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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, 1999
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 10, 2000 was $6,992,143. The number of shares of common stock
outstanding as of April 10, 2000 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 2000 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: dependence
upon availability and price of fresh fruit; competition; dependence upon
significant customers; uncertainty of new product development and market
acceptance of new products; 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 producer and marketer of Sunfresh(R) brand citrus and tropical fruit
products. 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"), and UniMark International, Inc. ("UniMark
International"). In the United Kingdom the Company's subsidiary is Flavorfresh,
Limited. ("Flavorfresh"). 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 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. The Company's
Mexican 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) and Flavor Fresh(TM) and under various private labels to supermarket
chains, foodservice distributors, wholesale clubs, specialty grocery stores and
industrial users throughout the United States. 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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Through its subsidiary GISE, UniMark is a major Mexican producer of citrus
concentrate, oils and juices. GISE produces and exports citrus concentrates,
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. The juice division
operates three juice concentrate plants strategically located in the citrus
growing region of Mexico close to the United States and the Mexican ports of
Tampico and Veracruz. The plant locations offer cost-effective transportation
and distribution and faster time to market. Collectively the plants 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 Company's citrus concentrates
and single strength citrus juices are sold directly to juice importers and
distributors in North America, Europe and the Pacific Rim. 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 5,780 acres.
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
better 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 2000,
the Company plans to expand introduction of its frozen to fresh, which
utilize the Company's cryogenic freezing technology.
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.
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 two key product categories. These categories include cut fruits and
specialty food ingredients. The following is a description of each of these
categories and their specific products:
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Packaged Fruits. Under the brand names of SUNFRESH(R), Fruits of Four
Seasons(R), Flavor Fresh(TM) and 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. 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. 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.
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 includes 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. 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
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 branded approach utilizing the Fruits of Four
Seasons(R) label. Marketing efforts in these channels are directed toward trade
usage programs and yearly trade rebates.
Sales. UniMark's sales organization consists of three sales management
teams primarily focusing on the management of independent food brokers or
international representatives that directly interface with the customer. These
sales teams are: retail, foodservice and export sales.
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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 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 foodservice team is guided by a sales
manager and an assistant.
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,
-----------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
NET NET NET
SALES PERCENT SALES PERCENT SALES PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Packaged Fruit:
Retail .............. $23,207 44.8% $26,181 52.2% $25,606 47.4%
Japan ............... 3,393 6.6 4,144 8.3 9,633 17.8
Wholesale club ...... 10,003 19.3 6,235 12.4 7,609 14.1
Food service ........ 12,631 24.4 8,496 17.0 7,431 13.7
Industrial and other 2,514 4.9 5,084 10.1 3,791 7.0
------- ------- ------- ------- ------- -------
Total ....... $51,748 100.0% $50,140 100.0% $54,070 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
Retail sales. UniMark markets its products to more than 200 regional and
national supermarket chains and wholesalers throughout the United States. In
conjunction with its own national sales force, UniMark utilizes over 50
independent food brokers and distributors to sell its products.
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 sells products directly to wholesale clubs
throughout the United States.
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 30 food service brokers.
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. 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. Products exported to
Europe and Japan are shipped directly from Mexico.
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 significant amount 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 mangos,
oranges and melons used in the Company's operations are purchased from
third-party growers throughout Mexico.
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UniMark has a significant pineapple project which UniMark intends to maintain at
a level where the Company has sufficient supply for its own processing needs.
PROCESSING
Upon arrival at the Company's processing plants, 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
(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 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. The Company cans fruit at its Montemorelos and Puebla plants.
JUICE & OIL SEGMENT
STRATEGY
GISE's strategy includes: (1) reduce operating costs through optimization
of plant capacities, (2) expand relationships with key customers and (3)
increase sales to European and Mexican markets.
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 most of 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.
Increase sales to European and Mexican markets: The Company's goal is to
expand its position as a leading exporter of high quality Mexican citrus juices
to the European market. The Company believes the success of this strategy has
been enhanced by the forthcoming free trade agreement between Mexico and the
European Union, known as "EUMEXFTA", which is expected to go into effect July 1,
2000. This agreement will result in lower duty for the Company's products sold
in the European Union. Also, management believes that the improving economy in
Mexico should lead to increased demand for the Company's juice products in
Mexico. Furthermore, management believes the Company is well positioned to take
advantage of such an opportunity.
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.
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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.
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 frequently 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, 1997, 1998 and 1999 were $13.7, $22.2 and $12.2 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, 1999, UniMark employed approximately 2,400 employees in
its packaged fruit operations and approximately 700 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, UniMark's employees are not covered by collective
bargaining agreements. UniMark believes that its relations with all of its
employees are good.
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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 competition from numerous, well established competitors
possessing substantially greater financial, marketing, personnel and other
resources than the Company, including Del Monte Foods Company (NYSE symbol:
"DLM"). 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. 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 manufacturing, 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 $11,000,000 per occurrence, there can be no assurance that this level
of coverage is adequate. A product recall or a partially or
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completely uninsured judgment against the Company could have a material adverse
effect on the Company.
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), and Fruit
Made Easy(R) trademarks. The Company also utilizes the Flavor Fresh(TM)
tradename.
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 large portion 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 Grove........... Loma Bonita, 190 acres White grapefruit Leased
Oaxaca, Mexico
Las Varas Grove (1)......... Loma Bonita, Oaxaca, 642 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, 252 acres Oranges and Owned
Tamaulipas, Mexico Italian lemons
El Milagro Grove ........... Cd. Victoria, 123 acres Italian lemons Owned
Tamaulipas, Mexico
Paraiso Grove .............. Cd. Victoria, 336 acres Italian lemons Owned
Tamaulipas, Mexico
El Cielo Grove ............. Gomez Farias, 1,767 acres Italian lemons Owned
Tamaulipas, Mexico
Flor De Maria Grove......... Cd. Valles, San Luis 5,169 acres Italian lemons Owned
Potosi, Mexico
La Estrella Grove........... Cd. Victoria, 188 acres Italian lemons Owned
Tamaulipas, Mexico
</TABLE>
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(1) Presently, this grove consists of approximately 240 acres of pink
grapefruit, 300 acres of pineapple and 60 acres of hearts of palm.
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(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.
(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
APPROXIMATE EMPLOYEES
SQUARE (AS OF MARCH 1,
NAME LOCATION FOOTAGE 2000) INTEREST
-------------------- -------- ----------- --------------- --------
<S> <C> <C> <C> <C>
PACKAGED FRUIT OPERATIONS
ICMOSA Plant ................ Montemorelos, Nuevo Leon, Mexico 80,000 856 Owned (1)
IHMSA Plant.................. Montemorelos, Nuevo Leon, Mexico 40,000 354 Leased (2)
Azteca Plant................. Montemorelos, Nuevo Leon, Mexico 50,000 402 Leased (3)
Puebla Plant................. Tlatlauquipec, Puebla, Mexico 50,000 399 Owned
Isla Plant (6)............... Isla, Veracruz, Mexico 32,000 195 Leased
San Rafael Plant (5)......... San Rafael, Veracruz, Mexico 28,500 -- Leased
Zamora Plant (4)............. Zamora, Michoacan, Mexico 41,000 -- Leased
Flavor Fresh Plant (4)....... Lawrence, Massachusetts 60,000 -- Leased
JUICE AND OIL OPERATIONS
Victoria Juice Plant......... Cd. Victoria, Tamaulipas, Mexico 65,700 170 Owned (1)
Frutalamo Juice Plant........ Alamo, Veracruz, Mexico 27,700 97 Leased (7)
Veracruz Juice Plant......... Poza Rica, Veracruz, Mexico 22,900 90 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, grants the Company
the option to purchase the facility prior to the expiration of such
agreement at a purchase price of $4.5 million.
(3) The agreement pursuant to which this facility is leased, grants the Company
the option to purchase the facility prior to the expiration of such
agreement at its then fair market value.
(4) These plants are idle and are being sub-leased.
(5) This plant is idle and is being offered for sub-lease.
(6) This facility is scheduled to be temporarily closed for a period of 8-10
months beginning in April 2000.
(7) The Company has entered into a letter of intent to exercise an option to
acquire the entity that owns this facility.
The Company's other supporting facilities are described below:
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<PAGE> 11
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/conference 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). As of March 1, 2000,
UniMark employed 20 people at this facility.
McAllen distribution center: The Company's refrigerated distribution center
in McAllen, Texas (on the Texas/Mexico border) consists of approximately 110,000
square feet and is fully utilized. As of March 1, 2000, 19 people were employed
at this company-owned facility.
The GISE conference facility: The Company owns 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 Annual Meeting of Shareholders held on July 6, 1999, the
shareholders of the Company approved or elected 1) an amendment to the Company's
articles of Incorporation to change the Company name to "Sunfresh, Inc.", 2) the
proposed ten member Board of Directors, 3) the Company's 1999 Stock Option Plan,
and 4) Ernst & Young LLP as the Company's independent public accountants for the
fiscal year ending December 31,1999.
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, 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
Year ended December 31, 1999:
First Quarter....................................... 2.688 2.188
Second Quarter...................................... 3.688 2.688
Third Quarter....................................... 3.000 1.000
Fourth Quarter...................................... 1.875 1.188
</TABLE>
11
<PAGE> 12
- ----------
The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions. On April 10, 2000, the last reported
sale price for the Common Stock on the NASDAQ National Market was $1.00. As of
April 10, 2000 there were 122 shareholders of record of the Common Stock and
approximately 2,000 beneficial shareholders.
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, 1997, 1998 and 1999 should be read in conjunction with
such financial statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 (1) 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 36,866 $ 53,602 $ 65,427 $ 72,311 $ 66,223
Gross profit ............................ 12,674 13,669 13,404 16,148 7,630
Income (loss) from operations ........... 4,251 1,295 (5,605) 1,758 (9,167)
Operating results of certain operations
disposed of during 1999 (2):
Operating income (loss) .............. -- (510) (479) 122 (127)
Loss on disposal of operations ....... -- -- -- -- (1,517)
Extraordinary gain ...................... -- 330 139 -- --
Net income (loss) ....................... 2,947 543 (9,680) (2,965) (12,996)
Basic earnings (loss) per share:
Income (loss) before extraordinary gain $ 0.57 $ 0.03 $ (1.15) $ (0.29) $ (0.97)
Extraordinary gain .................... -- 0.04 0.02 -- --
-------- -------- -------- -------- --------
Net income (loss) ..................... $ 0.57 $ 0.07 $ (1.13) $ (0.29) $ (0.97)
======== ======== ======== ======== ========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $ 0.53 $ 0.03 $ (1.15) $ (0.29) $ (0.97)
Extraordinary gain .................... -- 0.04 0.02 -- --
-------- -------- -------- -------- --------
Net income (loss) ..................... $ 0.53 $ 0.07 $ (1.13) $ (0.29) $ (0.97)
======== ======== ======== ======== ========
Shares used in per share calculations:
Basic ............................... 5,213 7,450 8,590 10,131 13,462
Diluted ............................. 5,571 7,796 8,590 10,131 13,462
Total assets ............................ $ 26,498 $ 76,683 $ 94,616 $ 93,513 $ 82,352
Long-term debt .......................... 699 4,332 8,626 7,833 6,207
Stockholders' equity .................... 14,978 47,800 38,252 48,712 40,691
</TABLE>
- -------------------
12
<PAGE> 13
(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.
(2) Includes the operating results of Simply Fresh and Deli-Bon, which were
disposed of during 1999, which is more fully discussed in Notes 1 and 2 to
the consolidated statements.
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 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, as well as managing the
Company's Lemon Project. 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. Flavorfresh Limited
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. The functional currency of UniMark and its subsidiaries
is the U.S. dollar.
13
<PAGE> 14
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data, after
reflecting 1) the disposition of certain operations disposed of during 1999 and
2) the reclassifications of customer discounts and allowances and freight
expenses (which are more fully discussed in Notes 1 and 2 to the consolidated
statements), expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Net sales ............................................. 100.0% 100.0% 100.0%
Cost of products sold ................................. 79.5 77.7 88.5
----- ----- -----
Gross profit .......................................... 20.5 22.3 11.5
Selling, general and administrative expenses .......... 29.1 19.9 25.4
----- ----- -----
Income (loss) from operations ......................... (8.6) 2.4 (13.9)
Other income (expense):
Interest expense .................................... (4.9) (5.7) (4.5)
Interest income ..................................... 0.7 0.2 0.5
Foreign currency translation loss ................... (1.4) (0.1) (1.4)
----- ----- -----
Loss before disposal of certain operations, income
taxes and extraordinary gain: ....................... (14.2) (3.2) (19.3)
Operating results of certain operations disposed of
during 1999:
Operating income (loss) ....................... (0.8) 0.2 (0.2)
Loss on disposal of operations ................ -- -- (2.3)
----- ----- -----
Loss before income taxes and extraordinary gain ....... (15.0) (3.0) (21.8)
Income tax expense (benefit) .......................... -- 1.1 (2.2)
Extraordinary gain, net of applicable income taxes .... 0.2 -- --
----- ----- -----
Net loss .............................................. (14.8)% (4.1)% (19.6)%
===== ===== =====
</TABLE>
Years Ended December 31, 1998 and 1999
Net sales consist of packaged fruit and citrus juice and oils. Packaged
fruit sales increased 8.0% from $50.1 million in 1998 to $54.1 million in 1999.
This increase was primarily due to a 132.5% increase in sales to Japan from $4.1
million in 1998 to $9.6 million in 1999. Packaged fruit retail sales decreased
2.2% from $26.2 million in 1998 to $25.6 million in 1999 and food service sales
decreased by 12.9% from $8.5 million in 1998 to $7.4 million in 1999. Both of
these decreases were impacted by reduced product lines and product offerings in
1999. Industrial and other sales decreased 25.5% from $5.1 million in 1998 to
$3.8 million in 1999. This decrease was caused by reduced sales for fresh
pineapple in 1999.
Citrus juice and oil sales decreased 45.0% from $22.2 million in 1998 to
$12.2 million in 1999. This decrease in juice and oil sales resulted principally
from lower juice processing volume due to unfavorable raw material costs and a
general decline in the market prices of frozen concentrate orange juice. This
market decline was brought on by a decline in futures related pricing for
concentrate orange juice caused by worldwide inventory levels and the
anticipation of larger crops in Brazil and Florida during the 1999/2000 season.
As a result of the foregoing, net sales decreased 8.4% from $72.3 million
in 1998 to $66.2 million in 1999 due to the increase in packaged fruit sales
being more than offset by the decline in citrus juice and oil sales.
Gross profit on packaged fruit sales decreased from 22.3% in 1998 to 14.7%
in 1999. This decrease was primarily the result of increased business to Japan,
which had to be processed towards the end of the orange season at substantially
higher costs than anticipated, inventory write downs associated with
discontinued products and continued agricultural problems associated with the
Company's pineapple growing
14
<PAGE> 15
operations, which resulted in 1999 write-offs of deferred growing costs of
approximately $1.8 million and current year Mexican inflation and a peso
revaluation which significantly increased raw material and production costs in
United States dollar terms.
Citrus fruit and oil gross profit decreased from 22.8% in 1998 to (2.5)% in
1999. This segments 1999 results were negatively impacted by increased
production costs at GISE's three processing plants and unfavorable raw material
costs as a result of a smaller orange crop in Mexico in the 1999 growing season
compounded by the decline in market prices for frozen concentrate orange juice.
Selling, general and administrative expense ("SG&A") increased from $14.4
million in 1998 to $16.8 million in 1999, or $2.4 million. This increase in SG&A
was primarily due to costs associated with management's efforts to improve its
business processes and internal controls, which increased professional and
outside consulting fees, the write-off of deferred costs associated with a trade
name that became of limited value and the write-off of fixed assets no longer
used in the Company's manufacturing processes, primarily those associated with
the Company's Fruit Jelite product line which was discontinued in 1999.
Interest expense decreased from 5.7% of net sales in 1998 to 4.5% in 1999.
Actual interest expense decreased from $4.1 million in 1998 to $3.0 million in
1999. This decrease was primarily the result of decreased levels of debt during
1999 and the capitalization of interest costs associated with the Company's
lemon project of $0.6 million.
Interest income increased from $0.1 million in 1998 to $0.3 million in 1999
primarily from the temporary cash investment of excess cash balances.
Foreign currency translation losses, which result from the conversion of
the Company's foreign subsidiaries financial statements to U.S. GAAP, increased
from a loss of $0.1 million in 1998 to a loss of $0.9 million in 1999, or an
increase of $0.8 million. This increase was due to translation losses on local
currency denominated net monetary assets in Mexico.
Operating results and loss on disposal of certain operations in 1999
present separately the operating results applicable to the disposed operations
and transaction losses on the disposals. In 1999, these disposed operations
generated operating losses of $0.13 million and a one time charge of $1.5
million from disposal, as compared to 1998 when operations resulted in operating
income of $0.1 million.
Income tax benefit of $1.5 million was recorded in 1999 on a loss before
income taxes of $14.5 million. This tax benefit is less than the expected
benefit at statutory rates due primarily to permanent differences between book
income or loss reported in Mexico (as stated in U.S. dollars and U.S. generally
accepted accounting principles) and Mexican taxable income, or loss, calculated
in Mexican pesos according to Mexican income tax laws. In addition, the Company
has provided a valuation allowance for net operating losses generated in the
U.S., and accordingly, no income tax benefits from U.S. operating losses are
recognized.
As a result of the foregoing, the Company reported net losses of $3.0
million in 1998 and $13.0 million in 1999.
Years Ended December 31, 1997 and 1998
Net sales increased 10.5% from $65.4 million in 1997 to $72.3 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
the result of a relative large orange crop and comparatively favorable market
conditions for "frozen concentrate orange juice". These favorable market
conditions reversed in the fourth quarter of 1998.
15
<PAGE> 16
Packaged fruit retail sales increased 12.8% from $23.2 million in 1997 to
$26.2 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 also saw
an increase in sales to Japan and other industrial customers. Japanese sales
increased 20.6% from $3.4 million in 1997 to $4.1 million in 1998. Industrial
and other sales increased 102.2% from $2.5 million in 1997 to $5.2 million in
1998. These sales are primarily comprised of bulk IQF products and fresh
pineapple.
The sales increase was negatively impacted by declining sales in the
Company's food service and wholesale club businesses. Food service sales
declined 32.7% from $12.6 million in 1997 to $8.5 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 wholesale club business declined
37.7% from $10.0 million in 1997 to $6.2 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.
Gross profit as a percentage of net sales increased from 20.5% in 1997 to
22.3% 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 22.3% in 1997 to 22.1%
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.
Gross profit on citrus juice and oils increased from 13.5% in 1997 to 22.8%
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 29.1% in 1997 to 19.9% in 1998. Actual SG&A expenses
decreased 24.3% from $19.0 million in 1997 to $14.4 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 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 4.9% of net sales in 1997 to 5.7% in 1998.
Actual interest expense increased from $3.2 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 $432,000 in 1997 and $133,000 in 1998 was earned
primarily from the temporary cash investment of excess cash balances.
A foreign currency translation loss which results from the conversion of
the Company's foreign subsidiaries' financial statements to U.S. GAAP, decreased
from a loss of $0.9 million in 1997 to a loss of
16
<PAGE> 17
$0.1 million in 1998. This reduction in losses was primarily due to a smaller
devaluation in the Mexican peso in the 1998 period than was incurred in the 1997
period.
Operating results of certain operations in 1998 present separately the
operating results applicable to the disposed operations. In 1998, these disposed
operations generated operating income of $0.1 million, as compared to losses of
$0.5 million in 1997.
As a result of the foregoing, the Company reported net losses of $9.7
million in 1997 and $3.0 million in 1998.
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. 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 $406,000, $176,000 and $-0- in
1997, 1998 and 1999, 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 and Mexico 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, 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.
17
<PAGE> 18
The Company procures and processes substantially all of its products in
Mexico for export to the United States, 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 at which the Company is able to sell this
product 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.
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
(In thousands, except interest rates)
<TABLE>
<CAPTION>
Estimated
There- Fair Value
2000 2001 2002 2003 2004 after Total 12/31/99
---- ---- ---- ---- ---- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, including
current portion
Fixed rate $ 477 $ 401 $ 195 $ 229 $ 233 $ -- $1,535 $1,535
Average interest rate 11.3% 12.3% 16.8% 17.1% 17.9%
Variable rate $ 421 $ 416 $ 3,045 $ 95 $ 104 $ 1,489 $5,570 $5,570
Average interest rate 12.0% 11.4% 10.2% 9.5% 9.5% 9.5%
</TABLE>
The Company does not have a significant exposure to foreign currency
denominated debt obligations. At December 31, 1999, all long-term debt is U.S.
dollar denominated except for $832,000 that is Mexican peso 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 and Texas. 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 many seasonal fresh products are not readily
available for sales in supermarkets in North America. In
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<PAGE> 19
addition, a substantial portion of UniMark's exports to Japan are processed and
shipped during the first and fourth quarters each year. Management believes
UniMark's quarterly net sales will continue to be impacted by this pattern of
seasonality.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plan
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $50,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, cash and cash equivalents totaled $4.1 million, a
$0.1 million decrease from year-end 1998. During 1999, operating activities used
cash of $1.1 million to fund operations.
The Company's investing activities for 1999 resulted in a net utilization
of cash of $2.5 million. The Company's net use of cash in 1999 was due to
expenditures of $6.0 million for property and equipment offset by $3.5 million
of net proceeds from the sale of assets and businesses in 1999.
The Company's financing activities provided net cash of $5.0 million from
the sale of common stock. Cash was utilized to reduce net long-term debt by $1.5
million.
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 Nominee L.L.C. ("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 Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term
dollar denominated debt of up to $15.9 million at December 31, 1999. These
agreements are as follows: (i) a revolving credit agreement to provide up to
$9.5 million of committed funds collateralized by finished goods inventories in
the U.S. and accounts receivable from U.S. customers and (ii) revolving credit
agreements to provide discretionary uncommitted lines up to $7.9 million
collateralized by finished goods inventories in Mexico and accounts receivable
from export sales by the Company's Mexican subsidiaries. At December 31, 1999,
the Company had outstanding loan balances under the revolving credit agreements
of $11.1 million. Subsequent to December 31, 1999, the U.S. revolving credit
agreement was reduced to $8.0 million. Effective January 1, 2000, the interest
rates associated with these lines increased by 200 basis points.
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.
As of December 31, 1999, the Company was not in compliance with certain
covenants of its loan agreements with its primary lender including covenants
that restrict transactions with affiliates and
19
<PAGE> 20
consolidated financial performance ratios relative to working capital, total
debt and debt service and, accordingly, was in default of these agreements. The
Company has received waivers of these defaults from the primary lender. In
addition, the primary lender has committed to extend the maturity date of the
agreements to January 1, 2001 and make certain modifications and amendments to
the agreements covenants and conditions. The amendment to the covenants will
eliminate the fixed charge and interest coverage ratios, increase the tangible
net worth covenant and modify the current ratio and total liabilities to
tangible net worth ratio to reduce required levels. The amendment also requires
the Company to obtain at least $2.5 million in new equity by July 1, 2000,
increases the interest rates associated with the outstanding borrowings
effective June 1, 2000 and slightly modifies the borrowing base formulas.
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 1, 2001, no assurances can be given
that Rabobank Nederland will continue to renew such loan facilities or that such
loans will not be called in the event of default due to noncompliance with the
loan covenants during the year 2000. Presently, the Company is in discussions
with other financial institutions to 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 effect on the Company and
its ability to continue as a going concern.
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 has paid a non-refundable deposit of $1.9 million for
the right to purchase all the issued and outstanding shares of stock of
Frutalamo from its existing shareholders. The agreement also required the
Company to pay a contractual penalty of $1.0 million to the owners of Frutalamo
in the event a purchase of the shares is not completed. The Company has
subsequently entered into a letter of intent to purchase the shares which
applies the previous deposits paid to Frutalamo as the down payment and waives
the contractual penalty of $1.0 million.
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 (the "Lemon Project"), with a ten year renewal option, for the
production of Italian lemons. Pursuant to the terms of the Supply Contract, 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. The status of the Lemon Project as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Hectares Acres
-------- -----
<S> <C> <C>
Land -
Acquired 3,032 7,489
Unpurchased or subcontracted 468 1,156
Preparation and Planting -
Prepared and planted 2,340 5,780
Prepared but not planted 460 1,136
Acquired land to be prepared and planted 232 573
Expenditures -
Total projected expenditures $18.5 million
Incurred since inception 10.5 million
Projected for year 2000 and beyond 8.0 million
</TABLE>
20
<PAGE> 21
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 term of the operating agreement, which has been
extended to January 1, 2001, the Company has the option to buy the IHMSA
facility for $4.5 million. 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, 1999 amounts due from IHMSA of $1,602,000 includes $1,481,000 that
was a cash advance used to reduce IHMSA's outstanding debt. This amount will be
applied to the purchase price when the Company elects to purchase the facility
pursuant to its purchase option, which is expected to occur during 2000. The
failure or inability of the Company to exercise its purchase option could have a
material adverse affect on the Company.
The Company's cash requirements for the remainder of 2000 and beyond will
depend primarily upon the level of sales and gross margins, expenditures for
capital equipment and improvements, investments in agricultural projects, the
timing of inventory purchases, increased acceptance of recently introduced
products and necessary reductions of debt. Presently, the Company is in
discussions with 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 effect on the Company. UniMark believes that anticipated
revenue from operations, the Commitment described below and existing and future
debt facilities will be adequate for its working capital requirements for at
least the next twelve months.
On February 21, 2000, the Company entered into a $5.1 million (48,000,000
Mexican pesos) nine year term financing agreement (the "Agreement") with Fondo
de Capitalizacion e Inversion del Sector Rural ("FOCIR"), a public Trust of the
Mexican Federal Government that invests in agricultural projects with long-term
viability. Under the terms of the Agreement, FOCIR will provide up to $5.1
million to fund additional lemon project costs, which will include land
preparation, planting, equipment, irrigation systems and grove maintenance. This
financing represents the purchase of an equity interest in GISE of approximately
17.6%. Amounts advanced under this agreement will be classified outside equity
due to mandatory redemption provisions.
The terms of the Agreement provide for the calculation and accrual of
annual accretion using one of two alternative methods. The first method
determines accretion by multiplying the year's Mexican inflation index rate plus
4.2% by the FOCIR balance. The second method determines annual accretion by
multiplying GISE's shareholders equity, using Mexican generally accepted
accounting principles, at the end of the year by a factor of 1.036 and then
multiplying by the FOCIR equity interest percent. The calculation that results
in the greater amount will be the annual accretion amount. Accretion accumulates
annually over the nine-year period of the Agreement and is paid only upon
expiration or early termination of the Agreement. The Agreement also contains,
among other, certain provisions relating to GISE's future financial performance,
the establishment of an irrevocable trust guaranteeing the FOCIR loan, which
includes transferring to the trust GISE common shares that represent 33.4% of
GISE's outstanding shares and the governance of GISE.
On April 17, 2000, the Company entered into a Stand-by Funding Commitment
(the "Commitment") with its largest shareholder (the "Shareholder") to sell, at
the Company's option, on or before July 1, 2001, a $2.5 million 12% Convertible
Subordinated Debenture (the "Debenture") subject to certain terms and
conditions. The Shareholder, upon purchase, has the option at anytime during the
a five year period to convert the Debenture into Company common stock at 75% of
the average closing prices for the Company's common stock over a thirty-day
period prior to exercise. The Commitment will terminate upon completion of
specified future financial transactions by the Company.
21
<PAGE> 22
New Accounting Pronouncement: In June 1998, Statements of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133") was issued. This pronouncement standardizes the
accounting for derivative instruments by requiring that an entity recognize
those items as assets or liabilities in the financial statements and measure
them at fair value. FAS 133 is required to be adopted by the Company for all
quarters of fiscal years beginning after June 15, 2000. The Company is currently
reviewing the requirements of FAS 133 and assessing the impact on its
consolidated financial statements
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, 1998 and 1999................................. 24
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999......................................................... 25
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999......................................................... 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999......................................................... 27
Notes to Consolidated Financial Statements................................................... 28
</TABLE>
22
<PAGE> 23
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, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
April 19, 2000
23
<PAGE> 24
THE UNIMARK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 4,247 $ 4,068
Accounts receivable -- trade, net of allowance of $657 in
1998 and $378 in 1999 ........................................... 9,270 7,273
Accounts receivable - other ........................................ 731 478
Notes receivable ................................................... -- 762
Inventories ........................................................ 22,320 15,521
Income and value added taxes receivable ............................ 1,560 1,478
Prepaid expenses ................................................... 1,315 1,011
----------- -----------
Total current assets ....................................... 39,443 30,591
Property, plant and equipment, net ................................... 41,347 41,387
Deferred income taxes ................................................ 1,365 2,788
Goodwill, net ........................................................ 6,425 2,958
Identifiable intangible assets ....................................... 1,535 166
Due from related parties ............................................. 1,651 1,602
Notes receivable, less current portion ............................... -- 1,060
Other assets ......................................................... 1,747 1,800
----------- -----------
Total assets ............................................... $ 93,513 $ 82,352
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings .............................................. $ 21,654 $ 21,551
Current portion of long-term debt .................................. 763 898
Accounts payable - trade ........................................... 5,156 3,209
Accrued liabilities ................................................ 3,484 4,359
Income taxes payable ............................................... 38 104
Deferred income taxes .............................................. 5,873 5,333
----------- -----------
Total current liabilities .................................. 36,968 35,454
Long-term debt, less current portion ................................. 7,833 6,207
Commitments
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 11,938,326 in 1998 and
13,938,326 in 1999 ............................................ 119 139
Additional paid-in capital ......................................... 58,811 63,766
Accumulated deficit ................................................ (10,218) (23,214)
----------- -----------
Total shareholders' equity ................................. 48,712 40,691
----------- -----------
Total liabilities and shareholders' equity ................. $ 93,513 $ 82,352
=========== ===========
</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,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ........................................................... $ 65,427 $ 72,311 $ 66,223
Cost of products sold ............................................... 52,023 56,163 58,593
----------- ----------- -----------
Gross profit ........................................................ 13,404 16,148 7,630
Selling, general and administrative expenses ........................ 19,009 14,390 16,797
----------- ----------- -----------
Income (loss) from operations ....................................... (5,605) 1,758 (9,167)
Other income (expense):
Interest expense .................................................. (3,220) (4,087) (3,013)
Interest income ................................................... 432 133 309
Foreign currency translation loss ................................. (912) (112) (946)
----------- ----------- -----------
(3,700) (4,066) (3,650)
----------- ----------- -----------
Loss before disposal of certain
operations, income taxes and extraordinary gain ................... (9,305) (2,308) (12,817)
Operating results of certain operations disposed of during 1999:
Net sales .................................................... 12,985 16,095 13,658
Costs and expenses ........................................... (13,464) (15,973) (13,785)
----------- ----------- -----------
Operating income (loss) ...................................... (479) 122 (127)
Loss on disposal of certain operations ............................ -- -- (1,517)
----------- ----------- -----------
(479) 122 (1,644)
----------- ----------- -----------
Loss before income taxes and extraordinary gain ..................... (9,784) (2,186) (14,461)
Income tax expense (benefit) ........................................ 35 779 (1,465)
----------- ----------- -----------
Loss before extraordinary gain ...................................... (9,819) (2,965) (12,996)
Extraordinary gain on forgiveness of debt, net of
applicable income taxes of $109 in 1997 ........................... 139 -- --
----------- ----------- -----------
Net loss ............................................................ $ (9,680) $ (2,965) $ (12,996)
=========== =========== ===========
Basic and diluted earnings (loss) per share:
Loss before extraordinary item .................................... $ (1.15) $ (0.29) $ (0.97)
Extraordinary item ................................................ 0.02 -- --
----------- ----------- -----------
Net loss .......................................................... $ (1.13) $ (0.29) $ (0.97)
=========== =========== ===========
</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 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
Shares issued for cash in a private
offering, net of offering expenses ....... 2,000,000 20 4,955 -- 4,975
Net loss ................................... -- -- -- (12,996) (12,996)
------------ ------------ ------------ ------------ ----------
Balance as of December 31, 1999 .............. 13,938,326 $ 139 $ 63,766 $ (23,214) $ 40,691
============ ============ ============ ============ ==========
</TABLE>
See accompanying notes.
26
<PAGE> 27
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ..................................................... $ (9,680) $ (2,965) $ (12,996)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Loss on disposal of certain operations in 1999 ........... -- -- 1,517
Depreciation ............................................. 2,625 3,031 2,142
Amortization of intangible assets ........................ 840 590 1,132
Deferred income taxes .................................... 634 290 (1,963)
Extraordinary gain ....................................... (248) -- --
Loss on disposal or impairment of plant and equipment .... -- 1,840 655
Cash provided by (used in) operating working capital:
Receivables ........................................... (2,313) 3,066 2,332
Inventories ........................................... (6,315) 532 6,799
Prepaid expenses ...................................... (834) 290 304
Accounts payable and accrued liabilities .............. 1,846 114 (1,072)
Income taxes payable .................................. (854) (2) 66
----------- ----------- -----------
Net cash provided by (used in) operating activities .......... (14,299) 6,786 (1,084)
INVESTING ACTIVITIES
Purchases of property, plant and equipment ................... (11,578) (5,214) (5,955)
Proceeds from sale of businesses in 1999 ..................... -- -- 3,072
Proceeds from sale of plant and equipment .................... -- -- 411
(Increase) decrease in intangible assets ..................... 89 (121) --
Decrease (increase) in amounts due from related parties ...... (1,046) 27 49
(Increase) in other assets ................................... (260) (410) (53)
----------- ----------- -----------
Net cash used in investing activities ........................ (12,795) (5,718) (2,476)
FINANCING ACTIVITIES
Net proceeds from the issuance of common shares .............. 132 13,425 4,975
Increase (decrease) in short-term debt ....................... 22,982 (9,798) (103)
Proceeds from long-term debt ................................. 2,613 240 334
Payments of long-term debt ................................... (1,664) (1,925) (1,825)
----------- ----------- -----------
Net cash provided by financing activities .................... 24,063 1,942 3,381
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ......... (3,031) 3,010 (179)
Cash and cash equivalents at beginning of year ............... 4,268 1,237 4,247
----------- ----------- -----------
Cash and cash equivalents at end of year ..................... $ 1,237 $ 4,247 $ 4,068
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid .............................................. $ 3,170 $ 4,059 $ 3,739
=========== =========== ===========
Income taxes received ...................................... $ 470 $ 65 $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
27
<PAGE> 28
THE UNIMARK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company is a producer and marketer of
Sunfresh(R) brand citrus and tropical fruit products.
The UniMark Group, Inc. ("UniMark" or the "Company") conducts substantially
all of its operations through its wholly-owned operating subsidiaries: 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"), Flavorfresh Limited ("Flavorfresh",
formerly UniMark Foods Europe Limited) and Grupo Industrial Santa Engracia, S.A.
de C.V. ("GISE").
Going Concern Considerations: The Company experienced significant losses
from operations during 1999 consuming $1.1 million of cash in operating
activities. In addition, as discussed in Notes 9 and 15, the Company has several
projects and commitments requiring substantial capital. The Company's cash
requirements for 2000 and beyond will depend primarily upon the level of sales
and gross margins, expenditures for capital equipment and improvements,
investments in agricultural projects, the timing of inventory purchases,
increased acceptance of recently introduced products and necessary reductions of
debt. The Company has, in recent years, relied upon sales of its common stock to
its principal shareholder and bank financing to finance its working capital and
certain of its capital expenditure needs (see Notes 7 and 8). Although the
Company is exploring various financing options, possibly including a sale or
other independent financing of one of its lines of business, 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 and for working capital requirements could have a material adverse
effect on the Company and its projects including the realization of the amounts
capitalized, deferred costs and deposits related to these projects and
commitments.
The Company's revolving credit facilities were scheduled to mature on March
31, 2000 but, in a commitment letter dated April 13, 2000, the lender has agreed
to extend the maturity to January 1, 2001. In addition, the primary lender has
agreed to make certain modifications and amendments to the agreements covenants
and conditions. The amendment to the covenants will eliminate the fixed charge
and interest coverage ratios, increase the tangible net worth covenant and
modify the current ratio and total liabilities to tangible net worth ratio to
reduce required levels. The amendment also requires the Company to obtain at
least $2.5 million in new equity by July 1, 2000, increases the interest rates
associated with the outstanding borrowings effective June 1, 2000 and slightly
modifies the borrowing base formulas. Although the Company's revolving credit
facilities are being extended until January 1, 2001, no assurances can be given
that the lender will continue to renew such loan facilities and, perhaps the
Company's ability to continue as a going concern.
Risk Factors: The Company obtains a substantial amount of its raw materials
from third-party suppliers throughout various growing regions in Mexico and
Texas. 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.
Revenue Recognition: The Company recognizes revenue upon shipment of its
products to customers.
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 in determining the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company is vertically integrated for a portion of its raw materials.
Such inventory is recorded at the lower of cost or market which involves
significant estimates. Factors such as weather, pestilence, disease or other
natural disasters could affect estimated yields causing actual results to differ
from those estimated.
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 food service and retail industries in the United
States, Europe 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, 1997 and 1998 and one
customer accounted for 12.3% of net sales for the year ended December 31, 1999.
Advertising Costs: The Company expenses advertising costs as incurred.
Advertising expenses were $262,000, $369,000 and $207,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Inventories: Inventories held in the United States 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.
29
<PAGE> 30
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.
Foreign Currency Translation: 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 liabilities.
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.
Reclassifications: In prior periods, the Company classified freight expense
and discounts and allowances associated with customer invoicing as operating
expenses. In connection with the Company's further automation of its order entry
and pricing systems to customers and in improving changes in controls over these
costs, these expenses are now being classified differently in the financial
statements. Discounts and allowances are now classified as a reduction in net
sales and freight expense as a charge to cost of products sold. All prior and
current year operating results have been reclassified to conform to the new
presentation.
As discussed in Note 2 below, the Company disposed of several operations in
1999. The consolidated statements of operations have been reclassified for all
years presented to disclose separately the operating results of the disposed
operations.
New Accounting Pronouncement: In June 1998, Statements of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133") was issued. This pronouncement standardizes the
accounting for derivative instruments by requiring that an entity recognize
those items as assets or liabilities in the financial statements and measure
them at fair value. FAS 133 is required to be adopted by the Company for all
quarters of fiscal years beginning after June 15, 2000. The Company is currently
reviewing the requirements of FAS 133 and assessing the impact on its
consolidated financial statements.
30
<PAGE> 31
NOTE 2 DISPOSAL OF CERTAIN OPERATIONS
In September 1999, the Board of Directors of the Company approved a
strategic plan for its packaged fruit segment designed to maximize shareholder
value by leveraging the Company's manufacturing facilities in Mexico with its
Sunfresh (R) brand and distribution network in the United States. Two of the
Company's subsidiaries, Les Produits Deli-Bon Inc. ("Deli-Bon") and Simply Fresh
Fruit, Inc. ("Simply Fresh") primarily sold private label fruit salads to the
food service industry and non-branded fresh cut fruit. Because the Company
believed that these lines of business offered less attractive growth
opportunities and lower operating margins than its Sunfresh (R) brand product
lines and did not further the Company's strategic objectives, the decision was
reached to divest these subsidiaries.
During October, 1999, the Company completed the sale of its Canadian
subsidiary, Deli-Bon, in a transaction valued at approximately $1.4 million, and
sold substantially all the assets of its California based subsidiary, Simply
Fresh, in a transaction valued at approximately $3.6 million. Both transactions
included cash payments at closing and short and long-term secured notes. In
addition, the Simply Fresh sale included the forgiveness of the remaining
payments under a certain covenant-not-to-compete and the return to the Company
of 68,182 shares of UniMark common stock owned by the principal buyer.
These transactions resulted in the Company recording losses of
approximately $1.5 million in 1999. The results of operations for both Deli-Bon
and Simply Fresh for the three years ended 1997, 1998 and 1999 have been
reclassified from sales and expenses and included in the consolidated statements
of operations as "Operating results of certain businesses disposed of during
1999". Additionally, the reportable segment information for packaged fruit in
Note 16 has been restated to reflect the above reclassifications.
NOTE 3 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share for loss before extraordinary gain:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C>
NUMERATOR
Loss before extraordinary gain .................. $ (9,819) $ (2,965) $ (12,996)
============ ============ ============
DENOMINATOR
Denominator for basic earnings per share -
Weighted average shares ....................... 8,590 10,131 13,462
============ ============ ============
Basic and diluted loss per share ................ $ (1.15) $ (0.29) $ (0.97)
============ ============ ============
</TABLE>
At December 31, 1997, 1998 and 1999 the Company had options and warrants
outstanding of 668,000, 2,447,000 and 528,000, respectively, that were not
included in their respective year's per share calculations because their effect
would have been anti-dilutive.
31
<PAGE> 32
NOTE 4 INVENTORIES
Inventories consist of the following :
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- --------
<S> <C> <C>
(IN THOUSANDS)
Finished goods:
Cut fruits............................. $ 12,212 $ 6,750
Juice and oils......................... 1,663 2,814
--------- --------
13,875 9,564
Pineapple orchards........................ 2,964 1,717
Raw materials and supplies................ 4,376 2,995
Advances to suppliers..................... 1,105 1,245
--------- --------
Total........................... $ 22,320 $ 15,521
========= ========
</TABLE>
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- --------
<S> <C> <C>
(IN THOUSANDS)
Land............................................... $ 3,223 $ 3,482
Orchards...........................................
Pineapple............................. 1,000 1,000
Lemon................................. 4,022 8,227
Construction in progress........................... 2,121 304
Buildings and improvements......................... 13,562 12,549
Machinery and equipment............................ 25,419 24,797
--------- --------
49,347 50,359
Accumulated depreciation........................... 8,000 8,972
--------- --------
Total.................................... $ 41,347 $ 41,387
========= ========
</TABLE>
Depreciation expense was $2,625,000, $3,031,000 and $2,142,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
At December 31, 1998 and 1999, the Company recorded charges of $1.3 million
and $0.8 million to reduce the carrying value of its pineapple orchards based on
current crop estimates over the next two years. These charges are reflected in
cost of products sold. In addition, the Company recorded a charge of $540,000 in
1998 and $714,000 in 1999 to write-off certain other assets, primarily related
to closed plant facilities, which are reflected in selling, general and
administrative expenses. All of these charges were related to the Company's
packaged fruit operations.
32
<PAGE> 33
NOTE 6 IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- --------
<S> <C> <C>
(IN THOUSANDS)
Covenants not to compete............................. $ 1,628 $ 325
Tradename............................................ 704 --
Other................................................ 352 158
--------- --------
2,684 483
Less accumulated amortization........................ 1,149 317
--------- --------
$ 1,535 $ 166
========= ========
</TABLE>
The covenants not to compete relate to agreements with the former owner of
an acquired business. These amounts are being amortized on the straight-line
method over a five-year term of this agreement. As a result of reduced use, the
tradename related to the Flavor Fresh brand name became of limited value in 1999
and was written off.
NOTE 7 SHORT-TERM DEBT
The Company has existing loan agreements with Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term
dollar denominated debt of up to $24.5 million at December 31, 1998 and $15.9
million at December 31, 1999. These agreements are as follows: (i) a revolving
credit agreement to provide up to $9.5 million of committed funds collateralized
by finished goods inventories in the U.S. and accounts receivable from U.S.
customers and (ii) revolving credit agreements to provide discretionary
uncommitted lines up to $7.9 million collateralized by finished goods
inventories in Mexico and accounts receivable from export sales by the Company's
Mexican subsidiaries. At December 31, 1998 and 1999, the Company had outstanding
loan balances under the revolving credit agreements of $15.2 million and $11.1
million, respectively. Subsequent to December 31, 1999, the U.S. revolving
credit agreement was reduced to $8.0 million. Effective January 1, 2000, the
interest rates associated with these lines increased by 200 basis points.
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.
As of December 31, 1999, the Company was not in compliance with certain
covenants of its loan agreements with its primary lender including consolidated
financial performance ratios relative to working capital, total debt and debt
service and, accordingly was in default of these agreements. The Company has
received waivers of these defaults from the primary lender. In addition, the
primary lender has committed to extend the maturity date of the agreements to
January 1, 2001, and make certain modifications and amendments to the
agreements' covenants and conditions. The amendment to the covenants will
eliminate the fixed charge and interest coverage ratios, increase the tangible
net worth covenant and modify the current ratio and total liabilities to
tangible net worth ratio to reduce required levels. The amendment also requires
the Company to obtain at least $2.5 million in new equity by July 1, 2000,
increases the interest rates associated with the outstanding borrowings
effective June 1, 2000 and slightly modifies the borrowing base formulas.
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
33
<PAGE> 34
generally for a period of 60 to 90 days and are personally guaranteed by certain
shareholders of the Company. At December 31, 1999, the Company had outstanding
loan balances under this agreement of $6.0 million.
During 1999 ICMOSA entered into a loan agreement with a Mexican bank for
short-term pre-export financing. At December 31, 1999 the Company had
outstanding loan balances under this agreement of $1.6 million.
In addition to the above, ICMOSA also has other short-term borrowings of
$0.8 million with a Mexican bank.
In December 1998, GISE entered into an unsecured loan agreement with a
Mexican bank for short-term dollar denominated debt in the amount of $2.5
million. This loan is personally guaranteed by certain shareholders of the
Company and is scheduled to mature in 2000. At December 31, 1999, $2 million was
outstanding under the agreement.
The weighted-average interest rate on short-term borrowings as of December
31, 1998 and 1999 was 9.1% and 10.1%, respectively.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Note payable to bank, collateralized by plant and equipment in
Mexico; interest at Libor + 5% payable quarterly with annual
principal payments, unpaid principal due March 2002 ............. $ 4,000 $ 3,199
Note payable to bank, collateralized by certain warehouse
property and improvements; principal and interest at Prime
payable monthly, unpaid principal and interest due September
2012 ............................................................ 1,997 1,931
Non-compete covenant obligations, discounted at 9%, payable
monthly through May 2001 ........................................ 671 156
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 ........................ 881 832
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 ................. 490 440
Other notes payable ............................................... 557 547
---------- ----------
8,596 7,105
Less current portion .............................................. 763 898
---------- ----------
$ 7,833 $ 6,207
========== ==========
</TABLE>
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, 1999 is U.S. dollar denominated except
for $832,000 that is Mexican peso 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, 1999, interest expense of $597,000 was
capitalized as a portion of the Company's long-term orchard development costs.
34
<PAGE> 35
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000........................... $ 898
2001........................... 817
2002........................... 3,240
2003........................... 324
2004........................... 337
Thereafter..................... 1,489
-------
$ 7,105
=======
</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 $3.4
million of outstanding debt. 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 $42,000, $470,308 and
$495,924 during the years ended December 31, 1997, 1998 and 1999, respectively.
The Vaquero family owns collectively an approximate 24% interest in IHMSA.
Certain members of the Vaquero family are officers, shareholders and directors
of the Company. Under the agreement, which has been extended to January 1, 2001,
the Company has the option to buy the IHMSA facility for $4.5 million.
The Company has 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, 1999 amounts due
from IHMSA of $1,602,000 includes $1,481,000 that was a cash advance used to
reduce IHMSA's outstanding debt. This amount will be applied to the purchase
price when the Company purchases the facility pursuant to its purchase option,
which is expected to occur during 2000.
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 $61,000, $-0- and $-0- during the years ended December 31, 1997,
1998 and 1999, 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.
In November 1995, the Company entered into a lease agreement with Loma
Bonita Partners, a Texas general partnership, for approximately 260 hectares
(642 acres) of land located in Loma Bonita, Oaxaca, 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 $78,000, for each of the
years ended December 31, 1997, 1998 and 1999.
35
<PAGE> 36
Receivable balances with related parties are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
-------- -------
<S> <C> <C>
(IN THOUSANDS)
Accounts receivable:
Empacadora de Naranjas Azteca, S.A. de C.V. (Azteca).............. $ 170 $ --
Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA)....... 1,481 1,602
------ ------
$1,651 $1,602
====== ======
</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 $190,000, $286,000 and $146,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
During 1997, 1998 and 1999, the Company paid Jakes Jordaan, PLLC (and its
predecessor Jordaan and Pennington, PLLC) amounts of $179,962, $310,182 and
$170,379, respectively, for legal services rendered. Mr. Jordaan, a director
and, commencing in February 1998, chairman of the Company, is a member of Jakes
Jordaan, PLLC.
At December 31, 1999 the Company had a promissory note receivable from a
certain director in the amount of $186,000. This promissory note is unsecured
and bears interest at the rate of 10% per annum and is due on demand.
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 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 entered into a
sublease agreement for the idle Lawrence plant facility commencing April 1, 1999
at an amount approximating its obligations under the lease. 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 a 642 acre citrus grove from
related parties. The related party citrus grove lease expires in 2005.
36
<PAGE> 37
Future minimum payments under non-cancelable operating leases with initial
terms of one year or more at December 31, 1999, consist of the following:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER TOTAL
-------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
2000............. $ 78 $ 598 $ 676
2001............. 78 391 469
2002............. 78 406 484
2003............. 78 398 476
2004............. 78 393 471
Thereafter....... 78 53 131
-------- --------- ---------
$ 468 $ 2,239 $ 2,707
======== ========= =========
</TABLE>
Rent expense was $1,234,000, $1,382,000 and $1,543,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
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, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards ............ $ 4,897 $ 8,877
Inventories ................................. 424 571
Asset tax credit ............................ 928 1,006
Credit available to offset Mexican taxes .... 237 277
Accrued expenses ............................ 145 112
Bad debt reserve ............................ 215 282
Intangible assets ........................... 345 597
Other ....................................... 329 113
--------- ---------
Total deferred tax assets ..................... 7,520 11,835
Less U.S. valuation allowance ................. (3,868) (6,591)
--------- ---------
Net deferred tax assets ....................... $ 3,652 $ 5,244
========= =========
Deferred tax liabilities:
Depreciation ................................ $ 1,954 $ 2,076
Inventories ................................. 5,689 5,306
Other ....................................... 517 407
--------- ---------
Deferred tax liabilities ...................... $ 8,160 $ 7,789
========= =========
</TABLE>
37
<PAGE> 38
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,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
United States ......................... $ (7,144) $ (2,466) $ (7,689)
Mexico ................................ (2,640) 473 (6,431)
Other ................................. -- (193) (341)
--------- --------- ---------
$ (9,784) $ (2,186) $ (14,461)
========= ========= =========
</TABLE>
The components of the provision for income taxes include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
U.S. federal - current ..................... $ (76) $ -- $ --
U.S. state - current ....................... 14 -- --
U.S. deferred .............................. 565 -- --
--------- --------- ---------
503 -- --
--------- --------- ---------
Foreign - current .......................... 40 160 498
Foreign - deferred ......................... (508) 619 (1,963)
--------- --------- ---------
(468) 779 (1,465)
--------- --------- ---------
$ 35 $ 779 $ (1,465)
========= ========= =========
</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,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Provision at 34% statutory rate............... $ (3,327) $ (743) $ (4,883)
State income tax (net of federal benefit)..... (228) (69) (233)
Permanent differences and foreign taxes....... 850 782 740
Other......................................... (250) (69) 188
Change in U.S. valuation allowance............ 2,990 878 2,723
--------- --------- ---------
$ 35 $ 779 $ (1,465)
========= ========= =========
</TABLE>
The Company has a net operating loss carryforward in the United States of
$13,106,000 which begins to expire in 2011 and in Mexico of $11,320,000 which
begins to expire in 2006. The Mexican subsidiaries have asset tax credits
totaling $1,027,000 available to offset Mexican income tax which begin to expire
in 2000. One Mexican subsidiary also has a job creation credit of $277,000
available to offset income tax in Mexico, which will begin to expire in 2006.
NOTE 12 STOCK OPTIONS
In 1994, the Company adopted the 1994 Employee Stock Option Plan and an
Outside Director Stock Option Plan (the "1994 Plans"). Under the 1994 Plans, the
Company's Board of Directors were authorized to grant options to employees and
consultants and to its outside directors to purchase up to 820,000 and 100,000
shares respectively, of the Company's common stock which were reserved for such
purposes. The terms and vesting period for options granted under the 1994 Plans
were fixed by the Board of Directors at the time of grant, provided that the
exercise period was not greater than 10 years from the date of grant. The
exercise price for any options granted under the 1994 Plans for employees and
consultants could not be less than 100% and 85% of the fair market value of the
Company's common stock on the date of the grant for Incentive and Non-statutory
Stock Options, as defined, respectively. The exercise price for
38
<PAGE> 39
options granted under the 1994 Plans for outside directors could not be less
than 100% of the fair market value of the Company's common stock on the date of
grant.
During 1999, the Company adopted the 1999 Stock Option Plan (the "1999
Plan") under which stock options could be granted to employees, outside
directors and consultants to purchase common stock of the Company. The 1999
Plan, which is similar to the 1994 Plan for employees, is for a period of ten
years and has reserved 500,000 shares of the Company's common stock for stock
option grants. Effective with the adoption of the 1999 Plan, the Company
discontinued granting options under the 1994 Plans.
A summary of the status of all of the Company's stock options at December
31, 1997, 1998 and 1999 and the changes during the periods ended are presented
in the following tables.
<TABLE>
<CAPTION>
1994 PLANS
----------
EMPLOYEE STOCK OUTSIDE DIRECTORS STOCK
OPTION PLAN OPTION PLAN
------------------------- ------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Options outstanding, January 1, 1997 ...... 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
Granted ............................... 50,000 2.63 -- --
Forfeited ............................. (135,500) 4.63 (5,000) 7.25
--------- ----------
Options outstanding, December 31, 1999 .... 243,000 5.94 35,000 5.46
========= ==========
Exercisable at December 31,
1997 .................................. 181,125 4.13 75,500 5.54
1998 .................................. 142,500 4.85 40,000 5.67
1999 .................................. 189,749 5.80 35,000 5.46
Weighted-average fair value of options
granted during the years ended:
December 31, 1997 ..................... $ 3.10 $ 2.53
December 31, 1998 ..................... 1.22 1.01
December 31, 1999 ..................... 0.67 --
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
1999 PLAN
---------
WEIGHTED-AVERAGE
EXERCISE
OPTIONS PRICE
-------- ----------------
<S> <C> <C>
Granted............................... 250,000 $ 2.53
--------
Options outstanding, December 31, 1999.... 250,000 2.53
========
Exercisable at December 31, 1999.......... 73,750 2.59
Weighted-average fair value of options
granted during the year-ended:
December 31, 1999..................... $0.39
</TABLE>
Options outstanding at December 31, 1999 under the 1994 Plans for employees
and consultants had exercise prices that ranged from $2.63 to $7.25 and a
weighted average remaining contractual life of 2.6 years. At December 31, 1999
outstanding outside director options under the 1994 Plans had exercise prices
that ranged from $2.875 to $17.00 and a weighted-average remaining contractual
life of 2.6 years. Under the 1994 Plans, all options granted to outside
directors became exercisable immediately, whereas options granted to employees
during 1997 and 1998 vest ratably over four years.
Options outstanding at December 31, 1999 under the 1999 Plan had
exercisable prices that ranged from $2.50 to $2.938 and a weighted-average
remaining contractual life of 4.9 years. Under the 1999 Plan, all options
granted to outside directors become immediately exercisable and options granted
to employees and consultants 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 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 1997,
1998 and 1999, respectively: risk-free interest rates of 6.2%, 4.7% and 5.4% and
a weighted-average expected life of the option of 4.0, 3.6 and 2.2 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 in 1997 and 1998 and .6
assumed in 1999.
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.
40
<PAGE> 41
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,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss .............. $ (9,859) $ (3,126) $(13,233)
Pro forma net loss per share:
Basic ....................... (1.15) (0.31) (0.98)
Diluted ..................... (1.15) (0.31) (0.98)
</TABLE>
Because FASB 123 is applicable only to options and stock-based awards
granted subsequent to December 31, 1994, its pro forma effect is not fully
reflected in the information for years prior to 1998.
NOTE 13 SHAREHOLDERS' EQUITY
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.
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.
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.
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 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 provisions of Mexican law 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.
41
<PAGE> 42
NOTE 15 COMMITMENTS AND CONTINGENCIES
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 (the "Lemon Project"), with a ten year renewal option, for the
production of Italian lemons. Pursuant to the terms of the Supply Contract, 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. The status of the Lemon Project as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Hectares Acres
-------- -------
<S> <C> <C>
Land -
Acquired 3,032 7,489
Unpurchased or subcontracted 468 1,156
Preparation and Planting -
Prepared and planted 2,340 5,780
Prepared but not planted 460 1,136
Acquired land to be prepared and planted 232 573
Expenditures -
Total projected expenditures $18.5 million
Incurred since inception 10.5 million
Projected for year 2000 and beyond 8.0 million
</TABLE>
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 has paid a non-refundable deposit of $1.9 million for
the right to purchase all the issued and outstanding shares of stock of
Frutalamo from its existing shareholder. The agreement also required the
Company to pay a contractual penalty of $1.0 million to the owner of Frutalamo
in the event a purchase of the shares is not completed. The Company subsequently
has entered into a letter of intent to purchase the shares which applies the
previous deposits paid to Frutalamo as the down payment and waives the
contractual penalty of $1.0 million.
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 term of the operating agreement, which has been
extended to January 1, 2001, the Company has the option to buy the IHMSA
facility for $4.5 million. 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, 1999 amounts due from IHMSA of $1,602,000 includes $1,481,000 that
was a cash advance used to reduce IHMSA's outstanding debt. This amount will be
applied to the purchase price when the Company elects to purchase the facility
pursuant to its purchase option, which is expected to occur during 2000.
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 two 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
42
<PAGE> 43
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.
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, 1999
Revenues from external customers ....... $ 54,070 $ 12,153 $ 66,223
Inter-segment revenues ................. 381 -- 381
Interest expense ....................... 2,637 373 3,010
Interest revenue ....................... 212 97 309
Depreciation & amortization expense .... 2,792 459 3,251
Impairment loss ........................ 714 -- 714
Segment loss ........................... (8,179) (2,488) (10,667)
Segment assets ......................... 78,846 31,936 110,782
Expenditures for long-lived assets ..... 996 4,959 5,955
YEAR ENDED DECEMBER 31, 1998
Revenues from external customers ....... $ 50,140 $ 22,171 $ 72,311
Inter-segment revenues ................. 350 14 364
Interest expense ....................... 2,491 1,564 4,055
Interest revenue ....................... 39 94 133
Depreciation & amortization expense .... 2,540 358 2,898
Impairment loss ........................ 1,840 -- 1,840
Segment income (loss)................... (3,156) 2,919 (237)
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 ....... $ 51,748 $ 13,679 $ 65,427
Inter-segment revenues ................. 1,098 100 1,198
Interest expense ....................... 2,048 1,217 3,265
Interest revenue ....................... 273 158 431
Depreciation & amortization expense .... 2,553 246 2,799
Segment loss ........................... (5,884) (1,842) (7,726)
Segment assets ......................... 82,157 26,490 108,647
Expenditures for long-lived assets ..... 7,219 4,488 11,707
</TABLE>
The following are reconciliations of reportable segment revenues, profit or
loss, and assets to the Company's consolidated totals.
43
<PAGE> 44
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Total external revenues for reportable segments ... $ 65,427 $ 72,311 $ 66,223
Inter-segment revenues for reportable segments .... 1,198 364 381
Elimination of inter-segment revenues ............. (1,198) (364) (381)
--------- --------- ---------
Total consolidated revenues ...... $ 65,427 $ 72,311 $ 66,223
========= ========= =========
PROFIT OR LOSS
Total profit or loss for reportable segments ...... $ (7,726) $ (237) $ (10,667)
Increase in intercompany profit in inventory ...... (173) -- --
Subsidiary acquisition costs recognized in
consolidation ................................... (283) (283) (283)
Unallocated corporate general and administrative
expenses ........................................ (1,123) (1,788) (1,867)
--------- --------- ---------
Loss before disposal of certain operations,
income taxes and extraordinary gain ......... $ (9,305) $ (2,308) $ (12,817)
========= ========= =========
ASSETS
Total assets for reportable segments .............. $ 121,178 $ 110,782
Other assets ...................................... 53,338 65,505
Elimination of intercompany profits in inventory .. (548) (548)
Elimination of intercompany receivables ........... (62,991) (61,295)
Allocation of acquisition costs of subsidiaries
recorded in consolidation ....................... (15,319) (28,958)
Reclassification of deferred tax assets recorded in
consolidation ................................... (2,145) (3,132)
--------- ---------
Total consolidated assets ... $ 93,513 $ 82,352
========= =========
</TABLE>
OTHER SIGNIFICANT ITEMS
<TABLE>
<CAPTION>
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
--------- ----------- ------------
<S> <C> <C> <C>
Year ended December 31, 1999:
Interest expense...................... $ 3,010 $ 3 $ 3,013
Depreciation & amortization expense... 3,251 23 3,274
Expenditures for long-lived assets.... 5,955 -- 5,955
Year ended December 31, 1998:
Interest expense...................... $ 4,055 $ 32 $ 4,087
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...................... $ 3,265 $ (45) $ 3,220
Depreciation & amortization expense... 2,799 666 3,465
Expenditures for long-lived assets.... 11,707 391 12,098
</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
44
<PAGE> 45
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,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
United States .......................... $ 58,285 $ 52,548 $ 48,493
Japan .................................. 3,393 4,144 9,633
Mexico ................................. 1,943 1,831 6,919
Europe ................................. 1,806 13,350 1,178
Canada ................................. -- 438 --
--------- --------- ---------
Consolidated total .... $ 65,427 $ 72,311 $ 66,223
========= ========= =========
LONG-LIVED ASSETS
United States .......................... $ 11,435 $ 7,536
Mexico ................................. 38,601 39,835
Other foreign countries ................ 1,018 --
--------- ---------
Consolidated total .... $ 51,054 $ 47,371
========= =========
</TABLE>
NOTE 17 SUBSEQUENT EVENTS
On February 21, 2000, the Company entered into a $5.1 million (48,000,000
Mexican pesos) nine year term financing agreement (the "Agreement") with Fondo
de Capitalizacion e Inversion del Sector Rural ("FOCIR"), a public Trust of the
Mexican Federal Government that invests in agricultural projects with long-term
viability. Under the terms of the Agreement, FOCIR will provide up to $5.1
million to fund additional Lemon Project costs, which will include land
preparation, planting, equipment, irrigation systems and grove maintenance. This
financing represents the purchase of an equity interest in GISE of approximately
17.6%. Amounts advanced under this agreement will be classified outside equity
due to mandatory redemption provisions.
The terms of the Agreement provide for the calculation and accrual of annual
accretion using one of two alternative methods. The first method determines
accretion by multiplying the years Mexican inflation index rate plus 4.2% by the
FOCIR balance. The second method determines annual accretion by multiplying
GISE's shareholders equity, using Mexican generally accepted accounting
principles, at the end of the year by a factor of 1.036 and then multiplying by
the FOCIR equity interest percent. The calculation that results in the greater
amount will be the annual accretion amount. Accretion accumulates annually over
the nine-year period of the Agreement and is paid only upon expiration or early
termination of the Agreement. The Agreement also contains, among other, certain
provisions relating to GISE's future financial performance, the establishment of
an irrevocable trust guaranteeing the FOCIR loan, which includes transferring to
the trust common shares that represent 33.4% of GISE's outstanding shares and
the governance of GISE.
On April 17, 2000, the Company entered into a Stand-by Funding Commitment (the
"Commitment") with its largest shareholder (the "Shareholder") to sell, at the
Company's option, on or before July 1, 2000, a $2.5 million 12% Convertible
Subordinated Debenture (the "Debenture") subject to certain terms and
conditions. The Shareholder, upon purchase, has the option at anytime during the
a five year period to convert the Debenture into Company common stock at 75% of
the average closing prices for the Company's common stock over a thirty-day
period prior to exercise. The Commitment will terminate upon completion of
specified future financial transactions by the Company.
45
<PAGE> 46
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 2000 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 2000 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 2000 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 2000 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) FINANCIAL STATEMENTS:
See Index to Financial Statements (Item 8).
(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)
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C>
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)
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)
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C>
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.A. "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
Cooperatieve 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 Cooperatieve 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)
10.37 Fifth 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 17, 1999(14)
10.38 The UniMark Group, Inc. 1999 Stock Option Plan(14)
10.39 Employment Agreement by and among The UniMark Group, Inc. and
Charles Horne dated as of March 31, 1999(14)
10.40 Employment Agreement by and among The UniMark Group, Inc. and
Roman Shumny dated as of November 20, 1998(14)
10.41 Sixth 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 January 3, 2000(15)
10.42 Seventh 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.,
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C>
the guarantors, and Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated
March 1, 2000(15)
10.43 Standby Funding Commitment by and among The UniMark Group, Inc.
and Promecap, S.C. dated April 17, 2000(15)
21 Subsidiaries of the Registrant(11)
23 Consent of Ernst & Young LLP(15)
27 Financial Data Schedule, year ended December 31, 1999(15)
27.1 Financial Data Schedule, restated, year ended December 31, 1998
(15)
27.2 Financial Data Schedule, restated, year ended December 31, 1997
(15)
</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.
(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) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10Q for the fiscal quarter ended June 30, 1999.
(15) Filed herewith.
(4) REPORTS ON FORM 8-K
Reports on Form 8-K during the fourth quarter ended December 31, 1999.
On October 26, 1999 the company filed a current report on Form 8-K
announcing that on October 11, 1999 the Company had sold all the issued
and outstanding shares of capital stock of Les Produits Deli-Bon Inc.,
a Quebec corporation to Francois Gravil - Guy Picard ("Buyers"), in
trust for the company to be owned and operated by the Buyers.
On November 18, 1999, the Company filed a current report on Form 8-K
announcing that on November 2, 1999 Simply Fresh Fruit, Inc., a
California corporation and wholly-owned subsidiary of the Company
("SFFI"), had sold substantially all of SFFI's assets (the "Assets") to
SFFI Company, Inc., a California corporation ("Buyer"), for
approximately $3.6 million in cash and notes.
49
<PAGE> 50
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 17, 2000
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 17, 2000
--------------------------------------
Jakes Jordaan
/s/ Soren Bjorn President, Chief Executive Officer and April 17, 2000
-------------------------------------- Director (Principal Executive Officer)
Soren Bjorn
/s/ Charles A. Horne Chief Financial Officer (Principal April 17, 2000
-------------------------------------- Financial and Accounting Officer)
Charles A. Horne
/s/ Rafael Vaquero Bazan Director April 17, 2000
--------------------------------------
Rafael Vaquero Bazan
/s/ Eduardo Vaquero Bazan Director April 17, 2000
--------------------------------------
Eduardo Vaquero Bazan
/s/ Federico Chavez Peon Director April 17, 2000
--------------------------------------
Federico Chavez Peon
/s/ Luis A. Chico Pardo Director April 17, 2000
--------------------------------------
Luis A. Chico Pardo
/s/ Jose I. De Abiega Pons Director April 17, 2000
--------------------------------------
Jose I. De Abiega Pons
/s/ Fernando Camacho Casas Director April 17, 2000
--------------------------------------
Fernando Camacho Casas
/s/ Jerry W. Johnson Director April 17, 2000
--------------------------------------
Jerry W. Johnson
</TABLE>
50
<PAGE> 51
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)
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)
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
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.A. "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
Cooperatieve 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 Cooperatieve 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)
10.37 Fifth 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 17, 1999 (14)
10.38 The UniMark Group, Inc. 1999 Stock Option Plan (14)
10.39 Employment Agreement by and among The UniMark Group, Inc. and
Charles Horne dated as of March 31, 1999 (14)
</TABLE>
<PAGE> 53
<TABLE>
<S> <C>
10.40 Employment Agreement by and among The UniMark Group, Inc. and
Roman Shumny dated as of November 20, 1998 (14)
10.41 Sixth 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 January 3, 2000 (15)
10.42 Seventh 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 March 1, 2000
(15)
10.43 Standby Funding Commitment by and among The UniMark Group, Inc.
and Promecap, S.C. dated April 17, 2000 (15)
21 Subsidiaries of the Registrant (11)
23 Consent of Ernst & Young LLP (15)
27 Financial Data Schedule, year ended December 31, 1999 (15)
27.1 Financial Data Schedule, restated, year ended December 31, 1998
(15)
27.2 Financial Data Schedule, restated, year ended December 31, 1997
(15)
</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.
(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) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10Q for the fiscal quarter ended June 30, 1999.
(15) Filed herewith.
<PAGE> 1
EXHIBIT 10.41
SIXTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This Sixth Amendment to Revolving Credit Agreement (the "SIXTH
AMENDMENT") made as of January 3, 2000, 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
INDUSTRLAS 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"), the Third Amendment to
Revolving Credit Agreement made as of May 22,1998 (the "THIRD AMENDMENT"), the
Fourth Amendment to Revolving Credit Agreement dated as of December 31, 1998
(the "FOURTH AGREEMENT"), the Fifth Amendment to Revolving Credit Agreement
dated as of May 17, 1999 (the "FIFTH AGREEMENT")(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 3, 2000, and is evidenced by the Third Renewal Revolving Note
dated as of May 17, 1999 (the "NOTE").
<PAGE> 2
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, and which
uncommitted revolving loan facility was reduced in principal amount effective
November 12, 1999 to $4,250,000 (Four Million Two Hundred Fifty Thousand
Dollars, currency of the United States of America).
D. ICMOSA, as borrower, and the Lender executed a Revolving Loan
Agreement with Security Interest on Apri1 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, and which
uncommitted revolving loan facility was reduced in principal amount effective
November 12, 1999 to $3,632,000 (Three Million Six Hundred Thirty Two Thousand
Dollars, currency of the United States of America).
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").
2
<PAGE> 3
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,
the 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 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. Pursuant to that Fourth Amendment to Revolving Credit Agreement
dated as of December 31, 1998, Lender renewed and extended to May 17,1999, the
revolving loan extended to Borrower under the Credit Agreement and evidenced by
the Note.
K. Group and its Subsidiaries, including the Borrower, and the Lender
did execute and deliver Waiver of Defaults dated as of April 14, 1999 by the
terms of which the Lender did waive certain defaults existing under the Loan
Agreements.
L. Pursuant to that Fifth Amendment to Revolving Credit Agreement dated
as of May 17, 1999, Lender, among other things, renewed and extended to January
3, 2000, the revolving loan extended to Borrower under the Credit Agreement and
evidenced by the Note.
M. Group and its Subsidiaries, including the Borrower, and the Lender
did execute and deliver Waiver of Defaults dated as of November 12, 1999 by the
terms of which the Lender did waive certain defaults existing under the Loan
Agreements and did consent to the sale of substantially all of the assets of
Simply Fresh Fruit, Inc., a wholly-owned Subsidiary of Borrower, in accordance
with the terms and conditions contained in that Asset Purchase Agreement dated
October 18, 1999, and to the sale of 100% of the issued and outstanding shares
of Les Products Deli-Bon, Inc., a wholly owned Subsidiary of Group, in
accordance with the terms and conditions of that Stock Purchase Agreement dated
as of October 11, 1999.
N. 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 17, 1999, which Note matures on January 3, 2000.
O. The Lender has agreed to renew and extend the revolving loan now
outstanding under the Credit Agreement and evidenced by the Note, subject to the
terms and conditions hereinafter provided.
3
<PAGE> 4
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:
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, the Fourth
Amendment, the Fifth Amendment this Sixth Amendment to Revolving Credit
Agreement ("SIXTH 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 Sixth
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 March 31, 2000, or any other date on
which the Commitment terminates pursuant to the terms hereof."
b. 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 Fourth Renewal Revolving Note
of even date herewith shall be substituted in verbatim therefor:
"Revolving Note" means the completed and executed Fourth Renewal
Revolving Note payable to the Lender in the form attached hereto as
Exhibit 2.2E and any renewals, extensions, rearrangements or
restatements thereof and any substitutions or replacements therefor."
c. Exhibit 2.2D, Form of Renewal Revolving Note, shall be wholly
replaced by Exhibit 2.2E, Form of Third Renewal Revolving Note, which is
attached hereto as Exhibit 2.2E 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):
4
<PAGE> 5
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 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
5
<PAGE> 6
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.
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 title 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.
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.
6
<PAGE> 7
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 Sixth Amendment executed by
Borrower, each Guarantor, ICMOSA, GISE and Agromark.
b. The Lender shall have received the Third Renewal Revolving Note
dated as of January 3, 2000 and executed by Borrower, such Third Renewal
Revolving Note to be in renewal and extension of the unpaid principal balance of
the Second Renewal Revolving Note dated as of May 17, 1999.
c. Corporate resolutions of each of Borrower, Guarantor, ICMOSA,
GISE and Agromark authorizing the execution, delivery and performance of this
Sixth 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 Sixth 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 Sixth Amendment or any of the other Loan Documents on
behalf of Foods executed by the President and 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.
7
<PAGE> 8
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 Sixth Amendment or any of the
other Loan Documents on behalf of International executed by the President and by
the Secretary of International; such certification maybe 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 Sixth 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 Sixth 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 Sixth 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 thereq11irementsspecified 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 Sixth 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
Sixth Amendment and any other documents in connection therewith.
m. The Lender shall have received such other documents, opinions,
certifications, consents, waivers, agreements and evidence as the Lender may
reasonably request.
8
<PAGE> 9
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 anyone 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.
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 here of 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 the Agreement
to be duly executed by their respective duly authorized officers to be effective
as of the date first above written.
BORROWER AND OBLIGATED PARTY:
UNIMARK FOODS, INC., a Texas corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
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:
-----------------------------------------------
ROBERT STEVENS, VICE PRESIDENT
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
OTHER OBLIGATED PARTIES:
THE UNIMARK GROUP, INC.
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
11
<PAGE> 12
UNIMARK INTERNATIONAL, INC.
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
SIMPLY FRESH FRUIT, INC.
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
GISE:
GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V.
A MEXICAN CORPORATION
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
ICMOSA:
INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A.
DE C.V., A MEXICAN CORPORATION
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
AGROMARK:
AGROMARK S.A. DE C.V., A MEXICAN CORPORATION
BY:
------------------------------------------------
NAME:
----------------------------------------------
TITLE:
---------------------------------------------
12
<PAGE> 1
EXHIBIT 10.42
SEVENTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This Seventh Amendment to Revolving Credit Agreement (the "SEVENTH
AMENDMENT") made as of March 1, 2000, 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
INDUSTRLAS 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"), the Third Amendment to
Revolving Credit Agreement made as of May 22,1998 (the "THIRD AMENDMENT"), the
Fourth Amendment to Revolving Credit Agreement dated as of December 31, 1998
(the "FOURTH AGREEMENT"), the Fifth Amendment to Revolving Credit Agreement
dated as of May 17, 1999 (the "FIFTH AGREEMENT"), the Sixth Amendment to
Revolving Credit Agreement dated as of January 3, 2000 (the "SIXTH AGREEMENT"
(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 March 1, 2000, and is evidenced by the Third
Renewal Revolving Note dated as of January 3, 2000 (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
<PAGE> 2
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, and which
uncommitted revolving loan facility was reduced in principal amount effective
November 12, 1999 to $4,250,000 (Four Million Two Hundred Fifty Thousand
Dollars, currency of the United States of America).
D. ICMOSA, as borrower, and the Lender executed a Revolving Loan
Agreement with Security Interest on Apri1 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, and which
uncommitted revolving loan facility was reduced in principal amount effective
November 12, 1999 to $3,632,000 (Three Million Six Hundred Thirty Two Thousand
Dollars, currency of the United States of America).
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").
2
<PAGE> 3
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,
the 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 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. Pursuant to that Fourth Amendment to Revolving Credit Agreement
dated as of December 31, 1998, Lender renewed and extended to May 17, 1999, the
revolving loan extended to Borrower under the Credit Agreement and evidenced by
the Note.
K. Group and its Subsidiaries, including the Borrower, and the Lender
did execute and deliver Waiver of Defaults dated as of April 14, 1999 by the
terms of which the Lender did waive certain defaults existing under the Loan
Agreements.
L. Pursuant to that Fifth Amendment to Revolving Credit Agreement dated
as of May 17, 1999, Lender, among other things, renewed and extended to January
3, 2000, the revolving loan extended to Borrower under the Credit Agreement and
evidenced by the Note.
M. Group and its Subsidiaries, including the Borrower, and the Lender
did execute and deliver Waiver of Defaults dated as of November 12, 1999 by the
terms of which the Lender did waive certain defaults existing under the Loan
Agreements and did consent to the sale of substantially all of the assets of
Simply Fresh Fruit, Inc., a wholly-owned Subsidiary of Borrower, in accordance
with the terms and conditions contained in that Asset Purchase Agreement dated
October 18, 1999, and to the sale of 100% of the issued and outstanding shares
of Les Products Deli-Bon, Inc., a wholly owned Subsidiary of Group, in
accordance with the terms and conditions of that Stock Purchase Agreement dated
as of October 11, 1999.
N. Pursuant to that Sixth Amendment to Revolving Credit Agreement dated
as of January 3, 2000, Lender, among other things, renewed and extended to March
1, 2000, the revolving loan extended to Borrower under the Credit Agreement and
evidenced by the Note.
3
<PAGE> 4
O. 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, which Note matures on March 1, 2000.
P. The Lender has agreed to renew and extend the revolving loan now
outstanding under the Credit Agreement and evidenced by the Note, 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:
3. 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.
4. 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, the Fourth Amendment, the Fifth Amendment the
Sixth Amendment and this Seventh Amendment to Revolving Credit Agreement
("SEVENTH AMENDMENT" and as the same shall hereafter be amended from time to
time.
4. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date above, the
following changes shall be made to the Credit Agreement:
b. The definition of "EXPIRATION DATE" in the Appendix of the
Credit Agreement as previously amended pursuant to the terms of the Sixth
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 March 31, 2000, or any other date on
which the Commitment terminates pursuant to the terms hereof."
b. In Section 2. 1 (ii), $9,500,000 shall be changed to
$8,000,000.
4
<PAGE> 5
c. 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 Fourth Renewal Revolving Note
of even date herewith shall be substituted in verbatim therefor:
"Revolving Note" means the completed and executed Fourth Renewal
Revolving Note payable to the Lender in the form attached hereto as
Exhibit 2.2F and any renewals, extensions, rearrangements or
restatements thereof and any substitutions or replacements therefor."
d. Exhibit 2.2E, Form of Renewal Revolving Note, shall be wholly
replaced by Exhibit 2.2F, Form of Fourth Renewal Revolving Note, which is
attached hereto as Exhibit 2.2F and incorporated herein by reference.
e. Exhibit 5.9(b), Borrowing Base Certificate, shall be wholly
replaced by Exhibit 5.9(b)B, Restated Borrowing Base Certificate, which is
attached hereto as Exhibit 5.9(b)B 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 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.
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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 title 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.
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.
7
<PAGE> 8
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 Seventh Amendment executed
by Borrower, each Guarantor, ICMOSA, GISE and Agromark.
b. The Lender shall have received the Fourth Renewal Revolving
Note dated as of March 1, 2000 and executed by Borrower, such Fourth Renewal
Revolving Note to be in renewal and extension of the unpaid principal balance of
the Third Renewal Revolving Note dated as of January 3, 2000.
c. Corporate resolutions of each of Borrower, Guarantor, ICMOSA,
GISE and Agromark authorizing the execution, delivery and performance of this
Seventh 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 Seventh 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 Seventh Amendment or any of the other Loan Documents
on behalf of Foods executed by the President and by the Secretary of Foods; such
certification may be conclusively relied upon by Lender until Lender
8
<PAGE> 9
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 Seventh Amendment or any of the
other Loan Documents on behalf of International executed by the President and by
the Secretary of International; such certification maybe 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 Seventh 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 Seventh 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 Seventh 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 thereq11irementsspecified by
Lender.
k. 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 Seventh 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
Seventh Amendment and any other documents in connection therewith.
9
<PAGE> 10
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 anyone 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.
17. 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.
18. 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.
10
<PAGE> 11
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 here of 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 the Agreement to be
duly executed by their respective duly authorized officers to be effective as of
the date first above written.
BORROWER AND OBLIGATED PARTY:
UNIMARK FOODS, INC., a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
11
<PAGE> 12
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:
---------------------------------------
ROBERT STEVENS, VICE PRESIDENT
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
OTHER OBLIGATED PARTIES:
THE UNIMARK GROUP, INC.
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
UNIMARK INTERNATIONAL, INC.
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
SIMPLY FRESH FRUIT, INC.
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
GISE:
GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V.
A MEXICAN CORPORATION
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
12
<PAGE> 13
ICMOSA:
INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A.
DE C.V., A MEXICAN CORPORATION
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
AGROMARK:
AGROMARK S.A. DE C.V., A MEXICAN CORPORATION
BY:
---------------------------------------
NAME:
-------------------------------------
TITLE:
------------------------------------
13
<PAGE> 1
EXHIBIT 10.43
THE UNIMARK GROUP, INC.
124 MCMAKIN ROAD
BARTONVILLE, TEXAS 76226
April 17, 2000
Promecap, S.C.
Bosque de Alisos No. 47A, 3er piso
Colonia Bosques de las Lomas
C.P. 05120 Mexico, D.F.
Mexico
Attention: Fernando Chico Pardo
RE: The UniMark Group, Inc.-- Stand-by Funding Commitment
Dear Fernando:
This letter confirms the firm commitment of Promecap, S.C., either
directly or through one or more affiliated or related entities (collectively,
"Promecap"), to purchase, at the election of The UniMark Group, Inc.
("UniMark"), on or before July 1, 2000, $2,500,000 of convertible subordinated
debentures (the "Convertible Debenture"), subject only to the terms and
conditions outlined below.
1. Terms of the Convertible Debentures. The terms of the Convertible
Debentures are outlined in Exhibit"A" hereto.
2. Subscription Agreement. Promecap's purchase of the Convertible Debenture
will be consummated pursuant to a Subscription Agreement with UniMark,
which will contain customary terms and provisions.
3. Consents. It is understood that Promecap's obligation to purchase the
Convertible Debenture will be subject only to UniMark receiving the
necessary consents, approvals and authorizations required in connection
with the issuance of the Convertible Debentures and subject to paragraph 4
below.
4. Termination of Funding Commitment. This Agreement shall automatically
terminate upon the earlier of:
a) If, prior to July 1, 2000, or the purchase of the Convertible
Debenture as provided herein, there shall be (i) a merger or
consolidation of UniMark, or either of UniMark's two primary
subsidiaries, with or into another corporation, (ii) the sale of
all, or substantially all, of the properties or assets or stock
of either of UniMark's two primary business segments, or (iii) a
joint venture with any other entity involving all or
substantially all of the assets of, or revenue from, either of
UniMark's two primary business segments (collectively, an
"Extraordinary Transaction"); or
b) if, prior to July 1, 2000 or the purchase of the Convertible
Debenture as provided herein, UniMark sells equity securities
(common stock, preferred stock, convertible debt securities or
subordinated debt) with gross proceeds to UniMark in excess of
$2.5 million (a "Significant Equity Financing"); or
<PAGE> 2
c) if, UniMark refinances all of its outstanding indebtedness with
Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A., "RaboBank
Nederland," New York Branch ("Refinancing").
5. Closing: In the event that neither an Extraordinary Transaction, a
Significant Equity Financing nor a Refinancing has occurred on or before
May 31, 2000, the purchase and sale of the Debenture shall occur within 5
business days after UniMark gives Promecap written notice of its election
to sell the Convertible Debenture to Promecap. It is agreed that UniMark
will not give such notice until May 31, 2000.
6. No Obligation To Sell: It is expressly understood and agreed that UniMark,
in its sole discretion, may elect not to sell the Convertible Debenture to
Promecap and nothing set forth herein creates an obligation on behalf of
UniMark to sell the Convertible Debenture Promecap.
7. Facility Fee: UniMark will pay Promecap a facility fee of $100,000 as
consideration for facilitating this Stand-by Funding Commitment, out of
available and unrestricted cash flow.
8. Governing Law: This Agreement will be governed by and construed in
accordance with the laws of the State of Texas, without regard to
principles of conflicts of laws.
9. Counterparts: This Agreement may be executed by the parties hereto in one
or more counterparts, and such counterparts, taken together, shall
constitute one and the same agreement of such parties. Any facsimile
signature of any party will constitute an original.
If the foregoing is acceptable to you, please execute and return the
enclosed copy of this Agreement to me by 5:00 P.M. on Monday, April 17, 2000.
Very truly yours,
THE UNIMARK GROUP, INC.
By: Soren Bjorn
Chief Executive Officer
AGREED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
PROMECAP, S.C.
By:
Fernando Chico Pardo
Title: President
2
<PAGE> 3
EXHIBIT A
---------
CONVERTIBLE SUBORDINATED DEBENTURE TERM SHEET
<TABLE>
<S> <C>
Issuer: The UniMark Group, Inc. (Nasdaq NMS: UNMG) ("UniMark").
Issue: $2,500,000 principal amount of 12% Convertible Subordinated Debenture
(the "Debenture").
Closing Date: As soon as possible after UniMark gives Promecap written notice of its
intention to sell to Promecap the Convertible Debentures.
Maturity Date of
Debentures: 3 years from date of issuance.
Interest Payment Dates: The Debenture bears interest at a rate of 12% per annum, payable annually in
arrears in cash.
Conversion Feature: At any time, the purchaser may convert the Debenture into common stock at the
Conversion Price in effect.
Conversion Price: 75% of the average of the closing sales prices for the UNMG Common Stock for the
thirty (30) consecutive trading days ending the trading day before UniMark
gives Promecap written notice of its intention to sell to Promecap the
Convertible Debenture.
Anti-dilution Protection: Proportional adjustments for splits, dividends, recapitalization, rights
offerings and the like.
Optional Redemption: At any time, UniMark may redeem the Debenture, at its option, in whole or in part, with 20
trading days notice, at the following redemption prices:
(a) Through the first anniversary date of the issuance, at 113% of the
principal amount of the Debenture outstanding.
(b) After the second anniversary date
through the third anniversary date
of the issuance, at 108% of the
principal amount of the Debenture
outstanding.
Payment for redemption of the Debenture will
include amounts due for accrued and unpaid
interest, if any, to the date of redemption.
Ranking of Debenture: The Debenture will be a general unsecured obligations, fully
and completely subordinated in right and payment to all
existing and future senior debt of UniMark, including all
principal, interest, fees, expenses, penalties, overdrafts
and swap obligations, under a subordination agreement
satisfactory in form and content to the holder of the senior debt.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Voting Rights: No voting rights until conversion.
Registration Rights: UniMark will grant Promecap one
demand registration and unlimited number of
customary piggyback registration rights with
respect to shares of UNMG common stock
underlying the Debenture.
Indemnification: Normal indemnification.
</TABLE>
<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 19, 2000, 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, 1999.
ERNST & YOUNG LLP
Dallas, Texas
April 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,068
<SECURITIES> 0
<RECEIVABLES> 8,045
<ALLOWANCES> 378
<INVENTORY> 15,521
<CURRENT-ASSETS> 30,591
<PP&E> 50,359
<DEPRECIATION> 8,972
<TOTAL-ASSETS> 82,352
<CURRENT-LIABILITIES> 35,454
<BONDS> 6,207
0
0
<COMMON> 139
<OTHER-SE> 40,691
<TOTAL-LIABILITY-AND-EQUITY> 82,352
<SALES> 66,223
<TOTAL-REVENUES> 66,223
<CGS> 58,593
<TOTAL-COSTS> 58,593
<OTHER-EXPENSES> 3,650
<LOSS-PROVISION> 189
<INTEREST-EXPENSE> 3,013
<INCOME-PRETAX> (14,461)
<INCOME-TAX> (1,465)
<INCOME-CONTINUING> (12,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,996)
<EPS-BASIC> (0.97)
<EPS-DILUTED> (0.97)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,247
<SECURITIES> 0
<RECEIVABLES> 9,927
<ALLOWANCES> 657
<INVENTORY> 22,320
<CURRENT-ASSETS> 39,443
<PP&E> 49,347
<DEPRECIATION> 8,000
<TOTAL-ASSETS> 93,513
<CURRENT-LIABILITIES> 36,968
<BONDS> 7,833
0
0
<COMMON> 119
<OTHER-SE> 48,712
<TOTAL-LIABILITY-AND-EQUITY> 93,513
<SALES> 72,311
<TOTAL-REVENUES> 72,311
<CGS> 56,163
<TOTAL-COSTS> 56,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 4,087
<INCOME-PRETAX> (2,186)
<INCOME-TAX> 779
<INCOME-CONTINUING> (2,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,965)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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
0
<COMMON> 86
<OTHER-SE> 38,166
<TOTAL-LIABILITY-AND-EQUITY> 94,616
<SALES> 65,427
<TOTAL-REVENUES> 65,427
<CGS> 52,023
<TOTAL-COSTS> 52,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 542
<INTEREST-EXPENSE> 3,220
<INCOME-PRETAX> (9,784)
<INCOME-TAX> 35
<INCOME-CONTINUING> (9,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 139
<CHANGES> 0
<NET-INCOME> (9,680)
<EPS-BASIC> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
