<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK (ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30,
1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _______________
Commission file number 0-26096
THE UNIMARK GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2436543
(State of incorporation or organization) (I.R.S. Employer Identification No.)
UNIMARK HOUSE
124 McMAKIN ROAD
LEWISVILLE, TEXAS 75067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 491-2992
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
--- ---
As of November 8, 1996, the number of shares outstanding of each class of
common stock was:
Common Stock, $.01 par value: 8,561,333 shares
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INDEX
THE UNIMARK GROUP, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1995
and September 30, 1996 .......................................... 3
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 1995 and 1996 .... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and 1996 .......................... 5
Notes to Condensed Consolidated Financial Statements -
September 30, 1996 ................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 15
SIGNATURES ................................................................ 15
</TABLE>
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1995 1996
------------ ------------
(Note 2) (UNAUDITED)
(In thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,286 $ 5,998
Accounts receivable, net of allowance of $70 in
1995 and $132 in 1996 4,484 7,788
Receivable from related parties 90 1,620
Inventories 6,182 17,673
Income and value added taxes receivable 824 1,974
Deferred income taxes 81 786
Prepaid expenses 300 661
------------ ------------
Total current assets 18,247 36,500
Property, plant and equipment, net of accumulated
depreciation of $1,449 in 1995 and $ 2,319 in 1996 7,689 24,427
Deferred income taxes 338 1,612
Goodwill -- 6,809
Other intangible assets -- 2,297
Other assets 224 952
------------ ------------
$ 26,498 $ 72,597
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,545 $ 5,770
Current portion of long-term debt 183 672
Accounts payable 4,356 4,201
Accrued expenses 943 2,180
Income taxes payable 13 --
Deferred income taxes 1,726 5,099
------------ ------------
Total current liabilities 10,766 17,922
Long-term debt, less current portion 699 4,132
Deferred income taxes 55 1,534
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 5,918,050 in 1995
and 8,561,333 in 1996 59 86
Additional paid-in capital 13,035 45,246
Retained earnings 1,884 3,677
------------ ------------
14,978 49,009
------------ ------------
$ 26,498 $ 72,597
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 8,296 $ 14,970 $ 25,904 $ 44,921
Cost of products sold 5,415 11,345 17,627 30,866
-------- -------- -------- --------
2,881 3,625 8,277 14,055
Selling, general and administrative expenses 1,871 4,406 5,849 11,788
-------- -------- -------- --------
Income (loss) from operations 1,010 (781) 2,428 2,267
Other income (expense):
Interest expense (41) (344) (219) (999)
Interest income 74 177 256 475
Foreign currency transaction gain (loss) 121 (71) 140 (192)
Other 4 8 8 1
-------- -------- -------- --------
158 (230) 185 (715)
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item 1,168 (1,011) 2,613 1,552
Income tax expense (benefit) 443 (333) 541 88
-------- -------- -------- --------
Income (loss) before extraordinary item 725 (678) 2,072 1,464
Extraordinary item - gain on forgiveness of debt,
net of applicable income taxes of $259 -- 330 -- 330
-------- -------- -------- --------
Net income (loss) $ 725 $ (348) $ 2,072 $ 1,794
======== ======== ======== ========
Earnings (loss) per share:
Income (loss) before extraordinary item:
Primary $ 0.12 $ (0.08) $ 0.39 $ 0.20
======== ======== ======== ========
Fully diluted $ 0.12 $ (0.08) $ 0.37 $ 0.20
======== ======== ======== ========
Net income (loss) :
Primary $ 0.12 $ (0.04) $ 0.39 $ 0.24
======== ======== ======== ========
Fully diluted $ 0.12 $ (0.04) $ 0.37 $ 0.24
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1996
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,072 $ 1,794
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 252 1,231
Deferred income taxes 337 1,059
Extraordinary gain -- (589)
Changes in operating assets and liabilities:
Receivables (2,580) (3,220)
Inventories (2,899) (7,189)
Prepaid expenses (135) (240)
Payables and accrued expenses 4,682 (2,578)
-------- --------
Net cash provided by (used in) operating activities 1,729 (9,732)
INVESTING ACTIVITIES
Acquisition of Deli-Bon, GISE and Simply Fresh shares -- (2,919)
Purchases of property, plant and equipment (2,461) (8,154)
Intangibles and other assets (50) (1,473)
-------- --------
Net cash used in investing activities (2,511) (12,546)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 5,593 22,788
Net decrease in short-term borrowings (1,090) (531)
Proceeds from long-term debt -- 324
Payments of long-term debt (516) (591)
-------- --------
Net cash provided by financing activities 3,987 21,990
-------- --------
Net increase (decrease) in cash and cash equivalents 3,205 (288)
Cash and cash equivalents at beginning of period 803 6,286
-------- --------
Cash and cash equivalents at end of period $ 4,008 $ 5,998
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
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THE UNIMARK GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements at September 30, 1996, and for
the three and nine month periods ended September 30, 1995 and 1996 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
period. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations, contained in the Company's annual report on Form 10-KSB
incorporated by reference. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of future financial results.
NOTE 2 - YEAR END FINANCIAL STATEMENT
The condensed consolidated balance sheet at December 31, 1995 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
NOTE 3 - EARNINGS PER SHARE
Earnings per share were calculated based on the weighted average number of
common and common equivalent shares outstanding. In 1995, the modified treasury
stock method was utilized to measure the dilutive effect of options and
warrants.
NOTE 4 - RELATED PARTY TRANSACTIONS
Effective January 1, 1995, UniMark entered into a five year operating agreement
with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to operate a
freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant to the
terms of the operating agreement, UniMark is obligated to pay IHMSA an
operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt (approximately $4.6 million). Interest rates available on the
renewal of the portion of IHMSA's debt which became due in 1996 have increased
significantly due in large part to economic conditions in Mexico. Since, under
the terms of the operating agreement, the Company would incur any increase in
the interest payments, the Company elected to advance funds to IHMSA to retire
the portion of the debt that recently became due instead of renew it. At
September 30, 1996, advances to IHMSA of $1.5 million are included in the
balance receivable from related parties. IHMSA is presently working to secure
acceptable long-term financing. It is anticipated that IHMSA will refinance the
debt and repay the balance owed to UniMark before the end of the year.
NOTE 5 - ACQUISITIONS
On January 3, 1996, the Company acquired, in a purchase transaction, all the
outstanding shares of capital stock of Les Produits Deli-Bon Inc. ("Deli-Bon"),
a Quebec corporation that principally processes and sells fruit salads to the
food service industry in Canada. Total consideration given for the purchase of
the shares included approximately (i) $787,000 in cash, (ii) a $49,000
six-month promissory note and (iii) 28,510 shares of common stock. The
Company's condensed consolidated statement of operations for the three and nine
months ended September 30, 1996 include the results of operations of Deli-Bon
since the date of acquisition.
On May 9, 1996, the Company acquired all the outstanding shares of capital
stock of Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE"), in exchange
for 782,614 shares of UniMark common stock in a purchase
6
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transaction. In addition, UniMark agreed to pay up to an additional $8 million
during the next four years if GISE achieves certain financial operating
targets. GISE operates two juice plants in the heart of major citrus growing
regions in Mexico. The Company's condensed consolidated statements of
operations for the three and nine months ended September 30, 1996 include the
results of operations of GISE since April 1, 1996, the effective date of the
acquisition.
Also on May 9, 1996, the Company acquired all the outstanding shares of capital
stock of Simply Fresh Fruit, Inc. ("Simply Fresh"), in exchange for (i)
$2,500,000 cash, (ii) 90,909 shares of UniMark common stock and (iii) five-year
covenants not to compete totaling $1,000,000 in a purchase transaction. Simply
Fresh is a fruit processing and distribution company located in Los Angeles,
California. The Company's condensed consolidated statements of operations for
the three and nine months ended September 30, 1996 include the results of
operations of Simply Fresh since April 1, 1996, the effective date of the
acquisition.
NOTE 6 - SHORT-TERM BORROWINGS
In May, 1996 the Company obtained a 90-day $3,000,000 loan from a bank in
Mexico at an annual interest rate of 11.37%. Of this amount, $2,500,000 was
utilized in the Simply Fresh acquisition and the remaining amount was used for
working capital and general corporate purposes. The Company repaid the loan
with the net proceeds from the sale of common stock described below.
NOTE 7 - SECONDARY PUBLIC OFFERING
On June 14, 1996, the Company completed a secondary public offering in which it
sold 1,677,000 shares of its common stock at $14.50 per share with net proceeds
to the Company of approximately $22.2 million. The Company intends to use the
net proceeds of the offering for capital expenditures, agricultural
development, repayment of indebtedness, acquisition of a juice plant, working
capital and other general corporate purposes, which may include further
acquisitions.
NOTE 8 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------- -------
<S> <C> <C>
Finished goods $ 4,594 $11,334
Raw materials and supplies 1,588 6,339
------- -------
Total $ 6,182 $17,673
======= =======
</TABLE>
NOTE 9 - COMMENCEMENT OF PLANT OPERATIONS IN NORTHEAST UNITED STATES
In August, 1996, the Company commenced plant operations in Lawrence,
Massachusetts after purchasing certain assets in a secured party sale from
Fleet National Bank and entering into a lease agreement with Gato Realty Trust
for a fruit processing plant facility. The Company purchased certain inventory,
equipment, vehicles and intangible assets for total cash consideration of
approximately $2.4 million. In addition, the Company entered into a lease
agreement for a plant facility with an initial lease term of six-years and
monthly rental payments of $18,000. The Company also paid initial lease costs
of approximately $337,000 in cash.
7
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NOTE 10 - GAIN ON FORGIVENESS OF DEBT
In July 1996, the Mexican government enacted a new program, Acuerdo Para El
Financiamiento del Sector Agropecuario y Pesquero ("FINAPE"), whereby certain
agricultural and fishing enterprises were eligible for a one time reduction in
their existing debt obligations with Mexican banks as a means of stimulating
the economy and supporting the Mexican banking system. Pursuant to the
provisions of FINAPE, GISE obtained a reduction in the amount of its
outstanding debt obligations with Banamex of $4,000,000 pesos or approximately
US $532,000.
In August 1996, the Mexican government enacted a second program, Acuerdo de
Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME"),
with respect to debt reduction for small and medium enterprises. Pursuant to
the provisions of FOPIME, ICMOSA obtained a reduction in the amount of its
outstanding debt obligations with Union de Credito Allende of approximately US
$57,000.
Provisions for Mexican income taxes and statutory employee profit sharing of
34% and 10%, respectively, have been provided on these gains from debt
forgiveness.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein and in
"Risk Factors", in the Company's Prospectus dated June 14, 1996 as filed with
the Securities and Exchange Commission. Statements contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
are not historical facts are forward-looking statements that are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995.
CONVERSION TO U.S. GAAP
The Company conducts substantially all of its operations through its
wholly-owned operating subsidiaries: UniMark Foods, Inc. ("UniMark Foods"),
UniMark International, Inc. ("UniMark International"), Simply Fresh Fruit, Inc.
("Simply Fresh"), Industrias Citricolas de Montemorelos, S.A. de C.V.
("ICMOSA"), Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE") and Les
Produits Deli-Bon, Inc. ("Deli-Bon"). UniMark Foods, UniMark International and
Simply Fresh are U.S. corporations.
ICMOSA is a Mexican corporation with its headquarters located in Montemorelos,
Nuevo Leon, Mexico, whose principal activities consist of operating six citrus
processing plants and various citrus groves throughout Mexico. GISE is a
Mexican corporation with its headquarters located in Ciudad Victoria,
Tamaulipas, Mexico, whose principal activities consist of producing citrus
concentrates, oils and juices. ICMOSA and GISE maintain their accounting
records in Mexican pesos and in accordance with Mexican generally accepted
accounting principles ("Mexican GAAP") and are subject to Mexican income tax
laws. ICMOSA's and GISE's financial statements have been converted to United
States generally accepted accounting principles ("U.S. GAAP") and United States
dollars.
Deli-Bon is a Canadian corporation with its headquarters located in Quebec
City, Quebec, whose principal activities consist of operating a fruit
processing and distribution facility. Deli-Bon maintains its accounting records
in Canadian dollars and in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP") and is subject to Canadian income tax
laws. Deli-Bon's financial statements have been converted to U.S.
GAAP and U.S. dollars.
Unless otherwise indicated, all dollar amounts included herein are set forth in
U.S. dollars in accordance with U.S. GAAP. The functional currency of UniMark
and its subsidiaries is the U.S. dollar. This discussion does not include the
results of operations of Deli-Bon prior to its acquisition date (January 3,
1996) or the results of operations of GISE and Simply Fresh prior to the
effective date (April 1, 1996) of their acquisition.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data expressed as
a percentage of net sales for the three and nine month periods ended September
30, 1995 and 1996.
9
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 65.3 75.8 68.0 68.7
------ ------ ------ ------
Gross profit 34.7 24.2 32.0 31.3
Selling, general and administrative expenses 22.6 29.4 22.6 26.3
------ ------ ------ ------
Income (loss) from operations 12.1 (5.2) 9.4 5.0
Other income (expense):
Interest expense (0.5) (2.3) (0.8) (2.2)
Interest income 0.9 1.2 1.0 1.1
Foreign currency transaction gain (loss) 1.5 (0.5) 0.5 (0.4)
Other -- 0.1 -- --
------ ------ ------ ------
1.9 (1.5) 0.7 (1.5)
------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item 14.0 (6.7) 10.1 3.5
Income tax expense (benefit) 5.3 (2.2) 2.1 0.2
------ ------ ------ ------
Income (loss) before extraordinary item 8.7 (4.5) 8.0 3.3
Extraordinary item, net of applicable income taxes -- 2.2 -- 0.7
------ ------ ------ ------
Net income (loss) 8.7% (2.3)% 8.0% 4.0%
====== ====== ====== ======
</TABLE>
Three Months Ended September 30, 1995 and 1996
Net sales increased $6.7 million, or 81%, from $8.3 million in 1995 to $15.0
million in 1996. This increase was due primarily to the Company's recent
acquisitions and continued growth and expansion of existing product lines.
Although the sales increase was significant, it was lower than anticipated due
to a lack of sales to Japan and limited sales of frozen concentrate orange
juice.
During the third quarter, the Company experienced a lack of sales to Japan in
1996 as compared to sales of $2.5 million in 1995. Sales to Japan were
suspended due to existing inventory levels in Japan and the introduction in
Japan of a new competing product line. Although no assurances can be given, the
Company currently anticipates continuing shipments to Japan by January, 1997.
Sales volume to Japan for the 1997 production season will depend upon, among
other things, the acceptance of the new competing product line in Japan, the
successful expansion of the Company's existing product line to the Japanese
market and the successful introduction of the Company's new frozen citrus
products to the Japanese market. Sales of frozen concentrate orange juice by
the Company's new GISE subsidiary was approximately $2.5 million or 50% of
anticipated sales volume. Due primarily to the effects of the drought in
northern Mexico during June and July, GISE experienced higher than expected
prices for Valencia oranges and significantly lower production yields. As such,
production was curtailed during the third quarter. GISE has since begun
production of the early season orange and, although no assurances can be given,
the Company anticipates that production will be back to expected levels during
the first quarter of 1997.
Gross profit as a percentage of net sales decreased from 34.7 % in 1995 to 24.2
% in 1996. This decrease resulted primarily from higher raw material cost,
lower than expected sales volume and costs associated with the commencement of
operations at a new processing plant in the Northeast United States.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased from 22.6% in 1995 to 29.4% in 1996. This increase resulted
primarily from the operation of additional processing and distribution
facilities as a result of recent acquisitions, the commencement of plant
operations at a new facility in the Northeast United States and lower than
expected sales volume. Although no assurances can be given, the Company
anticipates that SG&A as a
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percentage of net sales should improve during 1997 as the Company's recent
acquisitions become integrated with the Company's existing operations.
Interest expense increased from 0.5% of net sales in 1995 to 2.3% of net sales
in 1996 as a result of increased levels of debt primarily associated with
recent acquisitions. Actual interest expense was $41,000 in 1995 and $344,000
in 1996.
Interest income of $74,000 in 1995 and $177,000 in 1996 was earned from the
temporary investment of excess cash funds.
Foreign currency transaction gains and losses result primarily from the
translation of net monetary assets or net monetary liabilities denominated in
Mexican pesos into U.S. dollars. This translation resulted in a net gain of
$121,000 in 1995 and a net loss of $71,000 in 1996.
Income taxes. The consolidated provision for income taxes was an expense of
$443,000 in 1995 and a benefit of $333,000 in 1996. The tax benefit in 1996
resulted from the recognition of future benefits from tax losses generated in
the United States and Mexico.
Extraordinary gain. In July 1996, the Mexican government enacted a new program,
Acuerdo Para El Financiamiento del Sector Agropecuario y Pesquero ("FINAPE"),
whereby certain agricultural and fishing enterprises were eligible for a one
time reduction in their existing debt obligations with Mexican banks as a means
of stimulating the economy and supporting the Mexican banking system. Pursuant
to the provisions of FINAPE, GISE obtained a reduction in the amount of its
outstanding debt obligations with Banamex of $4,000,000 pesos or approximately
US $532,000.
In August 1996, the Mexican government enacted a second program, Acuerdo de
Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME"),
with respect to debt reduction for small and medium enterprises. Pursuant to
the provisions of FOPIME, ICMOSA obtained a reduction in the amount of its
outstanding debt obligations with Union de Credito Allende of approximately US
$57,000.
Provisions for Mexican income taxes and statutory employee profit sharing of
34% and 10%, respectively, have been provided on these gains from debt
forgiveness.
Net income (loss). As a result of the foregoing, the Company experienced a net
loss of $348,000 in the third quarter of 1996 as compared to net income of
$725,000 in the same period of 1995.
Nine Months Ended September 30, 1995 and 1996
Net sales increased $19 million, or 73%, from $25.9 million in 1995 to $44.9
million in 1996. This increase was due primarily to the Company's recent
acquisitions and continued growth and expansion of existing product lines.
Although the sales increase was significant, it was less than anticipated due
to a lack of sales to Japan and limited sales of frozen concentrate orange
juice during the third quarter.
During the third quarter, the Company experienced a lack of sales to Japan in
1996 as compared to sales of $2.5 million in 1995. Sales to Japan were
suspended due to existing inventory levels in Japan and the introduction in
Japan of a new competing product line. Although no assurances can be given, the
Company currently anticipates continuing shipments to Japan by January, 1997.
Sales volume to Japan for the 1997 production season will depend upon, among
other things, the acceptance of the new competing product line in Japan, the
successful expansion of the Company's existing product line to the Japanese
market and the successful introduction of the Company's new frozen citrus
products to the Japanese market. Sales of frozen concentrate orange juice by
the Company's new GISE subsidiary was approximately $2.5 million or 50% of
anticipated sales volume. Due primarily to the effects of the drought in
northern Mexico during June and July, GISE experienced higher than expected
prices for Valencia oranges and significantly lower production yields. As such,
production was curtailed during the third quarter. GISE has since begun
production
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of the early season orange and, although no assurances can be given, the
Company anticipates that production will be back to expected levels during the
first quarter of 1997.
Gross profit as a percentage of net sales decreased from 32.0% in 1995 to 31.3%
in 1996. This decrease resulted primarily from higher raw material cost, lower
than expected sales volume and costs associated with the commencement of
operations at a new processing plant in the Northeast United States.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased from 22.6% in 1995 to 26.3% in 1996. This increase resulted
primarily from the operation of additional processing and distribution
facilities as a result of recent acquisitions, the commencement of plant
operations at a new facility in the Northeast United States and lower than
expected sales volume.
Interest expense increased from 0.8% of net sales in 1995 to 2.2% of net sales
in 1996 as a result of increased levels of debt primarily associated with
recent acquisitions. Actual interest expense was $219,000 in 1995 and $999,000
in 1996.
Interest income of $256,000 in 1995 and $475,000 in 1996 was earned from the
temporary investment of excess cash funds.
Foreign currency transaction gains and losses result primarily from the
translation of net monetary assets or net monetary liabilities denominated in
Mexican pesos into U.S. dollars. This translation resulted in a net gain of
$140,000 in 1995 and a net loss of $192,000 in 1996.
Income taxes. The consolidated provision for income taxes was $541,000 in 1995
and $88,000 in 1996. In 1996, the tax provision includes the recognition of
future benefits of tax losses generated and the change in tax status of certain
of the Company's agricultural operations in Mexico.
Pursuant to a provision in Mexico's income tax laws, ICMOSA has transferred its
fruit growing operations into a new Mexican corporation, AgroMark, S.A. de
C.V., effective June 30, 1996 in order to eliminate paying Mexican income tax
on the profits from these operations at a rate of 34%. Instead, AgroMark will
only be taxed on subsequent distributions at a rate of 17%. In addition,
AgroMark's profits will not be subject to the Mexican 10% statutory employee
profit sharing provisions since AgroMark will not have any employees but
instead will contract all services from ICMOSA. AgroMark is a wholly owned
subsidiary of the UniMark Group, Inc. This change in tax status resulted in a
deferred tax benefit of approximately $612,000 and a reduction of
administrative expenses of approximately $180,000 in the second quarter of
1996.
Net income, as a result of the foregoing, decreased 14.3% from $2.1 million
in 1995 to $1.8 million in 1996.
STATUTORY EMPLOYEE PROFIT SHARING
All Mexican companies are required to pay their employees, in addition to their
agreed compensation benefits, profit sharing in an aggregate amount equal to
10% of net income, calculated for employee profit sharing purposes, of the
individual corporation employing such employees. All of UniMark's Mexican
employees are employed by its subsidiaries, each of which pays profit sharing
in accordance with its respective net income for profit sharing purposes. Tax
loss carryforwards do not affect employee profit sharing. Statutory employee
profit sharing expense is reflected in the Company's selling, general and
administrative expenses. The Company's net income on a consolidated basis as
shown in the condensed consolidated financial statements is not a meaningful
indication of net income of the Company's subsidiaries for profit sharing
purposes or of the amount of employee profit sharing.
EXCHANGE RATE FLUCTUATIONS
UniMark procures and processes substantially all of its products in Mexico
through its wholly owned subsidiaries, ICMOSA and GISE for export to the United
States, Canada, Japan and Europe. Generally, the cost of fruit procured in
Mexico reflects the spot market price for citrus in the United States. All of
UniMark's sales are denominated in U.S.
12
<PAGE> 13
dollars. As such, UniMark does not anticipate sales revenues and fruit costs to
be materially affected by changes in the valuation of the Mexican peso. Labor
and certain other production costs are peso denominated. Consequently, these
costs are impacted by fluctuations in the value of the peso relative to the
U.S. dollar. Presently, the Company does not engage in any hedging transactions.
UniMark's consolidated results of operations are affected by changes in the
valuation of the Mexican peso to the extent that ICMOSA and GISE have peso
denominated net monetary assets or net monetary liabilities. In periods where
the peso has been devalued in relation to the U.S. dollar, a gain will be
recognized to the extent there are peso denominated net monetary liabilities
while a loss will be recognized to the extent there are peso denominated net
monetary assets. In periods where the peso has gained value, the converse would
be recognized.
UniMark's consolidated results of operations are also subject to fluctuations
in the value of the peso as they affect the translation to U.S. dollars of
ICMOSA's and GISE's net deferred tax assets or net deferred tax liabilities.
Since these assets and liabilities are peso denominated, a falling peso results
in a transaction loss to the extent there are net deferred tax assets or a
transaction gain to the extent there are net deferred tax liabilities.
SEASONALITY
A substantial portion of UniMark's exports to Japan is typically processed and
shipped during the first and fourth quarter each year. In addition, the demand
for UniMark's chilled citrus and tropical fruit products is strongest during
the fall, winter and spring when seasonal fresh products such as mangoes,
peaches, plums, nectarines and others are not readily available for sales in
supermarkets in North America. Management believes UniMark's quarterly net
sales will continue to be impacted by this pattern of seasonality although
sales to Japan in the fourth quarter of 1996 and the first quarter of 1997 will
be impacted as previously discussed above under "Results of Operations".
DEPENDENCE UPON AVAILABILITY AND PRICE OF FRESH FRUIT
The Company obtains a substantial amount of its raw materials from third-party
suppliers throughout various growing regions in Mexico, Texas and California. A
crop reduction or failure in any of these fruit growing regions resulting from
factors such as weather, pestilence, disease or other natural disasters, could
increase the cost of the Company's raw materials or otherwise adversely affect
the Company's operations. Competitors may be affected differently depending
upon their ability to obtain adequate supplies from sources in other geographic
areas. If the Company is unable to pass along the increased raw materials cost,
the financial condition and results of operations of the Company could be
materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, cash and temporary cash investments totaled $6.0
million, a decrease of $0.3 million from year end 1995. Operating activities
utilized cash of $9.7 million during the nine month period ended September 30,
1996 primarily resulting from an increase in related party receivables of $1.5
million (see Note 4 to the Condensed Consolidated Financial Statements), trade
receivables of $1.7 million and inventory levels of $7.2 million. The increases
in trade receivables and inventories results primarily from the recent
acquisitions, the commencement of operations in the Northeast United States and
the seasonal procurement and processing of fruits. At September 30, the number
of days sales in finished goods inventory based on the cost of products sold
for the nine month period then ended was 74 days in 1996 and 73 days in 1995.
At September 30, 1996 raw materials and supplies inventories include
approximately $2.5 million in costs associated with the Company's own citrus
growing operations through its newly formed subsidiary, AgroMark.
During the nine month period ended September 30, 1996, the Company utilized
cash of $12.5 million in investing activities. Of this amount, $8.2 million was
expended on capital equipment and improvements to plant facilities and
approximately $2.9 million was utilized in the acquisitions of Deli-Bon, GISE
and Simply Fresh and $1.5 million was utilized for intangibles and other
assets.
13
<PAGE> 14
Net cash generated by financing activities was $22.0 million for the nine month
period ended September 30, 1996. Included in financing activities were net
proceeds from the issuance of common stock, changes in short-term borrowings,
proceeds and payments of long-term debt.
During the nine month period ended September 30, 1996, the Company issued (i)
28,510 shares of common stock in conjunction with the acquisition of Deli-Bon;
(ii) 33,750 shares of common stock upon the exercise of certain underwriters'
warrants, and (iii) 30,500 shares of common stock on the exercise of employee
and director stock options. Net proceeds to UniMark on the issuance of these
92,760 shares of common stock was approximately $600,000.
On January 3, 1996, the Company acquired, in a purchase transaction, all the
outstanding shares of capital stock of Deli-Bon, a Quebec corporation that
principally processes and sells fruit salads to the food service industry in
Canada. Total consideration given for the purchase of the shares included
approximately (i) $787,000 in cash, (ii) a $49,000 six-month promissory note
and (iii) 28,510 shares of common stock.
On May 9, 1996, the Company acquired all the outstanding shares of capital
stock of GISE in exchange for 782,614 shares of UniMark common stock in a
purchase transaction. In addition, UniMark agreed to pay up to an additional $8
million during the next four years if GISE achieves certain financial operating
targets. GISE operates two juice plants in the heart of major citrus growing
regions in Mexico.
Also on May 9, 1996, the Company acquired all the outstanding shares of capital
stock of Simply Fresh in exchange for (i) $2,500,000 cash, (ii) 90,909 shares
of UniMark common stock and (iii) five-year covenants not to compete totaling
$1,000,000 in a purchase transaction. Simply Fresh is a fruit processing and
distribution company located in Los Angeles, California.
On June 14, 1996, the Company completed a secondary public offering in which it
sold 1,677,000 shares of its common stock at $14.50 per share with net proceeds
to the Company of approximately $22.2 million. As of September 30, 1996, the
Company had utilized $3.6 million of these proceeds to repay indebtedness, $5.2
million to reduce borrowings under existing working capital facilities, $2.7
million in acquiring assets and commencing operations in the Northeast U.S.,
and approximately $9.6 million for capital expenditures, agricultural
development, working capital and other general corporate purposes.
In August, 1996, the Company commenced plant operations in Lawrence,
Massachusetts after purchasing certain assets in a secured party sale from
Fleet National Bank ("Fleet") and entering into a lease agreement with Gato
Realty Trust for a fruit processing plant facility. The Company purchased
certain inventory, equipment, vehicles and intangible assets for a total cash
consideration of approximately $2.4 million. In addition, the Company entered
into a lease agreement for a plant facility with an initial lease term of
six-years and monthly rental payments of $18,000. The Company also paid initial
lease costs of approximately $337,000 in cash.
Cash was used to reduce short-term borrowings by $531,000 and to make regularly
scheduled payments of long-term debt of $591,000 during the nine month period
ended September 30, 1996 while cash of $324,000 was generated from the proceeds
of long-term debt
At September 30, 1996, the Company had approximately $3.0 million available
under existing U.S. credit facilities and approximately $8.0 million available
under existing Mexico credit facilities. For the period ended September 30,
1996, the Company was in technical default with respect to certain loan
covenants relating to quarterly profitability and acquisition of assets under
its existing $3.0 million U.S. credit facility with Bank of America. This
default has subsequently been waived by the bank. The Company is currently
negotiating a master credit facility with an international bank specializing in
agricultural companies.
The Company's future cash requirements for 1996 and beyond will depend
primarily upon the level of sales; expenditures for capital equipment and
improvements; the timing of inventory purchases and new product introductions
and business acquisition opportunities. The Company believes that anticipated
revenue from operations and existing capital resources will be adequate for its
working capital requirements for at least the next twelve months.
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<PAGE> 15
EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Secured Party Bill of Sale between Fleet National Bank and
UniMark Foods, Inc.
10.2 Lease Agreement between Gato Realty Trust and UniMark Foods, Inc.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
B. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE UNIMARK GROUP, INC.
-----------------------------
Registrant
Date: November 12, 1996 /s/ Jorn Budde
-----------------------------
Jorn Budde, President
(Principal Executive Officer)
Date: November 12, 1996 /s/ Keith Ford
-----------------------------
Keith Ford, Vice President
(Principal Accounting Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------
10.1 Secured Party Bill of Sale between Fleet National Bank and
UniMark Foods, Inc.
10.2 Lease Agreement between Gato Realty Trust and UniMark
Foods, Inc.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
16
<PAGE> 1
EXHIBIT 10.1
SECURED PARTY BILL OF SALE
A. SALE OF ASSETS. Fleet National Bank, a banking association organized and
existing under the laws of the United States of America, with a usual place of
business at 777 Main Street, Hartford, Connecticut (hereinafter called
"SELLER"), in consideration of certain sums as set forth herein paid by UniMark
Foods, Inc., a Texas corporation with its principal place of business at UniMark
House, Argyle, Texas (hereinafter called the "BUYER"), does hereby grant, sell,
assign and deliver unto the Buyer any and all of the right, title and interest
of Fruit Salad, Inc. (the "DEBTOR") in and to certain assets of the Debtor as
follows:
1. Any and all of the Debtor's equipment (as that term is defined in
Chapter 106, Article 9 of the General Laws of the Commonwealth of
Massachusetts), excluding any motor vehicles, owned or used by the Debtor (the
"EQUIPMENT");
2. Any and all of the Debtor's names, trademarks, trade names, trade
styles, and the goodwill associated therewith, any and all customer lists, and
any and all unfulfilled purchase orders and other agreements of the Debtor to
sell goods and merchandise as to which payment has not been earned by the Debtor
through performance (collectively, the "INTANGIBLE ASSETS") ;
3. Any and all of the Debtor's inventory as that term is defined in
Chapter 106, Article 9 of the General Laws of the Commonwealth of Massachusetts
(the "INVENTORY"); and
4. Those certain motor vehicles owned by the Debtor, as which ownership
is identified by the attached certificates of title (the "VEHICLES").
<PAGE> 2
B. PURCHASE PRICE. The total purchase price for the Equipment, the Vehicles
and the Intangible Assets is $1,776,000.00 and the total purchase price for the
Inventory is the actual cost value of the Debtor's usable inventory. The Seller
acknowledges receipt of $ 2,076,000.00.
C. SELLER'S REPRESENTATIONS. The Seller represents as follows:
1. that, subject only to (a) claims arising under the Perishable
Agricultural Commodities Act ("PACA"), (b) any purchase money security interest
in any items of Equipment as to which Uniform Commercial Code ("UCC") financing
statements have been filed, (c) the interest of the Lessor of any Equipment and
(d) security interests as to which perfection is obtained other than pursuant to
the UCC, it is the holder of a valid and perfected first lien security interest
in and to the Equipment, the Intangible Assets, the Inventory and the Vehicles
(collectively, the "ASSETS") pursuant to a Loan and Security Agreement between
the Debtor and Shawmut Bank, N.A. dated December 16, 1994 (the "SECURITY
AGREEMENT");
2. that the Debtor is in default of its obligations to the Seller and
that the Seller has, therefore, the right to grant, sell, assign and deliver the
Assets to the Buyer under the terms of the Security Agreement and under
applicable law;
3. that the grant, sale, assignment, delivery and transfer set forth
herein will result in the transfer of all rights that the Debtor may have in the
Assets to the Buyer and the extinguishment of the security interest of the
Seller, and of all other liens and security interests in the Assets junior to
the lien of the Seller;
2
<PAGE> 3
4. that the Seller has complied with all applicable laws relating to
the sale of the Assets, including, but not limited to, the terms of the Security
Agreement and the requirements of Section 9-504 of Chapter 106 of the General
Laws of the Commonwealth of Massachusetts, that the method, manner, time, place
and terms of the sale are commercially reasonable and that it has afforded
reasonable notification of the sale contemplated herein to the Debtor and all
parties entitled to such notification, or that such parties have executed a
post-default renunciation of such rights to notification as they may have.
5. This Secured Party Bill of Sale is a valid and legally binding
obligation, enforceable in accordance with its terms. The execution, delivery
and performance of this Secured Party Bill Of Sale has been duly authorized by
and will not violate any applicable federal or state law, any order of any court
of government agency.
D. EXCLUSION OF WARRANTIES. The Equipment is in a used condition, having
been repossessed by the Seller in the exercise of its rights under the Security
Agreement. The Seller is neither a manufacturer nor distributor of, nor dealer
or merchant in, the Equipment of the Inventory.
Except as hereinbefore provided, in connection with this sale, SELLER MAKES
NO WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS, IMPLIED OR OTHERWISE, AS
TO THE EXISTENCE OR EXTENT OF THE ITEMS HEREIN SOLD, THE VALIDITY OF THE TITLE
OF THE DEBTOR TO ANY OF SAID ITEMS OR THAT ANY OF THE PROPERTY IS MERCHANTABLE
OR FIT FOR ANY PARTICULAR PURPOSE. This sale is being made AS IS, WHERE IS, WHAT
IS. Seller makes no
3
<PAGE> 4
representations or warranties as to the quality or quantity of the assets being
conveyed thereunder. Buyer acknowledges that it has made a full inspection of
the items purchased.
E. OTHER PROVISIONS. This is a final and exclusive expression of the
agreement of the Seller and the Buyer, and no course of the dealing or usage of
trade or course of performance shall be relevant to explain or supplement any
terms expressed in this Agreement. The Seller hereby agrees that it shall
perform all acts and execute all other documents as may be reasonably necessary
to more fully effectuate the transfer to the Buyer of title to all of the items
constituting constituent parts of the Assets and the transactions set forth
herein.
F. SELLER'S COVENANTS. The Seller covenants and agrees that Seller will pay
and discharge any and all liens that cover any of the Assets, including any
statutory trust claims arising under PACA, the UCC or any other state or federal
statute, that are not extinguished as a result of the sale of the Assets by
Seller pursuant to this Secured Party Bill of Sale, except for those certain
liens identified on Schedule F attached hereto, and except for the interest of
Lessor's of any of the Equipment. Seller agrees to indemnify and hold Buyer
harmless from any and all claims, losses and liabilities resulting from the
breach of any representation, warranty or covenant by made by seller herein.
Buyer hereby accepts and agrees to all of the terms contained in the above
Secured Party Bill of Sale. The parties acknowledge and agree that Buyer assumes
no liabilities or obligations of Debtor of any nature whatsoever.
4
<PAGE> 5
IN WITNESS WHEREOF, the said Fleet National Bank and the said UniMark
Foods, Inc. have hereunto caused this document to be executed on August 9, 1996.
FLEET NATIONAL BANK
(Seller)
By:__________________________________
Cynthia G. Stannard, Vice President
UNIMARK FOODS, INC.
(Buyer)
By:__________________________________
Jorn Budde, President
5
<PAGE> 1
EXHIBIT 10.2
LEASE AGREEMENT
This Lease Agreement, dated as of this 9th day of August, 1996, is by and
among Charles J. Gangi and Charles A. Torrisi, not individually but as trustees
of Gato Realty Trust, u/d/t/ dated November 30, 1988 recorded with the Essex
North District Registry of Deeds, as nominee of Gato Realty Corp., a
Massachusetts corporation with a principal address at 274 Prospect Street,
Lawrence, Massachusetts (hereinafter called "LESSOR") and UniMark Foods, Inc., a
Texas corporation (hereinafter called "LESSEE").
Recitals:
1. Lessor owns that certain parcel of land known as 71 Glenn
Street, Lawrence, Massachusetts (the "LOT") and more
particularly bounded and described on Exhibit A annexed hereto
and by reference made a part hereof, together with the
building (the "BUILDING"), all other improvements presently
situated or hereafter constructed thereon, and together with
such rights of ingress and egress and other rights appurtances
thereto as are set forth on said Exhibit A, which Lot,
Building, improvements and rights are hereinafter collectively
referred to as the "PREMISES."
2. Fruit Salad, Inc., a Massachusetts corporation (hereinafter
called "FSI") was the owner of a leasehold estate affecting
the Premises under a certain lease agreement dated as of the
30th day of November, 1998, executed by FSI, as Lessee, and
Lessor, as landlord. Said lease and all renewals, extensions
and modifications thereof are hereinafter collectively called
the "EXISTING LEASE".
3. FSI and Lessor has terminated all of their rights, title and
interest in the Existing Lease on the terms and subject to the
conditions set forth herein.
Agreements:
1. No Assumption of Liabilities. Landlord expressly acknowledges and
agrees that Lessee assumes no obligations or liabilities, known or unknown, of
FSI under the Existing Lease or from any other source or nature whatsoever.
2. Premises. Lessor does hereby lease to Lessee, and Lessee does hereby
Lease from Lessor the Premises.
3. Term. The initial term of this Lease (the "INITIAL TERM") shall be
for six (6) years, commencing on August 9, 1996 (the "COMMENCEMENT DATE") and
ending on
<PAGE> 2
August 8, 2002, unless extended or earlier terminated as provided below (the
"LEASE TERM").
4. Rent. Lessee agrees to pay to Lessor rent ("NET RENT") payable, in
advance, in monthly installments on the first day of each calendar month during
the Lease term provided that notwithstanding that the Commencement Date does not
fall on the first day of a calendar month, Lesse shall pay the full amount of
the Net Rent for such month.). All such payments shall be made at Lessor's
mailing address set forth above or at such other place as Lessor shall from time
to time designate in writing. Except as otherwise provided for herein, all Net
Rent and other amounts due under this Lease shall be made without demand, offset
or deduction. Net Rent shall be $18,000 per month.
5. Net Lease. This is intended to be a so-called "Net Lease," and the
Lessee agrees to pay in addition to the rent specified herein, all real estate
taxes, assessments, betterments, water and sewer charges and all other and
charges in the nature thereof accruing against the demised Premises, the cost of
all insurance, and to pay and perform all obligations specified herein, for any
failure of which payments or performance continuing beyond the periods of grace
for which provision is herein made, the Lessor shall, without limiting other
remedies which may be available to Lessor, have the rights herein provided
against the Lessee on account of a failure to pay installments on account of
rent.
6. Option to Extend. Lessee shall have the option, to be exercised as
hereinafter set forth, to extend the Lease Term for two successive periods of
two (2) years each, following the original Lease Term (each of such periods is
hereinafter referred to as the "extended term"), upon the condition that, on the
last date on which Lessee is entitled to exercise this option and on the last
day of the then current term (original or extended), this Lease is in full force
and effect and Lessee is not in material default hereunder. Lessee shall
exercise its option by giving written notice of its election to extend the Lease
Term to Lessor not less than six (6) months prior to the expiration of the then
current Lease Term (original or extended). Upon such exercise, the Lease Term
shall be automatically extended for the two year period of such extended term,
upon the same terms and conditions set forth in this Lease.
7. Option to Purchase. Lessee shall have the option, to be exercised as
hereinafter set forth, to purchase the Premises for its fair market value (as
determined below) at the Time of Exercise (as defined below), less any
Capitalized Lessee Advances (as defined below) (the "PURCHASE PRICE"). Lessee
may exercise its option to purchase the Premises at any time during the 9th year
of this Lease (the "TIME OF EXERCISE") by giving written notice of its election
to purchase the Premises at any time during the 10th year of this Lease. This
written notice of its election shall set forth the total amount of all
Capitalized Lessee Advances and with such notice shall be included true copies
of all
2
<PAGE> 3
contracts and paid invoices evidencing such Capitalized Lessee Advances.
"CAPITALIZED LESSEE ADVANCES" means an amount equal to the sum of (a) all cost
and expenses incurred by Lessee as a result of Lessor's failure to maintain and
replace the Premises' roof, maintenance of the Premises' foundation and
structural members of the exterior walls, and (b) any costs, expenses, loss,
damage or liability incurred by Lessee with respect to any Environmental Law
(as hereinafter defined) because of the release or existence of any Hazardous
Substance on the Premises prior to the date hereof, which amount is be to
increased at an annual compounded at rate of 7 percent from the date that such
cost, expenses loss, damage or liability incurred by Lessee was incurred by
Lessee until the Time of Exercise. As such cost and expenses are incurred and
paid by Lesse, Lessee shall provide Lessor with copies of all paid invoices
relating thereto.
Within 15 days after receipt of such notice from Lessee, Lessor shall
deliver to Lessee a statement containing a proposed Purchase Price for the
Premises, based upon the sum of the then fair market value of the Premises and
the amount Capitalized Lessee Advances.
Within 15 days after receipt of such statement from Lessor, Lessee
shall give written notice to Lessor that Lessee (i) accepts the purchase price
proposed by Lessor or (ii) rejects the purchase price proposed by Lessor and
desires to seek determination of the fair market value of the Premises by
appraisal and the amount of the Capitalized Lessee Advances.
Within fifteen (15) days of receipt of such request for appraisal from
Lessee, Lessor shall appoint and give notice to Lessee of a duly qualified,
disinterested appraiser or appraisal firm recognized competence in the greater
Lawrence area (the fees of such appraiser to be paid by Lessor) and Lessee shall
also appoint and give notice to Lessor of a duly qualified, disinterested
appraiser or appraisal firm of recognized competence in the greater Lawrence
area (the fees of such appraiser to be paid by Lessee). If the two appraisers
are unable to agree on a fair market value and amount of Capitalized Lessee
Advances within thirty (30) days of their appointment, the two appraisers so
appointed by Lessor and Lessee shall, within ten days, choose a third such
appraiser of comparable qualifications. The fees of such third appraiser shall
be divided equally between the parties.
The three appraisers so selected or a majority of them shall determine
the fair market value of the Premises based upon property values comparable to
the Premises in the greater Lawrence area on or about the Time of Exercise and
the amount of Capitalized Lessee Advances. The appraisers shall promptly notify
the parties of the fair market value
3
<PAGE> 4
so determined, and in any event no later than the date that is thirty
(30) days after the appointment of the third appraiser. Such determined value
shall be binding upon Lessor and Lessee.
On the closing date, Lessor shall deliver such deeds, documents and
agreements that will vest good and marketable fee simple title to all the
Premises free and clear of all encumbrances, liens, charges or other
restrictions of any kind or character, excepting easements granted by Lessor's
predecessor in title to Lawrence Gas Company and to New England Telephone and
Telegraph Company. The closing date, time and place shall be established by
written notice from Lessee to Lessor delivered not less than 90 days prior
thereto.
No agreement between the Lessor and the Lessee shall be deemed or
otherwise construed as modifying or otherwise limiting the rights and remedies
of Lawrence Savings Bank, a mortgagee respecting the Premises, and the Lessor
and Lessee acknowledge and agree that there is no obligation on the part of
Lawrence Savings Bank, either express or implied, to release or otherwise modify
its mortgage respecting the Premises absent payment in full of all liabilities
secured thereby or unless otherwise agree in writing by Lawrence Savings Bank.
8. Use of Premises. Lessor acknowledges and agrees that, during the
Lease Term, Lessee may use the Premises for the processing, making, packaging
and distribution of fruit, vegetables and other consumer products as well as any
and all other uses permitted under the then applicable zoning regulations of the
City of Lawrence. Lessor acknowledges and agrees that, during the Lease Term,
Lessee shall assume and maintain exclusive control of, and enjoy exclusive
access to, the Premises and that Lessor and its representatives shall have no
rights of access to the Premises without the prior written approval of Lessee,
provided that upon written request of Lessor, Lessee shall permit, from time to
time, an independent inspector for Lessor, but acceptable to Lesse or which may
designated by Lessee, to inspect the condition of the Premises.
9. Maintenance and Repair. Lessee shall, at its own expense at all
times keep each and every part (including, without limitation, each and every
structural part of any structure thereon) of the Premises reasonably neat, clean
and in a safe and sanitary condition, and shall maintain and keep each and every
part (including, without limitation, each and every structural part of any
structure thereon) of the Premises in a good and safe state of repair and in
material compliance with all governmental orders, regulations and laws. During
the term hereof, there shall be no obligation on the part of Lessor to do or
cause to be done any maintenance or repairs to the Premises or to make any
expenditures for maintenance or repair of the Premises, except for maintenance
and replacement of the Premises' roof, maintenance of the Premises' foundation
and structural members of the
4
<PAGE> 5
exterior walls. In the event that Lessor fails to maintain and replace the
Premises' roof, maintain of the Premises' foundation and structural members of
the exterior walls, Lessee may perform such maintenance and repairs. All cost
incurred in connection with such maintenance and repairs shall be treated as
Capitalized Lease Advances. Consistent with the foregoing, Lessee shall, during
the term hereof, keep the Premises in the condition in which they now are or may
hereafter (in conformity with the provisions hereof) be put and shall, at the
expiration or termination of such term, peacefully yield up and deliver to
Lessor the Premises in such condition.
10. Construction and Alteration. Lessee shall have the right to
construct and install on the Premises such improvements and alterations as
Lessee may elect. but in compliance with all applicable laws, rules and
regulations.
11. Insurance Lessee shall maintain (i) commercial general liability
insurance, including personal injury and property damage in the amount as Lessee
shall determine to be appropriate and (ii) fire and extended coverage insurance
in the amount as Lessee shall determine to be appropriate, subject to the
approval of such coverages by Lawrence Savings Bank. Lessee, Lessor and Lawrence
Savings Bank shall be named as additional insureds/loss payees, as their
interest may appear, in such policies and, with respect to the fire and extended
coverage policy, Lawrence Savings Bank shall also be named as first mortgagee.
Lessor agrees that any loss payable under such fire and extended coverage policy
shall be payable jointly to Lesse and Lawrence Savings Bank. Lessor and Lessee
agree that in the event of damage or destruction to the Premises as provided in
Section 12 below, insurance proceeds shall be used for restoration of the
Premises unless the parties otherwise agree.
12. Damage or Destruction of Premises. In the event the Premises, the
Building or any other improvement constructed thereon shall, due to any cause
whatsoever, be damaged or destroyed during the term hereof, Lessee shall
promptly cause the Premises or improvements to be promptly repaired and restored
to a condition substantially equivalent to that existing immediately preceding
such damage or destruction. Such repair or restoration shall be solely at
Lessee's expense; but limited to insurance proceeds actually received; except
that, promptly after repairs and restoration have been completed, and other
applicable requirements of Section 11 have been satisfied, and subject to the
rights of Lawrence Savings Bank, Lessor shall deliver all insurance proceeds
held by it to Lessee as required by said Section 11 in reimbursement of the
costs of such repairs and restoration. If Lessee shall not, within a reasonable
period of time after such damage or destruction complete all repairs and
restoration then Lessor may, at its election (but without limiting any other
rights and remedies which it may have), cause such repairs and restoration to be
made and pay for all costs and expenses of the same out of insurance proceeds
paid Lessor in which event Lessor
5
<PAGE> 6
shall, after completion of such repair or restoration, deliver to Lawrence
Savings Bank any excess of the amount necessary to satisfy the mortgage
respecting the Premises.
13. Utilities, Taxes and Assessments.
A. Utilities. Lessee shall pay in addition to the Net Rent for
all water, meter charges, fuel, gas, oil, heat, light, power, sewer
service charges, and any other utilities which may be furnished to or
used by Lessee in or about the Premises during the term hereof.
B. Taxes and Assessments. Lessee covenants to pay and
discharge punctually as and when the same shall become due and payable
without penalty, all real estate taxes, water charges and governmental
impositions and charges in the nature of real estate taxes of every
kind and description, and each and every installment thereof, which,
during the Lease Term, are charged, levied, etc. for or upon, or become
due and payable with respect to or become liens upon, the Premises and
each and every part thereof, or any tax levied, assessed or imposed
instead of and in lieu of the foregoing, together with interest and
penalties thereon, pursuant to present or future law, rules,
regulation, etc. of all governmental authorities. Lessee shall make
payment of such real estate taxes to Lessor within thirty (30) days
after the presentation by the Lessor to the Lessee of a copy of the
relevant bill rendered to the Lessor.
Lessee shall have the right, at its own cost and expense after
giving prior written notice of its intention so to do to Lessor and
after depositing with Lessor security which is adequate in Lessor's
judgment to pay amounts which may finally be adjudged to be due from
Lessor on account of real estate tax relief proceedings, to initiate
and prosecute any proceedings permitted by law for the purpose of
obtaining abatement or reduction of any real estate taxes assessed
against the Premises so long as Lessee's occupancy or Lessor's title to
the Premises will not be disturbed or threatened thereby. With respect
to any fiscal period of the taxing authority entirely or partially
included in the term of this Lease, if required by law, Lessee may take
such action in the name of the Lessor, who shall cooperate with Lessee
to such extent Lessee may reasonably require, to the end that such
proceedings may be brought to a successful conclusion; provided,
however, that Lessee, upon making any request for assistance or
cooperation by Lessor, shall indemnify and save Lessor harmless from
all loss, costs, expenses or charges with respect to such proceedings.
Any reduction or abatement effected by such proceedings shall accrue to
the benefit of Lessee and Lessor as their respective interests may
appear according to their respective contributions to the taxes
involved in any such proceedings and in the event any such taxes are
abated or reduced, the expenses incurred in connection therewith (but
not
6
<PAGE> 7
the amount of any costs, interest charges or penalties relating to
untimely payment of any real estate taxes which shall, notwithstanding
such respective contributions be borne entirely by Lessee) shall be
borne between Lessor and Lessee in proportion to the benefit obtained
respectively by reason of such reduction or abatement.
In any event, Lessee expressly agrees that it will, forthwith
after a final determination of any proceedings initiated for the
purpose of securing an abatement or reduction of real estate taxes, as
aforesaid, pay the amount of any charges which may have been the
subject of such proceedings, together with any interest and penalties,
and costs and charges which may be payable in connection therewith.
Lessee shall pay all taxes which may be lawfully charged,
assessed or imposed upon the personal property (fixtures and equipment)
located upon the Premises, and Lessee shall pay all license fees which
may be lawfully imposed upon the business of Lessee conducted upon the
Premises.
Except as aforesaid, if Lessee fails to pay any taxes,
assessments or other governmental charges levied against the Premises
as the become due, Lessor shall have the right, in addition to any
other remedies available to Lessor, to pay such taxes, assessments or
other governmental charges levied against the Premises as they become
due, and the amount so paid or expended shall be immediately due from
Lessee to Lessor upon demand, as additional rent.
Lessee shall provide Lawrence Savings Bank with copies of all paid tax
bills or other written evidence of payment as and when payments are made to the
City of Lawrence as reasonably requested by Lawrence Savings Bank.
14. Representations and Indemnity. Lessor represents, warrants and
agrees as follows:
(A) This Lease Agreement is a valid and legally binding obligation of
Lessor, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency and similar laws affecting creditors generally.
The execution, delivery and performance of this Lease Agreement has
been duly authorized by and will not violate any applicable federal or
state law, any order of any court or government agency. The execution,
delivery and performance of this Agreement will not result in any
breach of or default under the terms of any agreement by which Lessor
or any of its respective assets may be bound. No consent, approval or
authorization of, or registration or filing with any governmental
authority or other regulatory agency, is required for the validity of
the execution and delivery by Lessor of this Lease Agreement.
7
<PAGE> 8
B) Lessor has good and marketable title to the Premises, free and clear
of all encumbrances, liens, charges or other restrictions of any kind
or character, except for that certain mortgage in favor of Lawrence
Savings Bank and the easements referenced in Section 7 hereof. To the
best of Lessor's knowledge, (I) none of such of buildings, structures
and appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any provision
of any federal, state or municipal law, by-law, ordinance, rule or
regulation or encroaches on any property owned by others; (ii) no
condemnation proceeding is pending or threatened that would preclude or
impair the use of any such property by Lesse for the purposes for which
it is currently used; and (iii) Lessor is, and always was, in
compliance in all material respects with all applicable laws,
regulations, orders, judgments and decrees.
(C) Lessor shall not be liable to Lessee or to any person, firm or
corporation whatsoever for any injury to, or death of, any person, or
for any loss of, or damage to property (including property of Lessee)
occurring in or about the Premises, except as arising from any
negligent or wilful act or omission by Lessor. Lessee agrees to defend
(with counsel of Lessor's selection), indemnify and save Lessor
harmless from all costs, loss, damage, liability or expense arising out
of or resulting from any actual or alleged injury to or death of any
person, or from any actual or alleged loss of or damage to property
caused by, or resulting from, any occurrence of or about the Premises,
or caused by or resulting from any act or omission or admission,
whether negligent or otherwise, of Lessee, any officer, agent,
employee, contractor, guest, invitee, customer or visitor of Lessee in
or about the Premises. This indemnity and hold harmless agreement
expressly includes all legal fees and expenses incurred in, or in
connection with, the defense of any actual or threatened legal action
with respect to any claim as to which Lessee has hereby indemnified
Lessor.
(D) Lessor agrees to indemnify and hold the Lessee and its affiliates,
officers, directors and agents harmless from damages, losses or
expenses suffered or paid, directly or indirectly, as a result of any
and all claims, demands, suits, causes of action, proceedings,
judgments and liabilities, including reasonable counsel fees incurred
in litigation or otherwise, assessed, incurred or sustained by or
against any of them with respect to or arising out (a) the breach of
any representation or warranty set forth herein, (b) any negligent act,
omission or wilful misconduct by Lessor, (c) the violation of any Law
by Lessor pertaining to the Premises or (d) resulting from the release
or existence of any Hazardous Substance on the Premises prior to the
date hereof. As used herein, Law shall mean all federal, state, and
local laws, rules, and regulations; all court orders, governmental
directives, and governmental orders; and all restrictive covenants
affecting the Premises, and "LAW" shall mean any of the foregoing.
Lessor acknowledges and agrees that in the event that Lessee is
required
8
<PAGE> 9
to take any action or incurs any loss, damage or liability with respect
to any Law, including, but not limited to, any Environmental Law
because of the release or existence of any Hazardous Substance on the
Premises prior to the date hereof, Lessee shall be entitled to
capitalize such amounts as Capitalized Lesse Advances as set forth in
Section 7. The term "HAZARDOUS SUBSTANCES", as used in this Lease,
shall mean pollutants, contaminants, toxic or hazardous wastes, or any
other substances, the removal of which is required or the use of which
is restricted, prohibited or penalized by any "ENVIRONMENTAL LAW",
which term shall mean any Law relating to health, pollution, or
protection of the environment.
15. Liens. Except for those existing liens in favor of Lawrence Savings
Bank and the City of Lawrence, Lessor shall at all times during the term hereof
keep the Premises free from any liens, claims or encumbrances.
16. Eminent Domain. If a portion of the Premises is taken by any
private or governmental authority under the power of eminent domain and the
remaining portion thereof in Lessee's opinion, reasonably exercised in view of
the then relevant facts, is Lessee able for the use permitted by this Lease or
can be rendered so by remodeling or reconstructing so much of the Premises as
remains, the Lease shall continue in full force and effect as to the remainder
of said Premises and all of the terms herein provided shall continue in effect.
The award shall be paid to the Lessor and Lawrence Savings Bank and any
mortgagee designated by the Lessor until such remodeling or reconstruction has
been completed and, the net amount shall be then paid over to Lessee. If all or
any part of the Premises is so taken and this Lease is not continued as above
provided, the award shall be paid to the Lessor or any mortgagee designated by
the Lessor and the Lease shall terminate as of the date of the taking, with no
recourse of either Lessor or Lessee against the other.
17. Quiet Enjoyment. Provided Lessee has materially performed its
obligations under this Lease, Lessee shall peaceably and quietly hold and enjoy
the Premises for the Term, without hindrance from Lessor or any party claiming
by, through, or under Lessor, but not otherwise.
18. MISCELLANEOUS.
(A) Words of any gender used in this Lease shall include any other
gender, and words in the singular shall include the plural,
unless the context otherwise requires. The captions inserted in
this Lease are for convenience only and in no way affect the
interpretation of this Lease. The following terms shall have the
following meanings: "AFFILIATE" shall mean any person or entity
which, directly or indirectly, controls, is controlled by, or is
under common control with the party in question.
9
<PAGE> 10
(B) Without the prior written approval of Lessee, Lessor may not
transfer and assign, in whole or in part, its rights and
obligations in the Premises that are the subject of this Lease.
The Lessee acknowledges and agrees that this Lease is being
assigned to Lawrence Savings Bank as additional collateral
securing the Lessor's obligations to Lawrence Savings Bank
(C) This Lease constitutes the entire agreement of the Lessor and
Lessee with respect to the subject matter of this Lease, and
contains all of the covenants and agreements of Lessor and Lessee
with respect thereto. This Lease may not be altered, changed or
amended except by an instrument in writing signed by both parties
hereto. So long as Lawrence Savings bank holds a mortgage on the
Premises, the Lessor and the Lessee covenant and agree that no
amendments or modifications to this Lease shall be made without
providing a copy of the proposed changes to Lawrence Savings Bank
at least thirty (30) days prior to the intended effective date of
any such change and without first obtaining the express written
consent and authorization of Lawrence Savings Bank, which consent
shall not be unreasonably withheld, conditioned, or delayed. So
long as Lawrence Savings bank holds a mortgage on the Premises,
notwithstanding anything herein to the contrary, the Lessor and
the Lessee acknowledge and agree that they shall make no
amendment or modification to this Lease at any time which would
reduce the Eighteen Thousand ($18,000) Dollar amount of the
monthly Net Rent.
(D) If any provision of this Lease is illegal, invalid or
unenforceable, then the remainder of this Lease shall not be
affected thereby, and in lieu of each such provision, there shall
be added, as a part of this Lease, a provision as similar in
terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.
(E) All references in this Lease to "THE DATE HEREOF" or similar
references shall be deemed to refer to the last date, in point of
time, on which all parties hereto have executed this Lease.
(F) On the date hereof, Lessee will pay to Lessor $150,000 as an
inducement to enter into this Lease.
(G) So long as Lawrence Savings bank holds a mortgage on the
Premises, the Lessee may not assign the Lessee's rights as lessee
to any third party without the prior written consent and
authorization of Lawrence Savings Bank, which consent shall not
be unreasonably withheld, conditioned, or delayed.
10
<PAGE> 11
19. NOTICES. Each provision of this instrument or of any applicable Laws
and other requirements with reference to the sending, mailing or delivering of
notice or the making of any payment hereunder shall be deemed to be complied
with when and if the following steps are taken:
(A) All rent shall be payable to Lawrence Savings Bank at the address
for Lawrence Savings Bank set forth below or at such other
address as Lawrence Savings Bank may specify from time to time by
written notice delivered in accordance herewith. Lessee's
obligation to pay rent shall not be deemed satisfied until such
rent has been actually received by Lawrence Savings Bank.
(B) All payments required to be made by Lessor to Lessee hereunder
shall be payable to Lessee at the address set forth below, or at
such other address within the continental United States as Lessee
may specify from time to time by written notice delivered in
accordance herewith. Notwithstanding anything herein to the
contrary, the Lessee acknowledges and agrees that at all times
the Lessee shall be obligated to make the Eighteen Thousand
($18,000) Dollar monthly Net Rent payment, without reduction,
setoff, or abatement of any kind, during the term of this Lease.
(D) Any written notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered upon the
earlier to occur of (1) tender of delivery (in the case of a
hand-delivered notice), (2) deposit in the United States Mail,
postage prepaid, Certified Mail, or (3) receipt by facsimile
transmission, in each case, addressed to the parties hereto at
the respective addresses set out below, or at such other address
as they have theretofore specified by written notice delivered in
accordance herewith. If Lessor has attempted to deliver notice to
Lessee at Lessee's address reflected on Lessor's books but such
notice was returned or acceptance thereof was refused, then
Lessor may post such notice in or on the Premises, which notice
shall be deemed delivered to Lessee upon the posting thereof.
11
<PAGE> 12
20. ARBITRATION. Either Lessor or Lessee may require that any dispute under
this Lease be submitted to arbitration pursuant to this Section. To the extent
the provisions of this Section vary from or are inconsistent with the Commercial
Arbitration Rules of the American Arbitration Association or any other
arbitration tribunal, the provisions of this Section shall govern. All
arbitrations shall occur at a location in Dallas, Texas chosen by the
arbitrators and shall be conducted pursuant to the Commercial Arbitration Rules
of the American Arbitration Association (or any successor organization, or if no
such successor organization exists, then from an organization composed of
persons of similar professional qualifications). The party desiring arbitration
shall give notice to that effect to the other party and simultaneously therewith
also shall give notice to the director of the Dallas, Texas regional office of
the American Arbitration Association (or any successor organization, or if no
such successor organization exists, then to an organization composed of persons
of similar professional qualifications), requesting such organization to select,
as soon as possible but in any event within the next 30 days, three arbitrators
with, if reasonably possible, recognized expertise in the subject matter of the
arbitration. At the request of either party, the arbitrators shall authorize the
service of subpoenas for the production of documents or attendance of witnesses.
Within 30 days after their appointment, the arbitrators so chosen shall hold a
hearing at which each party may submit evidence, be heard and cross-examine
witnesses, with each party having at least ten days advance notice of the
hearing. The hearing shall be conducted such that each of Lessor and Lessee
shall have reasonably adequate time to present oral evidence or argument, but
either party may present whatever written evidence it deems appropriate prior to
the hearing (with copies of any such written evidence being sent to the other
party). In the event of the failure, refusal or inability of any arbitrator to
act, a new arbitrator shall be appointed in his stead, which appointment shall
be made in the same manner as hereinbefore provided. The decision of the
arbitrators so chosen shall be given within a period of 30 days after the
conclusion of such hearing, and shall be accompanied by conclusions of law and
findings of fact. The decision in which any two arbitrators so appointed and
acting hereunder concur shall in all cases be binding and conclusive upon the
parties and shall be the basis for a judgment entered in any court of competent
jurisdiction. The fees and expenses of arbitration under this Section shall be
apportioned to Lessor and Lessee in such a manner as decided by the arbitrators.
Lessor and Lessee may at any time by mutual written agreement discontinue
arbitration proceedings and themselves agree upon any such matter submitted to
arbitration. So long as there is no event of default by the Lessee hereunder,
and the Lessee makes all rental payments in an amount at least in the amount of
the Eighteen Thousand ($18,000) Dollar Net Rent as and when due hereunder, then
Lawrence Savings Bank shall recognize the Lessee as lessee during the term of
this Lease, but not otherwise. In no event shall Lawrence Savings Bank be bound
to any option to purchase the Premises or any other right of first refusal as
set forth in this lease or as otherwise agreed between the Lessor and the
Lessee, unless the proceeds from same are sufficient to satisfy in full all
liabilities of the Lessor to Lawrence Savings Bank that are secured by that
certain Commercial Mortgage dated November 30, 1988, as amended, given
12
<PAGE> 13
to Lawrence Savings Bank and respecting the Premises, and such proceeds are
actually paid to Lawrence Savings Bank. In no event shall Lawrence Savings Bank
be bound to the Arbitration provisions set forth herein.
21. The Lessor and the Lessee each acknowledges and agrees that the
occurrence of any event of default under this Lease, whether by the Lessor or
the Lessee, shall constitute an Event of Default under the Assignment of Leases
and Rents dated August ___, 1996 between the Lessor and Lawrence Saving Bank and
further shall constitute an event of default under that certain Commercial
Mortgage dated November 30, 1988, as amended, given to Lawrence Savings Bank and
respecting the Premises, upon which event of default Lawrence Savings Bank may
exercise all and singular its rights and remedies, including, without
limitation, foreclosure of said Commercial Mortgage. Nothing contained in this
Lease Agreement, including, without limitation, the execution of this Lease
Agreement by Lawrence Savings Bank, shall be deemed or otherwise construed as an
amendment or modification of the terms and conditions of said Commercial
Mortgage, the Assignment of Leases and Rents, and/or any other loan documents
evidencing the Liabilities of the Lessor to Lawrence Savings Bank, all and
singular of which remain in full force and effect.
22. The Lessee shall:
(A) not store (except in compliance with all laws, ordinances,
and regulations pertaining thereto), or dispose of any hazardous
material or oil on the Premises, or on any other site or vessel owned,
occupied, or operated either by the Lessee, or by any person for whose
conduct the Lessee is responsible;
(B) neither directly nor indirectly transport or arrange for the
transport of any Hazardous Material;
(C) take all such action, to assess, contain, and remove any such
hazardous material or oil on the Premises resulting from the Lessee's
breach hereunder;
(D) provided Lawrence Savings Bank with immediate written notice
upon (i) the Lessee's obtaining knowledge of any potential or known
release, or threat of release, of any hazardous material or oil on
(whether from the Premises or from another property offsite of the
Premises) or from the Premises, or any other site of vessel owned,
occupied, or operated by the Lessee or by any person for whose conduct
the Lessee is responsible or whose liability may result in a lien
13
<PAGE> 14
on the Premises; (ii) the Lessee's receipt of any notice to such
effect from any incurrence of any expense or less by such governmental
authority; and (iii) the Lessee's obtaining knowledge of any
incurrence of any expense or loss by such governmental authority in
connection with the assessment, containment, or removal of any
hazardous material or oil for which expense or loss the Lessee may be
liable or for which expense a lien may be imposed on the Premises; and
(E) comply with all laws, judgments, decrees, orders, rules, and
regulations pertaining to environmental matters relating to the use,
storage, containment, and removal of hazardous materials or oil,
including, without limitation, those arising under Massachusetts
General Laws Chapter 21E, as amended, and any other federal, state or
local statute, rule, regulation, ordinance, or decree.
Notwithstanding anything to the contrary in this agreement, Lessee shall have no
obligation or liability to either Lessor or Lawrence Savings Bank of any kind or
nature whatsoever because of a the release or existence of any Hazardous
Substance or oil on the Premises prior to the date hereof.
EXECUTED by Lessee on August 9, 1996.
LESSEE:
UNIMARK FOODS, INC.
By: _____________________________
Name: Jorn Budde
Title: President
EXECUTED by Lessor on August 9, 1996.
LESSOR:
By: ______________________________
Name:____________________________
Title: ____________________________
14
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
------- ------- ------- -------
(In thousands, except per share)
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 5,600 8,560 4,977 7,079
Net effect of dilutive stock options and warrants - based
on the treasury stock method using average market price 439 -- 391 258
------- ------- ------- -------
Total 6,039 8,560 5,368 7,337
======= ======= ======= =======
Net income (loss) $ 725 $ (348) $ 2,072 $ 1,794
Add interest savings, net of Federal income tax effect,
from assumed debt repayment -- -- 24 --
------- ------- ------- -------
Total $ 725 $ (348) $ 2,096 $ 1,794
======= ======= ======= =======
Per share amount $ 0.12 $ (0.04) $ 0.39 $ 0.24
======= ======= ======= =======
FULLY DILUTED
Average shares outstanding 5,600 8,560 4,977 7,079
Net effect of dilutive stock options and warrants - based
on the modified treasury stock method using the greater
of average market price or ending market price 446 -- 656 261
------- ------- ------- -------
Total 6,046 8,560 5,633 7,340
======= ======= ======= =======
Net income (loss) $ 725 $ (348) $ 2,072 $ 1,794
Add interest savings, net of Federal income tax effect,
from assumed debt repayment -- -- 63 --
------- ------- ------- -------
Total $ 725 $ (348) $ 2,135 $ 1,794
======= ======= ======= =======
Per share amount $ 0.12 $ (0.04) $ 0.37 $ 0.24
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,998
<SECURITIES> 0
<RECEIVABLES> 7,920
<ALLOWANCES> 132
<INVENTORY> 17,673
<CURRENT-ASSETS> 36,500
<PP&E> 26,746
<DEPRECIATION> 2,319
<TOTAL-ASSETS> 72,597
<CURRENT-LIABILITIES> 17,922
<BONDS> 4,132
0
0
<COMMON> 86
<OTHER-SE> 48,923
<TOTAL-LIABILITY-AND-EQUITY> 72,597
<SALES> 44,921
<TOTAL-REVENUES> 44,921
<CGS> 30,866
<TOTAL-COSTS> 30,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 999
<INCOME-PRETAX> 1,552
<INCOME-TAX> 88
<INCOME-CONTINUING> 1,464
<DISCONTINUED> 0
<EXTRAORDINARY> 330
<CHANGES> 0
<NET-INCOME> 1,794
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
