms and conditions hereof, Bank hereby
waives, but only during the Waiver Period (hereinafter defined), the Specified
Defaults (hereinafter defined); PROVIDED, HOWEVER, that Bank's waiver of the
Specified Defaults and its rights and remedies as a result of the occurrence
thereof shall not constitute and shall not be deemed to constitute a waiver of
any other Default or Potential Default, whether arising as a result of further
violations of any provision of the Loan Agreement previously violated, or a
waiver of any rights and remedies arising as a result of such other Defaults or
Potential Defaults. As used herein, "WAIVER PERIOD" shall mean the period
commencing on the effective date of this Amendment and terminating on the
earlier to occur of (i) any further Default or Potential Default, and (ii) March
31, 2000. As used herein, "SPECIFIED DEFAULTS" shall mean the failure of
Borrower to observe the covenants set forth in Section 10.4, Section 10.5,
Section 10.6, Section 10.7, Section 10.8, and Section 10.11 of the Loan
Agreement for the fiscal quarter ended October 1, 1999, and the failure of
Borrower to observe the covenants set forth in Section 10.4, Section 10.5,
Section 10.6, Section 10.7, and Section 10.8 of the Loan Agreement for the
fiscal quarter ended December 31, 1999. At the end of the Waiver Period, the
waiver of the Specified Defaults will automatically terminate.
4. CONDITIONS PRECEDENT. This Amendment will not become effective until
all corporate actions of Borrower and each of the Subsidiary/Debtors taken in
connection herewith and the transactions contemplated hereby shall be
satisfactory in form and substance to the Bank, and each of the following
conditions precedent shall have been satisfied, all of which must occur on or
before November 29, 1999:
(a) Bank has received counterparts of this Amendment duly executed
and duly delivered by Bank, Borrower, and each other party
named on the signature page below.
(b) All fees and expenses, including reasonable legal and other
professional fees and expenses incurred on or prior to the
date of this Amendment by the Bank, including without
limitation the fees and expenses of legal counsel and
financial advisors to the Bank, shall have been paid to the
extent that same had been billed; provided that certain fees
and expenses due to Winstead Sechrest & Minick P.C. and
PricewaterhouseCoopers LLP shall be subject to Section 5 of
this Amendment.
(c) The Bank shall have received a certificate of the Borrower
certifying as to the accuracy, after giving effect to this
Amendment, of the representations and warranties set forth in
the Loan Agreement, the other Loan Documents and this
Amendment, that there exists no Default or Potential Default
after giving effect to this Amendment, and that the execution,
delivery and performance of this Amendment will not cause a
Default or Potential Default.
5
<PAGE>
(d) The Bank shall have received such other documents, instruments
and certificates, in form and substance reasonably
satisfactory to the Bank, as the Bank shall deem necessary or
appropriate in connection with this Amendment and the
transactions contemplated hereby, including without limitation
copies of resolutions of the boards of directors of each of
Borrower and each Subsidiary/Debtor which is a party to the
documents contemplated by this Amendment.
(e) All accrued and unpaid interest due and owing with respect to
the Revolving Loan through November 15, 1999, shall have been
paid in full.
(f) Borrower shall have executed and delivered to the Bank, or
cause to be executed and delivered to the Bank, the following
documents and other items, each satisfactory to the Bank:
i. As security for the payment and performance of all now
existing and hereafter owing obligations, indebtedness
and liabilities owed by the Borrower to the Bank, and
all renewals, extensions and modifications thereof, the
Borrower shall execute and deliver or cause to be
executed and delivered to the Bank mortgages or deeds of
trust, as appropriate, in form and substance
satisfactory to the Bank, granting to Bank a first
priority (except for certain customary permitted
encumbrances as delineated on title reports delivered to
the Bank and including zoning restrictions, easements,
licenses, or other minor irregularities of title which
do not in the aggregate materially detract from the
value of the property or materially impair the use
thereof) lien upon all real property owned by the
Borrower and the Subsidiary/Debtors other than the
Unrestricted Subsidiaries (the "Deeds of Trust"), which
real property is listed on Schedule 1 hereto, together
with such UCC-1 financing statements as the Bank may
require to confirm the perfection of its security
interest in the Collateral.
ii. The Borrower shall deliver to the Bank, to be attached
to this Amendment as Schedule 3 hereto, a listing of any
and all payments of principal, interest, earn-out,
contingency payment, or other obligation owed by any
Company to any Person which were incurred in connection
with the acquisition by Company of substantially all of
the business (or part of a business) or shares of a
Person, whether pursuant to an asset acquisition or a
stock purchase, including the amount of such payment,
the date on which such payment is due, the Person to
whom such payment is owed, and any grace period
currently available with respect to such payment.
6
<PAGE>
5. CONDITIONS SUBSEQUENT. As a condition subsequent to the effectiveness
of this Amendment, the Borrower shall (a) execute and deliver or cause to be
executed and delivered to the Bank, in form and substance reasonably
satisfactory to the Bank and its counsel, on or before January 15, 2000, the
items delineated on Schedule 2 hereto, and (b) pay or cause to be paid in
immediately available funds on or before December 15, 1999, all fees and
expenses, including reasonable legal and other professional fees and expenses,
incurred on or prior to such date by the Bank, including without limitation
certain fees and expenses due to Winstead Sechrest & Minick P.C. and
PricewaterhouseCoopers LLP, legal counsel and financial advisors to the Bank,
incurred as of the date of this Amendment. Upon the Borrower's failure to
deliver or cause to be delivered the items described on Schedule 2 hereto on or
before January 15, 2000, or pay such fees and expenses on or before December 15,
1999, the waiver of the Specified Defaults provided in this Amendment will
automatically terminate and be of no further force and effect, and a Default
shall exist without the giving of further notice or the lapse of further time.
6. AMENDMENT TO BUSINESS LOAN SECURITY AGREEMENT. Reference is made to the
Business Loan Security Agreement dated February 2, 1998, executed by the
Borrower and the Subsidiary/Debtors in favor of the Bank, as amended (the
"Security Agreement"). Effective as of the date hereof, the Security Agreement
is hereby amended as follows:
(a) The definition of Obligation in paragraph 1 of the Security
Agreement is hereby amended as follows:
Obligation means all present and future debts, liabilities,
and obligations of any Debtor to the Bank, whether now
existing or hereafter arising, and whether direct, indirect,
related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several, including
without limitation all present and future debts, liabilities,
and obligations of any Debtor under the Loan Agreement or any
other Loan Document, including without limitation all present
and future debts, liabilities, and obligations of each Debtor
arising under this agreement, and all present and future
out-of-pocket reasonable costs, attorneys' fees, and expenses
incurred by Secured Party to enforce any Debtor's or any other
obligor's payment on any of the Obligation, including, without
limitation (to the extent lawful), all present and future
amounts that would become due but for the operation of Section
502 or Section 506 or any other provision of Title 11 of the
United States Code and all present and future accrued and
unpaid interest (including, without limitation, all post
petition interest if any Debtor voluntarily or involuntarily
becomes subject to any Debtor Law).
(b) The definitions of Chattel Paper, Document, Equipment, General
Intangibles, and Instrument in paragraph 1 of the Security
Agreement are hereby amended to eliminate therefrom the
following parenthetical:
(other than any Debtor executing an Additional Subsidiaries
Supplement pursuant to paragraph 10(e) after May 14, 1998).
7
<PAGE>
(c) Paragraph 4 of the Security Agreement is hereby amended to
delete therefrom the following parenthetical:
(other than any Debtor executing an Additional Subsidiaries
Supplement pursuant to paragraph 10(e) after May 14, 1998).
(d) Paragraph 10(e) of the Security Agreement is hereby amended to
delete therefrom the following parenthetical:
(except to the extent certain provisions specifically do not
apply to "Debtors" executing an Additional Subsidiaries
Supplement after May 14, 1998).
(e) Effective as of the date hereof, Annex 4 to the Security
Agreement is hereby amended to delete therefrom the following
two parentheticals:
(but only to the extent such provisions apply to a Debtor
executing an Additional Subsidiaries Supplement after May 5,
1998) and (except to the extent certain provisions expressly
do not apply to a Debtor executing an Additional Subsidiaries
Supplement after May 5, 1998).
(f) Each Additional Subsidiaries Supplement to the Security
Agreement which has been executed since May 5, 1998, is hereby
amended to delete therefrom the following two parentheticals:
(but only to the extent such provisions apply to a Debtor
executing an Additional Subsidiaries Supplement after May 5,
1998) and (except to the extent certain provisions expressly
do not apply to a Debtor executing an Additional Subsidiaries
Supplement after May 5, 1998).
7. AMENDMENT TO BUSINESS LOAN CONTINUING GUARANTY. Effective as of the
date hereof, the defined term "Debt" as set forth in that certain Business Loan
Continuing Guaranty dated as of February 2, 1998, executed by certain
Subsidiaries of the Borrower, as supplemented by certain Additional Subsidiaries
Supplements to such Guaranty which have been subsequently executed (as
supplemented and amended, the "Guaranty"), is hereby amended as follows: The
"Debt" includes all indebtedness, obligations, and liabilities to Bank that the
Borrower now or hereafter owes, whether direct, indirect, related, unrelated,
fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several, including without limitation the indebtedness, obligations and
liabilities to Bank that Borrower incurs under the Loan Documents at any time,
past, present, or future; voluntarily or involuntarily; directly or indirectly;
or individually or together with others, and further including all obligations
under the Loan Documents due or not yet due; absolute or contingent; liquidated
or unliquidated; or for a determined or undetermined amount, and furthermore
includes any and all renewals, amendments, restatements, extensions,
modifications, and increases of any of the foregoing.
8
<PAGE>
8. CONSENT TO BANO SALE. The Bank hereby consents to the sale by the
Borrower of certain personal property assets owned by Fresh America Louisiana,
Inc., for approximately $350,000, so long as (i) such sale occurs on or prior to
December 15, 1999, (ii) the consideration received in connection with such sale
is not less than the fair market value of the assets sold, and (iii) no Default
or Potential Default has occurred which has not been waived by the Bank.
9. RELEASE. In consideration of the Bank's agreements herein and certain
other good and valuable consideration, Borrower hereby expressly acknowledges
and agrees that as of the date hereof it has no setoffs, counterclaims,
adjustments, recoupments, defenses, claims or actions of any character, whether
contingent, non-contingent, liquidated, unliquidated, fixed, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured, known or unknown,
against the Bank or any grounds or cause for reduction, modification or
subordination of the obligations or owed to the Bank or any liens or security
interests of the Bank. To the extent Borrower may possess any such setoffs,
counterclaims, adjustments, recoupments, claims, actions, grounds or causes,
Borrower hereby waives, and hereby releases the Bank from, any and all of such
setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds and
causes, such waiver and release being with full knowledge and understanding of
the circumstances and effects of such waiver and release and after having
consulted counsel with respect thereto.
10. CONTINUED EFFECT. Except to the extent provided herein, all terms,
provisions, and conditions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and are hereby ratified and confirmed,
and the Loan Agreement and the other Loan Documents shall remain enforceable and
binding in accordance with their respective terms. Borrower and each
Subsidiary/Debtor confirms and agrees that the other Loan Documents, and the
guaranties, liens, and security interests granted therein, shall continue to
assure and secure Borrower's obligations and indebtedness to Bank, direct or
indirect, arising pursuant to the Revolving Note and the Loan Agreement, whether
or not such other Loan Documents shall be expressly affected by this Amendment.
All references in the Loan Documents to the Loan Agreement shall hereafter be
deemed to be references to the Loan Agreement affected by this Amendment.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one and the same
document, and each party hereto may execute this Amendment by signing any of
such counterparts. Telecopies of signatures shall be binding and effective as
originals.
12. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and
inure to be the benefit of, the parties hereto and their respective heirs,
administrators, successors and assigns.
13. NO ORAL AGREEMENTS. THIS WRITTEN DOCUMENT AND THE DOCUMENTS EXECUTED
IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES IN
RESPECT OF THE MATTERS COVERED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9
<PAGE>
14. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
15. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to all
provisions of the Loan Agreement applicable to Loan Documents, all of which are
incorporated in this Amendment by reference the same as if set forth in this
Amendment verbatim.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK - SIGNATURE PAGE FOLLOWS]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BANK OF AMERICA, N.A. (formerly FRESH AMERICA CORP., as BORROWER
Bank of America NT & SA, successor
in interest by merger with Bank of
America, N.A., formerly
NationsBank, N.A.), as BANK
By /S/ WILLIAM E. LIVINGSTONE, IV By /S/ JOHN H. GRAY
William E. Livingstone, IV John H. Gray, Executive Vice President
Managing Director
CONSENT AND AGREEMENT
To induce Bank to enter into this Amendment the undersigned jointly and
severally (a) consent and agree to this Amendment's execution and delivery and
the terms hereof, including without limitation the amendments to the Security
Agreement and the Guaranty, (b) ratify and confirm that all guaranties,
assurances, liens, and subordinations granted, conveyed, or assigned to Bank
under the Loan Documents (as they may have been renewed, extended, and amended)
(i) are not released, diminished, impaired, reduced, or otherwise adversely
affected by this Amendment, and (ii) continue to guarantee, assure, secure, and
subordinate other debt to the full payment and performance of all present and
future obligations under the Loan Documents, and (c) waive notice of acceptance
of this consent and agreement, which consent and agreement binds the undersigned
and their successors and permitted assigns and inures to Bank and its successors
and permitted assigns.
COLUMBIA MARKETING SERVICES, INC.,
JNC ACQUISITION CORP.,
FRESH AMERICA ARIZONA, INC.,
FRESH AMERICA CALIFORNIA, INC.,
ELEANOR CORPORATION,
TORONTO CORPORATION,
FRESH AMERICA LOUISIANA, INC.,
FRESH AMERICA GEORGIA, INC.,
FRESH AMERICA FLORIDA, INC.,
HEREFORD HAVEN, INC.,
FRANCISCO ACQUISITION CORP.,
ALLIED-PERRICONE, INC., F/K/A SAM PERRICONE CITRUS CO., each as a
SUBSIDIARY/DEBTOR
By /S/ JOHN H. GRAY
John H. Gray, Vice President of each of the above companies
11
<PAGE>
SCHEDULE 1
REAL PROPERTY
1. Cutten Road, Houston, Texas
2. N.W. 16th Street, Richmond, Indiana
3. Genet Street, Scranton, Pennsylvania
12
<PAGE>
SCHEDULE 2
CONDITIONS SUBSEQUENT
1. Mortgagee policies of title insurance insuring the priority of the Bank's
lien on the real property described on Schedule 1, in an amount, issued by a
title company, and showing a state of title and exceptions thereto
satisfactory to the Bank.
13
<PAGE>
SCHEDULE 3
ACQUISITION PAYMENTS
DATE ANY AVAILABLE
OBLIGOR AMOUNT PAYEE DUE GRACE PERIOD
------- ------ ----- ---- -------------
14
EXHIBIT 21.1
FRESH AMERICA CORP.
LIST OF SUBSIDIARY CORPORATIONS
DECEMBER 31, 1999
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
Fresh America California, Inc. Texas
Fresh America Louisiana, Inc. Texas
Fresh America Georgia, Inc. Texas
Hereford Haven, Inc., d/b/a/ Martin Bros. Texas
Francisco Acquisition Corp. Texas
Fresh America Arizona, Inc. Texas
Fresh America Florida, Inc. Texas
JNC Acquisition Corp. Pennsylvania
Columbia Marketing Services, Inc. Pennsylvania
Eleanor Corporation Pennsylvania
Toronto Corporation Pennsylvania
Allied-Perricone, Inc., formerly known as
Sam Perricone Citrus Company California
1277649 Ontario Limited Ontario, Canada
Ontario Tree Fruits Limited Ontario, Canada
Sarfog, Inc. New Jersey
Fosar, Inc. New Jersey
Trio Importing (No. 2) Company, Ltd. Ontario, Canada
EXHIBIT 23.1
The Board of Directors
Fresh America Corp.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-35019 and 333-3714) on Form S-8 of Fresh America Corp. of our report
dated March 24, 2000, except as to Note 8, which is as of April 14, 2000,
relating to the consolidated balance sheets of Fresh America Corp. and
subsidiaries as of December 31, 1999 and January 1, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999, which report
appears in the December 31, 1999, annual report on Form 10-K of Fresh America
Corp.
KPMG LLP
Dallas, Texas
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,197
<SECURITIES> 0
<RECEIVABLES> 61,478
<ALLOWANCES> (2,593)
<INVENTORY> 10,624
<CURRENT-ASSETS> 83,520
<PP&E> 35,828
<DEPRECIATION> (11,388)
<TOTAL-ASSETS> 134,481
<CURRENT-LIABILITIES> 71,274
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 29,719
<TOTAL-LIABILITY-AND-EQUITY> 134,481
<SALES> 669,875
<TOTAL-REVENUES> 669,875
<CGS> 591,977
<TOTAL-COSTS> 591,977
<OTHER-EXPENSES> (130)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,783
<INCOME-PRETAX> (24,621)
<INCOME-TAX> (2,630)
<INCOME-CONTINUING> (21,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,991)
<EPS-BASIC> 4.20
<EPS-DILUTED> 4.20
</TABLE>
