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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
MARK (ONE)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998
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
BARTONVILLE, TEXAS 76226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 491-2992
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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 [ ]
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. [X]
The approximate aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold as
of April 9, 1999 was $21,946,000. The number of shares of common stock
outstanding as of April 9, 1999 was 13,938,326.
DOCUMENTS INCORPORATED BY REFERENCE:
The UniMark Group, Inc.'s 1999 Proxy Statement contains much of the
information required in Part III of this Form 10-K, and portions of the 1999
Proxy Statement are incorporated by reference herein from the applicable
sections thereof. The Items of this Form 10-K, where applicable, specify which
portions of the 1999 Proxy Statement are incorporated by reference. The portions
of the 1999 Proxy Statement that are not incorporated by reference shall not be
deemed to be filed with the Commission as part of this Form 10-K.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Annual Report on Form 10-K 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 in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this report. Statements contained in this report 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. A number of important
factors could cause the Company's actual results for 1998 and beyond to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These factors include, without limitation: growth and
integration of new businesses; uncertainty of new product development and market
acceptance of new products; dependence upon availability and price of fresh
fruit; competition; dependence upon significant customers; seasonality and
quarterly fluctuations; risk related to product liability and recall; limited
intellectual property protection; government regulation; dependence on key
management; economic, political and social conditions in Mexico; exchange rate
fluctuations and inflation; and labor relations and costs. These factors are
listed under "Risk Factors" in the Company's prospectus dated June 14, 1996.
PART I
ITEM 1. BUSINESS.
GENERAL
The UniMark Group, Inc. a Texas corporation ("UniMark" or the "Company"), is
a vertically integrated citrus and tropical fruit growing, processing, marketing
and distribution company with operations in Mexico, the United States, Canada
and the United Kingdom . The company conducts substantially all of its
operations through its wholly owned operating subsidiaries. In Mexico, the
Company's subsidiaries include: Industrias Citricolas de Montemorelos, S.A. de
C.V. ("ICMOSA"), Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE") and
AgroMark, S.A. de C.V. ("AgroMark"). In the United States, the Company's
subsidiaries include: UniMark Foods, Inc. ("UniMark Foods"), UniMark
International, Inc. ("UniMark International") and Simply Fresh Fruit, Inc.
("Simply Fresh"). In Canada, the Company's subsidiary is Les Produits Deli-Bon
Inc. ("Deli-Bon") and in the United Kingdom the Company's subsidiary is UniMark
Foods Europe, Ltd. ("UniMark Europe"). The Company operates and competes in two
distinct business segments: packaged fruit and juice & oil.
The UniMark Group, Inc. was organized in 1992 to combine the packaged fruit
operations of ICMOSA, a Mexican citrus and tropical fruit processor which
commenced operations in 1974, with UniMark Foods, a company that marketed and
distributed ICMOSA's products in the United States. The Company focuses on niche
citrus and tropical fruit products including fresh, chilled, frozen and canned
cut fruits and other specialty food ingredients. The packaged fruit segment
processes and packages its products at five plants in Mexico, one in California,
and one in Quebec, Canada. The Company's Mexican and Californian plants are
strategically located in major fruit growing regions. The Company utilizes food
brokers and distributors to market and distribute its packaged fruit products,
under the brand names SUNFRESH(R), Fruits of Four Seasons(R), Flavor Fresh(TM)
and Kledor(R) and under various private labels to supermarket chains,
foodservice distributors, wholesale clubs, specialty grocery stores and
industrial users throughout the United States and Canada. In addition, the
Company has developed and utilizes a unique processing method that separates
cold-peeled citrus fruit into individual juice-containing "cell-sacs." These
cell-sac products and other citrus products are sold to food and soft drink
manufacturers in Japan to enhance the flavor and texture of fruit juices and
desserts. Sales to the Company's Japanese consumers are facilitated through
Japanese trading companies.
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With its acquisition of GISE in 1996, UniMark became a major Mexican
producer of citrus concentrate, oils and juices. The juice division operates
three juice concentrate plants strategically located in the citrus growing
region of Mexico. The Company's citrus concentrate and single strength citrus
juices are sold directly to major juice importers and distributors in North
America, Europe and the Pacific Rim.
GISE is a leading Mexican producer and exporter of citrus concentrate, oils
and juices. While its primary product is frozen concentrate orange juice
("FCOJ"), GISE also produces single strength orange juice (SSOJ) and grapefruit,
tangerine, Persian lime and lemon products. In addition, GISE is developing ,
pursuant to a long-term supply contract with an affiliate of the Coca-Cola
Company, 8,650 acres of lemon groves. The planting program began in November,
1996 and harvesting of the first crops is projected to begin in late 2000 with
full production scheduled for 2013. Presently, the Company has acquired
substantially all of the land for the project and has planted approximately
3,000 acres.
GISE operates three modern facilities in Mexico, which collectively have the
capacity to process 1,200 metric tons of fruit per day, with 19 juice extractors
and over 115,000 square feet of plant space. The facilities are strategically
located close to the United States and the ports of Tampico and Veracruz. The
plant locations offer cost-effective transportation and distribution and faster
time to market.
PACKAGED FRUIT SEGMENT
UniMark's strategic objective is to become the leading vertically integrated
grower, processor, marketer and distributor of niche fruit and other selected
agricultural products. To achieve this objective, the key elements of UniMark's
operating and acquisition strategies are as follows:
Expand vertical integration of growing, processing, marketing and
distribution operations. UniMark intends to continue its vertical
integration strategy. UniMark believes that by vertically integrating its
growing, processing, marketing and distribution operations, the Company can
effectively control the availability, cost and quality of its products.
Expand fruit growing operations in Mexico. To ensure the availability of
the highest quality raw materials, UniMark intends to expand its fruit
growing operations in Mexico, utilizing advanced agricultural practices.
UniMark believes that Mexico's favorable climate and soil conditions,
coupled with competitive labor and land costs, offer significant
opportunities to grow high quality fruits in a cost effective manner.
Capitalize on brand awareness and market penetration. In the retail market,
UniMark intends to capitalize on the brand awareness and market penetration
attained by its SUNFRESH(R) brand name products. Utilizing its Fruit Made
Easy(R) concept, UniMark plans to expand its line of specialty chilled,
frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of
healthy, low-fat foods with a multitude of vitamins to the increasingly
health conscious consumer.
Introduce New Packaged Fruit Products. UniMark believes that a significant
opportunity exists for the introduction of new cut fruit products. In 1999,
the Company plans to introduce or expand introduction of three new product
categories:
Canned Products. Initial market introductions of the Company's canned
citrus and tropical fruit products were successful. During 1999, the
Company intends to expand these canned products into broader
distribution.
Fruit Jelite. In 1998 UniMark reintroduced its Fruit Jelite(R) line of
chilled gelatin snack products. Based upon the results of the most
recent market tests, the Company plans to expand regional distribution
of this product.
Frozen to Fresh. Utilizing the Company's cryogenic freezing technology,
UniMark plans to introduce two product lines, one for food service and
one for retail, of "frozen to fresh" single-
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serve cups. At the same time, the Company intends to improve its
initial individual quick frozen ("IQF") food service concepts.
UniMark's product development and commercialization efforts are subject
to all of the risks inherent in the development of new products.
Achieving market acceptance for the Company's new products will require
substantial marketing efforts and the expenditure of significant funds.
The Company's prospects will be significantly affected by its ability
to commercialize its new products.
Expand Into New Markets. In the fall of 1997, UniMark opened a trading
office in the United Kingdom. This subsidiary, UniMark Europe, focuses on
the sales and marketing of UniMark's frozen products within the United
Kingdom and Europe. Presently, the Company is concluding market tests in
several restaurant chains in the United Kingdom.
Current Products
The Company's principal products are derived from citrus and tropical
fruits. The Company has focused on applying its knowledge of fruit growing and
processing with its international marketing and distribution capabilities to
develop three key product categories. These categories include cut fruits,
specialty food ingredients and fresh fruit. The following is a description of
each of these categories and their specific products:
PACKAGED FRUITS. Under the brand names of SUNFRESH(R), Fruits of Four
Seasons(R), Kledor(R), Flavor Fresh(TM) and under various private labels,
UniMark markets:
Chilled fruit. The chilled fruit line includes mango slices, grapefruit
segments, orange segments, pineapple chunks, sliced papaya, and a
variety of fruit salads. These products are packed for retail,
wholesale club and food service customers.
Canned fruit. The canned fruit line includes orange segments and
grapefruit segments as well as citrus and tropical salads packed for
retail and foodservice customers.
IQF fruit. UniMark is expanding its retail and foodservice business by
marketing citrus and tropical fruit products utilizing its IQF process.
UniMark believes that this IQF process allows it to process fruits at
the peak of their season while preserving the fresh-like texture and
taste of the fruit. The frozen line of fruit includes melon, mango,
orange, grapefruit, papaya, pineapple and various combinations of
products packed for food service and industrial customers.
SPECIALTY FOOD INGREDIENTS. UniMark believes that significant market
opportunities exist in providing customers with specialty food ingredient
products that can be derived from processing citrus and tropical fruits.
Presently, UniMark's specialty food ingredients include:
Citrus cell-sacs. The Company has developed and utilizes a unique
processing method that separates cold-peeled citrus fruit into
individual juice-containing cell-sacs. These cell-sac products are sold
to food and soft drink manufacturers in Japan to enhance the flavor and
texture of fruit juices and desserts.
Citrus segments. The Company markets citrus sections packaged in
industrial sizes to food and soft drink manufacturers in Japan to
enhance the flavor and texture of fruit juices and desserts.
FRESH FRUIT. The Company is doing limited marketing of fresh pineapple under
the Simply Fresh(R)brand name.
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Marketing, Sales and Distribution
MARKETING. UniMark's marketing department develops brand strategies for the
Company's products, including product development, pricing strategy, consumer
and trade promotion, advertising, publicity and package design. This
department's responsibilities include determining the allocation of resources
between consumer and trade spending programs, pricing and profitability
analysis, as well as product and packaging designs.
In the retail and wholesale club markets, the Company's primary focus has
been on the chilled and canned fruit categories. UniMark intends to capitalize
and strengthen the brand awareness and market penetration attained by its
SUNFRESH(R) brand in the United States and the Kledor(R) brand in Canada. Under
its "Fruit Made Easy(R)" slogan, UniMark's marketing strategy includes continued
expansion of its comprehensive line of brand name specialty chilled, frozen and
canned "ready-to-eat" pre-cut fruit that offers the benefits of healthy, low-fat
foods with a multitude of vitamins to the health conscious consumer. The
Company's marketing objectives include increasing "impulse buying" of its retail
products by building greater product visibility through "eye-catching" package
designs, innovative rack systems and trial package promotions. In addition, the
Company utilizes trade promotions, such as quarterly price allowances, to
generate "feature promotion activity" for its products. The SUNFRESH(R) product
line also receives substantial advertising support in trade publications and
national food shows throughout the year.
In the foodservice arena, the focus is on securing market leadership in the
chilled fruit category, primarily through private label programs with major
foodservice distributors, and a strong branded approach utilizing the
SUNFRESH(R) and Fruits of Four Seasons(R) labels in the United States and the
Kledor(R) brand in Canada. Marketing efforts in these channels are directed
toward trade usage programs and yearly trade rebates.
SALES. UniMark's sales organization consists of five sales management teams
primarily focusing on the management of independent food brokers or
international representatives that directly interface with the customer. These
teams are: retail sales, Japanese sales, wholesale club sales, foodservice sales
and Canadian sales.
The retail team is led by a sales manager and consists of four regional
managers, each with geographic responsibility for approximately 25 percent of
the United States. The Company's Japanese exports are directed by an export
sales manager located in Mexico City who deals with agents primarily from
Japanese trading companies. In addition, the Company's senior executives handle
relationships with the Company's Japanese customers. The wholesale club market
has one sales manager interfacing directly with key wholesale club distributors.
The foodservice team is guided by a vice president of foodservice sales and four
regional managers. The Company's Canadian sales team operates out of Deli-Bon
utilizing independent food brokers throughout Canada although its primary focus
is within the Province of Quebec.
The following table shows, for the last three years, the amount and
percentage of net sales contributed by the various distribution channels for the
Company's packaged fruit products:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
NET NET NET
SALES PERCENT SALES PERCENT SALES PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Packaged Fruit:
Retail $18,190 34.4% $27,202 40.2% $31,433 46.2%
Foodservice 15,122 28.6 23,042 34.1 19,539 28.7
Japan 7,367 13.9 3,393 5.0 4,144 6.1
Wholesale club 7,894 14.9 11,303 16.7 7,605 11.2
Industrial and other 4,289 8.2 2,665 4.0 5,249 7.8
------- ------- ------- ------- ------- -------
Total $52,862 100.0% $67,605 100.0% $67,970 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
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Retail sales. UniMark markets its products to more than 200 regional and
national supermarket chains and wholesalers throughout the United States and
Canada. In conjunction with its own national sales force, UniMark utilizes over
50 independent food brokers and distributors to sell its products.
Food service sales. Sales to the United States government, fast food chains,
restaurants, hospitals and other food service customers are made either directly
to or through food service distributors by the Company's foodservice sales
force. The Company is represented by more than 40 food service brokers.
Japanese sales. UniMark exports a line of pasteurized citrus products and
juice-containing citrus cell-sac products to Japan for use in the food and
beverage industries. Although sales to industrial customers in Japan are
facilitated through Japanese trading companies, the Company maintains direct
relationships with its industrial customers.
Wholesale club sales. UniMark indirectly sells products to Sam's Wholesale
Clubs, Costco Wholesale and other wholesale clubs throughout the United States.
European sales. UniMark sells products directly to industrial users of IQF
products, including orange, pineapple, mango and papaya products. The Company
also sells its single serve "Frozen to Fresh" single serve cups to foodservice
operators through certain foodservice distributors. In the UK, the Company uses
its Flavor Fresh(TM) trade name.
Industrial and other sales. Industrial and other sales consist primarily of
IQF sales to industrial users in the United States for re-packing or further
processing, as well as fresh pineapple. UniMark utilizes independent food
brokers to sell its products to industrial users in the United States.
DISTRIBUTION. UniMark operates its own trucking fleet to transport finished
packaged fruit products from its Mexican processing facilities to its
distribution center in McAllen, Texas. From there, deliveries are made through
an arrangement the Company has with England Logistics, Inc. ("England"), a
division of C.R. England & Sons of Salt Lake City, Utah. In Canada, deliveries
are made to customers by independent trucking companies from Deli-Bon's
facilities. Products exported to Japan are shipped directly from Mexico.
Products sold by UniMark Europe are shipped directly to its customers.
Procurement
Currently, a substantial quantity of the fruit processed by the Company is
purchased from third parties. However, the Company's Mexican grapefruit growing
operations supply a majority of the Company's grapefruit demand. In addition,
the Company purchases grapefruit from growers in the Texas Rio Grande Valley for
processing at its ICMOSA plant. Substantially all of the oranges and melons used
in the Company's operations are purchased from third-party growers throughout
Mexico. UniMark has commenced a significant pineapple growing project. Initial
production from this project began in 1997 and UniMark intends to maintain this
project at a level where the Company has sufficient supply for its own
processing needs. UniMark believes that production from this project not only
will provide UniMark with a high quality supply of pineapples for processing,
but also will produce a significant amount of pineapple for the North American
fresh fruit market.
Processing
Upon arrival at the Company's processing plants, the fruit is inspected and
washed. On the production line, the fruit is peeled and cut into various
presentations (slices, sections, chunks, balls). Following this process, some
fruits are further processed into juice-containing cell-sacs. In addition, some
processed fruits are frozen utilizing the Company's IQF process. Other processed
fruits are transferred directly into bulk storage or final product packaging
(pails, jars and cans). After further processing, the juice-containing cell-sacs
are canned while the frozen products are packaged in plastic bags or trays. The
ICMOSA plant is the
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Company's main plant and serves as the hub for the Company's other Mexican
processing plants, which primarily produce semi-processed products. At the
ICMOSA plant, products are labeled and packaged for final shipment. ICMOSA also
delivers bulk semi-processed raw materials to Deli-Bon and Simply Fresh for
packing into final presentations. Only limited processing takes place at
Deli-Bon. While Simply Fresh relies mostly on raw materials from California
growing regions, some semi-processed raw materials are provided by ICMOSA. The
Company cans fruit at its Montemorelos and Puebla plants.
JUICE & OIL SEGMENT
Recent Developments
On April 6, 1999, the Company announced that it has retained Rabobank
International as its financial advisor to assist the Company in exploring
strategic alternatives for its juice business. The Company is exploring these
strategic alternatives to take advantage of changing industry conditions and to
reduce its exposure to fluctuating world markets for frozen concentrate orange
juice.
Strategy
In addition to exploring available strategic alternatives, GISE's strategy
includes: (1) reduce operating costs through optimization of plant capacities,
(2) enter the growing not from concentrate ("NFC") orange juice market, (3)
expand relationships with key customers and (4) increase vertical integration.
Reduce Operating Costs through Optimization of Plant Capacities. To
optimize its plant capacities, GISE is focusing its efforts on finding
fruit other than oranges to process, e.g. lemon, lime, apple, and
grapefruit. A substantial component of this strategy is the execution of
its long-term agreements to grow, supply and process Italian lemons for an
affiliate of the Coca-Cola Company. Since lemons are harvested and
processed during the orange "off-season" (September through November) the
Company should be able to operate its facilities near full capacity
throughout the year. The Company believes that this will allow the Company
to allocate its fixed operating cost over a greater production volume,
which should afford the Company with a competitive cost advantage for its
primary orange production.
Expand Relationship with Key Customers. Over the years GISE has been able
to expand its supply relationship with existing key customers. Management
believes that it will be able to further expand these relationships by
supplying existing customers with additional products.
Expand position as a leading Mexican juice exporter to U.S., European and
Asian markets. The Company's goal is to expand its position as a leading
exporter of high quality Mexican citrus juices to the U.S., European and
Asian markets. Because of the high quality of Mexican citrus juice, it is
often blended with juices from other citrus producing regions to enhance
the quality of these other juices.
Current Products
The Company, through GISE, markets directly to major industrial users a
full line of citrus juice products including citrus concentrates and single
strength juices:
Citrus concentrate. Citrus juice concentrates are produced from oranges,
grapefruits, tangerines, Persian limes and lemons.
Single strength juices. Citrus juices are produced from oranges.
Citrus oils. Citrus oils are extracted from oranges, grapefruits,
tangerines, Persian limes and lemons. These oils are primarily used by the
Company's customers in beverages, perfumes and other scented products.
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Cattle feed. As a by-product of the juice production, the Company produces
cattle feed. This by-product is sold to local farmers.
Procurement
The Company purchases citrus from growers throughout Mexico. GISE's three
juice plants are located in Cd. Victoria, Tamaulipas; Alamo, Veracruz; and Poza
Rica, Veracruz in the heart of Mexico's major citrus growing region. The State
of Veracruz, located along the east coast of Mexico, is Mexico's largest orange
producing state followed by the neighboring states of Tamaulipas and San Luis
Potosi. Citrus from this region is available for processing at GISE's Veracruz
facilities early in the season because of this region's southern location.
GISE's Cd. Victoria plant processes fruit grown primarily in the northeastern
region of Mexico. The fruit is transported by common carrier to GISE's three
plants located in Mexico.
Marketing, Sales and Distribution
Most of GISE's production is sold to industrial users and bottlers of juice.
Mexican orange juice is often used for blending with juice from other locations.
The Mexican juice is used to enhance the flavor and color of the final product.
GISE transports finished product in tankers or drums by common carrier to North
American customers. Products to overseas customers are shipped directly in ocean
freight containers. Juice and oil sales for the years ended December 31, 1996,
1997 and 1998 were $12.4, $13.7 and $22.2 million, respectively.
Processing
GISE's operations are substantially automated. Once the fruit arrives at a
plant, it is unloaded onto rollers. The fruit is then washed and inspected.
Bruised and damaged fruit is removed by hand and the remaining fruit is then
routed to rollers with short needles, which extract the oil from the peel. Once
the oil is removed, the fruit is sorted by size and sent to slicing and
squeezing machines. These machines slice the fruit and squeeze the juice and
pulp completely from the peel. The juice is then separated from the pulp and the
water is extracted from the juice. Upon further processing, the juice and juice
concentrate are stored on site until it is shipped directly to customers.
RESEARCH AND DEVELOPMENT
The Company's research and development department provides product,
packaging and process development, analytical and microbiological services, as
well as agricultural research.
EMPLOYEES
As of December 31, 1998, UniMark employed approximately 3,000 employees in
its packaged fruit operations and approximately 450 in its juice and oil
operations, most of whom were located in Mexico. In Mexico, labor relations are
governed by separate collective labor agreements between UniMark and the unions
representing the particular group of employees. All of UniMark's employees in
Mexico, whether seasonal or permanent, are affiliated with labor unions which
are generally affiliated with a national confederation. Consistent with other
labor practices in Mexico, wages are negotiated every year while other terms are
negotiated every two years.
In the United States and Canada, UniMark's employees are not covered by
collective bargaining agreements. UniMark believes that its relations with all
of its employees are good.
COMPETITION
The food industry, including each of the markets in which the Company
competes, is highly competitive with respect to price and quality (including
taste, texture, healthfulness and nutritional value). The Company faces direct
competition from citrus processors with respect to its existing product lines
and faces potential
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competition from numerous, well established competitors possessing substantially
greater financial, marketing, personnel and other resources than the Company.
The Company's fruit juice products compete broadly with all beverages available
to consumers. In addition, the food industry is characterized by frequent
introduction of new products, accompanied by substantial promotional campaigns.
In recent years, numerous companies have introduced products positioned to
capitalize on growing consumer preference for fresh fruit products. It can be
expected that the Company will be subject to increasing competition from
companies whose products or marketing strategies address these consumer
preferences.
ENVIRONMENTAL MATTERS
As a result of its agricultural, food and juice processing activities, the
Company is subject to numerous foreign and domestic environmental laws and
regulations.
The operations of UniMark in Mexico are subject to Mexican federal and state
laws and regulations relating to the protection of the environment. The
principal legislation is the federal General Law of Ecological Balance and
Environmental Protection (the "Ecological Law"), which is enforced by the
Ministry of Social Development ("Sedesol"). Under the Ecological Law, rules have
been promulgated concerning water pollution, air pollution, noise pollution and
hazardous substances. Sedesol can bring administrative and criminal proceedings
against companies that violate these environmental laws, and can also close non-
complying facilities. The operations of UniMark in Canada are subject to
Canadian federal and provincial laws and regulations relating to the protection
of the environment including an Act Respecting Occupational Health and Safety
(Quebec), the Canadian Environmental Protection Act (Canada), and the
Environment Quality Act (Quebec). Similarly, the operations of UniMark in the
United States are subject to United States federal and state laws and
regulations relating to the protection of the environment. Although the Company
believes that its facilities currently are in compliance with all applicable
environmental laws, failure to comply with any such laws could have a material
adverse effect on the Company.
GOVERNMENT REGULATION
The manufacture, processing, packing, storage, distribution and labeling of
food and juice products are subject to extensive regulations enforced by, among
others, the FDA and state, local and foreign equivalents thereof and to
inspection by the United States Department of Agriculture and other federal,
state, local and foreign agencies. Applicable statutes and regulations governing
food products include "standards of identity" for the content of specific types
of foods, nutritional labeling and serving size requirements and under "Good
Manufacturing Practices" with respect to production processes. The Company
believes that its products satisfy, and its new products will satisfy, all
applicable regulations and that all of the ingredients used in its products are
"Generally Recognized as Safe" by the FDA for the intended purposes for which
they will be used. The Company, on a daily basis, tests its products at its
internal laboratories and, from time to time, submits samples of its products to
independent laboratories for analysis. Failure to comply with applicable laws
and regulations could subject the Company to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions, which
could have a material adverse effect on the Company.
PRODUCT LIABILITY AND PRODUCT RECALL
The testing, marketing, distribution and sale of food and beverage products
entails an inherent risk of product liability and product recall. There can be
no assurance that product liability claims will not be asserted against the
Company or that the Company will not be obligated to recall its products.
Although the Company maintains product liability insurance coverage in the
amount of $5,000,000 per occurrence, there can be no assurance that this level
of coverage is adequate. A product recall or a partially or completely uninsured
judgment against the Company could have a material adverse effect on the
Company.
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INTELLECTUAL PROPERTY RIGHTS
The Company regards its trademarks, trade dress, trade secrets and similar
intellectual property as important to its success. The Company has been issued a
registered trademark for its SUNFRESH(R), Fruits of Four Seasons(R), Jalapeno
Sam(R), Fruit Made Easy(R), Fruit Jelite(R), Simply Fresh(R) and Kledor(R)
trademarks. The Company also utilizes the Flavor Fresh(TM) tradename. In
addition, the Company holds patent rights with respect to certain fruit cutting
machinery and a non-assignable, exclusive license to manufacture and sell
certain fruit products in the United States, Canada and Mexico.
ITEM 2. PROPERTIES.
GROWING OPERATIONS
To ensure the availability of the highest quality raw materials, UniMark
intends to expand its fruit growing operations in Mexico, utilizing advanced
agricultural practices. UniMark believes that Mexico's favorable climate and
soil conditions, coupled with competitive labor and land costs, offer
significant opportunities to grow high quality fruits in a cost effective
manner. Presently, a majority of the Company's raw materials are provided by
growers under various arrangements, including operating agreements and
individual fixed price contracts to purchase entire production.
The following table sets forth the Company's various agricultural projects:
<TABLE>
<CAPTION>
PROPERTY
NAME LOCATION ACREAGE CROP INTEREST
----------------------- ------------------- --------- ----------------- --------
<S> <C> <C> <C> <C>
Loma Bonita I Grove......... Loma Bonita, 190 acres White grapefruit Leased
Oaxaca, Mexico
Loma Bonita II Grove (1).... Loma Bonita, Oaxaca, 625 acres Pink grapefruit, Leased
Mexico pineapple, hearts
of palm.
Villa Azueta I Grove (2).... Villa Azueta, 84 acres Pineapple growing Leased
Veracruz, Mexico and packing.
Villa Azueta II Grove....... Villa Azueta, 610 acres Pineapple Owned
Veracruz, Mexico
Azteca Grove (3)............ Montemorelos, Nuevo 144 acres White and Rio Red Leased
Leon, Mexico Grapefruit
Las Tunas Grove............. Isla, 120 acres White and pink Leased
Veracruz, Mexico Grapefruit
Laborcitas Grove............ Cd. Victoria, 240 acres Oranges and Owned
Tamaulipas, Mexico Italian lemons
El Milagro Grove ........... Cd. Victoria, 120 acres Italian lemons Owned
Tamaulipas, Mexico
Paraiso Grove .............. Cd. Victoria, 264 acres Italian lemons Owned
Tamaulipas, Mexico
El Cielo Grove ............. Gomez Farias, 1,680 acres Italian lemons Owned
Tamaulipas, Mexico (73% planted)
Flor De Maria Grove......... Cd. Valles, San Luis 4,080 acres Italian lemons to Owned
Potosi, Mexico be planted.
La Estrella Grove........... Cd. Victoria, 185 acres Italian lemons to Owned
Tamaulipas, Mexico be planted.
</TABLE>
- ---------
(1) Presently, this grove consists of approximately 240 acres of pink
grapefruit, 300 acres of pineapple and 60 acres of hearts of palm.
(2) Villa Azueta is the southern headquarters of UniMark's agricultural
operations. The agricultural headquarters is used for the development of
pineapple seedlings, as well as other agricultural crops, and the packing of
fresh pineapple. In 1995, the Company entered into a 10-year lease for this
facility and has an option to purchase the facility for fair market value
determined at the time such option is exercised.
10
<PAGE> 11
(3) In 1994, ICMOSA entered into a 10-year operating agreement with the owners
of this grove, which is located near the ICMOSA plant in Montemorelos.
Pursuant to the agreement, ICMOSA operates the grove and purchases all the
grapefruit at a formula price tied to the price of grapefruit purchased from
unrelated third parties. The grove consists of approximately 13,000
grapefruit trees and incorporates advanced agricultural technology. Each
tree has a watering and feeding system which can also be utilized as an
anti-freeze system utilizing mist generated by three 500 horsepower boilers.
FACILITIES
The Company's principal processing facilities are described below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
EMPLOYEES
APPROXIMATE (AS OF
SQUARE MARCH
NAME LOCATION FOOTAGE 1999) INTEREST
---- -------- ----------- ----------- --------
<S> <C> <C> <C> <C>
PACKAGED FRUIT OPERATIONS
ICMOSA Plant ................ Montemorelos, Nuevo Leon, Mexico 80,000 1,003 Owned (1)
IHMSA Plant.................. Montemorelos, Nuevo Leon, Mexico 40,000 628 Leased (2)
Azteca Plant................. Montemorelos, Nuevo Leon, Mexico 50,000 489 Leased (2)
Puebla Plant................. Tlatlauquipec, Puebla, Mexico 50,000 391 Owned
Isla Plant................... Isla, Veracruz, Mexico 32,000 245 Leased
San Rafael Plant (4)......... San Rafael, Veracruz, Mexico 28,500 -- Leased
Zamora Plant (4)............. Zamora, Michoacan, Mexico 41,000 -- Leased
Deli-Bon Plant............... Quebec City, Quebec, Canada 16,800 20 Owned
Simply Fresh Plant........... Los Angeles, California 45,000 125 Leased
Flavor Fresh Plant (3)....... Lawrence, Massachusetts 60,000 -- Leased (2)
JUICE AND OIL OPERATIONS
Victoria Juice Plant......... Cd. Victoria, Tamaulipas, Mexico 65,700 142 Owned (1)
Frutalamo Juice Plant........ Alamo, Veracruz, Mexico 27,700 111 Leased
Veracruz Juice Plant......... Poza Rica, Veracruz, Mexico 22,900 66 Owned
</TABLE>
- ----------
(1) This property is subject to individual mortgages with the real estate as
collateral.
(2) The agreement pursuant to which this facility is leased by the Company
grants the Company the option to purchase the facility prior to the
expiration of such agreement at a purchase price equal to the then current
fair market value of the facility.
(3) This plant is idle and commencing April 1, 1999 has been sub-leased through
August, 2002.
(4) These plants are idle and are being offered for sub-lease.
The Company's other supporting facilities are described below:
In addition to the properties described above, the Company maintains its
corporate headquarters in Bartonville, Texas; a distribution center in McAllen,
Texas; and a lodging facility in Cd. Victoria, Tamaulipas, Mexico.
Corporate Headquarters. UniMark leases approximately 13,000 square feet of
office space for its corporate headquarters in Bartonville, Texas (located 20
miles from the Dallas/Fort Worth International Airport) from an entity
controlled by Jorn Budde, the Company's President, Chief Executive Officer and
Chairman of the Board prior to his resignation in February 1998. As of March 1,
1999, UniMark employed 38 people at this facility with space well utilized for
the corporate headquarters.
11
<PAGE> 12
McAllen Distribution Center. The Company's refrigerated distribution center
began operations in August 1997 in McAllen, Texas (on the Texas/Mexico border)
which consists of approximately 110,000 square feet and is fully utilized.
As of March 1, 1999, 18 people were employed at this company-owned facility.
Hidalgo Distribution Center. The Company's previous refrigerated
distribution center in Hidalgo, Texas consists of approximately 20,000 square
feet and is currently vacant and being offered for sale.
The GISE Conference Facility. In connection with the GISE acquisition in May
1996, the Company acquired a "hacienda" which has been declared a historic
landmark. This lodging facility is located near GISE's plant in Cd. Victoria,
Tamaulipas, Mexico, occupies approximately 90,000 square feet and is situated on
approximately 10 acres. The Company utilizes this facility, in part, as a
conference center.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to claims
arising from its operations in the normal course of business or otherwise the
outcome of which is not expected to have a materially adverse affect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on November 20, 1998,
the proposed ten member Board of Directors was elected in a non-contested vote
and the selection of Ernst & Young, LLP as the Company's independent public
accountants for the year ended December 31, 1998 was ratified.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"UNMG". The following table sets forth, for the periods indicated, the high and
low sale prices as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Year Ended December 31, 1997:
First Quarter................................. $ 10.625 $ 6.000
Second Quarter................................ 8.875 4.625
Third Quarter................................. 9.125 7.000
Fourth Quarter................................ 8.250 2.750
Year Ended December 31, 1998:
First Quarter................................. 5.375 3.438
Second Quarter................................ 6.625 3.875
Third Quarter................................. 4.375 2.000
Fourth Quarter................................ 3.250 1.875
</TABLE>
- ----------
The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions. On April 9, 1999, the last reported
sale price for the Common Stock on the Nasdaq National Market was $2.75. As of
April 9, 1999 there were 131 shareholders of record of the Common Stock and
approximately 2,000 beneficial shareholders.
12
<PAGE> 13
The Company has not paid any cash dividends since its inception and for the
foreseeable future intends to follow a policy of retaining all of its earnings,
if any, to finance the development and continued expansion of its business.
There can be no assurance that dividends will ever be paid by the Company.
Additionally, the Company's loan agreements with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B. A. ("Rabobank Nederland") restrict the Company from
declaring or paying any dividends on its shares of Common Stock without the
prior written consent of Rabobank Nederland. Any future determination as to
payment of dividends will depend upon the Company's financial condition, results
of operations and such other factors as the Board of Directors deems relevant.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth, for the periods and at the dates indicated,
selected historical consolidated financial data of the Company. The selected
historical consolidated financial data has been derived from the historical
consolidated financial statements of the Company and in the case of the fiscal
years ended December 31, 1996, 1997 and 1998 should be read in conjunction with
such financial statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996 (1) 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 25,346 $ 36,866 $ 65,238 $ 81,284 $ 90,141
Gross profit ............................... 7,403 12,674 18,626 22,004 25,083
Income (loss) from operations .............. 1,530 4,251 1,027 (5,950) 1,999
Extraordinary gain ......................... -- -- 330 139 --
Net income (loss) .......................... 1,015 2,947 543 (9,680) (2,965)
Basic earnings (loss) per share:
Income (loss) before extraordinary gain .. $ 0.28 $ 0.57 $ 0.03 $ (1.15) $ (0.29)
Extraordinary gain ....................... -- -- 0.04 .02 --
-------- -------- -------- -------- --------
Net income (loss) ........................ $ 0.28 $ 0.57 $ 0.07 $ (1.13) $ (0.29)
======== ======== ======== ======== ========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain .. $ 0.28 $ 0.53 $ 0.03 $ (1.15) $ (0.29)
Extraordinary gain ....................... -- -- 0.04 .02 --
-------- -------- -------- -------- --------
Net income (loss) ........................ $ 0.28 $ 0.53 $ 0.07 $ (1.13) $ (0.29)
======== ======== ======== ======== ========
Shares used in per share calculations:
Basic .................................. 3,642 5,213 7,450 8,590 10,131
Diluted ................................ 3,642 5,571 7,796 8,590 10,131
Total assets ............................... $ 11,176 $ 26,498 $ 76,683 $ 94,616 $ 93,513
Long-term debt ............................. 919 699 4,332 8,626 7,833
Stockholders' equity ....................... 6,392 14,978 47,800 38,252 48,712
</TABLE>
- -------------------
(1) Includes the results of operations of GISE and Simply Fresh since April 1,
1996, and Deli-Bon since January 3, 1996, the effective dates of these
acquisitions.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and "Selected Financial Data" included
elsewhere herein. This discussion does not include the results of operations of
Deli-Bon, GISE and Simply Fresh before their respective acquisition dates.
CONVERSION TO U.S. GAAP
The Company conducts substantially all of its operations through its wholly
owned operating subsidiaries. ICMOSA is a Mexican corporation with its
headquarters located in Montemorelos, Nuevo Leon, Mexico, whose principal
activities consist of operating five citrus processing plants and various citrus
groves throughout Mexico. GISE is a Mexican corporation with its headquarters
located in Victoria, Tamaulipas, Mexico, whose principal activities consist of
operating three citrus juice and oil processing plants. ICMOSA and GISE maintain
their accounting records in Mexican pesos and in accordance with Mexican
generally accepted accounting principles 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 U.S. dollars.
Deli-Bon maintains its accounting records in Canadian dollars and in accordance
with Canadian generally accepted accounting principles and is subject to
Canadian income tax laws. UniMark Europe maintains its accounting records in
British pounds sterling and in accordance with United Kingdom generally accepted
accounting principles and is subject to United Kingdom income tax laws.
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.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data expressed
as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net sales ............................................ 100.0% 100.0% 100.0%
Cost of products sold ................................ 71.4 72.9 72.2
------ ------ ------
Gross profit ......................................... 28.6 27.1 27.8
Selling, general and administrative expenses ......... 27.0 34.4 25.6
------ ------ ------
Income (loss) from operations ........................ 1.6 (7.3) 2.2
Other income (expense):
Interest expense ................................... (2.2) (4.1) (4.6)
Interest income .................................... 0.8 0.5 0.2
Other .............................................. (0.3) (1.1) (0.1)
------ ------ ------
Loss before income taxes and extraordinary gain ...... (0.1) (12.0) (2.3)
Income tax expense (benefit) ......................... (0.4) 0.1 1.0
------ ------ ------
Income (loss) before extraordinary gain .............. 0.3 (12.1) (3.3)
Extraordinary gain, net of applicable income taxes ... 0.5 0.2 --
------ ------ ------
Net income (loss) .................................... 0.8% (11.9)% (3.3)%
====== ====== ======
</TABLE>
Years Ended December 31, 1997 and 1998
Net Sales increased 10.9% from $81.3 million in 1997 to $90.1 million in
1998. This increase was primarily due to increases in citrus juice and oil sales
as well as packaged fruit retail sales. Citrus juice and oil sales increased 62%
from $13.7 million in 1997 to $22.2 million in 1998. This increase was primarily
14
<PAGE> 15
the result of a relative large orange crop and comparatively favorable market
conditions for "from concentrate orange juice". These favorable market
conditions reversed in the fourth quarter of 1998. The Company has a negative
outlook on its citrus juice and oil sales as a result of declining futures
prices and a much smaller orange crop in Mexico.
Packaged fruit retail sales increased 15.4% from $27.2 million in 1997 to
$31.4 million in 1998. This increase was the result of new distribution of the
Company's canned fruit and fresh-cut fruit product lines. The Company expects
this trend to continue for 1999. The Company also saw an increase in sales to
Japan and other industrial customers. The Japanese sales increased 20.6% from
$3.4 million in 1997 to $4.1 million in 1998. Although no assurances can be
given, the Company anticipates increased demand for its products from Japan in
1999, as a leading soft drink supplier is introducing a new product with the
Company's products as a key ingredient. Industrial and other sales increased
92.6% from $2.7 million in 1997 to $5.2 million in 1998. These sales are
primarily comprised of bulk IQF products and fresh pineapple. The Company
anticipates limited growth in industrial sales, but a significant increase in
sales of pineapple, as the Company's pineapple project is beginning significant
production in the second quarter of 1999.
The sales increase was negatively impacted by declining sales in the
Company's food service and wholesale club businesses. Food service sales
declined 15.2% from $23.0 million in 1997 to $19.5 in 1998. This decline can be
attributed to the Company's closing of its Lawrence, MA plant and distribution
facility in the fourth quarter of 1997. The Company believes that the reduction
in sales has leveled off and management expects an increase for 1999 from new
product introductions. The wholesale club business declined 32.7% from $11.3
million in 1997 to $7.6 million in 1998. The decline was the result of
discontinuing production of the Company's avocado products in the first quarter
of 1998. The Company also lost significant distribution of its chilled fruit
products to a competitor.
While the Company's overall retail sales increased in 1998, the Company did
experience significant competitive pressures as a competitor entered the
category with a new line of similar products accompanied with substantial
promotional campaigns. This resulted in smaller than anticipated growth for the
Company's chilled fruit category. Although no assurances can be given, the
Company expects sales of this category to improve in 1999 because of its newly
formulated promotional programs.
Gross Profit as a percentage of net sales increased from 27.1% in 1997 to
27.8% in 1998. The increase can be attributed to the prior years inflation in
Mexico, which significantly increased the Company's cost of production. The
gross profits were negatively impacted by the relative increase in citrus juice
and oil sales as compared to packaged fruit sales, since citrus juice and oil
sales generally yield lower margins.
Gross profit on packaged fruit sales decreased from 29.8% in 1997 to 29.5%
in 1998. This decrease was primarily the result of higher than anticipated fruit
cost resulting from the aftermath of the recent El Nino weather pattern and crop
failures in the Company's pineapple project. At December 31, 1998, the Company
wrote-off $1.3 million as a result of crop failures in the Company's pineapple
project. While most crops have returned to normal in the first quarter of 1999,
the Company's California operations is anticipated to be negatively impacted by
the freeze damage done to most of the California orange crop in late 1998.
Gross profit on citrus juice and oils increased from 13.7% in 1997 to 22.7%
in 1998 primarily as a result of lower product cost due to increased production
volume and improved market prices. Gross profit for the citrus juice and oil
segment is anticipated to be significantly lower in 1999 as a result of higher
fruit prices resulting from a smaller crop and unfavorable market conditions.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased from 34.4% in 1997 to 25.6% in 1998. Actual SG&A expenses
decreased 17.4% from $28.0 million in 1997 to $23.1 million in 1998. This
decrease is partly the result of the relative increase in citrus juice and oil
sales that do not require significant sales and marketing expenditures. It is
also the result of cost savings realized
15
<PAGE> 16
from the Company's reorganization of its packaged fruit operations and the
overall increase in sales volume. SG&A expenses in 1998 were negatively impacted
by a charge of $540,000 to write-off certain capital improvements and other
capitalized costs, primarily related to closed plant facilities.
Interest expense increased from 4.1% of net sales in 1997 to 4.6% in 1998.
Actual interest expense increased from $3.3 million in 1997 to $4.1 million in
1998. This increase was primarily the result of increased levels of debt
maintained to support capital expenditures and increased cost of funds from the
Company's primary lender.
Interest income of $436,000 was earned in 1997 and $141,000 in 1998
primarily from the temporary cash investment of excess cash balances.
A foreign currency translation net loss of $945,000 in 1997 and $167,000 in
1998 resulted primarily from the conversion of the Company's foreign
subsidiaries' financial statements to U.S. GAAP.
As a result of the foregoing, the Company reported net losses of $9.7
million in 1997 and $3.0 million in 1998.
Years Ended December 31, 1996 and 1997
Net sales increased 24.6% from $65.2 million in 1996 to $81.3 million in
1997. This increase was primarily due to increases in foodservice sales, retail
sales and club sales. Foodservice sales increased 52.4% from $15.1 million in
1996 to $23.0 million in 1997. Retail sales increased 50.0% from $18.2 million
in 1996 to $27.2 million in 1997 and warehouse club sales increased 43.2% from
$7.9 million in 1996 to $11.3 million in 1997. These increases resulted from
increased distribution and expansion of product lines facilitated primarily by
the Company's acquisition of Simply Fresh effective March 31, 1996 and the
addition of new customers, particularly in the Northeast United States in August
1996. In addition, growth of existing product lines and new canned product
introductions contributed to these increases in 1997.
The increase in net sales was adversely impacted by a decline in sales of
the Company's specialty food ingredient products in the Japanese market. Sales
to Japan decreased from $7.4 million in 1996 to $3.4 million in 1997 primarily
as a result of decreased demand in Japan for the Company's specialty food
ingredient products. The Company believes that this decrease in demand was due
to a decline in sales of the Japanese products containing the Company's
specialty food ingredients and resulting higher than anticipated inventory
levels of the Company's specialty food ingredients held by distributors in
Japan. Present indications are that inventory levels in Japan have been reduced.
The increase in net sales was also positively impacted by a 10.5% increase
in citrus juice and oil sales from $12.4 million in 1996 to $13.7 million in
1997. The Company acquired GISE, a citrus juice and oil processor in Mexico
effective March 31, 1996, therefore the 1996 sales amount represents only nine
months of operations compared with twelve months of operations in 1997.
Gross profit as a percentage of net sales decreased from 28.6% in 1996 to
27.1% in 1997. The Company's results of operations were adversely impacted by an
increase in inflation in Mexico (15.7%), which was not offset by a
corresponding devaluation of the Mexico peso (2.5%), resulting in increased
wages, benefits and other operating expenses in U.S. dollar terms. Gross profit
on cut fruit sales decreased from 31.0% in 1996 to 29.8% in 1997 while gross
profit on citrus juice and oil sales decreased from 18.1% in 1996 to 13.7% in
1997. The decrease in gross profit on cut fruit sales resulted primarily from
charges of approximately $3.1 million in the fourth quarter of 1997 for
additional costs incurred associated with the closing of the Flavor Fresh, San
Rafael and Zamora plant facilities and the restructuring of production,
warehousing and distribution operations.
Gross profit on cut fruit sales was adversely affected from the decline in
Japanese sales. Although the loss of Japanese production volume adversely
impacted the Company's 1997 operating results, the
16
<PAGE> 17
Company has taken affirmative steps to replace the lost production volume.
During 1997, these efforts included the introduction of new canned product lines
that accounted for approximately $2.5 million of sales.
Gross profit on citrus juice and oil sales were adversely affected by lower
than expected market prices but benefited from improved raw material costs.
Frozen concentrate orange juice futures prices remained depressed throughout
1997 but have shown favorable improvement in early 1998.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased from 27.0% in 1996 to 34.4% in 1997. This increase resulted
primarily from charges of approximately $1.2 million in the fourth quarter of
1997 for costs associated with the closing of the Flavor Fresh, Zamora and San
Rafael plant facilities and certain licensing and product development costs.
SG&A as a percentage of net sales was also adversely impacted by the
relative decrease in sales to Japan and juice and oil sales. Sales of the
Company's specialty food ingredient products are facilitated through independent
Japanese trading companies primarily on an FOB ICMOSA plant basis. The Company's
orange juice products are primarily sold direct to juice blenders primarily on
an FOB GISE plant basis. Therefore, the Company does not typically incur
delivery costs and sales commissions with respect to these sales. Consequently,
the relative decrease in these sales from 30.3% to 21.0% of net sales in 1996
and 1997, respectively, adversely impacted SG&A as a percentage of sales during
1997.
Interest expense increased from 2.2% of net sales in 1996 to 4.1% in 1997.
Actual interest expense increased from $1.4 million in 1996 to $3.3 million in
1997. This increase was primarily the result of increased levels of debt
necessary to support capital expenditures and increased levels of inventory and
trade receivables associated with the increase in sales volume.
Interest income of $548,000 was earned in 1996 and $436,000 in 1997
primarily from the temporary cash investment of excess cash balances.
A foreign currency translation net loss of $248,000 in 1996 and $945,000 in
1997 resulted primarily from the conversion of Company's foreign subsidiaries'
financial statements to U.S. GAAP.
Income taxes. A consolidated income tax benefit of $272,000 in 1996 resulted
primarily from the recognition of future benefits from tax losses generated. A
consolidated income tax provision of $77,000 resulted primarily from the
recording of a valuation allowance to reduce the carrying amount of the
Company's deferred tax assets related to U.S. tax losses.
Extraordinary gains, net of applicable taxes, of $330,000 and $139,000 were
realized in 1996 and 1997, respectively. In 1996, the Company reported a net
gain from the forgiveness of certain existing debt obligations with Mexican
banks pursuant to Mexican government programs to stimulate the economy and
support the banking system. In May, 1997, ICMOSA retired certain outstanding
long-term debt with Union de Credito Allende, a Mexican credit union, at a
discount of 50%. The discount was granted pursuant to a Mexican government
program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena y Mediana
Empresa ("FOPIME") and through the participation of Nacional Financiera
("NAFINSA"), a Mexican development bank, to help provide liquidity to the
Mexican credit unions. The debt reduction amounted to approximately $2.0 million
pesos or approximately US $248,000. Provisions for Mexican income taxes and
statutory employee profit sharing of 34% and 10%, respectively, have been
provided on these gains from debt forgiveness.
As a result of the foregoing, the Company reported net income of $543,000 in
1996 while reporting a net loss of $9.7 million in 1997.
17
<PAGE> 18
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
losses do not affect employee profit sharing. Statutory employee profit sharing
expense is reflected in the Company's cost of goods sold and selling, general
and administrative expenses, depending upon the function of the employees to
whom profit sharing payments are made. The Company's net income on a
consolidated basis as shown in the 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. Provisions for
Mexican employee profit sharing expense were $436,000, $544,000 and $209,000 in
1996, 1997 and 1998, respectively.
EXCHANGE RATE FLUCTUATIONS
The Company's consolidated results of operations are affected by changes in
the valuation of the Mexican peso to the extent that ICMOSA or 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.
The Company'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 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.
MARKET RISK FACTORS
A significant portion of the Company's operations consists of processing and
sales activities in foreign jurisdictions. The Company processes its products in
the United States, Mexico and Canada and sells the products in those markets as
well as European markets and Japan. As a result, the Company's financial results
could be significantly affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which the
Company distributes its products. The Company's operating results are exposed to
changes in exchange rates between the U.S. dollar and the Mexican peso, Canadian
dollar, British pound and the Japanese yen.
When the U.S. dollar strengthens against these foreign currencies, the value
of nonfunctional currency sales decreases. When the U.S. dollar weakens, the
functional currency amount of sales increases. Overall, the Company is a net
payer of currencies other than the U.S. dollar and, as such, benefits from a
stronger dollar.
The Company procures and processes substantially all of its products in
Mexico for export to the United States, Canada, Europe and Japan. The cost of
citrus procured in Mexico generally reflects the spot market price for citrus in
the United States and all of UniMark's export sales from Mexico are denominated
in U.S. dollars. As such, UniMark does not anticipate sales revenues and raw
material expenses to be materially affected by changes in the valuation of the
Mexican peso. Labor and certain other processing costs are Mexican peso
denominated and, consequently, these costs are impacted by fluctuations in the
value of the Mexican peso relative to the U.S. dollar.
The Company's juice and oil segment primarily produces and sells frozen
concentrate orange juice. The price the Company is able to sell this product for
is generally determined by reference to the commodity futures market price, over
which the Company has no control.
The Company's interest expense is most sensitive to changes in the general
level of U.S. interest rates and London interbank offered rates ("LIBOR"). In
this regard, changes in these interest rates affect the interest paid on the
Company's debt.
18
<PAGE> 19
The following table presents principal cash flows and related
weighted-average interest rates by expected maturity dates for the Company's
debt obligations.
INTEREST RATE SENSITIVITY
Principal Amount by Expected Maturity
Average Interest Rate
<TABLE>
<CAPTION>
Estimated
Fair
There- Value
(dollars in thousands) 1999 2000 2001 2002 2003 after Total 12/31/98
---------------------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, including
current portion
Fixed rate $ 520 $ 583 $ 324 $ 157 $ 192 $ 211 $ 1,987 $ 1,987
Average interest rate 9.9% 10.8% 12.6% 18.5% 18.5% 18.5%
Variable rate $ 243 $ 302 $ 378 $ 3,957 $ 116 $ 1,613 $ 6,609 $ 6,609
Average interest rate 12.1% 12.0% 11.9% 10.9% 9.0% 9.0%
</TABLE>
The Company does not have a significant exposure to foreign currency
denominated debt obligations. At December 31, 1998, all long-term debt is U.S.
dollar denominated except for $881,000 which is Mexican peso denominated and
$122,000 which is Canadian dollar denominated.
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 adversely affected.
SEASONALITY
Demand for UniMark's citrus and tropical fruit products is strongest during
the fall, winter and spring when seasonal fresh products such as mangos,
peaches, plums, and nectarines are not readily available for sales in
supermarkets in North America. In addition, a substantial portion of UniMark's
exports to Japan are processed and shipped during the first and fourth quarter
each year. Management believes UniMark's quarterly net sales will continue to be
impacted by this pattern of seasonality.
YEAR 2000 ISSUES
As a result of certain computer programs and certain embedded computer chip
technology utilizing two digits rather than four to define the applicable year,
any of the Company's computer programs or systems that have date sensitive
software or computer chip technology may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, generate invoices, or
engage in similar normal business activities. Failure by the Company and/or any
third parties that the Company materially relies on, such as power utility
providers, financial institutions, other critical suppliers and major customers,
to complete Year 2000 readiness activities in a timely manner could have a
material adverse effect on the Company's business and results of operations.
19
<PAGE> 20
The Company is engaged in a company-wide effort to achieve Year 2000
readiness for both information technology ("IT") and non-information technology
("non-IT") systems. The Company expects to achieve company-wide Year 2000
readiness by mid-1999. The Company has formed a team consisting of senior
management, information technology staff and consultants to assess, remediate,
test and implement processes to meet Year 2000 readiness.
In late 1997, the Company completed its assessment of all IT systems which
indicated that most of the Company's significant accounting systems could be
affected, particularly the general ledgers, billing, inventory and payment
systems. To date, the Company has completed implementation of Year 2000
compliant accounting systems in its U.S. and Canada operations and expects to
complete implementation in its Mexico operations by mid-1999. The Company is
approximately 75% complete in its assessment of non-IT systems which, to date,
has not revealed any significant problems, and expects to complete its
assessment in the second quarter of 1999. Any remediation, testing and
implementation necessary will be expected to be completed by the end of 1999.
The Company has begun inquiries of its significant suppliers, contractors
and other third-party support services and customers to assess their Year 2000
readiness efforts. Letters of compliance have been requested from such third
parties. To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. Contingency plans to choose
alternative third-party agents, if necessary, will be formalized in the third
quarter of 1999.
The Company is primarily utilizing internal resources to assess, remediate,
test and implement Year 2000 modifications while utilizing outside consultants
when necessary. The total cost of the Year 2000 project is not expected to
exceed $100,000 for the entire effort. Because the Company's readiness program
is not yet fully implemented and is subject to certain risks and uncertainties,
including readiness efforts of material third parties, there can be no assurance
that the Company will not incur material costs beyond the anticipated costs
described above. The cost of the Year 2000 project and the dates by which the
Company believes it will be Year 2000 ready are based on management's current
best estimates, which were dependent on numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. There can be no assurance, however, that
these estimates will be achieved and actual results could differ materially from
those anticipated.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, cash and cash equivalents totaled $4.2 million, an
increase of $3.0 million from year-end 1997. During 1998, operating activities
generated cash of $6.8 million primarily from a $2.3 million decrease in trade
receivables and a $500,000 decrease in inventories.
During 1998, UniMark utilized cash of $5.7 million in investing activities.
Of this amount, $5.2 million was expended on property, plant and equipment
primarily related to the Company's lemon orchard project in Mexico.
The Company's financing activities provided net cash of $13.4 million from
the sale of common stock and $240,000 from additional long-term borrowings,
primarily equipment financing. Cash was utilized to reduce short-term borrowings
by $9.8 million and long-term debt by $1.9 million.
Effective May 1, 1998, the Company issued an additional 23,993 common shares
to the former owner of Deli-Bon pursuant to the price protection provisions of
the January 3, 1996 acquisition agreement.
On June 29, 1998 an arbitration award was issued against the Company in its
proceedings with the former shareholders of Simply Fresh regarding the price
protection provisions of the May 9, 1996 acquisition agreement and related
issues. Pursuant to the award, on August 5, 1998 the Company paid in cash to the
former Simply Fresh shareholders (i) $1,005,036 in settlement of the common
stock price
20
<PAGE> 21
protection issues, (ii) $67,391 in interest on the price protection settlement
amount and (iii) $110,000 in settlement of related employment contract issues.
On July 17, 1998, the Company sold 3,305,500 newly issued shares of common
stock at a purchase price of $4.5375 per share, for an aggregate purchase price
of $14,998,706, to M & M Nominee L.L.C. ("M & M"). In connection with the
transaction, the Company granted M & M options to acquire an additional
2,000,000 shares of common stock at a purchase price of $4.5375 per share,
representation on the Company's Board of Directors and certain veto rights
regarding financial and corporate matters.
On March 29, 1999, the Company sold 2,000,000 newly issued shares of common
stock at a purchase price of $2.50 per share, for an aggregate purchase price
of $5,000,000 to M & M. In connection with the transaction, M & M surrendered
options to acquire an additional 2,000,000 shares of common stock at a purchase
price of $4.5375 per share issued to them in July 1998.
The Company has existing loan agreements with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term
dollar denominated debt of up to $24.5 million. These agreements are as follows:
(i) a revolving credit agreement to provide up to $9.5 million collateralized by
finished goods inventories in the US and accounts receivable from US customers
and (ii) revolving credit agreements to provide up to $15.0 million
collateralized by finished goods inventories in Mexico and accounts receivable
from export sales by the Company's Mexican subsidiaries.
These agreements are cross-collateralized and guaranteed by the Company and
its subsidiaries and require the Company to maintain certain consolidated
financial performance levels relative to tangible net worth, working capital,
and total debt. In addition, the agreements contain restrictions on the issuance
of additional shares of stock and the payment of dividends, among other things,
without the prior written consent of the bank. At December 31, 1998 the Company
was in violation of certain financial covenants and restrictions under these
agreements, which Rabobank Nederland has waived as of that date.
At December 31, 1998 the Company had outstanding loan balances under the
revolving credit agreements of $15.2 million. These agreements were scheduled to
mature on May 17, 1999 but, in a commitment letter dated April 13, 1999, the
lender agreed to extend the maturity to January 3, 2000.
In recent years, the Company has relied upon bank financing, principally
short term, to finance its working capital and certain of its capital
expenditure needs. Although these revolving credit facilities with Rabobank
Nederland are being extended until January 3, 2000, no assurances can be given
that Rabobank Nederland will continue to renew such loan facilities. Presently,
the Company is in discussions with Rabobank Nederland and other financial
institutions to further extend or replace existing working capital facilities
and to establish a permanent long-term debt facility. Although no assurances can
be given, the Company believes it will be able to obtain such working capital
and long-term debt facilities on terms acceptable to the Company. The failure to
obtain such facilities could have a material adverse affect on the Company and
its ability to continue as a going concern.
In April 1998, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an
affiliate of The Coca-Cola Company, entered into a new twenty year Supply
Contract, with a ten year renewal option, for the production of Italian lemons.
Pursuant to the terms of the new Supply Contract, which supersedes all previous
agreements, GISE will plant and grow 3,500 hectares (approximately 8,650 acres)
of Italian lemons within the next three years for sale to Coca-Cola at
pre-determined prices. The Supply Contract requires Coca-Cola to provide, free
of charge, up to 875,000 lemon trees, enough to plant approximately 2,800
hectares. In addition, the Supply Contract requires Coca-Cola to purchase all
the production from the project. The planting program began in November, 1996
and harvesting of the first crops is projected to begin in late 2000 with full
production scheduled for 2013. Total capital requirements for the project
including land acquisition, seedlings, capital equipment and planting costs are
estimated to be approximately $18.5 million of which $5.6 million has been
expended as of December 31, 1998 and $8.2 million is estimated to be required in
1999. Presently, the Company is exploring various financing alternatives for
this project. There can be no assurances that financing for this project can be
obtained on acceptable terms, or at all. The inability to obtain third party
financing for the project could have a material adverse effect on the Company.
The Company's cash requirements for the remainder of 1999 and beyond will
depend primarily upon the level of sales, expenditures for capital equipment and
improvements, investments in agricultural projects,
21
<PAGE> 22
the level of inventories, the success of newly introduced products and
necessary reductions of debt. Presently, the Company is in discussions with
Rabobank Nederland and other financial institutions regarding further extending
or replacing its existing debt facilities. Although no assurances can be given,
the Company believes it will be able to obtain such debt facilities on terms
acceptable to the Company. The failure to obtain such debt facilities could have
a material adverse affect on the Company. UniMark believes that anticipated
revenue from operations and existing and future debt facilities will be adequate
for its working capital requirements for at least the next twelve months.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors..................................................... 23
Consolidated Balance Sheets as of December 31, 1997 and 1998....................... 24
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998............................................... 25
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998............................................... 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998............................................... 27
Notes to Consolidated Financial Statements......................................... 28
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The UniMark Group, Inc.
We have audited the accompanying consolidated balance sheets of The UniMark
Group, Inc. (the Company) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audits 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 consolidated financial position of
The UniMark Group, Inc. at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
April 13, 1999
23
<PAGE> 24
THE UNIMARK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 1,237 $ 4,247
Accounts receivable -- trade, net of allowance of $685 in
1997 and $657 in 1998 ................................ 11,599 9,270
Accounts receivable - other ............................. 716 731
Inventories ............................................. 24,152 22,320
Income and value added taxes receivable ................. 2,312 1,560
Prepaid expenses ........................................ 1,605 1,315
-------- --------
Total current assets ............................ 41,621 39,443
Property, plant and equipment, net ........................ 39,704 41,347
Deferred income taxes ..................................... 1,847 1,365
Goodwill, net ............................................. 6,606 6,425
Identifiable intangible assets ............................ 1,823 1,535
Due from related parties .................................. 1,678 1,651
Other assets .............................................. 1,337 1,747
-------- --------
Total assets .................................... $ 94,616 $ 93,513
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ................................... $ 31,452 $ 21,654
Current portion of long-term debt ....................... 1,655 763
Accounts payable - trade ................................ 3,983 5,156
Payable to related parties .............................. 104 --
Accrued liabilities ..................................... 4,439 3,484
Income taxes payable .................................... 40 38
Deferred income taxes ................................... 6,050 5,873
-------- --------
Total current liabilities ....................... 47,723 36,968
Long-term debt, less current portion ...................... 8,626 7,833
Deferred income taxes ..................................... 15 --
Commitments
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 8,598,833 in 1997 and
11,938,326 in 1998 ................................. 86 119
Additional paid-in capital .............................. 45,419 58,811
Accumulated deficit ..................................... (7,253) (10,218)
-------- --------
Total shareholders' equity ...................... 38,252 48,712
-------- --------
Total liabilities and shareholders' equity ...... $ 94,616 $ 93,513
======== ========
</TABLE>
See accompanying notes.
24
<PAGE> 25
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales ....................................... $ 65,238 $ 81,284 $ 90,141
Cost of products sold ........................... 46,612 59,280 65,058
-------- -------- --------
18,626 22,004 25,083
Selling, general and administrative expenses .... 17,599 27,954 23,084
-------- -------- --------
Income (loss) from operations ................... 1,027 (5,950) 1,999
Other income (expense):
Interest expense .............................. (1,407) (3,294) (4,146)
Interest income ............................... 548 436 141
Foreign currency transaction loss ............. (248) (945) (167)
Other income .................................. 21 11 75
-------- -------- --------
(1,086) (3,792) (4,097)
-------- -------- --------
Loss before income taxes and extraordinary gain . (59) (9,742) (2,098)
Income tax expense (benefit) .................... (272) 77 867
-------- -------- --------
Income (loss) before extraordinary gain ......... 213 (9,819) (2,965)
Extraordinary gain on forgiveness of debt, net of
applicable income taxes of $259 in 1996 and
$109 in 1997 ................................. 330 139 --
-------- -------- --------
Net income (loss) ............................... $ 543 $ (9,680) $ (2,965)
======== ======== ========
Basic and diluted earnings (loss) per share:
Income (loss) before extraordinary item ....... $ 0.03 $ (1.15) $ (0.29)
Extraordinary item ............................ 0.04 0.02 --
-------- -------- --------
Net income (loss) ............................. $ 0.07 $ (1.13) $ (0.29)
======== ======== ========
</TABLE>
See accompanying notes.
25
<PAGE> 26
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 .................. 5,918,050 $ 59 $ 13,035 $ 1,884 $ 14,978
Exercise of warrants and options .......... 64,250 1 305 -- 306
Shares issued for cash in secondary
public offering, net of offering
expenses ................................ 1,677,000 17 22,175 -- 22,192
Shares issued in acquisitions of GISE,
Simply Fresh and Deli-Bon ............... 902,033 9 9,772 -- 9,781
Net income ................................ -- -- -- 543 543
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ................ 8,561,333 86 45,287 2,427 47,800
Exercise of options ....................... 37,500 -- 132 -- 132
Net loss .................................. -- -- -- (9,680) (9,680)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ................ 8,598,833 86 45,419 (7,253) 38,252
Exercise of options ....................... 10,000 -- 35 -- 35
Additional shares issued in acquisition
of Deli-Bon ............................ 23,993 -- -- -- --
Cash paid to former Simply Fresh
shareholders pursuant to arbitration
award ................................... -- -- (1,005) -- (1,005)
Shares issued for cash in a private
offering, net of offering expenses ....... 3,305,500 33 14,362 -- 14,395
Net loss .................................. -- -- -- (2,965) (2,965)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 ................ 11,938,326 $ 119 $ 58,811 $ (10,218) $ 48,712
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
26
<PAGE> 27
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ......................................... $ 543 $ (9,680) $ (2,965)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ......................... 1,751 3,465 3,621
Deferred income taxes ................................. 408 634 290
Extraordinary gain .................................... (589) (248) --
Impairment loss ....................................... -- -- 1,840
Changes in operating assets and liabilities:
Receivables ........................................ (3,348) (2,313) 3,066
Inventories ........................................ (8,927) (6,315) 532
Prepaid expenses ................................... (351) (834) 290
Accounts payable and accrued liabilities ........... (2,263) 1,846 114
Income taxes payable ............................... (16) (854) (2)
-------- -------- --------
Net cash provided by (used in) operating activities ....... (12,792) (14,299) 6,786
INVESTING ACTIVITIES
Acquisition of Deli-Bon, GISE and Simply Fresh shares,
net of cash acquired ................................... (2,590) -- --
Purchases of property, plant and equipment ................ (13,158) (11,578) (5,214)
(Increase) decrease in identifiable intangible assets ..... (919) 89 (121)
Decrease (increase) in amounts due from related parties ... (542) (1,046) 27
Increase in other assets .................................. (1,194) (260) (410)
-------- -------- --------
Net cash used in investing activities ..................... (18,403) (12,795) (5,718)
FINANCING ACTIVITIES
Net proceeds from the issuance of common shares ........... 22,498 132 13,425
Increase (decrease) in short-term borrowings .............. 6,303 22,982 (9,798)
Proceeds from long-term debt .............................. 1,204 2,613 240
Payments of long-term debt ................................ (828) (1,664) (1,925)
-------- -------- --------
Net cash provided by financing activities ................. 29,177 24,063 1,942
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ...... (2,018) (3,031) 3,010
Cash and cash equivalents at beginning of year ............ 6,286 4,268 1,237
-------- -------- --------
Cash and cash equivalents at end of year .................. $ 4,268 $ 1,237 $ 4,247
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid ........................................... $ 1,049 $ 3,170 $ 4,059
======== ======== ========
Income taxes received ................................... $ 98 $ 470 $ 65
======== ======== ========
</TABLE>
See accompanying notes.
27
<PAGE> 28
THE UNIMARK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company is in the business of growing,
processing, marketing and distributing niche citrus and tropical fruit products,
including chilled and canned packaged fruits, citrus juices and oils and other
specialty food ingredients.
The UniMark Group, Inc. ("the Company") was incorporated in the state of
Texas on January 3, 1992. The Company's wholly-owned subsidiaries include
UniMark Foods, Inc. ("UniMark Foods"), UniMark International, Inc. ("UniMark
International"), Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"),
AgroMark, S.A. de C.V. ("AgroMark"), UniMark Foods Europe, Ltd. ("UniMark
Europe"), Les Produits Deli-Bon Inc. ("Deli-Bon"), Grupo Industrial Santa
Engracia, S.A. de C.V. ("GISE") and Simply Fresh Fruit, Inc. ("Simply Fresh").
During 1996, the Company acquired Deli-Bon, a Quebec, Canada fruit
processor; GISE, a Mexican citrus juice and oil processor; and Simply Fresh, a
Los Angeles, California fruit processor and distributor. See Note 3 -
Acquisitions.
As discussed in Notes 9 and 15, the Company has several projects and
commitments requiring substantial capital. Although the Company is exploring
various financing options and believes sufficient capital will ultimately be
available, there can be no assurances that adequate financing or capital can be
obtained on acceptable terms or at all. The inability to obtain sufficient debt
or equity capital for these projects and commitments could have a material
adverse effect on the Company and its projects including the realization of the
amounts capitalized and costs deferred related to these projects and
commitments.
Additionally, the Company has, in recent years, relied upon bank financing
to finance its working capital and certain of its capital expenditure needs (see
Notes 7 and 8). Although the revolving credit facilities are being extended
until January 3, 2000, no assurances can be given that the lender will continue
to renew such loan facilities. The Company's cash requirements for 1999 and
beyond will depend primarily upon the level of sales, expenditures for capital
equipment and improvements, investments in agricultural projects, the timing of
inventory purchases, the success of newly introduced products and necessary
reductions of debt. Presently, the Company is in discussions with its primary
lender and other financial institutions regarding further extending or replacing
its existing debt facilities. Although no assurances can be given, the Company
believes it will be able to obtain such debt facilities on terms acceptable to
the Company. The failure to obtain such debt facilities could have a material
adverse affect on the Company. The Company's revolving credit facilities were
scheduled to mature on May 17, 1999 but, in a commitment letter dated April 13,
1999, the lender has agreed to extend the maturity to January 3, 2000.
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 adversely affected.
28
<PAGE> 29
Principles of Consolidation: The consolidated financial statements include
the accounts of The UniMark Group, Inc. and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and transactions have been
eliminated.
Foreign Operations: A significant portion of the Company's operations are
located in Mexico and a significant portion of the Company's fruit is procured
in Mexico. In addition, substantially all of the Company's Mexican employees are
affiliated with labor unions. As is typical in Mexico, wages are renegotiated
every year while other terms are negotiated every two years. Recently, Mexico
has faced turbulent political and economic times. Should political unrest spread
or political leadership or other causes vastly change economic conditions in
Mexico, the Company's operations could be adversely affected.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be cash
equivalents.
Concentration of Credit Risk: The Company processes and sells niche citrus
and tropical fruit products, citrus juices and oils and other specialty food
ingredients to customers in the foodservice and retail industries in the United
States, Europe, Canada and Japan. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Trade receivables generally are due within 30 days. Credit losses
have been within management's expectations. No one customer accounted for more
than 10%of the Company's net sales for the years ended December 31, 1996, 1997
and 1998
Advertising Costs: The Company expenses advertising costs as incurred.
Advertising expense was $528,000, $262,000 and $369,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
Inventories: Inventories held in the United States and Canada are carried at
the lower of cost or market using the first-in, first-out method. Mexican
inventories are valued at the lower of cost or market using average cost.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed by the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings...................................... 20 years
Pineapple orchards............................. 2 years
Machinery and equipment........................ 5-12.5 years
Transportation equipment....................... 5-7 years
Computer equipment............................. 4-7 years
Office equipment............................... 5-10 years
Automobiles.................................... 3-5 years
</TABLE>
The Company reviews its property, plant and equipment and other non-current
assets for impairment when changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Impairment is measured as the amount
by which the carrying amount of the asset exceeds the estimated fair value of
the asset less disposal costs.
The Company capitalizes costs incurred to plant and maintain orchards until
they become commercially productive. The capitalized costs of the Company's
pineapple orchards are depreciated over a two-year period. The Company's lemon
orchards are expected to become commercially productive by 2003 at which time
they will begin to be depreciated over their estimated useful lives.
29
<PAGE> 30
Foreign Currency Transactions: The functional currency of the Company and
its subsidiaries is the United States dollar. Transactions in foreign currency
are recorded at the prevailing exchange rate on the day of the related
transaction. Assets and liabilities denominated in foreign currency are
remeasured to dollars at the prevailing exchange rate as of the balance sheet
date. Exchange rate differences are reflected in the current year's operations.
The Company's consolidated results of operations are affected by changes in
the valuation of the Mexican peso to the extent that ICMOSA or 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.
The Company'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 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.
Income Taxes: Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Segment Reporting: In 1998, the Company has adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (Statement 131) and has provided prior years disclosures in
accordance therewith.
Reclassifications: Certain prior year items have been reclassified to
conform to the current year presentation in the accompanying financial
statements.
NOTE 2 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share for income (loss) before extraordinary gains:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
NUMERATOR
Income (loss) before extraordinary gain ......... $ 213 $ (9,819) $ (2,965)
DENOMINATOR
Denominator for basic earnings per share -
Weighted average shares ....................... 7,450 8,590 10,131
Effect of dilutive securities:
Employee and director stock options ........... 294 -- --
Warrants ...................................... 52 -- --
-------- -------- --------
Dilutive potential common shares ................ 346 -- --
-------- -------- --------
Denominator for diluted earnings per share -
Weighted average shares adjusted for assumed
Conversions ................................... 7,796 8,590 10,131
======== ======== ========
Basic and diluted earnings (loss) per share ..... $ 0.03 $ (1.15) $ (0.29)
======== ======== ========
</TABLE>
30
<PAGE> 31
At December 31, 1997 and 1998 the Company had options and warrants
outstanding of 668,000 and 2,447,000, respectively, that were not included in
there respective years per share calculations because there effect would have
been anti-dilutive. See Note 17 - Subsequent Event.
NOTE 3 ACQUISITIONS
On January 3, 1996, the Company acquired, in a purchase transaction, all of
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. The total consideration given for
the purchase of the shares included (i) approximately $787,000 in cash, (ii) a
$49,000 six month promissory note and (iii) 28,510 shares of common stock for an
aggregate purchase price of approximately $1.5 million. The Company's
consolidated statement of operations for the year ended December 31, 1996
includes the results of operations of Deli-Bon since the date of the
acquisition. The excess purchase price over the estimated fair value of the net
assets acquired was $303,000 and is being amortized using the straight-line
method over twenty years. Accumulated amortization was $30,000 and $45,000 at
December 31, 1997 and 1998, respectively.
On May 9, 1996, the Company acquired all of 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 for an
aggregate purchase price of $5.0 million. Simply Fresh is a fruit processing and
distribution company located in Los Angeles, California. The Company's
consolidated statement of operations for the year ended December 31, 1996
includes the results of operations of Simply Fresh since April 1, 1996, the
effective date of the acquisition. The excess purchase price over the estimated
fair value of the net assets acquired was $3,359,000 and is being amortized
using the straight-line method over forty years. Accumulated amortization was
$147,000 and $231,000 at December 31, 1997 and 1998, respectively.
The Company provided price protection on the shares issued in the Deli-Bon
and Simply Fresh acquisitions. This price protection required the Company to
issue additional shares (or cash at its discretion) to the sellers in the event
of a decline in the public market value of the UniMark shares below an
established level during the period in which the sellers' shares were restricted
from trading. During 1998, the Company satisfied the price protection provisions
of these agreements. See Note 13.
Also on May 9, 1996, the Company acquired all of the outstanding shares of
capital stock of Grupo Industrial Santa Engracia, S.A. de C.V. (GISE), in
exchange for 782,614 shares of common stock in a purchase transaction
representing a purchase price of $12 million. In addition, Unimark agreed to pay
up to an additional $8.0 million during the next four years if GISE achieves
certain financial operating targets. GISE operates three juice plants in the
heart of major citrus growing regions in Mexico. The Company's consolidated
statement of operations for the year ended December 31, 1996 includes the
results of operations of GISE since April 1, 1996, the effective date of the
acquisition. The excess purchase price over the estimated fair value of the net
assets acquired was $3,264,000 and is being amortized using the straight-line
method over forty years. Accumulated amortization was $143,000 and $224,000 at
December 31, 1997 and 1998, respectively.
NOTE 4 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods:
Cut fruits ................ $12,983 $12,212
Juice and oils ............ 2,592 1,663
------- -------
15,575 13,875
Pineapple orchards ........... 3,140 2,964
Raw materials and supplies ... 4,433 4,376
Advances to suppliers ........ 1,004 1,105
------- -------
Total .............. $24,152 $22,320
======= =======
</TABLE>
31
<PAGE> 32
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land ......................... $ 1,819 $ 3,223
Orchards ..................... 2,804 5,022
Construction in progress ..... 2,201 2,121
Buildings and improvements ... 13,084 13,562
Machinery and equipment ...... 25,023 25,419
------- -------
44,931 49,347
Accumulated depreciation ..... 5,227 8,000
------- -------
Total .............. $39,704 $41,347
======= =======
</TABLE>
Depreciation expense was $1,263,000, $2,625,000 and $3,031,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, the Company recorded a charge of $1.3 million to
reduce the carrying value of its pineapple orchards based on current crop
estimates for the next two years. This charge is reflected in cost of products
sold. In addition, the Company recorded a charge of $540,000 to write-off
certain other assets, primarily related to closed plant facilities, which is
reflected in selling, general and administrative expenses. All of these charges
were related to the Company's packaged fruit operations.
NOTE 6 IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Covenants not to compete ......... $1,508 $1,628
Tradename ........................ 704 704
Other ............................ 351 352
------ ------
2,563 2,684
Less accumulated amortization .... 740 1,149
------ ------
$1,823 $1,535
====== ======
</TABLE>
The covenants not to compete relate to agreements with the former owners of
acquired businesses and the Company's former President and Chief Executive
Officer. These amounts are being amortized on the straight-line method over the
two to five-year terms of these agreements. The tradename relates to the Flavor
Fresh brand name and is being amortized on a straight-line basis over twenty
years.
NOTE 7 SHORT-TERM BORROWINGS
During 1997, the Company entered into loan agreements, described below, with
a bank to provide short-term dollar denominated debt totaling up to $34.5
million. In February 1997, the Company entered into a revolving credit agreement
to provide up to $9.5 million (as amended) in the United States collateralized
by US finished goods inventories and US accounts receivable. In April 1997, the
Company entered into additional revolving credit agreements to provide up to
$15.0 million (as amended) in Mexico
32
<PAGE> 33
collaterialized by Mexico finished goods inventories and Mexico accounts
receivable from export sales. In May 1997, the Company entered into a bridge
loan agreement for short-term dollar denominated debt in Mexico of up to $10.0
million to partially finance investments in plants, expansion and upgrading of
facilities and agricultural operations. This bridge loan was retired in July,
1998.
The revolving credit agreements are cross-collateralized and guaranteed by
the Company and its subsidiaries and require the Company to maintain certain
consolidated financial performance levels relative to tangible net worth,
working capital, total debt and debt service. In addition, the agreements
contain restrictions on the issuance of additional shares of stock and the
payment of dividends, among other things, without the prior written consent of
the bank. At December 31, 1998, the Company was in violation of certain
financial covenants and restrictions under these agreements, which the lender
has waived as of that date. At December 31, 1998, the Company had outstanding
loan balances under the revolving credit agreements of $15.2 million, which were
fully utilized. These agreements were scheduled to mature on May 17, 1999 but,
in a commitment letter dated April 13, 1999, the lender agreed to extend the
maturity to January 3, 2000.
In November, 1997, ICMOSA entered into a three year unsecured loan agreement
with a Mexican bank for short-term dollar denominated debt of up to $6.0
million. Advances under this loan agreement are generally for a period of 60 to
90 days and are personally guaranteed by certain shareholders of the Company. At
December 31, 1998, the Company had outstanding loan balances under this
agreement of $4.0 million.
In December, 1998, GISE entered into an unsecured loan agreement with a
Mexican bank for short-term dollar denominated debt of $2.5 million. This loan
is personally guaranteed by certain shareholders of the Company and is scheduled
to mature on April 16, 1999.
The weighted-average interest rate on short-term borrowings as of December
31, 1997 and 1998 was 8.6% and 9.1%, respectively.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, collateralized by plant and equipment in
Mexico; interest at Libor + 5% payable quarterly with annual
principal payments, unpaid principal due February 2002 ............. $ 4,000 $ 4,000
Note payable to bank, collateralized by McAllen, Texas
warehouse property and improvements; principal and interest
at Prime + .5% payable monthly, unpaid principal and interest
due September 2012 ................................................. 2,053 1,997
Non-compete covenant obligations totaling $1.5 million,
discounted at 9%, payable monthly through May 2001 ................. 986 671
Note payable to bank, collateralized by plant and equipment in
Mexico; principal and interest at 18.5% payable monthly;
unpaid principal and interest due November 2004 .................... 1,168 881
Note payable to bank; collateralized by plant and equipment in
Mexico; principal and interest at Libor + 8% payable monthly;
unpaid principal and interest due December 2001 .................... 759 490
Other notes payable .................................................. 1,315 557
------- -------
10,281 8,596
Less current portion ................................................. 1,655 763
------- -------
$ 8,626 $ 7,833
======= =======
</TABLE>
33
<PAGE> 34
The Company currently has short-term notes payable to a Mexican bank
totaling $4.0 million that have been classified as long-term debt based on the
Company's intention to refinance these obligations into one long-term
obligation. The bank has approved the Company's application to refinance this
debt and is currently processing the final loan documentation.
Certain of the loan contracts establish restrictions and obligations with
respect to the application of funds and require maintenance of insurance of the
assets and timely presentation of financial information.
All long-term debt at December 31, 1998 is U.S. dollar denominated except
for $881,000 which is Mexican peso denominated and $122,000 which is Canadian
dollar denominated.
Based on interest rates provided by the Company's long-term debt and the
floating rates provided on its short-term borrowings, the Company believes the
carrying amounts of its short and long-term debt approximate their fair value.
During the year ended December 31, 1998, interest expense of $318,000 was
capitalized as a portion of the Company's long-term orchard development costs.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999............................... $ 763
2000............................... 885
2001............................... 702
2002............................... 4,114
2003............................... 308
Thereafter......................... 1,824
</TABLE>
NOTE 9 RELATED PARTY TRANSACTIONS
Effective January 1, 1995, the Company 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, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt (approximately $4.6 million). The Company is responsible for
all raw material and operating costs and the sale of the finished goods produced
at the IHMSA plant. Payments made pursuant to the operating agreement were
$116,000, $42,000 and $470,308 during the years ended December 31, 1996, 1997
and 1998, respectively. The Vaquero family owns collectively an approximate 8%
interest in IHMSA. Certain members of the Vaquero family are officers,
shareholders and directors of the Company. During the five year term of the
operating agreement, the Company has the right of first refusal to buy the IHMSA
facility at its then fair market value.
The Company has subsequently elected to advance funds to IHMSA to retire
certain of its outstanding debt since, under the terms of the operating
agreement, the Company would benefit from the IHMSA debt reduction. At December
31, 1998 amounts due from IHMSA of $1,481,000 represent cash advances applied to
reduce IHMSA's outstanding debt. This amount is expected to be applied to the
purchase price when, and if, the Company elects to exercise its purchase option.
Effective July 1, 1995, the Company entered into a ten year operating
agreement with Empacadora de Naranjas Azteca, S.A. de C.V. ("Azteca"), to
operate a processing plant in Montemorelos, Nuevo Leon, Mexico. The operating
agreement provides for payments in the amount of (i) interest on existing debt
of approximately $220,000 with credit institutions, (ii) asset tax and (iii)
annual property tax. Prior to this time, Azteca "co-packed" chilled grapefruit
sections and mango slices for the Company. The Vaquero family owns collectively
an approximate 14.3% interest in Azteca. Payments made pursuant to the operating
agreement were $1,000, $61,000 and $-0- during the years ended December 31,
1996, 1997 and 1998,
34
<PAGE> 35
respectively. During the term of the operating agreement, the Company has the
right of first refusal to buy the Azteca facility at its then fair market
value.
Transactions with related parties are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales ........ $ -- $ -- $ --
====== ====== ======
Purchases .... $ 121 $ 190 $ 286
====== ====== ======
</TABLE>
In November, 1995, the Company entered into a lease agreement with Loma
Bonita Partners, a Texas general partnership, for approximately 200 hectares
(494 acres) of land located in Loma Bonita, Veracruz, Mexico for the development
of citrus groves. The lease commenced in December 1995 and expires after ten
years. Loma Bonita Partners is 50% owned by an officer, who is also a director
and shareholder of the Company. The Company believes that said lease agreement
is on terms no less favorable to the Company than would be available from
unrelated third parties. Rent expense on this lease was $68,870, $78,000 and
$78,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
P&C Services, Inc. (P&C) is a California corporation owned by a former
officer and certain management of Simply Fresh that leased the hourly plant
employees to Simply Fresh. This employee leasing arrangement was terminated in
1997. Payments made to P&C during 1997 amounted to approximately $741,000.
Receivable and payable balances with related parties are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Empacadora de Naranjas Azteca, S.A. de C.V. (Azteca) .......... $ 213 $ 170
Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA) ... 1,465 1,481
------ ------
$1,678 $1,651
====== ======
Accounts payable:
P&C Services, Inc. ........................................... $ 104 $ --
====== ======
</TABLE>
The Company operates a 144 acre grapefruit grove located close to the ICMOSA
plant in Montemorelos pursuant to a ten year operating agreement that expires in
2000. Per the agreement, the Company operates the grove and purchases all the
grapefruit produced at a formula price tied to purchases from unrelated third
parties. The grove is owned by a partnership that consists primarily of
shareholders of Azteca. The Vaquero family owns a 14.3% interest in this
partnership. The Company believes that said arrangement is on terms no less
favorable to the Company than would be available from unrelated third parties.
Fruit purchases from the grove were $121,000, $190,000 and $286,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
The Company leases its corporate office facility from a company owned by an
individual who served as the Company's president and was a shareholder of the
Company through February 1998. Rent expense on this lease was $98,250, $110,700
and $110,700 for the years ended December 31, 1996, 1997 and 1998, respectively.
During 1996, 1997 and 1998, the Company paid Jordaan and Pennington, PLLC
(and its predecessor Jordaan, Howard and Pennington, PLLC) amounts of $299,723,
$179,962 and $310,182, respectively, for legal services rendered. Mr. Jordaan, a
director and, commencing in February 1998, chairman of the Company, is a member
of Jordaan and Pennington, PLLC.
35
<PAGE> 36
At December 31, 1998 the Company had notes receivable from directors of
$230,000. The notes are unsecured, bear interest at the rate of 10% per annum
and are for terms of up to two years.
NOTE 10 LEASES
The Company leases buildings, various plant facilities, certain equipment
and citrus groves under operating leases. The Isla plant lease is for a period
of ten years, expiring in 2005. The San Rafael plant lease is for a period of
nine years, expiring in 2003, and contains the right of first refusal to
purchase the facility at its then fair market value. The Simply Fresh plant
lease is for a period of ten years, expiring in 2004. The lease for the
Lawrence, Massachusetts plant facility is for an initial period of six years,
expiring in 2002, and contains a purchase option exercisable during the term of
the lease for the then fair market value of the property. The Company has under
lease approximately 926 acres of citrus groves in Mexico for periods of ten to
fifteen years expiring in 2005 and 2010.
As described in Note 9, the Company leases its corporate office facility and
a 494 acre citrus grove from related parties. The related party building lease
expires in 2000, but its term may be renewed for a five-year period. The related
party citrus grove lease expires in 2005.
Future minimum payments under non-cancelable operating leases with initial
terms of one year or more at December 31, 1998, consist of the following:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER TOTAL
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
1999............. $ 78 $ 904 $ 982
2000............. 78 913 991
2001............. 78 648 726
2002............. 78 514 592
2003............. 78 387 465
Thereafter....... 156 556 712
</TABLE>
Rent expense was $1,159,000, $1,234,000 and $1,382,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
The Company has entered into a sublease agreement for the idle Lawrence
plant facility commencing April 1, 1999 at an amount approximating its
obligations under the lease. Future minimum rentals to be received under this
non-cancelable sublease total $720,000.
NOTE 11 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ......... $ 4,332 $ 4,897
Inventories .............................. 582 424
Asset tax credit ......................... 1,057 928
Credit available to offset Mexican tax ... 249 237
Accrued expenses ......................... 318 145
Bad debt reserve ......................... 260 215
Intangible assets ........................ 232 345
Other .................................... 114 329
------- -------
Total deferred tax assets .................. 7,144 7,520
Less U.S. valuation allowance .............. (2,990) (3,868)
------- -------
Net deferred tax assets .................... $ 4,154 $ 3,652
======= =======
Deferred tax liabilities:
Depreciation ............................. $ 2,091 $ 1,954
Inventories .............................. 5,862 5,689
Other .................................... 419 517
------- -------
Deferred tax liabilities ................... $ 8,372 $ 8,160
======= =======
</TABLE>
36
<PAGE> 37
Income (loss) before income taxes and extraordinary gain relating to
operations in the United States and Mexico is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States .... $(2,749) $(7,102) $(2,378)
Mexico ........... 2,690 (2,640) 473
Other ............ -- -- (193)
------- ------- -------
$ (59) $(9,742) $(2,098)
======= ======= =======
</TABLE>
The components of the provision for income taxes include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal -- current ... $(386) $ (76) $ --
U.S. state -- current ..... (48) 14 --
U.S. deferred ............. (488) 565 --
----- ----- -----
(922) 503 --
----- ----- -----
Foreign -- current ........ 127 40 160
Foreign -- deferred ....... 523 (466) 707
----- ----- -----
650 (426) 867
----- ----- -----
$(272) $ 77 $ 867
===== ===== =====
</TABLE>
Principal reconciling items from income tax computed at the U.S. statutory rate
of 34% are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at 34% statutory rate ............. $ (20) $(3,312) $ (713)
State income tax (net of federal benefit) ... (103) (228) (69)
Permanent differences ....................... (438) 852 1,200
Effect of foreign rates ..................... 3 (2) (418)
Other ....................................... 286 (223) (11)
Change in valuation allowance ............... -- 2,990 878
------- ------- -------
$ (272) $ 77 $ 867
======= ======= =======
</TABLE>
The Company has a net operating loss carryforward in the United States of
$7,350,000 which begins to expire in 2011 and in Mexico of $6,294,000 which
begins to expire in 2006. The Mexican subsidiaries have asset tax credits
totaling $928,000 available to offset Mexican income tax which begin to expire
in 1999. One Mexican subsidiary also has a job creation credit of $235,000
available to offset income tax in Mexico, which will begin to expire in 2006.
37
<PAGE> 38
NOTE 12 STOCK OPTIONS
In 1994, the Company adopted an employee stock option plan and an outside
director stock option plan ("the Plans"). The Plans authorize the Board of
Directors to grant options to employees and consultants of the Company and to
outside directors of the Company to purchase up to 820,000 shares of common
stock under the employee stock option plan, as amended, and 100,000 shares under
the outside directors stock option plan. The terms and the vesting period of any
option granted under the Plans is fixed by the Board of Directors at the time
the option is granted, provided that the exercise period may not be greater than
10 years from the date of grant. The exercise price of any option granted under
the employee stock option plan shall not be less than 100% and 85% of the fair
market value of the stock on the date of the grant for Incentive Stock Options
and Nonstatutory Stock Options, as defined, respectively. The exercise price of
any option granted under the outside directors stock option plan shall not be
less than 100% of the fair market value of the stock on the date of the grant.
The Company has reserved 820,000 and 100,000 shares for issuance pursuant to the
employee stock option plan and the outside directors stock option plan,
respectively.
<TABLE>
<CAPTION>
EMPLOYEE STOCK OUTSIDE DIRECTORS STOCK
OPTION PLAN OPTION PLAN
-------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Options outstanding, January 1, 1996 ..... 378,000 $ 3.98 67,500 $ 3.90
Granted .............................. 12,500 11.30 7,500 17.00
Exercised ............................ (23,500) 3.50 (7,000) 3.50
Forfeited ............................ (5,000) 3.50 -- --
-------- --------
Options outstanding, December 31, 1996 ... 362,000 4.27 68,000 5.39
Granted .............................. 195,000 7.25 7,500 6.88
Exercised ............................ (37,500) 3.50 -- --
Forfeited ............................ (5,000) 3.50 -- --
-------- --------
Options outstanding, December 31, 1997 ... 514,500 5.46 75,500 5.54
Granted .............................. 20,000 2.91 25,000 2.88
Exercised ............................ (10,000) 3.50 -- --
Forfeited ............................ (196,000) 4.56 (60,500) 4.35
-------- --------
Options outstanding, December 31, 1998 ... 328,500 5.91 40,000 5.67
======== ========
Exercisable at December 31,
1996 ................................. 117,250 $ 3.89 68,000 $ 5.39
1997 ................................. 181,125 4.13 75,500 5.54
1998 ................................. 142,500 4.85 40,000 5.67
Weighted-average fair value of options
granted during the years ended:
December 31, 1996 .................... $ 4.51 $ 6.27
December 31, 1997 .................... 3.10 2.53
December 31, 1998 .................... 1.22 1.01
</TABLE>
Exercise prices for employee options outstanding as of December 31, 1998
ranged from $3.50 to $7.50. The weighted-average remaining contractual life of
those options is 2.4 years. Exercise prices for outside directors options
outstanding as of December 31, 1998 ranged from $2.88 to $17.00. The
weighted-average remaining contractual life of those options is 3.9 years. All
options granted under the outside directors stock option plan are immediately
exercisable. Options issued to employees during 1996, 1997 and 1998 vest ratably
over four years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee and outside director stock
options because, as discussed below, the alternative fair value accounting
provided
38
<PAGE> 39
for under Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock-Based Compensation" (FASB 123), requires use of option valuation
models that were not developed for use in valuing stock options. Under APB 25,
because the exercise price of the Company's stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB 123 and has been determined as if the Company had accounted for
its stock options under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996,
1997 and 1998, respectively: risk-free interest rates of 5.7%, 6.2% and 4.7% and
a weighted-average expected life of the option of 3.5, 4.0 and 3.6 years. In
addition, dividend yields of 0% and volatility factors of the expected market
price of the Company's common stock of .45 were assumed for each year.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (loss) ............ $ 419 $ (9,859) $ (3,126)
Pro forma earnings (loss) per share:
Basic .............................. $ 0.06 $ (1.15) $ (0.31)
Diluted ............................ $ 0.05 $ (1.15) $ (0.31)
</TABLE>
Because FASB 123 is applicable only to options and stock-based awards
granted subsequent to December 31, 1994, its proforma effect is not fully
reflected in the information for years prior to 1998.
NOTE 13 SHAREHOLDERS' EQUITY
In conjunction with the Company's initial public offering on August 11,
1994, the Company issued warrants to its underwriting representatives ("the
Representatives' Warrants") to purchase up to 55,000 units consisting of a total
of 165,000 shares of its common stock and 110,000 Redeemable Common Stock
Purchase Warrants. The Representatives' Warrants are exercisable for a period of
five years from the offering date at a price per unit of $15.00. The Company
reserved 275,000 shares for issuance upon the exercise of the Representatives'
Warrants and the underlying Redeemable Common Stock Purchase Warrants. During
1996, the Company issued 33,750 shares of common stock on the exercise of 6,750
Representatives' Warrants and the 13,500 underlying Redeemable Common Stock
Purchase Warrants with gross proceeds to the Company of $162,000. At December
31, 1998 there were 15,638 Representatives' Warrants outstanding.
On June 14, 1996, the Company completed its secondary public offering
whereby it sold 1,677,000 shares of its common stock at $14.50 per share with
net proceeds to the company of $22.2 million.
Effective May 1, 1998, the Company issued an additional 23,993 common shares
to the former owner of Les Produits Deli-Bon Inc. pursuant to the price
protection provisions of the January 3, 1996 acquisition agreement.
39
<PAGE> 40
On June 29, 1998 an arbitration award was issued against the Company in its
proceedings with the former shareholders of Simply Fresh Fruit, Inc. ("Simply
Fresh") regarding the price protection provisions of the May 9, 1996 acquisition
agreement and related issues. Pursuant to the award, on August 5, 1998 the
Company paid in cash to the former Simply Fresh shareholders (i) $1,005,036 in
settlement of the common stock price protection issues, (ii) $67,391 in interest
on the price protection settlement amount and (iii) $110,000 in settlement of
related employment contract issues.
On July 17, 1998, the Company sold 3,305,500 newly issued shares of common
stock at a purchase price of $4.5375 per share, for an aggregate purchase price
of $14,998,706, to M & M Nominee L.L.C. ("M & M"). In connection with the
transaction, the Company granted M & M options to acquire an additional
2,000,000 shares of common stock at a purchase price of $4.5375 per share,
representation on the Company's Board of Directors and certain veto rights
regarding financial and corporate matters.
Under the terms of its loan agreements with a bank, the Company may not
declare or pay any dividends on its shares without the bank's prior written
consent.
NOTE 14 EXTRAORDINARY GAIN
In July, 1996, the Mexican government enacted a new program, Acuerdo Para El
Financiamiento del Sector Attropecuario y Pesquero ("FINAPE"), whereby certain
agricultural and commercial 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 its debt principal 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"), of
debt reduction for other commercial enterprises. Pursuant to the provisions of
FOPIME, ICMOSA obtained a reduction in its debt principal with Union de Credito
Allende of approximately US $57,000.
In May, 1997, ICMOSA retired certain outstanding long-term debt with Union
de Credito Allende, a Mexican credit union, at a discount of 50% granted
pursuant to FOPIME and through the participation of Nacional Financiera, a
Mexican development bank, to help provide liquidity to the Mexican credit
unions. The debt reduction amounted to $2.0 million pesos or approximately US
$248,000.
Provisions for Mexican income taxes and statutory employee profit sharing of
34% and 10%, respectively, have been provided on these gains from debt
forgiveness.
NOTE 15 COMMITMENTS AND CONTINGENCIES
In May, 1996, the Company entered into a non-assignable, exclusive license
and technical assistance agreement with a Japanese company for the right to
manufacture and sell certain fruit products in the US, Canada and Mexico.
Pursuant to the agreement, the Company pays a 3% royalty based on the net sales
of these products, subject to an annual minimum royalty amount, which is
reported and paid quarterly. The agreement is for an initial term of five years
with automatic one year renewals unless terminated by either party. At December
31, 1998 minimum annual royalties of $200,000 are payable through April, 2001.
In April, 1998, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an
affiliate of The Coca-Cola Company, entered into a new twenty year Supply
Contract, with a ten year renewal option, for the production of Italian lemons.
Pursuant to the terms of the new Supply Contract, which supersedes the previous
October, 1996 agreement, GISE will plant and grow 3,500 hectares (approximately
8,650 acres) of Italian lemons within the next three years for sale to Coca-Cola
at pre-determined prices. The Supply Contract requires Coca-Cola to provide,
free of charge, up to 875,000 lemon trees, enough to plant approximately 2,800
hectares. In addition, the Supply Contract requires Coca-Cola to purchase all
the
40
<PAGE> 41
production from the project. The planting program began in November, 1996 and
harvesting of the first crops is projected to begin in late 2000 with full
production scheduled for 2013. Total capital requirements for the project
including land acquisition, seedlings, capital equipment and planting costs are
estimated to be approximately $18.5 million of which $5.6 million has been
expended as of December 31, 1998 and $8.2 million is estimated to be required in
1999. Presently, the Company is exploring various financing alternatives for
this project. There can be no assurances that financing for this project can be
obtained on acceptable terms, or at all. The inability to obtain third party
financing for the project could have a material adverse effect on the Company.
In December, 1996, the Company entered into a deposit, operation and stock
purchase agreement with the owners of Frutalamo, S.A. de C.V. ("Frutalamo") for
the operation of the Frutalamo juice processing plant. Pursuant to the terms of
the agreement, the Company is to pay a non-refundable guaranty deposit of $1.9
million for the right to purchase all the issued and outstanding shares of stock
of Frutalamo from its existing shareholders. An initial deposit of $650,000 was
paid upon execution of the agreement with the balance payable in annual
installments of $420,000 each through October 30, 1999. As of December 31, 1998,
the deposit amounted to $1,490,000. The stock purchase option is exercisable on
October 30, 1999 for an additional sum of $6.0 million, with $1.8 million
payable at that time and the balance payable over a five year period with
interest at an annual rate of 7%. Additionally, the agreement requires the
Company to pay a contractual penalty of $1.0 million to the owners of Frutalamo
in the event the agreement is rescinded. The Company does not presently expect
to exercise its purchase option and is negotiating a new agreement with the
owners of Frutalamo for the continued use of the plant facility. The Company
currently expects to complete a new agreement whereby the deposit already paid
will allow the Company to extend its purchase option and the contractual penalty
of $1.0 million is waived.
Effective January 1, 1995, the Company 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, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt. During the five year term of the operating agreement, the
Company has the right of first refusal to buy the IHMSA facility at its then
fair market value. Since, under the terms of the operating agreement, the
Company would benefit from the reduction of IHMSA's debt, the Company elected to
advance funds to IHMSA to retire certain of its outstanding debt. At December
31, 1998 amounts due from IHMSA of $1,481,000 represent cash advances applied to
reduce IHMSA's outstanding debt. This amount is expected to be applied to the
purchase price when, and if, the Company elects to exercise its purchase option.
Presently, the fair market value of the IHMSA plant is approximately $6.5
million and IHMSA has outstanding debt of approximately $3.4 million.
NOTE 16 SEGMENT AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: packaged fruit and juice and oil.
The Company's packaged fruit division consists of four operating units that sell
hand-processed tropical and citrus fruit products directly to retail
supermarkets and warehouse clubs, foodservice providers and distributors, and to
industrial food and beverage processors. This division also operates the
Company's pineapple and citrus orchards. The Company's juice and oil division
consists of one operating unit which produces frozen concentrate orange juice
and other citrus juices that it sells directly to juice bottlers. This division
also extracts essential oils from citrus fruits which it sells directly to
commercial users and is developing the Company's lemon orchards.
The Company evaluates segment performance and allocates resources based on
profit or loss from operations before income taxes and does not allocate
corporate general and administrative expenses and amortization of intangibles to
its segments. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies. Inter-segment
sales and transfers are recorded at cost; there is no intercompany profit or
loss on inter-segment sales or transfers.
41
<PAGE> 42
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
process and distribute distinct products with different production processes.
<TABLE>
<CAPTION>
PACKAGED JUICE
FRUIT & OIL TOTAL
-------- -------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues from external customers........... $ 67,970 $ 22,171 $ 90,141
Inter-segment revenues..................... 350 14 364
Interest expense........................... 2,505 1,564 4,069
Interest revenue........................... 47 94 141
Depreciation & amortization expense........ 2,540 358 2,898
Impairment loss............................ 1,840 -- 1,840
Segment profit (loss)...................... (2,859) 2,919 60
Segment assets............................. 93,255 27,923 121,178
Expenditures for long-lived assets......... 1,108 4,582 5,690
YEAR ENDED DECEMBER 31, 1997
Revenues from external customers........... $ 67,605 $ 13,679 $ 81,284
Inter-segment revenues..................... 1,098 100 1,198
Interest expense........................... 2,064 1,217 3,281
Interest revenue........................... 278 158 436
Depreciation & amortization expense........ 2,553 246 2,799
Segment profit (loss)...................... (5,923) (1,839) (7,762)
Segment assets............................. 82,157 26,490 108,647
Expenditures for long-lived assets......... 7,219 4,488 11,707
YEAR ENDED DECEMBER 31, 1996
Revenues from external customers........... $ 52,862 $ 12,376 $ 65,238
Inter-segment revenues..................... 1,161 -- 1,161
Interest expense........................... 645 762 1,407
Interest revenue........................... 476 72 548
Depreciation & amortization expense........ 1,276 131 1,407
Segment profit (loss)...................... 1,089 462 1,551
Segment assets............................. 75,077 16,193 91,270
Expenditures for long-lived assets......... 12,432 2,246 14,678
</TABLE>
The following are reconciliations of reportable segment revenues, profit or
loss, and assets to the Company's consolidated totals.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Total external revenues for reportable segments ....... $ 65,238 $ 81,284 $ 90,141
Inter-segment revenues for reportable segments ........ 1,161 1,198 364
Elimination of inter-segment revenues ................. (1,161) (1,198) (364)
--------- --------- ---------
Total consolidated revenues .......... $ 65,238 $ 81,284 $ 90,141
========= ========= =========
PROFIT OR LOSS
Total profit or loss for reportable segments .......... $ 1,551 $ (7,762) $ 60
Increase in intercompany profit in inventory .......... (149) (173) --
Subsidiary acquisition costs recognized in
consolidation ....................................... (279) (370) (370)
Unallocated corporate general and administrative
expenses ............................................ (1,182) (1,437) (1,788)
--------- --------- ---------
Loss before income taxes
and extraordinary gain ........ $ (59) $ (9,742) $ (2,098)
========= ========= =========
ASSETS
Total assets for reportable segments .................. $ 91,270 $ 108,647 $ 121,178
Other assets .......................................... 48,037 50,089 53,338
Elimination of intercompany profits in inventory ...... (375) (548) (548)
Elimination of intercompany receivables ............... (50,561) (46,359) (62,991)
Allocation of acquisition costs of subsidiaries
recorded in consolidation ........................... (9,563) (14,949) (15,319)
Reclassification of deferred tax assets recorded in
consolidation ....................................... (2,125) (2,264) (2,145)
--------- --------- ---------
Total consolidated assets ....... $ 76,683 $ 94,616 $ 93,513
========= ========= =========
</TABLE>
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<PAGE> 43
OTHER SIGNIFICANT ITEMS
<TABLE>
<CAPTION>
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------- ----------- ------------
<S> <C> <C> <C>
Year ended December 31, 1998:
Interest expense ....................... $ 4,069 $ 77 $ 4,146
Depreciation & amortization expense .... 2,898 723 3,621
Expenditures for long-lived assets ..... 5,690 185 5,875
Year ended December 31, 1997:
Interest expense ....................... 3,281 13 3,294
Depreciation & amortization expense .... 2,799 666 3,465
Expenditures for long-lived assets ..... 11,707 391 12,098
Year ended December 31, 1996:
Depreciation & amortization expense .... 1,407 344 1,751
Expenditures for long-lived assets ..... 14,678 686 15,364
</TABLE>
The reconciling item to adjust expenditures for segment assets is the amount
of acquisitions by the corporate office which are not allocated to operating
segments. The reconciling item to adjust depreciation and amortization expense
relates to amortization of goodwill and depreciation of assets recorded in
consolidation as well as depreciation of corporate assets None of the other
adjustments to consolidated totals are significant.
The following geographic information attributes revenues to countries based
on the location of the customers.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
REVENUES
United States ......................... $46,068 $70,875 $66,218
Japan ................................. 7,367 3,393 4,144
Mexico ................................ 7,427 1,943 1,831
Canada ................................ 3,193 3,268 4,598
Europe ................................ 1,183 1,805 13,350
------- ------- -------
Consolidated total ... $65,238 $81,284 $90,141
======= ======= =======
LONG-LIVED ASSETS
United States ......................... $11,153 $12,833 $11,435
Mexico ................................ 27,195 35,518 38,601
Other foreign countries ............... 1,264 1,119 1,018
------- ------- -------
Consolidated total ... $39,612 $49,470 $51,054
======= ======= =======
</TABLE>
43
<PAGE> 44
NOTE 17 SUBSEQUENT EVENT
On March 29, 1999, the Company sold 2,000,000 newly issued shares of common
stock at a purchase price of $2.50 per share, for an aggregate purchase price of
$5,000,000 to M & M. In connection with the transaction, M & M surrendered
options to acquire an additional 2,000,000 shares of common stock at a purchase
price of $4.5375 per share issued to them in July 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference from the
section "Directors and Executive Officers" in the Company's 1999 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the
sections "Compensation of Executive Officers" and "Compensation of Directors" in
the Company's 1999 Proxy Statement. Information in the section and subsection
titled "Report of the UniMark Group, Inc. Board of Directors Compensation
Committee" and "Performance Graph" is not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section "Security Ownership of Principal Shareholders, Directors and Management"
in the Company's 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
sections "Compensation of Executive Officers", "Compensation of Directors" and
"Certain Transactions" in the Company's 1999 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) FINANCIAL STATEMENTS:
See Index to Financial Statements (Item 8).
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<PAGE> 45
(2) FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since they are either not applicable or
the information is contained elsewhere in "Item 8. Financial Statements
and Supplementary Data."
(3) EXHIBITS
<TABLE>
<CAPTION>
NUMBER
EXHIBIT EXHIBIT
------- -------
<S> <C>
3.1 Articles of Incorporation of The UniMark Group, Inc., as amended(1)
3.2 Amended and Restated Bylaws of The UniMark Group, Inc.(1)
3.3 Articles of Exchange of The UniMark Group, Inc.(1)
4.1 Specimen Stock Certificate(1)
10.1 The UniMark Group, Inc. 1994 Employee Stock Option Plan(1)
10.2 The UniMark Group, Inc. 1994 Stock Option Plan for Directors(1)
10.3 Stock Exchange Agreement between The UniMark Group, Inc. and the
stockholders of Industrias Citricolas de Montemorelos, S.A. de
C.V.(1)
10.4 Citrus Grove Lease Agreement(1)
10.5 Asset Operating Agreement between the Registrant and Industrias
Horticolas de Montemorelos, S.A. de C.V.(2)
10.6 Lease agreement among Hector Gerardo Castagne Maitret, Carlos
Courturier Arellano, Mauro Alberto Salazar Rangel, Miguel Angel
Salazar Rangel, Alejandrina Trevino Garcia, Gerardo Trevino Garcia,
Jorge Maitret and Industrias Citricolas de Montemorelos, S.A. de
C.V.(2)
10.7 Contract of Purchase and Sale between Empacadora Tropifrescos,
Sociedad Anonima de Capital Variable and Industrias Citricolas de
Montemorelos, S.A. de C.V.(2)
10.8 Lease Agreement between Industrias Citricolas de Montemorelos, S.A.
de C.V. and Valpak, S.A. de C.V. dated July 1, 1995(3)
10.9 Asset Operating Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Empacadora de Naranjas Azteca, S.A.
de C.V. dated July 1, 1995(3)
10.10 Contract for Operation, Administration, and Purchase and Sale of
Fruit between Industrial Citricolas de Montemorelos, S.A. de C.V.
and Mr. Jorge Croda Manica ("Las Tunas") dated July 1, 1995(3)
10.11 Lease Contract between Industrial Citricolas de Montemorelos, S.A.
de C.V. and Mr. Mauro Alberto Salazar Rangel and Mr. Miguel Angel
Salazar Rangel ("Huerta Loma Bonita") dated 1995(3)
10.12 Unilateral Recognition of Indebtedness and Granting of Revolving
Collateral between Industrial Citricolas de Montemorelos, S.A. de
C.V. and Rabobank Curacao N.V. dated September 20, 1995(3)
10.13 Amended and Restated Stock Purchase Agreement among The UniMark
Group, Inc., 9029-4315 Quebec Inc., Michel Baribeau and Gestion
Michel Baribeau Inc. dated January 3, 1996(4)
10.14 Lease Agreement between Loma Bonita Partners and UniMark Foods, Inc.
dated November 28, 1995(3)
10.15 Lease Agreement between The UniMark Group, Inc. and Grosnez Partners
dated January 1, 1996(3)
10.16 Rural Property Sublease Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Lorenzo Uruiza Lopez dated October
23, 1995(3)
10.17 Purchase Agreement between Industrial Citricolas de Montemorelos,
S.A. de C.V. and Jose Enrique Alfonso Perez Rodriquez dated October
23, 1995(3)
10.18 Stock Purchase Agreement between The UniMark Group, Inc. and the
stockholders of Grupo Industrial Santa Engracia dated April 30,
1996(6)
10.19 Stock Purchase Agreement between The UniMark Group, Inc., UniMark
Foods, Inc., Sam Perricone Children's Trust 1972, Sam Perricone and
Mark Strongin dated May 9, 1996(6)
10.20 Employment Agreement by and between Grupo Industrial Santa Engracia,
S.A. de C.V. and Ing Jose Ma. Martinez Brohez dated as of May 9,
1996(7)
</TABLE>
45
<PAGE> 46
<TABLE>
<S> <C>
10.21 Lease Agreement by and among Ralphs Grocery Company, Simply Fresh
Fruit, Inc. and Davalon Sales, Inc. dated as of March 1, 1994(7)
10.22 Revolving Credit Agreement by and among UniMark Foods, Inc., The
UniMark Group, Inc., UniMark International, Inc., Simply Fresh
Fruit, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
dated February 12, 1997. (9)
10.23 Supply Contract between The Coca-Cola Export Corporation and Grupo
Industrial Santa Engracia, S.A. de C.V. dated October 7, 1996. (9)
10.24 Loan Agreement made between Industrias Citricolas de Montemorelos,
S.A. de C.V., Grupo Industrial Santa Engracia, S.A. de C.V.,
Agromark, S.A. de C.V., as borrowers; The UniMark Group, Inc., as
guarantor, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
"Rabobank Nederland", as lender, dated May 29, 1997. (10)
10.25 Revolving Loan Agreement with Security Interest by and between
Industrias Citricolas de Montemorelos, S.A. de C.V., as borrower,
Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", Agromark, S.A.
de C.V. "Agromark", and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B."Rabobank Nederland" New York Branch
dated April 10, 1997. (10)
10.26 Revolving Loan Agreement with Security Interest by and between Grupo
Industrial Santa Engracia, S.A. de C.V. "Gise", as borrower,
Industrias Citricolas de Montemorelos, S.A. de C.V. "Icmosa",
Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New York Branch
dated April 10, 1997. (10)
10.27 First Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated October 7, 1997. (10)
10.28 Second Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated November 12, 1997. (10)
10.29 Third Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated May 22, 1998. (14)
10.30 Fourth Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated December 31, 1998. (14)
10.31 Letter given by Cooperative Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland", New York Branch to UniMark Foods, Inc.,
the borrower, and The UniMark Group, Inc., UniMark International,
Inc., Simply Fresh Fruit, Inc., the guarantors, and Industrias
Citricolas de Montemorelos, S.A. de C.V., Grupo Industrial Santa
Engracia, S.A. de C.V., and Agromark, S.A. de C.V. regarding the
renewal of financing. (14)
10.32 Articles of Association of Gisalamo, S.A. de C.V. (11)
10.33 Deposit, Operation, Exploitation and Stock Purchase Option Agreement
by and among The UniMark Group, Inc. and Mr. Francisco Domenech
Tarrago and Mr. Francisco Domenech Perusquia dated December 17, 1996
(11)
10.34 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and
Frutalamo, S.A. de C.V. dated December 17, 1996 (11)
10.35 Non-Competition Agreement by and among The UniMark Group, Inc. and
Jorn Budde dated February 18, 1998 (12)
10.36 Supply Agreement between the Coca-Cola Export Corporation and Grupo
Industrial Santa Engracia, S.A. de C.V. dated April 2, 1998 (13)
21 Subsidiaries of the Registrant (11)
23 Consent of Ernst & Young LLP (14)
27 Financial Data Schedule, year ended December 31, 1998 (14)
27.1 Financial Data Schedule, restated, year ended December 31, 1997 (14)
</TABLE>
- ---------------------
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2, as amended, SEC Registration No. 33-78352-D.
(2) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994.
(3) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30, 1995.
(4) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated January 16, 1995.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995.
(6) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated May 10, 1996.
(7) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1, as amended, SEC Registration No. 333-3539.
(8) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
46
<PAGE> 47
(10) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997
(11) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
(12) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated February 18, 1998
(13) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998.
(14) Filed herewith.
(4) REPORTS ON FORM 8-K
The Company filed no current reports on Form 8-K during the fourth quarter
ended December 31, 1998.
47
<PAGE> 48
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.
The UniMark Group, Inc.
(Registrant)
By: /s/ Soren Bjorn
---------------------------------------
Soren Bjorn
President and Chief Executive Officer
Dated: April 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report was signed below by the following persons on behalf of the registrant and
in the capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jakes Jordaan Director, Chairman April 13, 1999
--------------------------------------
Jakes Jordaan
/s/ Soren Bjorn President, Chief Executive Officer and April 13, 1999
-------------------------------------- Director (Principal Executive Officer)
Soren Bjorn
/s/ Rafael Vaquero Bazan Chief Operating Officer and Director April 13, 1999
--------------------------------------
Rafael Vaquero Bazan
/s/ Charles A. Horne Chief Financial Officer (Principal April 13, 1999
-------------------------------------- Financial and Accounting Officer)
Charles A. Horne
/s/ Federico Chavez Peon Director April 13, 1999
--------------------------------------
Federico Chavez Peon
/s/ Luis A. Chico Pardo Director April 13, 1999
--------------------------------------
Luis A. Chico Pardo
/s/ Jose I. De Abiega Pons Director April 13, 1999
--------------------------------------
Jose I. De Abiega Pons
/s/ Eduardo Vaquero Bazan Director April 13, 1999
--------------------------------------
Eduardo Vaquero Bazan
/s/ Jose Martinez Brohez Director April 13, 1999
--------------------------------------
Jose Martinez Brohez
/s/ Fernando Camacho Casas Director April 13, 1999
--------------------------------------
Fernando Camacho Casas
/s/ Jerry W. Johnson Director April 13, 1999
--------------------------------------
Jerry W. Johnson
</TABLE>
48
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER
EXHIBIT EXHIBIT
------- -------
<S> <C>
3.1 Articles of Incorporation of The UniMark Group, Inc., as amended(1)
3.2 Amended and Restated Bylaws of The UniMark Group, Inc.(1)
3.3 Articles of Exchange of The UniMark Group, Inc.(1)
4.1 Specimen Stock Certificate(1)
10.1 The UniMark Group, Inc. 1994 Employee Stock Option Plan(1)
10.2 The UniMark Group, Inc. 1994 Stock Option Plan for Directors(1)
10.3 Stock Exchange Agreement between The UniMark Group, Inc. and the
stockholders of Industrias Citricolas de Montemorelos, S.A. de
C.V.(1)
10.4 Citrus Grove Lease Agreement(1)
10.5 Asset Operating Agreement between the Registrant and Industrias
Horticolas de Montemorelos, S.A. de C.V.(2)
10.6 Lease agreement among Hector Gerardo Castagne Maitret, Carlos
Courturier Arellano, Mauro Alberto Salazar Rangel, Miguel Angel
Salazar Rangel, Alejandrina Trevino Garcia, Gerardo Trevino Garcia,
Jorge Maitret and Industrias Citricolas de Montemorelos, S.A. de
C.V.(2)
10.7 Contract of Purchase and Sale between Empacadora Tropifrescos,
Sociedad Anonima de Capital Variable and Industrias Citricolas de
Montemorelos, S.A. de C.V.(2)
10.8 Lease Agreement between Industrias Citricolas de Montemorelos, S.A.
de C.V. and Valpak, S.A. de C.V. dated July 1, 1995(3)
10.9 Asset Operating Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Empacadora de Naranjas Azteca, S.A.
de C.V. dated July 1, 1995(3)
10.10 Contract for Operation, Administration, and Purchase and Sale of
Fruit between Industrial Citricolas de Montemorelos, S.A. de C.V.
and Mr. Jorge Croda Manica ("Las Tunas") dated July 1, 1995(3)
10.11 Lease Contract between Industrial Citricolas de Montemorelos, S.A.
de C.V. and Mr. Mauro Alberto Salazar Rangel and Mr. Miguel Angel
Salazar Rangel ("Huerta Loma Bonita") dated 1995(3)
10.12 Unilateral Recognition of Indebtedness and Granting of Revolving
Collateral between Industrial Citricolas de Montemorelos, S.A. de
C.V. and Rabobank Curacao N.V. dated September 20, 1995(3)
10.13 Amended and Restated Stock Purchase Agreement among The UniMark
Group, Inc., 9029-4315 Quebec Inc., Michel Baribeau and Gestion
Michel Baribeau Inc. dated January 3, 1996(4)
10.14 Lease Agreement between Loma Bonita Partners and UniMark Foods, Inc.
dated November 28, 1995(3)
10.15 Lease Agreement between The UniMark Group, Inc. and Grosnez Partners
dated January 1, 1996(3)
10.16 Rural Property Sublease Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Lorenzo Uruiza Lopez dated October
23, 1995(3)
10.17 Purchase Agreement between Industrial Citricolas de Montemorelos,
S.A. de C.V. and Jose Enrique Alfonso Perez Rodriquez dated October
23, 1995(3)
10.18 Stock Purchase Agreement between The UniMark Group, Inc. and the
stockholders of Grupo Industrial Santa Engracia dated April 30,
1996(6)
10.19 Stock Purchase Agreement between The UniMark Group, Inc., UniMark
Foods, Inc., Sam Perricone Children's Trust 1972, Sam Perricone and
Mark Strongin dated May 9, 1996(6)
10.20 Employment Agreement by and between Grupo Industrial Santa Engracia,
S.A. de C.V. and Ing Jose Ma. Martinez Brohez dated as of May 9,
1996(7)
</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
10.21 Lease Agreement by and among Ralphs Grocery Company, Simply Fresh
Fruit, Inc. and Davalon Sales, Inc. dated as of March 1, 1994(7)
10.22 Revolving Credit Agreement by and among UniMark Foods, Inc., The
UniMark Group, Inc., UniMark International, Inc., Simply Fresh
Fruit, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
dated February 12, 1997. (9)
10.23 Supply Contract between The Coca-Cola Export Corporation and Grupo
Industrial Santa Engracia, S.A. de C.V. dated October 7, 1996. (9)
10.24 Loan Agreement made between Industrias Citricolas de Montemorelos,
S.A. de C.V., Grupo Industrial Santa Engracia, S.A. de C.V.,
Agromark, S.A. de C.V., as borrowers; The UniMark Group, Inc., as
guarantor, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
"Rabobank Nederland", as lender, dated May 29, 1997. (10)
10.25 Revolving Loan Agreement with Security Interest by and between
Industrias Citricolas de Montemorelos, S.A. de C.V., as borrower,
Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", Agromark, S.A.
de C.V. "Agromark", and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B."Rabobank Nederland" New York Branch
dated April 10, 1997. (10)
10.26 Revolving Loan Agreement with Security Interest by and between Grupo
Industrial Santa Engracia, S.A. de C.V. "Gise", as borrower,
Industrias Citricolas de Montemorelos, S.A. de C.V. "Icmosa",
Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New York Branch
dated April 10, 1997. (10)
10.27 First Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated October 7, 1997. (10)
10.28 Second Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated November 12, 1997. (10)
10.29 Third Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated May 22, 1998. (14)
10.30 Fourth Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated December 31, 1998. (14)
10.31 Letter given by Cooperative Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland", New York Branch to UniMark Foods, Inc.,
the borrower, and The UniMark Group, Inc., UniMark International,
Inc., Simply Fresh Fruit, Inc., the guarantors, and Industrias
Citricolas de Montemorelos, S.A. de C.V., Grupo Industrial Santa
Engracia, S.A. de C.V., and Agromark, S.A. de C.V. regarding the
renewal of financing. (14)
10.32 Articles of Association of Gisalamo, S.A. de C.V. (11)
10.33 Deposit, Operation, Exploitation and Stock Purchase Option Agreement
by and among The UniMark Group, Inc. and Mr. Francisco Domenech
Tarrago and Mr. Francisco Domenech Perusquia dated December 17, 1996
(11)
10.34 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and
Frutalamo, S.A. de C.V. dated December 17, 1996 (11)
10.35 Non-Competition Agreement by and among The UniMark Group, Inc. and
Jorn Budde dated February 18, 1998 (12)
10.36 Supply Agreement between the Coca-Cola Export Corporation and Grupo
Industrial Santa Engracia, S.A. de C.V. dated April 2, 1998 (13)
21 Subsidiaries of the Registrant (11)
23 Consent of Ernst & Young LLP (14)
27 Financial Data Schedule, year ended December 31, 1998 (14)
27.1 Financial Data Schedule, restated, year ended December 31, 1997 (14)
</TABLE>
- ---------------------
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2, as amended, SEC Registration No. 33-78352-D.
(2) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994.
<PAGE> 51
(3) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30, 1995.
(4) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated January 16, 1995.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995.
(6) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated May 10, 1996.
(7) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1, as amended, SEC Registration No. 333-3539.
(8) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
(10) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997
(11) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
(12) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated February 18, 1998
(13) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998.
(14) Filed herewith.
<PAGE> 1
EXHIBIT 10.29
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT made as of May 22,
1998, by and among UNIMARK FOODS, INC., a Texas corporation which is the
"BORROWER", and THE UNIMARK GROUP, INC., a Texas corporation ("GROUP") of which
the Borrower is a wholly-owned subsidiary, UNIMARK INTERNATIONAL, INC., a Texas
corporation and a wholly-owned subsidiary of Group, and SIMPLY FRESH FRUIT,
INC., a California corporation and a wholly-owned subsidiary of Borrower (each
of which shall be a "GUARANTOR" hereunder and which collectively shall be
"GUARANTORS"); and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND," NEW YORK BRANCH, a Netherlands Cooperative Banking
Organization which is the "LENDER".
R E C I T A L S:
A. The Borrower, the Guarantors and the Lender are parties to a
Revolving Credit Agreement dated as of February 12, 1997, as amended by that
First Amendment to Revolving Credit Agreement ("FIRST AMENDMENT") dated October
7, 1997, and the Second Amendment to Revolving Credit Agreement dated November
14, 1997 ("SECOND AMENDMENT") (collectively, the "CREDIT AGREEMENT"), and the
revolving loan now outstanding to Borrower from Lender under such Credit
Agreement matures on April 30, 1998;
B. Group, its Subsidiaries, and Lender, among others, are parties to an
Extension Agreement and Waiver of Defaults dated as of April 30, 1998, whereby
Lender extended the maturity of the Restated Revolving Note dated as of February
12, 1997 to May 22, 1998, and waived certain defaults existing under the Credit
Agreement.
C. Group and its Subsidiaries, including the Borrower, taken as a
whole, have now requested that the Lender renew and extend such revolving loan
under the Credit Agreement and also make certain changes in the terms and
conditions thereunder; and
D. The Lender has agreed to renew and extend the revolving loan now
outstanding under the Credit Agreement and to make certain changes in the terms
and conditions of the Credit Agreement, subject to the terms and conditions
hereinafter provided.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. SAME TERMS. All terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein, unless the context
hereof otherwise requires or provides. In addition, all references in the Loan
Documents to the "Agreement" shall mean the Credit Agreement as amended by the
First Amendment, the Second Amendment, and by this Third Amendment to Revolving
Credit Agreement ("THIRD AMENDMENT"), and as the same shall hereafter be amended
from time to time.
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 1
<PAGE> 2
2. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date above, the
following changes shall be made to the Credit Agreement:
a. The definition of "Capital Expenditures" shall be added to
the Appendix to the Credit Agreement by inserting the following
paragraph in verbatim after the definition of "Business Day" and before
the definition of "Capital Lease":
"Capital Expenditures" of a Person means
expenditures by such Person for assets which will be used in
the ordinary course of such Person's business in a year or
years subsequent to the year in which the expenditures are
made and which are properly classifiable in the Financial
Statements of such Person as property, equipment,
improvements, fixed assets, or a similar type of capitalized
asset in accordance with GAAP, provided that: (i) such term
shall include, whether or not such inclusion is in conformity
with GAAP: (A) the capitalized portion of each Capital Lease;
and (B) expenditures for equipment purchased simultaneously
with the trade-in of existing equipment owned by each Person
to the extent of the excess of the purchase price of the
equipment so purchased over the book value of the equipment
hereby traded in; and (ii) such term shall not include,
whether or not such exclusion is in conformity with GAAP,
expenditures for replacement or restoration of property to the
extent reimbursed with insurance or condemnation proceeds.
b. The definition of "Default Rate" in the Appendix to the
Credit Agreement shall be deleted and the following paragraph
containing the new definition of "Default Rate" in the Appendix is
substituted in verbatim therefor:
"Default Rate" means the lesser of: (i) the
Highest Lawful Rate; or (ii) the sum of the Base Rate from
time to time plus three percent (3%) per annum and thereafter
the Highest Lawful Rate.
c. The definition of "EBITDA" shall be added to the Appendix
to the Credit Agreement by inserting the following paragraph in
verbatim after the definition of "Dollar" and before the definition of
"Eligible Accounts":
"EBITDA" means for any period an amount
equal to the remainder of: (i) the sum of: (A) Net Income for
such period; plus (B) the aggregate amount in respect of
Interest Expense, depreciation, amortization, and other
non-cash charges which in accordance with GAAP were deducted
in determining Net Income for such period; plus (C) charges
for federal, state, local, and foreign income taxes for such
period; plus (D) any extraordinary losses which were deducted
in calculating Net Income; minus (ii) any extraordinary gains
which were included in calculating Net Income.
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 2
<PAGE> 3
d. The definition of "Expiration Date" in the Appendix to the
Credit Agreement is hereby deleted and the following paragraph
containing the new definition of "Expiration Date" in the Appendix is
substituted in verbatim therefor:
"Expiration Date" means January 1, 1999 or
any other date on which the Commitment terminates pursuant to
the terms hereof.
e. The definition of "Fixed Charges" shall be added to the
Appendix to the Credit Agreement by inserting the following paragraph
in verbatim after the definition of "Financial Statements" and before
the definition of "Foreign Benefit Law":
"Fixed Charges" for any period means the sum
of the following amounts for such period: (i) Interest
Expense; plus (ii) scheduled payments of principal of Debt
(including the principal component of Capital Lease
obligations); plus (iii) dividends paid on any class of
capital stock of such Person.
f. The definition of "Interest Expense" shall be added to the
Appendix to the Credit Agreement by inserting the following paragraph
in verbatim after the definition of "Intangible Assets" and before the
definition of "Interest Rate Option":
"Interest Expense" means for any period: (i)
the sum of: (a) aggregate interest expense for such period
determined in accordance with GAAP, in any event including all
bank fees, discounts, commissions, discounts, and other fees
and charges owed with respect to letters of credit and
banker's acceptances and net costs under interest rate
protection agreements and the portion of any obligation
allocable to interest expense under a Capital Lease; plus (b)
interest expense of the type described in clause (a) above
capitalized during such period (but excluding amortization of
discount interest paid in property other than cash or any
other interest expense not payable in cash); minus (ii) any
net payments received under interest rate protection
agreements.
g. The definitions of "Net Income" and "Non-Cash Items" shall
be added to the Appendix to the Credit Agreement by inserting the
following paragraphs in verbatim after the definition of "Multiemployer
Plan" and before the definition of "Notes":
"Net Income" means of a Person means such
Person's net earnings (after income taxes) determined in
accordance with GAAP but excluding: (i) any gain or loss
arising from the sale of capital assets; (ii) any gain arising
from any write-up of assets; (iii) earnings of any entity,
substantially all of the assets of which have been acquired by
such Person in any manner, to the extent that such earnings
were realized by such entity prior to the date of such
acquisition; (iv) earnings of any entity which has become a
Subsidiary of such Person to the extent such earnings were
realized prior to
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 3
<PAGE> 4
the date such entity became such a Subsidiary; (v) net
earnings of any entity in which such Person has an ownership
interest (unless such interest is greater than 50%), unless
such earnings have actually been received by such Person in
the form of cash distributions, and in the case of an
ownership interest greater than 50%, net earnings properly
allocable to minority interests; (vi) earnings of any entity
to which substantially all of the assets of such Person have
been sold, transferred, or disposed of, or into which such
Person has merged, to the extent that such earnings arise
prior to the date of such transaction; and (vii) any gain
arising from the acquisition of any securities of such Person.
"Non-Cash Items" means a Person's
depreciation, amortization and other non-cash items for any
period which in accordance with GAAP were deducted in
determining Net Income for such period.
h. The definition of "Revolving Note" in the Appendix to the
Credit Agreement is deleted and the following paragraph containing a
new definition of "Revolving Note" which includes the Renewal Revolving
Note of even date herewith shall be substituted in verbatim therefor:
"Revolving Note" means the completed and
executed Renewal Revolving Note payable to the Lender in the
form attached hereto as Exhibit 2.2B. and any renewals,
extensions, rearrangements or restatements thereof and any
substitutions or replacements therefor.
i. In Section 2.4(a)(i), the reference to the Margin for Base
Rate Tranches which is 0.00% shall be 1.00% and Section 2.4(a)(i) shall
now read in verbatim as follows:
(i) For the Base Rate Tranche, a fluctuating
rate per annum equal to the sum of the Base Rate plus the
appropriate Margin determined as follows:
Period Margin
Daily 1.00%
j. In Section 2.4(a)(ii), the reference to the Margin for
LIBOR Tranches which is 1.75% shall now be 2.75% and Section 2.4(a)(ii)
shall now read in verbatim as follows:
(ii) for LIBOR Tranches, a rate equal to the
sum of the LIBOR Rate plus the appropriate percentage
determined as follows:
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 4
<PAGE> 5
Period Margin
30, 60, 90 & 180 days 2.75%
k. In Section 2.4(a)(iii) the reference to the Margin for
Federal Funds Tranches which is now 1.75% shall be 2.75% and Section
2.4(a)(iii) shall now read in verbatim as follows:
(iii) for Federal Funds Tranches, a rate
equal to the sum of the Federal Funds Rate plus the
appropriate percentage determined as follows:
Period Margin
For any period which ends 2.75%
no later than the last Business
Day occurring before the
Expiration Date.
l. To require Borrower to provide Lender a listing of all aged
accounts receivable and accounts payable, Section 5.9(b) shall be
amended and restated and shall now read in verbatim as follows:
(b) The Borrower will deliver or cause to be
delivered to Lender as soon as available and in any event
within fifteen (15) days after the last day of each accounting
month in each fiscal year, unless requested more frequently by
Lender, a Borrowing Base Certificate substantially in the form
of Exhibit 5.9(b) executed by the Chief Financial Officer of
Borrower on behalf of himself and as authorized agent for each
of the Obligated Parties including information as at the end
of such month; and (ii) a monthly listing of all aged accounts
receivable and accounts payable of Borrower.
m. To require Group to inform Lender as to the status of the
progress of Group and its Subsidiaries, taken as a whole, in achieving
the planned restructuring of Group and its Subsidiaries, Section 5.9(d)
shall be added and shall read in verbatim as follows:
(d) Group will deliver or cause to be
delivered to Lender within ten (10) days after the end of each
calendar month a written status report certified and executed
by the Chief Executive Officer of Group as to the progress in
accomplishing the planned restructuring of Group and its
Subsidiaries, taken as a whole.
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 5
<PAGE> 6
n. The internally prepared unaudited individual Financial
Statements shall now be certified by the Chief Financial Officer of
Group, and therefore, Section 5.9(a)(i) shall be amended and restated
and shall now read in verbatim as follows:
(i) as soon as practicable, and in any event
within thirty (30) days after the end of each accounting month
in each fiscal year, internally prepared unaudited individual
Financial Statements of each of Borrower, Group and the other
Obligated Parties from the beginning of the current fiscal
year to the end of such month as at the end of such period,
certified by the Chief Financial Officer of Group;
o. To require Group to provide to Lender a budget of Group and
its Subsidiaries on a consolidated basis for each fiscal year beginning
with the 1998 fiscal year budget, Section 5.9(e) shall be amended and
restated and shall read in verbatim as follows:
(e) Group shall prepare and deliver or have
delivered to Lender a fiscal year budget for the current
fiscal year for Group and each of its Subsidiaries on a
consolidated basis, consisting of monthly balance sheets,
income statements, and statements of cash flow (excluding the
effects of intercompany transactions), as soon as available
but by no later than April 30, 1998 for fiscal year 1998, and
thereafter within ninety (90) days of the end of each fiscal
year.
p. To restrict the Obligated Parties from at any time to time
acquiring any other Person, Section 6.3 shall be amended and restated
and shall now read in verbatim as follows:
6.3 LIQUIDATION, MERGER, CONSOLIDATION,
ACQUISITION. No Obligated Party will wind up, liquidate, or
dissolve, or be a party to any merger or consolidation or any
partnership, nor purchase or otherwise acquire all or
substantially all of the assets of any Person or any shares of
stock of, or similar interest in, any Person, or change or
modify its existing structure."
q. Section 6.12 shall be amended and restated and shall read
in verbatim as follows:
6.12 MANAGEMENT CHANGES. Group will not fail
to maintain Rafael Vaquero Bazan as Chief Executive Officer of
Group, except in the instances of death or incapacity, in
which instances the substitute or replacement for Rafael
Vaquero Bazan will be satisfactory to Lender.
r. To restrict Group or any Subsidiary of Group from incurring
any Debt from any party other than Lender, Section 6.14 shall be added
and shall read in verbatim as follows:
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 6
<PAGE> 7
6.14 DEBT LIMITATIONS. None of the Group or
any of its Subsidiaries will individually or collectively
create, incur, assume, permit to exist or become liable for
any Debt, or advances or deposits from customers, except: (a)
the borrowings contemplated by this Agreement; (b) in
connection with Debt incurred prior to the date hereof in
connection with the Permitted Liens; (c) accounts payable
(other than for money borrowed) incurred in the ordinary
course of business and which mature on or before the date
ninety (90) days after the date incurred; (d) Debt incurred
directly to finance Capital Expenditures authorized under this
Agreement; provided, however, that any debt or other form of
financing of any nature obtained by any of Group or any of its
Subsidiaries for the development of 3,500 hectares of lemon
groves in the State of Tamaulipas, Mexico, which are to be
developed by Group or its Subsidiaries in accordance with
Group's 1998 fiscal year budget at a capital expenditure cost
of $7,671,000 pursuant to a production and processing
agreement with Coca-Cola (the "Lemon Project"), must be
satisfactory in all respects to Lender; and (e) that
indebtedness listed on Exhibit 4.25 (which includes any
indebtedness in existence on May 1, 1998) and renewals or
extensions of same (but no increases of any of same).
s. Section 7.1 shall be wholly replaced in verbatim by the
following:
7.1 MINIMUM TANGIBLE NET WORTH. Group and
its Subsidiaries will maintain a Tangible Net Worth on a
consolidated basis at all times of not less than $28,000,000.
t. Section 7.2 shall be wholly replaced in verbatim by the
following:
7.2 CURRENT RATIO. The ratio of the Current
Assets of Group and its Subsidiaries on a consolidated basis
to the Current Liabilities of Group and its Subsidiaries on a
consolidated basis shall be not less than 1.25 to 1.0 at any
time to time.
u. Section 7.3 shall be wholly replaced in verbatim by the
following:
7.3 MAXIMUM LEVERAGE. The ratio of the Debt
of the Group and its Subsidiaries on a consolidated basis to
Tangible Net Worth of the Group and its Subsidiaries on a
consolidated basis shall not be greater than 1.85 to 1.0 at
any time to time.
v. Section 7.4 shall be added and shall read in verbatim as
follows:
7.4 FIXED CHARGE COVERAGE RATIO. The ratio
of EBITDA to Fixed Charges of Group and its Subsidiaries on a
consolidated basis shall be no less than 1.0-to-1.0: (i) on
the last day of the period beginning January 1, 1998 to and
including June 30, 1998; (ii) on the last day of the period
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 7
<PAGE> 8
beginning January 1, 1998 to and including September 30, 1998;
(iii) on the last day of the period beginning January 1, 1998
to and including December 31, 1998; and (iv) thereafter, on
each of every March 31, June 30, September 30, and December 31
(separately, the "LAST DAY OF THE QUARTER") for the preceding
twelve (12) month period ending on each Last Day of the
Quarter.
w. To restrict Group and its Subsidiaries on a consolidated
basis from making capital expenditures in excess of the amounts set
forth in the fiscal year budgets of Group and its Subsidiaries to be
provided Lender hereunder, Section 7.5 shall be added and shall read in
verbatim as follows:
7.5 CAPITAL EXPENDITURES. Group and its
Subsidiaries on a consolidated basis will not make any Capital
Expenditures in excess of $2,720,000 in the aggregate,
excluding any capital expenditures on the Lemon Project, plus
amounts properly charged to depreciation and amortization on
the books of Group and its Subsidiaries on a consolidated
basis for the immediately preceding fiscal year, during any
fiscal year ending after the date hereof.
x. Exhibit 2.2A, Form of Restated Revolving Note, shall be
wholly replaced by Exhibit 2.2B, Form of Renewal Revolving Note, which
is attached hereto as Exhibit 2.2B and incorporated herein by
reference.
3. CERTAIN REPRESENTATIONS. Each Obligated Party, jointly and
severally, represents and warrants that, as of the date hereof:
a. the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as made on
and as of such date;
b. no event has occurred and is continuing which constitutes a
Default or an Event of Default;
c. the Borrower and each of the Guarantors have full power and
authority to execute this Third Amendment and this Third Amendment
constitutes the legal, valid and binding obligation of the Borrower and
each of the Guarantors enforceable in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally;
d. no authorization, approval, consent or other action by,
notice to, or filing with, any governmental authority or other person
is required for the execution, delivery and performance by the Borrower
or any of the Guarantors of this Third Amendment; and
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 8
<PAGE> 9
e. there shall have occurred no change, in the aggregate, in
the financial condition of an Obligated Party or of Group or of any
Subsidiary of Group or any other Person, who is a party to any of the
Loan Documents from the facts represented in any such Loan Document,
including this Amendment, which would have a Material Adverse Effect on
an Obligated Party or on Group or any Subsidiary of Group or on the
Group and its Subsidiaries, taken as a whole.
4. GUARANTORS' ACKNOWLEDGMENT. By signing below, each of the
Guarantors: (i) acknowledges and consents to the execution, delivery and
performance of this Third Amendment; (ii) agrees that its obligations in respect
of its Guaranty are not released, modified, impaired or affected in any manner
by this Third Amendment or any of the provisions contemplated herein; and (iii)
acknowledges that it has no claims or offsets against, or defenses or
counterclaims to, its Guaranty.
5. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be effective
as of the date and year first above written, subject to the following:
a. The Lender shall have received this Third Amendment
executed by Borrower and each Guarantor;
b. The Lender shall have received the Renewal Revolving Note
executed by Borrower, such Renewal Revolving Note to be in renewal and
extension of the unpaid principal balance of the Restated Revolving
Note dated as of February 12, 1997;
c. The Borrower shall have duly executed and delivered to
Lender a Restated Borrowing Base Report in the form of Exhibit 5.9(b)A
to the Credit Agreement;
d. The Lender shall have received certificates of incumbency
and containing specimen signatures of all officers of each Obligated
Party who will be authorized to execute or attest to any of the
documents contemplated hereby on behalf of each Obligated Party
executed by the President and by the Secretary of each Obligated Party
on the date hereof, and such certification may be conclusively relied
upon by the Lender until the Lender receives notice in writing from
each Obligated Party to the contrary and providing a substitute
certificate conforming to the requirements hereof;
e. The Lender shall have received copies of resolutions of
each Obligated Party approving the execution, delivery, and performance
of each Loan Document to which it is a party and authorizing all
transactions contemplated in or in connection with this Agreement and
the other Loan Documents duly adopted by its Board of Directors,
accompanied by a certificate signed by the Secretary of the approving
entity certifying that such copies are true and correct copies of
resolutions duly adopted at a meeting of the Board of Directors and
that such resolutions have not been amended, modified, or revoked in
any respect and are in full force and effect on the date hereof;
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 9
<PAGE> 10
f. All of the conditions precedent set forth in Section 3.2,
Additional Conditions, of the Credit Agreement shall be satisfied;
g. The Lender shall have received an opinion of Jordaan,
Howard & Pennington, PLLC, counsel for each Obligated Party, dated the
date hereof, in form and substance satisfactory to the Lender and
covering such matters as the Lender or counsel to the Lender may
request, which opinion each Obligated Party hereby directs counsel to
deliver; and
h. The Lender shall have received such other documents,
opinions, certifications, consents, waivers, agreements, and evidence
as the Lender may reasonably request.
6. LIMITATION ON AGREEMENTS. The modifications set forth herein are
limited precisely as written and shall not be deemed: (a) to be a consent under
or a waiver of or an amendment to any other term or condition in the Credit
Agreement or any of the other Loan Documents; or (b) to prejudice any right or
rights which the Lender now has or may have in the future under or in connection
with the Credit Agreement and the other Loan Documents, each as amended hereby,
or any of the other documents referred to herein or therein. This Third
Amendment shall constitute a Loan Document for all purposes. The Credit
Agreement, as amended by this Third Amendment and all other Loan Documents
executed in connection therewith shall remain in full force and effect and are
each hereby ratified and confirmed.
7. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all
costs and expenses of the Lender in connection with the preparation,
reproduction, execution and delivery of this Third Amendment and the other
instruments and documents to be delivered hereunder (including the reasonable
fees and out-of-pocket expenses of counsel for the Lender with respect thereto
and with respect to advising the Lender as to its rights and responsibilities
under the Revolving Credit Agreement, as amended by this Third Amendment).
8. EXECUTION IN COUNTERPARTS. This Third Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute but one and the same
instrument.
9. ENTIRETY, ETC. This instrument together with all of the other Loan
Documents embodies the entire agreement between the parties. THIS AGREEMENT AND
ALL OF THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES 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.
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment to Revolving Credit Agreement to be effective as of the date and year
first above written.
BORROWER AND OBLIGATED PARTY:
UNIMARK FOODS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Notice Address:
124 McMakin Road
Bartonville, Texas 76226
(817) 491-2992
OTHER OBLIGATED PARTIES:
THE UNIMARK GROUP, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
UNIMARK INTERNATIONAL, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 11
<PAGE> 12
SIMPLY FRESH FRUIT, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
LENDER:
COOPERATIEVE CENTRALE
RAIFFEISENBOERENLEENBANK B.A., "RABOBANK
NEDERLAND," NEW YORK BRANCH, a Netherlands
Cooperative Banking Organization
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
NOTICE ADDRESS:
245 Park Avenue
New York, New York 10167
Attention: Corporate Services
cc: Rabobank Nederland
13355 Noel Road
One Galleria Tower, Suite 1000
Dallas, Texas 75240
Attention: Gordon E. Arnold
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 12
<PAGE> 1
EXHIBIT 10.30
FOURTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This Fourth Amendment to Revolving Credit Agreement (the "FOURTH
AMENDMENT") made as of December 31, 1998, by and among UNIMARK FOODS, INC., a
Texas corporation which is the "BORROWER," and THE UNIMARK GROUP, INC., a Texas
corporation ("GROUP") of which the Borrower is a wholly-owned subsidiary, and
UNIMARK INTERNATIONAL, INC., a Texas corporation and a wholly-owned subsidiary
of Group, and SIMPLY FRESH FRUIT, INC., a California corporation and a
wholly-owned subsidiary of Borrower (each of which shall be a "GUARANTOR"
hereunder and which collectively shall be "GUARANTORS") (Borrower, Group, and
the Guarantors shall collectively be referred to herein as "UNIMARK"); and
INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A. DE C.V. ("ICMOSA"), a Mexican
corporation and wholly-owned subsidiary of Group, GRUPO INDUSTRIAL SANTA
ENGRACIA, S.A. DE C.V. ("GISE"), a Mexican corporation and wholly-owned
subsidiary of Group, and AGROMARK, S.A. DE C.V. ("AGROMARK"), a Mexican
corporation and wholly-owned subsidiary of Group, and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a New
York State licensed branch of a Netherlands Cooperative Banking Organization
which is the "LENDER."
R E C I T A L S
A. The Borrower, the Guarantors and the Lender are parties to a
Revolving Credit Agreement dated as of February 12, 1997, as amended by that
First Amendment to Revolving Credit Agreement dated October 7, 1997 (the "FIRST
AMENDMENT"), the Second Amendment to Credit Agreement dated November 14, 1997
(the "SECOND AMENDMENT"), the Extension Agreement and Waiver of Defaults dated
as of April 30, 1998 (the "EXTENSION AGREEMENT"), and the Third Amendment to
Revolving Credit Agreement made as of May 22, 1998 (the "THIRD AMENDMENT")
(collectively, the "CREDIT AGREEMENT"), and such revolving loan in the original
principal amount of $9,500,000 now outstanding to Borrower from Lender under
such Credit Agreement matures on January 1, 1999, and is evidenced by the
Renewal Revolving Note dated as of May 22, 1998 (the "NOTE").
B. The obligations of the Borrower to the Lender under the Credit
Agreement are secured by, among other things: (i) Security Agreements dated
February 12, 1997 by and between Lender and each of Borrower, Group and the
Guarantors (the "SECURITY AGREEMENTS"); (ii) Pledge Agreements dated February
12, 1997 by and between Lender and each of Borrower and Group (the "PLEDGE
AGREEMENTS"); and (iii) Unconditional Guaranty Agreements dated as of February
12, 1997 by and between Lender and each of the Guarantors (collectively, the
"U.S. GUARANTY").
C. GISE, as borrower, and the Lender executed a Revolving Loan
Agreement with Security Interest on April 10, 1997 (the "GISE LOAN AGREEMENT")
by means of which the Lender, subject to the terms and conditions set forth
therein, extended to GISE an uncommitted U.S. $8,500,000 (Eight Million Five
Hundred Thousand Dollars, currency of the United States of America) revolving
loan facility, which Loan Agreement was thereafter amended.
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 1
<PAGE> 2
D. ICMOSA, as borrower, and the Lender executed a Revolving Loan
Agreement with Security Interest on April 10, 1997 (the "ICMOSA LOAN AGREEMENT")
by means of which the Lender, subject to the terms and conditions set forth
therein, extended to the ICMOSA an uncommitted U.S.$7,500,000 (Seven Million
Five Hundred Thousand Dollars, currency of the United States of America)
revolving loan facility, which Loan Agreement was thereafter amended.
E. ICMOSA, GISE and Agromark, as borrowers, and the Lender executed a
Loan Agreement on May 29, 1997 by means of which the Lender, subject to the
terms and conditions set forth therein, made available a $10,000,000 bridge loan
facility to ICMOSA, GISE and Agromark (the "BRIDGE LOAN AGREEMENT"), which loan
was thereafter paid in full (with the ICMOSA Loan Agreement, as amended, and the
GISE Loan Agreement, as amended, being collectively called herein the "MEXICAN
LOAN AGREEMENTS").
F. Group did execute a guaranty agreement dated April 10, 1997 by which
Group did guarantee the obligations arising under the Mexican Loan Agreements
("MEXICAN GUARANTY").
G. ICMOSA and Agromark executed the GISE Loan Agreement in order to
guarantee the punctual payment of the GISE obligations under the GISE Loan
Agreement by GISE (the "GISE GUARANTY").
H. GISE and Agromark executed the ICMOSA Loan Agreement in order to
guarantee the punctual payment of the ICMOSA Obligations under the ICMOSA Loan
Agreement (the "ICMOSA GUARANTY") (with the Mexican Guaranty, the U.S. Guaranty,
ICMOSA Guaranty and the GISE Guaranty being collectively known herein as the
"GUARANTY AGREEMENTS") (with Borrower, Group, the Guarantors, ICMOSA, GISE and
Agromark being known individually herein as a "LOAN PARTY" and collectively
herein as the "LOAN PARTIES").
I. Group and its Subsidiaries, including the Borrower, and the Lender
did execute and deliver that Waiver of Defaults dated as of August 12, 1998 by
the terms of which the Lender did waive certain defaults existing under the
Credit Agreement and the Mexican Loan Agreements (with the Credit Agreement and
the Mexican Loan Agreements being known herein collectively as the "LOAN
AGREEMENTS").
J. Group and its Subsidiaries, including the Borrower, taken as a
whole, have now requested that the Lender renew and extend the revolving loan
now extended to the Borrower under the Credit Agreement and evidenced by the
Note dated as of May 22, 1998, which Note matures on January 1, 1999, and also
make certain changes in the terms and conditions of the Credit Agreement.
K. The Lender has agreed to renew and extend the revolving loan now
outstanding under the Credit Agreement and evidenced by the Note and to make
certain changes in the terms and conditions of the Credit Agreement, subject to
the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 2
<PAGE> 3
1. LOAN DOCUMENTS ARE IN FULL FORCE. Except as specifically provided
herein, all the terms of the Credit Agreement, the Note and the security
agreement, the pledge agreement and the other Loan Documents (as defined in the
Credit Agreement) and the other Loan Agreements and their related documents are
unaffected hereby and remain in full force and effect.
2. SAME TERMS. All terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein, unless the context
hereof otherwise requires or provides. In addition, all references in the Credit
Agreement and in the Loan Documents (as defined in the Credit Agreement) to the
"Agreement" shall mean the Credit Agreement as amended by the First Amendment,
the Second Amendment, the Extension Agreement, the Third Amendment and this
Fourth Amendment to Revolving Credit Agreement ("FOURTH AMENDMENT") and as the
same shall hereafter be amended from time to time.
3. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date above, the
following changes shall be made to the Credit Agreement:
a. The definition of "Expiration Date" in the Appendix of the
Credit Agreement as previously amended pursuant to the terms of the Third
Amendment is hereby deleted and the following paragraph containing the new
definition of "Expiration Date" in the Appendix of the Credit Agreement is
substituted in verbatim therefor:
"Expiration Date" means May 17, 1999, or any other
date on which the Commitment terminates pursuant to the terms
hereof.
b. In Section 2.4(a)(i), the reference to the Margin for Base
Rate Tranches which is 1.00% pursuant to the terms of the Third Amendment, shall
hereafter be .25% per annum and, therefore, Section 2.4(a)(i) shall now read in
verbatim as follows:
"(i) For Base Rate Tranches, a rate equal to the sum
of Base Rate plus appropriate percentage determined as
follows:
Period Margin
------ ------
Daily .25%"
c. In Section 2.4(a)(ii), the reference to the Margin for
LIBOR Tranches which is 2.75% pursuant to the terms of the Third Amendment,
shall hereafter be 2.00% per annum and, therefore, Section 2.4(a)(ii) shall now
read in verbatim as follows:
"(ii) for LIBOR Tranches, a rate equal to the sum of
the LIBOR Rate plus the appropriate percentage determined as
follows:
Period Margin
------ ------
30, 60, 90 & 180 days 2.00%"
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 3
<PAGE> 4
d. In Section 2.4(a)(iii), the reference to the Margin for
Federal Funds Tranches which is 2.75% pursuant to the Third Amendment, shall
hereafter be 2.00% per annum and, therefore, Section 2.4(a)(iii) shall now read
in verbatim as follows:
"for Federal Funds Tranches, a rate equal to the sum
of the Federal Funds Rate plus the appropriate percentage
determined as follows:
Period Margin
------ ------
For any period which ends 2.00%"
no later than the last Business
Day occurring before the
Expiration Date
e. Section 6.12, MANAGEMENT CHANGE, is hereby deleted in all
respects.
f. New Section 7.6, Interest Coverage, shall be added to
include the new Interest Coverage Ratio and, therefore, the new Section 7.6
shall now read in verbatim as follows:
"7.6 INTEREST COVERAGE RATIO. The ratio of EBITDA to
Interest Expense of Group and its Subsidiaries on a
consolidated basis shall be no less than 1.85 to 1.0 on March
31, 1999 and on each June 30, September 30, December 31, and
March 31 thereafter (separately, the "LAST DAY OF THE
QUARTER") for the preceding twelve (12) month period ending on
each such Last Day of the Quarter."
g. Exhibit 2.2B, Form of Restated Revolving Note, shall be
wholly replaced by Exhibit 2.2C, Form of Renewal Revolving Note, which is
attached hereto as Exhibit 2.2C and incorporated herein by reference.
4. REPRESENTATIONS AND WARRANTIES OF LOAN PARTIES. As an inducement to
Lender to enter into this Agreement, each Loan Party makes the following
representations and warranties to Lender (which survive the execution and
delivery of this Agreement):
a. Each Loan Party is in compliance in all material respects
with all covenants contained in each of the Loan Agreements and the documents
related thereto.
b. All representations and warranties of each Loan Party
contained in the Loan Agreements are true and correct in all material respects
on and as of this date.
c. No Event of Default exists under any of the Loan
Agreements.
d. No adverse change in condition (financial or otherwise) of
Group or any of its Subsidiaries (as defined in the Credit Agreement) not
previously disclosed to the Lender in
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 4
<PAGE> 5
writing or any other event has occurred which creates a possibility of adversely
affecting: (i) the condition (financial or otherwise) of Group or any of its
Subsidiaries, or Group and its Subsidiaries taken as a whole; (ii) the validity
or enforceability of any of the Loan Agreements or any documents related
thereto; or (iii) the ability of Group, or any Subsidiary of Group, to meet and
carry out their respective obligations under the Loan Agreements or any
documents related thereto or to perform the transactions contemplated thereby.
e. All information that any Loan Party or any Subsidiary of a
Loan Party has provided to Lender in connection herewith is true and accurate
and no Loan Party nor any Subsidiary of a Loan Party has failed to disclose any
information of a material nature regarding its financial condition.
f. Each of the Loan Parties has the full power, authority and
legal right to execute, deliver, perform and observe the provisions of the Loan
Agreements, this Agreement and any document executed pursuant to this Agreement,
and to carry out the transactions contemplated hereby and thereby.
g. The execution, delivery and performance by each of the Loan
Parties of its respective obligations under the Loan Agreements and the
documents related thereto have been duly authorized by all necessary action, and
does not and will not require any registration with, consent or approval of, or
notice to, or any action by, any person. The Loan Agreements and the documents
related thereto including this Agreement constitute the legal, valid and binding
obligation of the Loan Parties and each of them enforceable against such party
in accordance with their respective terms.
h. The execution and delivery of this Agreement, and the
compliance with its terms as contemplated herein, will not result in a breach of
any of the terms or conditions of, or result in the imposition of any lien,
charge or encumbrance upon any of the collateral referred to in any Loan
Agreement or any document related thereto (the "COLLATERAL") or constitute a
default (with due notice or lapse of time or both) or result in an occurrence of
any event of default for which any holder or holders of indebtedness for
borrowed money may declare the same due and payable under any indenture,
agreement, order, judgment or instrument under which any Loan Party is a party
or by which any Loan Party or the Collateral may be bound or affected, and will
not violate any provision of applicable law.
i. There are no suits, actions or proceedings (whether or not
purportedly on behalf of Group or any Subsidiary of Group) pending, or to the
knowledge of any Loan Party threatened, against or affecting any Loan Party or
the Collateral at law or in equity, before or by any person which, if determined
adversely to any Loan Party, would have a material adverse effect on the
business or condition (financial or otherwise) of any Loan Party or the
Collateral. No Loan Party is in violation of or in default with respect to any
applicable laws or regulations which materially affect the operations or
conditions (financial or otherwise) of any Loan Party or the Collateral, nor is
it in violation of or in default with respect to any order, writ, injunction,
demand or decree of any court or any person or in violation or in default in any
material respect under any indenture, agreement or instrument, under which any
Loan Party is a party or may be bound, other than as may exist under the Note.
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 5
<PAGE> 6
j. No property, tangible or intangible, subject to any
security interest, mortgage, deed of trust, pledge, lien, or encumbrance to
Lender is subject to any other security interest, mortgage, deed of trust or
encumbrance.
k. The Borrower is a corporation duly organized, validity
existing and in good standing under the laws of the State of Texas and is
authorized to transact business in all necessary jurisdictions.
Each Loan Party, jointly and severally, agrees to indemnify and hold
Lender harmless against any losses, claim, damage, liability or expense
(including, without limitation, attorneys' fees) incurred as a result of any
representation or warranty made by it herein proving to be untrue in any
respect.
5. RATIFICATION OF GUARANTY. Each of the Guarantors, ICMOSA, GISE and
Agromark hereby recognizes, ratifies, approves and confirms the validity of the
respective Guaranty Agreements and agrees that each of said Guaranty Agreements
continues to secure the indebtedness evidenced by the Loan Agreements and the
documents related thereto.
6. REPRESENTATIONS AND WARRANTIES OF GUARANTORS. As an inducement to
Lender to enter into this Agreement, each of the Guarantors, ICMOSA, GISE and
Agromark make the following representations and warranties to Lender (which
survive the execution and delivery of this Agreement):
a. No adverse change in condition (financial or otherwise) of
any Guarantor or ICMOSA, GISE or Agromark not previously disclosed to the Lender
in writing or any other event has occurred which creates the possibility of
adversely affecting: (i) the condition (financial or otherwise) of any
Guarantor, ICMOSA, GISE or Agromark; (ii) the validity or enforceability of any
Guaranty; or (iii) the ability of any Guarantor, ICMOSA, GISE or Agromark to
meet and carry out its respective obligations under any Guaranty Agreement.
b. Each of the Guarantors, ICMOSA, GISE and Agromark is in
compliance in all material respects with all covenants contained in the Guaranty
Agreements.
c. All representations and warranties of each of the
Guarantors, ICMOSA, GISE, and Agromark contained in the Guaranty Agreements are
true and correct in all material respects on and as of this date.
7. NO RELEASE OF ANY LOAN PARTY. Nothing herein contained shall operate
to release any Loan Party from liability to keep and perform all of the terms,
conditions, obligations and agreements contained in the Credit Agreement or any
of the other Loan Documents or any of the other Loan Agreements or the documents
related thereto.
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 6
<PAGE> 7
8. NO RELEASE OF GUARANTORS. Nothing herein contained shall operate to
release any of the Guarantors, ICMOSA, GISE or Agromark from liability to keep
and perform all of the terms, conditions, obligations and agreements contained
in each respective Guaranty Agreement.
9. OBLIGATIONS UNAFFECTED. Except as otherwise specified herein, the
terms and provisions hereof shall in no manner impair, limit, restrict or
otherwise affect the obligations of the Loan Parties to Lender as evidenced by
the Loan Agreements. As a material inducement to Lender to execute and deliver
this Agreement, each of the Loan Parties acknowledges that there are no claims
or offsets against, or defenses or counterclaims to, the terms or provisions of
and the other obligations created or evidenced by the Credit Agreement or any
other Loan Agreement or any document related thereto.
10. NO WAIVER BY THIS AGREEMENT. Each of the parties hereto
acknowledges that, except to the extent expressly set forth herein, the
execution of this Agreement by Lender is not intended nor shall it be construed
as: (a) an actual or implied waiver of any default under any Loan Agreement or
any document related thereto; or (b) an actual or implied waiver of any
condition or obligation imposed upon any of the parties hereto pursuant to the
Loan Agreements or any document related thereto; (c) an actual or implied waiver
of any condition or obligation imposed upon any of the Loan Parties; or (d)
affecting any right or rights which Lender may now have or may have in the
future under or in connection with the Loan Agreements or any document related
thereto.
11. CONDITIONS OF EFFECTIVENESS.
a. The Lender shall have received this Fourth Amendment
executed by Borrower, each Guarantor, ICMOSA, GISE and Agromark.
b. The Lender shall have received the Renewal Revolving Note
dated as of January 1, 1999 and executed by Borrower, such Renewal Revolving
Note to be in renewal and extension of the unpaid principal balance of the
Restated Revolving Note dated as of May 22, 1998.
c. Corporate resolutions of each of Borrower, Guarantor,
ICMOSA, GISE and Agromark authorizing the execution, delivery and performance of
this Fourth Amendment and satisfactory to Lender in form and content.
d. Incumbency Certificate to the satisfaction of Lender from
Group containing specimen signatures of all officers of Group who are authorized
to execute or attest to this Fourth Amendment or any of the other Loan Documents
on behalf of Group executed by the President and by the Secretary of Group; such
certification may be conclusively relied upon by Lender until Lender receives
notice in writing from Group to the contrary and provides a substitute
certificate conforming to the requirements specified by Lender.
e. Incumbency Certificate to the satisfaction of Lender from
Foods containing specimen signatures of all officers of Foods who are authorized
to execute or attest to this Fourth Amendment or any of the other Loan Documents
on behalf of Foods executed by the President and
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 7
<PAGE> 8
by the Secretary of Foods; such certification may be conclusively relied upon by
Lender until Lender receives notice in writing from Foods to the contrary and
provides a substitute certificate conforming to the requirements specified by
Lender.
f. Incumbency Certificate to the satisfaction of Lender from
International containing specimen signatures of all officers of International
who are authorized to execute or attest to this Fourth Amendment or any of the
other Loan Documents on behalf of International executed by the President and by
the Secretary of International; such certification may be conclusively relied
upon by Lender until Lender receives notice in writing from International to the
contrary and provides a substitute certificate conforming to the requirements
specified by Lender.
g. Incumbency Certificate to the satisfaction of Lender from
Simply Fresh containing specimen signatures of all officers of Simply Fresh who
are authorized to execute or attest to this Fourth Amendment or any of the other
Loan Documents on behalf of Simply Fresh executed by the President and by the
Secretary of Simply Fresh; such certification may be conclusively relied upon by
Lender until Lender receives notice in writing from Simply Fresh to the contrary
and provides a substitute certificate conforming to the requirements specified
by Lender.
h. Incumbency Certificate to the satisfaction of Lender from
GISE containing specimen signatures of all officers of GISE who are authorized
to execute or attest to this Fourth Amendment or any of the other Loan Documents
on behalf of GISE executed by the President and by the Secretary of GISE; such
certification may be conclusively relied upon by Lender until Lender receives
notice in writing from Gise to the contrary and provides a substitute
certificate conforming to the requirements specified by Lender.
i. Incumbency Certificate to the satisfaction of Lender from
ICMOSA containing specimen signatures of all officers of ICMOSA who are
authorized to execute or attest to this Fourth Amendment or any of the other
Loan Documents on behalf of ICMOSA executed by the President and by the
Secretary of ICMOSA; such certification may be conclusively relied upon by
Lender until Lender receives notice in writing from Icmosa to the contrary and
provides a substitute certificate conforming to the requirements specified by
Lender.
j. Incumbency Certificate to the satisfaction of Lender from
Agromark containing specimen signatures of all officers of Agromark who are
authorized to execute or attest to this Fourth Amendment or any of the other
Loan Documents on behalf of Agromark executed by the President and by the
Secretary of Agromark; such certification may be conclusively relied upon by
Lender until Lender receives notice in writing from Agromark to the contrary and
provides a substitute certificate conforming to the requirements specified by
Lender.
k. All the conditions precedent set forth in Section 3.2,
ADDITIONAL CONDITIONS, of the Credit Agreement shall be satisfied.
l. Payment of all costs and expenses of Lender (including the
reasonable fees of Lender's counsel) in connection with the preparation of this
Fourth Amendment and any other documents in connection therewith.
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 8
<PAGE> 9
m. The Lender shall have received such other documents,
opinions, certifications, consents, waivers, agreements and evidence as the
Lender may reasonably request.
12. EXPENSES, WAIVER FEE AND INDEMNITY. The parties hereto agree,
whether or not the transactions herein contemplated shall become effective, to
reimburse and hold Lender harmless against any liability for the payment of all
out-of-pocket expenses arising in connection with the preparation, delivery,
administration (including, without limitation, any modification of, or consent
or waiver under, the Credit Agreement or any other Loan Agreement), amendment,
interpretation or enforcement of this Agreement, including, without limitation,
the reasonable fees and expenses of legal counsel for Lender. Further, each of
the Loan Parties jointly and severally agree to indemnify Lender from and hold
it harmless against any and all losses, liabilities, claims, damages and
expenses incurred by Lender arising out of its entering into any of this
Agreement, including without limitation, the fees and disbursements of counsel
incurred in connection with any litigation or other proceeding arising out of or
by reason of any of the aforesaid.
13. CONFIRMATION OF CONTINUED EFFECTIVENESS OF LOAN AGREEMENTS. Each
Loan Party hereby confirms and agrees that each of the Loan Agreements and each
of the documents related thereto secures and shall continue to secure, in the
same manner and to the same extent provided therein, the payment and performance
of the obligations, as extended by this Agreement.
14. SEVERABILITY OF PROVISIONS. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal, or
unenforceable in any respect, the validity, legality, or enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of each of the Loan Parties and Lender and their respective
heirs, administrators, successors and assigns; provided, however, that none of
such entities may not transfer its rights under this Agreement to any other
person without the prior written consent of Lender.
16. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES.
17. AMENDMENT AND WAIVER. No provision of this Agreement (including,
without limitation, any of the documents that are attached hereto in the form of
exhibits) may be amended, modified, supplemented, changed, waived, discharged or
terminated unless each party hereto consents in writing.
18. FURTHER ASSURANCES. Each of the Loan Parties shall from time to
time execute and deliver all such other documents, instruments and assurances
hereof and take all such other actions as may be necessary or reasonably
required by Lender to carry into force and effect the purpose and intent of this
Agreement.
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 9
<PAGE> 10
19. AGREEMENT CONTROLLING. In the event of a conflict between the terms
and provisions of this Agreement and the terms and provisions of any of the Loan
Agreements, the terms and provisions of the Loan Agreement shall control.
20. ENTIRE AGREEMENT. This Agreement (including its recitals and
exhibits) constitutes the entire agreement between the parties with respect to
the subject matter hereof, and this Agreement (including its recitals and
exhibits) supersedes all previous negotiations, discussions and agreements
between the parties with respect to the waiver of defaults, and no parol
evidence of any prior or other agreement with respect thereto shall be permitted
to contradict or vary the terms hereof.
21. COUNTERPART EXECUTION. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had signed the
same document. All such counterparts shall be construed together and shall
constitute one instrument. In making proof hereof it shall only be necessary to
produce one such counterpart.
22. HEADINGS. The headings of the sections, paragraphs and subdivisions
of this Agreement are for the convenience of reference only, and are not to be
considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.
23. NO ORAL AGREEMENTS. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS THEREIN DESCRIBED 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective duly authorized officers on the dates of the
notary certifications below to be effective as of the date first above written.
BORROWER:
UNIMARK FOODS, INC., a Texas corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 10
<PAGE> 11
LENDER:
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK
NEDERLAND," NEW YORK BRANCH, a New York
State licensed branch of a Netherlands
Cooperative Banking Organization
By:
----------------------------------------
David Streeter, Vice President
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
GUARANTORS:
THE UNIMARK GROUP, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
UNIMARK INTERNATIONAL, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 11
<PAGE> 12
SIMPLY FRESH FRUIT, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
GRUPO INDUSTRIAL SANTA ENGRACIA, S.A.
DE C.V., a Mexican corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
INDUSTRIAS CITRICOLAS DE
MONTEMORELOS, S.A. DE C.V.,
a Mexican corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
AGROMARK S.A. DE C.V., a Mexican corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 12
<PAGE> 1
EXHIBIT 10.31
April 13, 1999
VIA TELECOPY 817-491-1272
The UniMark Group, Inc.
Attn: Soren Bjorn, President and CEO
124 McMakin Road
P.O. Box 229
Argyle, Texas 76226
RE: RENEWAL OF FINANCING
Dear Mr. Bjorn:
This letter is given by COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a New York State
licensed branch of a Netherlands Cooperative Banking Organization which is the
"Lender," to UNIMARK FOODS, INC., a Texas corporation which is the "BORROWER,"
of which THE UNIMARK GROUP, INC., a Texas corporation ("GROUP") (of which the
Borrower is a wholly-owned subsidiary), and UNIMARK INTERNATIONAL, INC., a Texas
corporation (and a wholly-owned subsidiary of Group), and SIMPLY FRESH FRUIT,
INC., a California corporation (and a wholly-owned subsidiary of Borrower) are
each guarantors of the outstanding indebtedness owed by Borrower to Lender (each
of which shall be a "GUARANTOR" hereunder and which collectively shall be
"Guarantors"); and INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A. DE C.V.
("ICMOSA"), a Mexican corporation (and wholly-owned subsidiary of Group), GRUPO
INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V. ("GISE"), a Mexican corporation (and
wholly-owned subsidiary of Group), and AGROMARK, S.A. DE C.V. ("AGROMARK"), a
Mexican corporation (and wholly-owned subsidiary of Group) (Borrower, Group, the
Guarantors, ICMOSA, GISE and Agromark shall collectively be referred to herein
as "UNIMARK").
Subject to the below specified modifications and amendments of certain
of the covenants and other terms and conditions of the existing credit
facilities now extended to Borrower and to ICMOSA and GISE by Lender, being set
forth in amendments to the Credit Agreement (as defined below) and the Mexican
Loan Agreements (as defined below) and any other instrument, document or
agreement related to the Credit Agreement or the Mexican Loan Agreements that
Lender in its sole discretion may require and with each such amendment, document
or agreement (collectively, the "AMENDMENTS") being in form and content
satisfactory to Lender, in its sole discretion, and such Amendments being
executed and delivered to Lender by UniMark prior to May 17, 1999, the current
maturity date, Lender is pleased to confirm: (i) its commitment to extend the
maturity date in its existing $9,500,000 revolving credit facility to the
Borrower and the Guarantors (the "CREDIT AGREEMENT") from May 17, 1999 to
January 3, 2000; and (ii) the continuation of its existing uncommitted credit
facilities to ICMOSA and GISE of which Group and Agromark are each guarantors
(the "MEXICAN LOAN AGREEMENTS") (collectively, the Credit Agreement and the
Mexican
<PAGE> 2
The UniMark Group, Inc.
April 13, 1999
Page 2
- -----------------------
Loan Agreements shall be known herein as the "LOAN AGREEMENTS"). All capitalized
terms used herein shall be defined herein as each is defined in the Credit
Agreement or the Mexican Loan Agreements (as applicable) unless specifically
otherwise defined herein.
1. MODIFICATIONS. The modifications and amendments to the covenants and
other terms and conditions of the Loan Agreements shall be as follows:
A. TERMINATION. The definition of "Expiration Date" in the
Credit Agreement shall now mean January 3, 2000.
B. FINANCIAL COVENANTS.
(i) The conditions precedent to the execution and
delivery of the Amendments shall require and, in
particular, Section 7.6 of the Credit Agreement
(Interest Coverage Ratio) and Section 8.4 of the
Mexican Loan Agreements (Debt Service Coverage Ratio)
shall be amended to provide, that the ratio of EBITBA
to Interest Expense of Group and its Subsidiaries on
a consolidated basis shall be no less than: 1.50 to
1.0 on the date that such Amendment is executed and
delivered to Lender (which date shall be no later
than May 17, 1999), 1.40 to 1.0 on June 30, 1999 and
1.85 to 1.0 on September 30, 1999.
(ii) Section 6.2 of the Credit Agreement shall be amended
to disallow the payment at any time by Group of any
Restricted Payments including any dividend
distributions, thereby eliminating the current
$1,000,000 permitted limit on Restricted Payments by
Group.
(iii) Section 7.5 of the Credit Agreement shall be amended
to provide that Group and its Subsidiaries on a
consolidated basis will not make any Capital
Expenditures in excess of $3,600,000 in the
aggregate; however, there shall not be any such
Capital Expenditures permitted for, related to or
concerning the Lemon Project unless prior to the
expenditure of such Capital Expenditure Group raises
an amount of additional equity capital which is equal
to or greater than any such Capital Expenditure for,
related to, or concerning the Lemon Project. Such
$3,600,000 Capital Expenditures figure represents an
increase from the present figure of $2,720,000.
(iv) Section 5.9(a)(iv) of the Credit Agreement shall be
amended to provide that the time period after the end
of each fiscal year in which
<PAGE> 3
The UniMark Group, Inc.
April 13, 1999
Page 3
- -----------------------
the annual audited financial statements shall be
provided to Lender has been increased from 90 days to
105 days.
(v) Section 5.18 of the Credit Agreement shall be amended
to provide that each Obligated Party will submit to
and bear audits of the Collateral (and the costs and
expenses thereof) which shall occur on a semi-annual
basis or on any other occasion as Lender may
determine in its sole discretion.
C. PRICING.
(i) Section 2.4(a) of the Credit Agreement shall be
amended to increase the interest rate by 50 basis
points to LIBOR plus 2.50%.
(ii) As to the revolving loan facilities issued under the
Mexican Loan Agreements, the interest rate for such
facilities shall be increased by 50 basis points to
LIBOR plus 3.50%.
2. OPINION. Simultaneously with the execution of the Amendments by
UniMark and as a condition precedent to the execution of same by Lender, UniMark
agrees to provide Lender with an opinion of Jordaan, Howard & Pennington, PLLC,
counsel for each Obligated Party, dated the date hereof, in form and substance
satisfactory to the Lender and covering such matters as the Lender or counsel to
the Lender may request.
3. OTHER TERMS AND CONDITIONS OF LOAN AGREEMENTS. Subject to the
proposed modifications and amendments to the Loan Agreements set forth above,
and the covenants, terms and conditions of the Amendments as executed and
delivered in accordance with the terms hereof, all other terms and conditions of
the existing Loan Agreements and related documents among the aforementioned
parties shall continue in full force and effect.
4. EXTENSION FEE. In order for the Lender to proceed with this
commitment, the Lender requires an extension fee of $45,000. This fee is
non-refundable and is for the purpose of having Lender use its time, personnel
and resources in connection with the proposed transaction. It should be
understood that in accepting this fee, Lender's commitment hereunder is subject
to each of the terms and conditions hereof, including, without limitation, the
above- referenced requirement that UniMark (and each of the entities comprising
same) execute and deliver to Lender instruments, documents and agreements in
which the modifications and amendments to the Credit Agreement and the Mexican
Loan Agreements are specifically set forth with each of such instruments,
documents and agreements being in form and content satisfactory to Lender, in
its sole discretion, and if the
<PAGE> 4
The UniMark Group, Inc.
April 13, 1999
Page 4
- -----------------------
transactions as contemplated herein terminate prior to execution and delivery of
such documents, Lender has the right to retain the full $45,000 fee.
5. EXPENSES. The Borrower agrees to reimburse Lender for all reasonable
costs incurred by the Lender in connection with the negotiation, preparation and
documentation of the modifications, amendments and transactions proposed herein,
including, without limitation, the fees and out-of-pocket expenses of the
Lender's counsel, regardless of whether such documents are executed.
6. RELIANCE/ASSIGNMENT. No party other than the parties hereto shall be
entitled to rely on this letter. This letter is not assignable by UniMark (or
any entity comprising same).
7. LIMITATION ON COMMITMENT. This letter is based upon information
UniMark has furnished the Lender to this date and is further subject to there
being no adverse change in condition (financial or otherwise) of Group or any of
its Subsidiaries not previously disclosed to the Lender in writing or any other
event has occurred which adversely affects: (i) the condition (financial or
otherwise) of Group or any of its Subsidiaries, or Group and its Subsidiaries
taken as a whole; (ii) the validity or enforceability of the Credit Agreement or
the Mexican Loan Agreements or any documents related thereto; or (iii) the
ability of Group, or any Subsidiary of Group, to meeting and carry out their
respective obligations under the Credit Agreement or the Mexican Loan Agreements
or any documents related thereto or to perform the transactions contemplated
thereby, and to the satisfaction of any conditions precedent specifically set
forth herein. No Event of Default shall exist under the Credit Agreement, the
Mexican Loan Agreements, or any documents related thereto at the time of
execution of the documents representing the transactions contemplated herein.
8. ADDITIONAL PROVISIONS. The terms and conditions which will be
contained in the amendments to the Credit Agreement and the Mexican Loan
Agreements and any documents related thereto are not limited to the provisions
set forth herein. This is because the completion of the transaction will require
further discussions between the parties hereto and approval by the parties'
legal counsel.
9. EXPIRATION. If the Borrower desires to accept the terms and
conditions of this letter, please sign below and return this letter to the
Lender in care of the undersigned promptly. This letter and its terms and
conditions will be deemed to have been withdrawn and this letter shall be of no
further force or effect if the Lender has not received this letter executed by
the Borrower by the close of business on April 14, 1999.
<PAGE> 5
The UniMark Group, Inc.
April 13, 1999
Page 5
- -----------------------
10. SECTION 26.02 NOTICE. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES (PENDING EXECUTION OF THE DOCUMENTS) 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.
Sincerely,
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND,"
NEW YORK BRANCH
By:
----------------------------------------
David L. Streeter, Vice President
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ACKNOWLEDGED AND ACCEPTED:
BORROWER:
UNIMARK FOODS, INC., a Texas corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 6
The UniMark Group, Inc.
April 13, 1999
Page 6
- -----------------------
LENDER:
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK
NEDERLAND," NEW YORK BRANCH, a New York
State licensed branch of a Netherlands
Cooperative Banking Organization
By:
----------------------------------------
David L. Streeter, Vice President
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
GUARANTORS:
THE UNIMARK GROUP, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
UNIMARK INTERNATIONAL, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 7
The UniMark Group, Inc.
April 13, 1999
Page 7
- -----------------------
SIMPLY FRESH FRUIT, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
GRUPO INDUSTRIAL SANTA ENGRACIA, S.A.
DE C.V., a Mexican corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
INDUSTRIAS CITRICOLAS DE
MONTEMORELOS, S.A. DE C.V.,
a Mexican corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
AGROMARK S.A. DE C.V., a Mexican corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-78352-D) pertaining to The UniMark Group, Inc. 1994 Employee Stock
Option Plan and The UniMark Group, Inc. 1994 Stock Option Plan for Directors of
our report dated April 13, 1999, with respect to the financial statements of The
UniMark Group, Inc. included in this Annual Report on Form 10-K for the year
ended December 31, 1998.
ERNST & YOUNG LLP
Dallas, Texas
April 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 9,927
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0
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<COMMON> 119
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<CGS> 65,058
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<INCOME-PRETAX> (2,098)
<INCOME-TAX> 867
<INCOME-CONTINUING> (2,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,965)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,237
<SECURITIES> 0
<RECEIVABLES> 12,284
<ALLOWANCES> 685
<INVENTORY> 24,152
<CURRENT-ASSETS> 41,621
<PP&E> 44,931
<DEPRECIATION> 5,227
<TOTAL-ASSETS> 94,616
<CURRENT-LIABILITIES> 47,723
<BONDS> 8,626
0
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<COMMON> 86
<OTHER-SE> 38,166
<TOTAL-LIABILITY-AND-EQUITY> 94,616
<SALES> 81,284
<TOTAL-REVENUES> 81,284
<CGS> 59,280
<TOTAL-COSTS> 59,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 542
<INTEREST-EXPENSE> 3,294
<INCOME-PRETAX> (9,742)
<INCOME-TAX> 77
<INCOME-CONTINUING> (9,819)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (9,680)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
