-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TzzxOM38vxub/mdjXgPHBmXU2t5CXxesvX/1NKG1O1zloXkt/uEqp4pE7XmeuEpF //i1pDaokJg1DQ0YW/+N6w== 0000950134-98-002780.txt : 19980401 0000950134-98-002780.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950134-98-002780 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIMARK GROUP INC CENTRAL INDEX KEY: 0000922712 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 752436543 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-26096 FILM NUMBER: 98582223 BUSINESS ADDRESS: STREET 1: UNIMARK HOUSE STREET 2: BARTONVILLE CITY: ARGYLE STATE: TX ZIP: 76226 BUSINESS PHONE: 8174912992 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 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, 1997 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 March 20, 1998 was $34,356,584. The number of shares of common stock outstanding as of March 20, 1998 was 8,598,833. DOCUMENTS INCORPORATED BY REFERENCE: The UniMark Group, Inc.'s 1998 Proxy Statement contains much of the information required in Part III of this Form 10-K, and portions of the 1998 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 1998 Proxy Statement are incorporated by reference. The portions of the 1998 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. 2 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The discussion in this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this report. Statements contained in this report that are not historical facts are forward-looking statements that are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. A number of important factors could cause the Company's actual results for 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These factors include, without limitation: growth and integration of new businesses; uncertainty of new product development and market acceptance of new products; dependence upon availability and price of fresh fruit; competition; dependence upon significant customers; seasonality and quarterly fluctuations; risk related to product liability and recall; limited intellectual property protection; government regulation; dependence on key management; economic, political and social conditions in Mexico; exchange rate fluctuations and inflation; and labor relations and costs. These factors are listed under "Risk Factors" in the Company's prospectus dated June 14, 1996. PART I ITEM 1. BUSINESS. GENERAL The UniMark Group, Inc. a Texas corporation ("UniMark" or the "Company"), is a vertically integrated citrus and tropical fruit growing, processing, marketing and distribution company with operations in Mexico, the United States, Canada and the United Kingdom . The UniMark Group, Inc. was organized in 1992 to combine the operations of Industrias Citricolas de Montemorelos S.A. de C.V. ("ICMOSA"), a Mexican citrus and tropical fruit processor which commenced operations in 1974, with UniMark Foods, Inc. ("UniMark Foods"), a company that marketed and distributed ICMOSA's products in the United States. The Company focuses on niche citrus and tropical fruit products including fresh, chilled, frozen and canned cut fruits and other specialty food ingredients. In addition, as a result of its acquisition of Grupo Industrial Santa Engracia S.A. de C.V. ("GISE"), UniMark is a major Mexican producer of citrus concentrate, oils and juices. The Company processes and packages its products at eight plants in Mexico, one in California, and one in Quebec, Canada. The Company's Mexican and Californian plants are strategically located in major fruit growing regions. The Company utilizes food brokers and distributors to market and distribute its cut fruit products, under the brand names SUNFRESH(R), Fruits of Four Seasons(R), Flavor Fresh(TM) and Kledor(R) and under various private labels to supermarket chains, foodservice distributors, wholesale clubs, specialty grocery stores and industrial users throughout the United States and Canada. In addition, the Company has developed and utilizes a unique processing method that separates cold-peeled citrus fruit into individual juice-containing "cell-sacs." These cell-sac products 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. The Company's citrus concentrate and single strength citrus juices are sold directly to major juice importers and distributors in North America, Europe and the Pacific Rim. STRATEGY 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: 2 3 Operating Strategy Expand vertical integration of growing, processing, marketing and distribution operations. UniMark intends to continue its vertical integration strategy. UniMark believes that by vertically integrating its growing, processing, marketing and distribution operations, the Company can effectively control the availability, cost and quality of its products. Expand fruit growing operations in Mexico. To ensure the availability of the highest quality raw materials, UniMark intends to expand its fruit growing operations in Mexico, utilizing advanced agricultural practices. UniMark believes that Mexico's favorable climate and soil conditions, coupled with competitive labor and land costs, offer significant opportunities to grow high quality fruits in a cost effective manner. Capitalize on brand awareness and market penetration. In the retail market, UniMark intends to capitalize on the brand awareness and market penetration attained by its SUNFRESH(R) brand name products. Utilizing its "Fruit Made Easy(R)" concept, UniMark plans to expand its line of specialty chilled, frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of healthy, low-fat foods with a multitude of vitamins to the increasingly health conscious consumer. Introduce New Cut Fruit Products. UniMark believes that a significant opportunity exists for the introduction of new cut fruit products. In 1998, the Company plans to introduce or expand introduction of three new product categories: Canned Products. Initial market test of the Company's canned citrus and tropical fruit products was met with positive reaction from retailers and consumers. During 1988, the Company intends to expand these canned products into broad scale distribution. Fruit Jelite. In the second quarter of 1998, UniMark plans to reintroduce its Fruit Jelite(R) line of chilled gelatin snack products. The first test in 1997 indicated that some product modifications were necessary including the introduction of multi-pack units. Frozen to Fresh. Utilizing the Company's cryogenic freezing technology, UniMark plans to introduce two product lines, one for food service and one for retail, of "frozen to fresh" single-serve cups. At the same time, the Company intends to improve its initial IQF food service concepts. UniMark's product development and commercialization efforts are subject to all of the risks inherent in the development of new products. Expand Into New Markets. In the fall of 1997, UniMark opened a trading office in the United Kingdom, under the name of UniMark Foods Europe, Ltd. ("UniMark Europe"). This subsidiary focuses on the sales and marketing of UniMark's frozen products within the United Kingdom and Europe. The Company currently has market tests running in several food service establishments within the UK. The Company expects to start tests in retail stores in the second quarter of 1998. UniMark Europe has entered into an agreement with The Fruit Store, Ltd. ("Fruit Store") under which UniMark Europe can use Fruit Store facilities for re-packing, storage and shipping of products. In addition, Fruit Store provides administrative services to UniMark Europe. Expand position as a leading Mexican juice exporter to U.S., European and Asian markets. With the 1996 acquisition of GISE, the Company is a major Mexican producer of citrus concentrate. The Company's goal is to expand its position as a leading exporter of high quality Mexican citrus juices to the U.S., European and Asian markets. Because of the high quality of Mexican citrus juice, it is often blended with juices from other citrus producing regions to enhance the quality of these other juices. RESTRUCTURING INITIATIVES In a concerted effort to maximize production efficiencies and improve profitability, the Company initiated several changes in its US and Mexican operations during the second half of 1997. In July, 1997 the Company discontinued chilled fruit production at its Lawrence, Massachusetts facility, consolidating this production at its more efficient facilities in Mexico. In September, 1997, the remaining fresh cut production was discontinued at the Lawrence facility because of insufficient contribution margin 3 4 to sustain this production, and the facility was limited in use to a warehousing and distribution center. By utilizing the larger capacity of the Company's new warehouse facility in McAllen, Texas and its strategic alliance with a national shipping and logistics company, the Company was able to further reduce costs by closing the Lawrence facility in January, 1998. The Company plans to sub-lease this facility. In August, 1997 the Company transferred its operations from its 20,000 square foot warehouse in Hidalgo, Texas to its recently acquired 110,000 square foot warehouse facility in McAllen, Texas that provides dry, chilled and frozen storage capacity. In addition, the Company entered into a strategic alliance with an independent shipping company to provide logistical and shipping services in an effort to ensure reliable, on time delivery and improve customer service. At its Los Angeles, California facility, the Company has made certain management changes including replacing the general manager and office manager. In addition, an employee leasing arrangement for production line workers has been eliminated and improvements in production processes have been implemented. The Company has also recently added two new high volume accounts. In Mexico, the Company has segregated its repacking operations and consolidated its production activities allowing for more efficient, specialized operations and improved utilization of plant capacity. In the fourth quarter of 1997, the Company began operating its new repack facility to mix and package all its mixed fruit salads. The facility is strategically located within the Company's new warehouse facility in Montemorelos, Mexico allowing for direct access of the preprocessed ingredients, improved response time and fresher products. This in turn allows the Company's existing production lines to concentrate solely on fruit processing. Because of this increase in capacity, the Company was able to shutdown its production lines at its Zamora and San Rafael plant facilities and to eliminate the need to outsource fruit processing to co-packers in 1998. During 1997, approximately five million pounds of fruit were processed by co-packers. These initiatives in Mexico have resulted in personnel reductions of approximately 600 people while improving productivity and plant utilization levels. 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 four key product categories. These categories include cut fruits, juices, specialty food ingredients and fresh fruit. The following is a description of each of these categories and their specific products: CUT FRUITS. Under the brand names of SUNFRESH(R), Fruits of Four Seasons(R), Kledor(R), Flavor Fresh(TM) and under various private labels, UniMark markets: Chilled fruit. The chilled fruit line includes mango slices, grapefruit segments, orange segments, pineapple chunks, sliced papaya, and a variety of fruit salads. These products are packed for retail, wholesale club and food service customers. IQF citrus and tropical fruit. UniMark is expanding its retail and foodservice business by marketing citrus and tropical fruit products utilizing its individual quick frozen ("IQF") process. UniMark believes that this IQF process allows it to process fruits at the peak of their season while preserving the fresh-like texture and taste of the fruit. The frozen line of fruit includes melon, mango, orange, grapefruit, papaya, pineapple and various combinations of products packed for food service and industrial customers. 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. 4 5 JUICES. 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. SPECIALTY FOOD INGREDIENTS. UniMark believes that significant market opportunities exist in providing customers with specialty food ingredient products that can be derived from processing citrus and tropical fruits. Presently, UniMark's specialty food ingredients include: Citrus cell-sacs. The Company has developed and utilizes a unique processing method that separates cold-peeled citrus fruit into individual juice-containing cell-sacs. These cell-sac products are sold to food and soft drink manufacturers in Japan to enhance the flavor and texture of fruit juices and desserts. Citrus 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. FRESH FRUIT. In 1997 the Company began marketing of fresh pineapple under the Simply Fresh(R) brand name. MARKETING, SALES AND DISTRIBUTION MARKETING. UniMark's marketing department develops brand strategies for the Company's products, including product development, pricing strategy, consumer and trade promotion, advertising, publicity and package design. This department's responsibilities include determining the allocation of resources between consumer and trade spending programs, pricing and profitability analysis, as well as product and packaging designs. In the retail and wholesale club markets, the Company's primary focus has been on the chilled fruit category. UniMark intends to capitalize and strengthen the brand awareness and market penetration attained by its SUNFRESH(R) and Flavor Fresh(TM) brands in the United States and the Kledor(R) brand in Canada. Under its "Fruit Made Easy(R)" slogan, UniMark's marketing strategy includes continued expansion of its comprehensive line of brand name specialty chilled, frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of healthy, low-fat foods with a multitude of vitamins to the health conscious consumer. The Company's marketing objectives include increasing "impulse buying" of its retail products by building greater product visibility through "eye-catching" package designs, innovative rack systems and trial package promotions. In addition, the Company utilizes trade promotions, such as quarterly price allowances, to generate "feature promotion activity" for its products. The SUNFRESH(R) 5 6 product line also receives substantial advertising support in trade publications and national food shows throughout the year. In the foodservice arena, the focus is on securing market leadership in the chilled fruit category, primarily through private label programs with major foodservice distributors, and a strong branded approach utilizing the SUNFRESH(R) and Fruits of Four Seasons(R) labels in the United States and the Kledor(R) brand in Canada. Marketing efforts in these channels are directed toward trade usage programs and yearly trade rebates. SALES. UniMark's sales organization consists of six sales management teams primarily focusing on the management of independent food brokers or international representatives that directly interface with the customer. These teams are: retail sales, Japanese sales, wholesale club sales, foodservice sales, European sales and Canadian sales. The retail team is led by a sales manager and consists of four regional managers, each with geographic responsibility for approximately 25 percent of the United States. The Company's Japanese exports are directed by an export sales manager located in Mexico City who deals with agents primarily from Japanese trading companies. In addition, relationships with the Company's Japanese customers are handled by the Company's senior executives. The wholesale club market has one sales manager interfacing directly with key wholesale club distributors. The foodservice team is guided by a vice president of foodservice sales and four regional managers. In Europe, the Company is represented by a sales and marketing manager that works directly with the Company's customers. The Company's Canadian sales team operates out of Les Produits Deli-Bon Inc. ("Deli-Bon") utilizing independent food brokers throughout Canada although its primary focus is within the Province of Quebec. The following table shows, for the last three years, the amount and percentage of net sales contributed by the various market segments for the Company's products:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1995 1996 1997 ------------------- ------------------- ------------------- NET NET NET SALES PERCENT SALES PERCENT SALES PERCENT ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Retail sales ........................... $12,537 34.0% $18,190 27.9% $27,202 33.5% Foodservice sales ...................... 861 2.3 15,122 23.2 23,042 28.3 Citrus juice and oil sales ............. -- -- 12,376 19.0 13,679 16.8 Japan sales ............................ 12,116 32.9 7,367 11.3 3,393 4.2 Wholesale club sales ................... 7,061 19.2 7,894 12.1 11,303 13.9 Industrial and other sales ............. 4,291 11.6 4,289 6.5 2,665 3.3 ------- ------- ------- ------- ------- ------- Total ........................ $36,866 100.0% $65,238 100.0% $81,284 100.0% ======= ======= ======= ======= ======= =======
Retail sales. UniMark markets its products to more than 200 regional and national supermarket chains and wholesalers throughout the United States and Canada. In conjunction with its own national sales force, UniMark utilizes over 50 independent food brokers and distributors to sell its products. Food service sales. Sales to the United States government, fast food chains, restaurants, hospitals and other food service customers are made either directly to or through food service distributors by the Company's foodservice sales force. The Company is represented by more than 40 food service brokers. Japanese sales. UniMark exports a line of pasteurized citrus products and juice-containing citrus cell-sac products to Japan for use in the food and beverage industries. Although sales to industrial customers in Japan are facilitated through Japanese trading companies, the Company maintains direct relationships with its industrial customers. During 1995, 1996 and 1997 sales to the Company's Japanese customers, through 6 7 Mitsui Foods, Inc., a Japanese trading company, accounted for approximately 27.5%, 8.9% and 3.9%, respectively, of the Company's net sales. In 1998, the Company expects a reversal in the declining sales trend to Japan. Wholesale club sales. UniMark indirectly sells products to Sam's Wholesale Clubs and other wholesale clubs throughout the United States. During 1995, 1996 and 1997 indirect sales to Sam's Wholesale Clubs accounted for approximately 17.6%, 8.3% and 6.6%, respectively, of the Company's net sales. European sales. UniMark sells products directly to industrial users of IQF products, including orange, pineapple, mango and papaya products. The Company also sells its single serve "Frozen to Fresh" single serve cups to foodservice operators through certain foodservice distributors. Similar product concepts will be introduced this year to major retailers in the UK. In the UK, the Company uses its Flavor Fresh(TM) trade name. Industrial and other sales. Industrial and other sales consist primarily of IQF sales to industrial users in the United States for re-packing or further processing. 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 cut fruit products from its Mexican processing facilities to its new distribution center in McAllen, Texas. From there, deliveries are made through an arrangement the Company has with England Logistics, Inc. ("England"), a division of C.R. England & Sons of Salt Lake City, Utah. In March 1998, the Company has entered into a letter of intent for England to take over the management of the Company's warehouse operations in McAllen, Texas. In Canada, deliveries are made to customers by independent trucking companies from Deli-Bon's facilities. Products exported to Japan are shipped directly from Mexico. Products sold by UniMark Europe are either shipped directly to its customers or through a facility owned by Fruit Store. GISE transports finished product by common carrier to North American customers. Products to overseas customers are shipped directly in containers. 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 over 80% 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. For the 1997-98 growing season, the Company has entered into agreements with Mexican growers of mangos to supply the Company's anticipated demand. Substantially all of the oranges and melons used in the Company's operations are purchased from third-party growers throughout Mexico. UniMark has commenced a significant pineapple growing project. Initial production from this project began in 1997 and UniMark intends to expand this project until the Company has sufficient supply for its own processing needs. UniMark believes that production from this project not only will provide UniMark with a high quality supply of pineapples for processing but also will produce a significant amount of pineapple for the North American fresh fruit market. The Company purchases citrus from growers throughout Mexico. GISE's two juice plants are located in Cd. Victoria, Tamaulipas, Mexico and Poza Rica, Veracruz, Mexico in the heart of Mexico's two major citrus growing regions. 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 facility 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 two plants located in Mexico. 7 8 PROCESSING Cut Fruit. Upon arrival at the Company's processing plants, the fruit is inspected and washed. On the production line, the fruit is peeled and cut into various presentations (slices, sections, chunks, balls). Following this process, some fruits are further processed into juice-containing cell-sacs. In addition, some processed fruits are frozen utilizing the Company's IQF process. Other processed fruits are transferred directly into bulk storage or final product packaging (pails, jars and cans). After further processing, the juice-containing cell-sacs are canned while the frozen products are packaged in plastic bags or trays. The ICMOSA plant is the Company's main plant and serves as the hub for the Company's other Mexican processing plants, which primarily produce semi-processed product. At the ICMOSA plant, products are labeled and packaged for final shipment. ICMOSA also delivers bulk raw materials to Deli-Bon and Simply Fresh for packing into final presentations. Only limited processing takes place at Deli-Bon. While Simply Fresh relies mostly on raw materials from California growing regions some raw materials are provided by ICMOSA. The Company cans fruit at its ICMOSA and Puebla plants. Juice. 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 March 1, 1998, UniMark employed approximately 3,900 full-time employees, most of whom were located in Mexico. In Mexico, labor relations are governed by separate collective labor agreements between UniMark and the unions representing the particular group of employees. All of UniMark's employees in Mexico, whether seasonal or permanent, are affiliated with labor unions which are generally affiliated with a national confederation. Consistent with other labor practices in Mexico, wages are negotiated every year while other terms are negotiated every two years. In the United States and Canada, UniMark's employees are not covered by collective bargaining agreements. UniMark believes that its relations with all of its employees are good. COMPETITION The food industry, including each of the markets in which the Company competes, is highly competitive with respect to price and quality (including taste, texture, healthfulness and nutritional value). The Company faces direct competition from citrus processors with respect to its existing product lines and faces potential competition from numerous, well established competitors possessing substantially greater financial, marketing, personnel and other resources than the Company. The Company's fruit juice products compete broadly with all beverages available to consumers. In addition, the food industry is characterized by frequent introduction of new products, accompanied by substantial promotional campaigns. In recent years, numerous companies have introduced products positioned to capitalize on growing consumer preference for fresh fruit products. It can be expected that the Company will be subject to increasing competition from companies whose products or marketing strategies address these consumer preferences. 8 9 ENVIRONMENTAL MATTERS As a result of its agricultural, food and juice processing activities, the Company is subject to numerous foreign and domestic environmental laws and regulations. The operations of UniMark in Mexico are subject to Mexican federal and state laws and regulations relating to the protection of the environment. The principal legislation is the federal General Law of Ecological Balance and Environmental Protection (the "Ecological Law"), which is enforced by the Ministry of Social Development ("Sedesol"). Under the Ecological Law, rules have been promulgated concerning water pollution, air pollution, noise pollution and hazardous substances. Sedesol can bring administrative and criminal proceedings against companies that violate these environmental laws, and can also close non- complying facilities. The operations of UniMark in Canada are subject to Canadian federal and provincial laws and regulations relating to the protection of the environment including An Act Respecting Occupational Health and Safety (Quebec), the Canadian Environmental Protection Act (Canada), and the Environment Quality Act (Quebec). Similarly, the operations of UniMark in the United States are subject to United States federal and state laws and regulations relating to the protection of the environment. Although the Company believes that its facilities currently are in compliance with all applicable environmental laws, failure to comply with any such laws could have a material adverse effect on the Company. GOVERNMENT REGULATION The manufacture, processing, packing, storage, distribution and labeling of food and juice products are subject to extensive regulations enforced by, among others, the FDA and state, local and foreign equivalents thereof and to inspection by the United States Department of Agriculture and other federal, state, local and foreign agencies. Applicable statutes and regulations governing food products include "standards of identity" for the content of specific types of foods, nutritional labeling and serving size requirements and under "Good Manufacturing Practices" with respect to production processes. The Company believes that its products satisfy, and its new products will satisfy, all applicable regulations and that all of the ingredients used in its products are "Generally Recognized as Safe" by the FDA for the intended purposes for which they will be used. The Company, on a daily basis, tests its products at its internal laboratories and, from time to time, submits samples of its products to independent laboratories for analysis. Failure to comply with applicable laws and regulations could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on the Company. PRODUCT LIABILITY AND PRODUCT RECALL The testing, marketing, distribution and sale of food and beverage products entails an inherent risk of product liability and product recall. There can be no assurance that product liability claims will not be asserted against the Company or that the Company will not be obligated to recall its products. Although the Company maintains product liability insurance coverage in the amount of $5,000,000 per occurrence, there can be no assurance that this level of coverage is adequate. A product recall or a partially or completely uninsured judgment against the Company could have a material adverse effect on the Company. INTELLECTUAL PROPERTY RIGHTS The Company regards its trademarks, trade dress, trade secrets and similar intellectual property as important to its success. The Company has been issued a registered trademark for its SUNFRESH(R), Fruits of Four Seasons(R), Jalapeno Sam(R), Fruit Made Easy(R), Fruit Jelite(R), Simply Fresh(R) and Kledor(R) trademarks. The Company also utilizes the Flavor Fresh(TM) tradename. In addition, the Company holds patent rights with respect to certain fruit cutting machinery and a non-assignable, exclusive license to manufacture and sell certain fruit products in the US, Canada and Mexico. 9 10 ITEM 2. PROPERTIES. GROWING OPERATIONS To ensure the availability of the highest quality raw materials, UniMark intends to expand its fruit growing operations in Mexico, utilizing advanced agricultural practices. UniMark believes that Mexico's favorable climate and soil conditions, coupled with competitive labor and land costs, offer significant opportunities to grow high quality fruits in a cost effective manner. Presently, a majority of the Company's raw materials are provided by growers under various arrangements, including operating agreements and individual fixed price contracts to purchase entire production. The following table sets forth the Company's various agricultural projects:
PROPERTY NAME LOCATION ACREAGE CROP INTEREST ----------------------- ------------------- --------- ----------------- --------- Loma Bonita I Grove......... Loma Bonita, 190 acres White grapefruit Leased Oaxaca, Mexico Loma Bonita II Grove (1).... Loma Bonita, Oaxaca, 625 acres Pink grapefruit, Leased Mexico pineapple, hearts of palm. Villa Azueta I Grove (2).... Villa Azueta, 84 acres Pineapple growing Leased Veracruz, Mexico and packing. Villa Azueta II Grove....... Villa Azueta, 610 acres Pineapple Owned Veracruz, Mexico Azteca Grove (3)............ Montemorelos, Nuevo 144 acres White and Rio Red Leased Leon, Mexico grapefruit Las Tunas Grove............. Isla, 120 acres White and pink Leased Veracruz, Mexico grapefruit Victoria Grove.............. Cd. Victoria, 240 acres Oranges and Owned Tamaulipas, Mexico Italian lemons Victoria Grove II........... Cd. Victoria, 120 acres Italian lemons Owned Tamaulipas, Mexico Victoria Grove III.......... Cd. Victoria, 264 acres Italian lemons Owned Tamaulipas, Mexico Victoria Grove IV........... Cd. Victoria, 1,680 acres Italian lemons Owned Tamaulipas, Mexico (50% planted) Victoria Grove V............ Cd. Victoria, 4,080 acres Italian lemons to Purchase Tamaulipas, Mexico be planted. pending.
- --------- (1) Presently, this grove consists of approximately 240 acres of pink grapefruit, 300 acres of pineapple and 60 acres of hearts of palm. (2) Villa Azueta is the southern headquarters of UniMark's agricultural operations. The agricultural headquarters is used for the development of pineapple seedlings, as well as other agricultural crops, and the packing of fresh pineapple. In 1995, the Company entered into a 10-year lease for this facility and has an option to purchase the facility for fair market value determined at the time such option is exercised. (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. In October, 1996, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an affiliate of The Coca-Cola Company, entered into a ten year Supply Contract, with a ten year renewal option, for production of Italian lemons. Pursuant to the terms of this Supply Contract, GISE will plant and grow approximately 12,000 acres of Italian lemons for sale to Coca-Cola at pre-determined prices The Supply 10 11 Contract requires Coca-Cola to provide, free of charge, 750,000 lemon trees, enough to plant approximately 7,200 acres. In addition, the Supply Contract requires Coca-Cola to purchase all the production from the project. GISE subsequently negotiated an agreement to extract lemon oil from such lemons for Coca-Cola. UniMark believes that this arrangement will afford GISE with operational benefits by allowing GISE to process lemons during the off season and significantly expand the Company's agricultural operations in Mexico. FACILITIES The Company's principal processing facilities are described below:
APPROXIMATE NUMBER OF APPROXIMATE EMPLOYEES SQUARE (AS OF MARCH NAME LOCATION FOOTAGE 1, 1998) INTEREST ----------------------------- -------------------------------- ---------- ------------- ----------- FRUIT PROCESSING OPERATIONS ICMOSA Plant ................ Montemorelos, Nuevo Leon, Mexico 80,000 1,100 Owned (1) IHMSA Plant.................. Montemorelos, Nuevo Leon, Mexico 40,000 800 Leased (2) Azteca Plant................. Montemorelos, Nuevo Leon, Mexico 50,000 320 Leased (2) Puebla Plant................. Tlatlauquipec, Puebla, Mexico 50,000 500 Owned Isla Plant................... Isla, Veracruz, Mexico 32,000 300 Leased (3) San Rafael Plant (6)......... San Rafael, Veracruz, Mexico 28,500 400 Leased Zamora Plant (6)............. Zamora, Michoacan, Mexico 41,000 120 Leased (4) Deli-Bon Plant............... Quebec City, Quebec, Canada 16,800 36 Owned Simply Fresh Plant........... Los Angeles, California 45,000 148 Leased (5) Flavor Fresh Plant (6)....... Lawrence, Massachusetts 60,000 100 Leased (2) JUICE AND OIL OPERATIONS Victoria Juice Plant......... Cd. Victoria, Tamaulipas, Mexico 65,700 199 Owned (1) Frutalamo Juice Plant........ Alamo, Veracruz, Mexico 27,700 107 Leased Veracruz Juice Plant......... Poza Rica, Veracruz, Mexico 22,900 76 Owned
- ---------- (1) This property is subject to individual mortgages with the real estate as collateral. (2) The agreement pursuant to which this facility is leased by the Company grants the Company the option to purchase the facility prior to the expiration of such agreement at a purchase price equal to the then current fair market value of the facility. (3) The agreement pursuant to which this facility is leased by the Company grants the Company the option to purchase the facility during the first three years of such agreement expiring on June 30, 1998 for a purchase price of $850,000. (4) The agreement pursuant to which this facility is leased by the Company grants the Company the option to purchase the facility during the first three years of such agreement expiring on March 31, 1999 for a purchase price of $1.4 million. (5) The agreement pursuant to which this facility is leased by the Company grants the Company the option to purchase the facility through August 14, 1998 for a purchase price of $4.8 million. (6) These plants are idle and are being offered for sub-lease. 11 12 The Company's other supporting facilities are described below: In addition to the properties described above the Company maintains its corporate headquarters in Bartonville, Texas; a distribution center in McAllen, Texas; and a lodging facility in Cd. Victoria, Tamaulipas, Mexico. Corporate Headquarters. UniMark leases approximately 13,000 square feet of office space for its corporate headquarters in Bartonville, Texas (located 20 miles from the Dallas/Fort Worth International Airport) from an entity controlled by Jorn Budde, the Company's President, Chief Executive Officer and Chairman of the Board prior to his resignation in February, 1998. As of March 1, 1998, UniMark employed 31 people at this facility with space well utilized for the corporate headquarters. McAllen Distribution Center. The Company's recently acquired refrigerated distribution center began operations in August, 1997 in McAllen, Texas (on the Texas/Mexico border) which consists of approximately 110,000 square feet and is fully utilized. As of March 1, 1998, 15 people were employed at this company-owned facility. Hidalgo Distribution Center. The Company's previous refrigerated distribution center in Hidalgo, Texas consists of approximately 20,000 square feet and is currently vacant and being offered for sale. The GISE Conference Facility. In connection with the GISE Acquisition in May 1996, the Company acquired an "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. There were no matters submitted to a vote of security holders during the quarter ended December 31, 1997. At the Company's Annual Meeting of Shareholders held on June 6, 1997, the entire eight member Board of Directors was re-elected in a non-contested vote and the selection of Ernst & Young, LLP as the Company's independent public accountants for the year ended December 31, 1997 was ratified. In addition, a proposal to amend the Company's 1994 Employee Stock Option Plan to reserve an additional 340,000 shares of common stock for issuance thereunder was approved. This proposal received 6,595,817 affirmative votes, 340,545 negative votes and 32,425 votes were withheld. A proposal to amend the Company's Articles of Incorporation to authorize a new class of preferred stock was not approved. This proposal received 1,834,288 affirmative votes, 1,238,882 negative votes and 3,895,617 votes were withheld. Approval for this proposal required 5,722,555 affirmative votes. 12 13 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.
HIGH LOW ---- --- Year Ended December 31, 1996: First Quarter....................................... $16 5/8 $11 7/8 Second Quarter...................................... 17 7/8 13 3/4 Third Quarter....................................... 17 3/4 10 5/8 Fourth Quarter...................................... 12 1/2 7 -- Year Ended December 31, 1997: First Quarter....................................... 10 5/8 6 -- Second Quarter...................................... 8 7/8 4 5/8 Third Quarter....................................... 9 1/8 7 -- Fourth Quarter...................................... 8 1/4 2 3/4
- ---------- The quotations in the tables above reflect inter-dealer prices without retail markups, markdowns or commissions. On March 20, 1998, the last reported sale price for the Common Stock on the Nasdaq National Market was $4.75. As of March 20, 1998 there were 153 shareholders of record of the Common Stock and in excess of 2,200 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, 1995, 1996 and 1997 should be read in conjunction with such financial statements and the notes thereto included elsewhere herein. 13 14
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1993 1994 1995 1996(1) 1997 ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Net sales ........................................ $18,893 $25,346 $36,866 $65,238 $ 81,284 Gross profit ..................................... 5,952 7,403 12,674 18,626 22,004 Income (loss) from operations .................... 633 1,530 4,251 1,027 (5,950) Extraordinary gain ............................... -- -- -- 330 139 Net income (loss) ................................ 73 1,015 2,947 543 (9,680) Basic earnings (loss) per share: Income (loss) before extraordinary gain ........ $ 0.02 $ 0.28 $ 0.57 $ 0.03 $ (1.15) Extraordinary gain ............................. -- -- -- 0.04 .02 ------- ------- ------- ------- -------- Net income (loss) .............................. $ 0.02 $ 0.28 $ 0.57 $ 0.07 $ (1.13) ======= ======= ======= ======= ======== Diluted earnings (loss) per share: Income (loss) before extraordinary gain ........ $ 0.02 $ 0.28 $ 0.53 $ 0.03 $ (1.15) Extraordinary gain ............................. -- -- -- 0.04 .02 ------- ------- ------- ------- -------- Net income (loss) .............................. $ 0.02 $ 0.28 $ 0.53 $ 0.07 $ (1.13) ======= ======= ======= ======= ======== Shares used in per share calculations: Basic ........................................ 3,000 3,642 5,213 7,450 8,590 Diluted ...................................... 3,000 3,642 5,571 7,796 8,590 Total assets ..................................... $ 4,007 $11,176 $26,498 $76,683 $ 94,616 Long-term debt ................................... 296 919 699 4,332 8,626 Stockholders' equity ............................. 459 6,392 14,978 47,800 38,252
- -------- (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, as more fully explained in the Company's Notes to Consolidated Financial Statements for the year ended December 31, 1997 contained elsewhere herein. 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 Consolidated Financial Data" included elsewhere in this Prospectus. 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: UniMark Foods, UniMark International, Inc., ICMOSA, GISE, Simply Fresh and Deli-Bon. ICMOSA is a Mexican corporation with its headquarters located in Montemorelos, Nuevo Leon, Mexico, whose principal activities consist of operating five citrus processing plants and various citrus groves throughout Mexico. GISE is a Mexican corporation with its headquarters located in Victoria, Tamaulipas, Mexico, whose principal activities consist of operating three citrus juice and oil processing plants. ICMOSA and GISE maintain their accounting records in Mexican pesos and in accordance with Mexican generally accepted accounting principles and are subject to Mexican income tax laws. ICMOSA's and GISE's financial statements have been converted to United States generally accepted accounting principles ("U.S. GAAP") and U.S. dollars. Deli-Bon maintains its accounting records in Canadian dollars and in accordance with Canadian generally accepted accounting principles and is subject to Canadian income tax laws. Unless otherwise indicated, all dollar amounts included herein are set forth in U.S. dollars in accordance with U.S. GAAP. The functional currency of UniMark and its subsidiaries is the U.S. dollar. 14 15 RESULTS OF OPERATIONS The following table sets forth certain consolidated financial data expressed as a percentage of net sales for the periods indicated:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ----- ----- ----- Net sales ............................................. 100.0% 100.0% 100.0% Cost of products sold ................................. 65.6 71.4 72.9 ----- ----- ----- Gross profit .......................................... 34.4 28.6 27.1 Selling, general and administrative expenses .......... 22.9 27.0 34.4 ----- ----- ----- Income (loss) from operations ......................... 11.5 1.6 (7.3) Other income (expense): Interest expense .................................... (0.9) (2.2) (4.1) Interest income ..................................... 1.3 0.8 0.5 Other ............................................... 0.6 (0.3) (1.1) ----- ----- ----- Income (loss) before income taxes and extraordinary gain .................................. 12.5 (0.1) (12.0) Income tax expense (benefit) .......................... 4.5 (0.4) 0.1 ----- ----- ----- Income (loss) before extraordinary gain ............... 8.0 0.3 (12.1) Extraordinary gain, net of applicable income taxes .... .-- 0.5 0.2 ----- ----- ----- Net income (loss) ..................................... 8.0% 0.8% (11.9)% ===== ===== =====
Years Ended December 31, 1996 and 1997 Net sales increased 24.6% from $65.2 million in 1996 to $81.3 million in 1997. This increase was primarily due to increases in foodservice sales, retail sales and club sales. Foodservice sales increased 52.4% from $15.1 million in 1996 to $23.0 million in 1997. Retail sales increased 50.0% from $18.2 million in 1996 to $27.2 million in 1997 and warehouse club sales increased 43.2% from $7.9 million in 1996 to $11.3 million in 1997. These increases resulted from increased distribution and expansion of product lines facilitated primarily by the Company's acquisition of Simply Fresh effective March 31, 1996 and the addition of new customers, particularly in the Northeast U.S. in August, 1996. In addition, growth of existing product lines and new canned product introductions contributed to these increases in 1997. The increase in net sales was adversely impacted by a decline in sales of the Company's specialty food ingredient products in the Japanese market. Sales to Japan decreased from $7.4 million in 1996 to $3.4 million in 1997 primarily as a result of decreased demand in Japan for the Company's specialty food ingredient products. The Company believes that this decrease in demand is due to a decline in sales of the Japanese products containing the Company's specialty food ingredients and resulting higher than anticipated inventory levels of the Company's specialty food ingredients held by distributors in Japan. Present indications are that inventory levels in Japan have been reduced. Based upon present indications from Japan, the Company anticipates selling approximately $5.0 million of specialty food ingredient products to Japan during the 1997-98 citrus processing season. In addition, the Company has delivered IQF product to Japan and the United Kingdom for evaluation. The Company believes there are significant opportunities in the Japanese and United Kingdom markets for frozen citrus and tropical fruit products. The increase in net sales was also positively impacted by a 10.5% increase in citrus juice and oil sales from $12.4 million in 1996 to $13.7 million in 1997. The Company acquired GISE, a citrus juice and oil processor in Mexico effective March 31, 1996, therefore the 1996 sales amount represents only nine months of operations compared with twelve months of operations in 1997. Gross profit as a percentage of net sales decreased from 28.6% in 1996 to 27.1% in 1997. The Company's results of operations were adversely impacted by an increase in inflation in Mexico (15.7%) which was not offset by a corresponding devaluation of the Mexico peso (2.5%), resulting in increased 15 16 wages, benefits and other operating expenses in US dollar terms. Gross profit on cut fruit sales decreased from 31.0% in 1996 to 29.8% in 1997 while gross profit on citrus juice and oil sales decreased from 18.1% in 1996 to 13.7% in 1997. The decrease in gross profit on cut fruit sales resulted primarily from charges of approximately $3.1 million in the fourth quarter of 1997 for additional costs incurred associated with the closing of the Flavor Fresh, San Rafael and Zamora plant facilities and the restructuring of production, warehousing and distribution operations. Gross profit on cut fruit sales was adversely affected from the decline in Japanese sales. Although the loss of Japanese production volume adversely impacted the Company's 1997 operating results, the Company has taken affirmative steps to replace the lost production volume. During 1997, these efforts included the introduction of new canned product lines that accounted for approximately $2.5 million of sales. In addition, the Company has implemented significant operational changes to reduce costs, increase efficiency and improve profitability and continues to evaluate and assess further changes to improve operational efficiency. See "Restructuring Initiatives." Gross profit on citrus juice and oil sales were adversely affected by lower than expected market prices but benefited from improved raw material costs. Frozen concentrate orange juice futures prices remained depressed throughout 1997 but have shown favorable improvement in early 1998. Selling, general and administrative expenses ("SG&A") as a percentage of net sales increased from 27.0% in 1996 to 34.4% in 1997. This increase resulted primarily from charges of approximately $1.2 million in the fourth quarter of 1997 for costs associated with the closing of the Flavor Fresh, Zamora and San Rafael plant facilities and certain licensing and product development costs. SG&A as a percentage of net sales was also adversely impacted by the relative decrease in sales to Japan and juice and oil sales. Sales of the Company's specialty food ingredient products are facilitated through independent Japanese trading companies primarily on an FOB ICMOSA plant basis. The Company's orange juice products are primarily sold direct to juice blenders primarily on an FOB GISE plant basis. Therefore, the Company does not typically incur delivery costs and sales commissions with respect to these sales. Consequently, the relative decrease in these sales from 30.3% to 21.0% of net sales in 1996 and 1997, respectively, adversely impacted SG&A as a percentage of sales during 1997. Interest expense increased from 2.2% of net sales in 1996 to 4.1% in 1997. Actual interest expense increased from $1.4 million in 1996 to $3.3 million in 1997. This increase was primarily the result of increased levels of debt necessary to support capital expenditures and increased levels of inventory and trade receivables associated with the increase in sales volume. Interest income of $548,000 was earned in 1996 and $436,000 in 1997 primarily from the temporary cash investment of excess cash balances. A foreign currency translation net loss of $248,000 in 1996 and $944,000 in 1997 resulted primarily from the conversion of Company's foreign subsidiaries' financial statements to U.S. GAAP. Income taxes. A consolidated income tax benefit of $272,000 in 1996 resulted primarily from the recognition of future benefits from tax losses generated. A consolidated income tax provision of $77,000 resulted primarily from the recording of a valuation allowance to reduce the carrying amount of the Company's deferred tax assets related to U.S. tax losses. Extraordinary gains, net of applicable taxes, of $330,000 and $139,000 were realized in 1996 and 1997, respectively. In 1996, the Company reported a net gain from the forgiveness of certain existing debt obligations with Mexican banks pursuant to Mexican government programs to stimulate the economy and support the banking system. In May, 1997, ICMOSA retired certain outstanding long-term debt with Union de Credito Allende, a Mexican credit union, at a discount of 50%. The discount was granted pursuant to a Mexican government program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena 16 17 y Mediana Empresa ("FOPIME") and through the participation of Nacional Financiera ("NAFINSA"), a Mexican development bank, to help provide liquidity to the Mexican credit unions. The debt reduction amounted to approximately $2.0 million pesos or approximately US $248,000. Provisions for Mexican income taxes and statutory employee profit sharing of 34% and 10%, respectively, have been provided on these gains from debt forgiveness. As a result of the foregoing, the Company reported net income of $543,000 in 1996 while reporting a net loss of $9.7 million in 1997. Years Ended December 31, 1995 and 1996 Net sales increased 76.7% from $36.9 million in 1995 to $65.2 million in 1996. This increase was primarily due to increases in foodservice sales, the commencement of citrus juice and oil sales and growth in retail sales. Foodservice sales increased from $861,000 in 1995 to $15.1 million in 1996. This increase was primarily a result of the Simply Fresh Acquisition and the addition of new customers. Also in 1996, the Company acquired GISE, a citrus juice and oil processor in Mexico. Citrus juice and oil sales totaled $12.3 million in 1996. Retail sales increased 45.6% from $12.5 million in 1995 to $18.2 million in 1996 primarily as a result of increased distribution and demand for the Company's retail chilled fruit product line. The increase in net sales was adversely impacted by a decline in sales of the Company's specialty food ingredient products in the Japanese market. Sales to Japan decreased 38.8% from $12.1 million in 1995 to $7.4 million in 1996 primarily as a result of decreased demand in Japan for the Company's specialty food ingredient products. The Company believes that this decrease in demand was due to a decline in sales of the Japanese products containing the Company's specialty food ingredients and resulting higher than anticipated inventory levels of the Company's specialty food ingredients held by distributors in Japan. Although the Company anticipates a continued decline in sales of its specialty food ingredient products to Japan during fiscal 1997, the Company believes there are significant opportunities in the Japanese market for frozen citrus and tropical fruit products because such products do not contain additives or preservatives, an important feature for entry into the Japanese market. Gross profit as a percentage of net sales decreased from 34.4% in 1995 to 28.6% in 1996. Gross profit on cut fruit sales decreased from 34.4% in 1995 to 31.0% in 1996 while gross profit on citrus juice and oil sales was 18.1% in 1996. The decline in gross profit on cut fruit sales resulted primarily from increased processing costs due to, among other things, lower than anticipated production volume resulting from the decline in Japanese sales, increased raw materials costs and operational inefficiencies associated with the delay in integrating the Company's new facilities into its existing operations. Although the loss of Japanese production volume is anticipated to adversely impact the Company's first quarter 1997 operating results, the Company is taking affirmative steps to replace the lost production volume. In addition, the Company believes that the integration of its newly acquired United States production facilities with its existing operations will be completed in 1997. Gross profit on citrus juice and oil sales in 1996 were adversely affected by a significant decline in market prices and increased production costs. During the fourth quarter of 1996, frozen concentrate orange juice futures prices declined approximately 30% primarily as a result of favorable production forecasts from Brazil and Florida. In addition, the Company experienced increased fruit prices and reduced production yields as a result of the drought in northern Mexico in the summer of 1996. While the Company's increased costs of inventories is estimated to adversely impact operations in the first quarter of 1997, citrus juice and oil operating profits are anticipated to improve over the remainder of 1997 because of improved raw material costs. Selling, general and administrative expenses ("SG&A") as a percentage of net sales increased from 22.9% in 1995 to 27.0% in 1996. This increase is primarily the result of increased sales and marketing expenses associated with the commencement of operations in Massachusetts, and increased general and administrative expenses associated with the Acquisitions. Presently, the Company is consolidating and integrating its United States administrative and accounting functions. This restructuring is expected to positively impact SG&A. 17 18 Interest expense increased from 0.9% of net sales in 1995 to 2.2% in 1996. Actual interest expense increased from $318,000 in 1995 to $1.4 million in 1996. This increase was primarily the result of increased levels of debt necessary to support increased levels of inventory and trade receivables associated with the increase in sales volume and distribution centers. Interest income of $470,000 was earned in 1995 primarily from the temporary cash investment of proceeds from the exercise of warrants and excess cash balances generated from operations, while $548,000 of interest income was earned in 1996 primarily from the temporary cash investment of proceeds from the Company's secondary public offering . A foreign currency translation net gain of $124,000 in 1995 and a net loss of $248,000 in 1996 resulted from the conversion of ICMOSA's and GISE's Mexican financial statements to U.S. GAAP. An extraordinary gain recognized on the forgiveness of debt in Mexico, net of applicable income and employee profit sharing taxes of $289,000, resulted in a net gain of $330,000 in 1996. Net income, as a result of the foregoing, decreased from $2.9 million in 1995 to $543,000 in 1996. STATUTORY EMPLOYEE PROFIT SHARING All Mexican companies are required to pay their employees, in addition to their agreed compensation benefits, profit sharing in an aggregate amount equal to 10% of net income, calculated for employee profit sharing purposes, of the individual corporation employing such employees. All of UniMark's Mexican employees are employed by its subsidiaries, each of which pays profit sharing in accordance with its respective net income for profit sharing purposes. Tax losses do not affect employee profit sharing. Statutory employee profit sharing expense is reflected in the Company's cost of goods sold and selling, general and administrative expenses, depending upon the function of the employees to whom profit sharing payments are made. The Company's net income on a consolidated basis as shown in the Consolidated Financial Statements is not a meaningful indication of net income of the Company's subsidiaries for profit sharing purposes or of the amount of employee profit sharing. Provisions for Mexican employee profit sharing expense were $338,000, $436,000 and $544,000 in 1995, 1996 and 1997, respectively. EXCHANGE RATE FLUCTUATIONS The Company procures and processes substantially all of its products in Mexico, through its wholly owned subsidiaries ICMOSA and GISE, for export to the United States, Canada, Europe and Japan. Generally, the cost of citrus procured in Mexico reflects the spot market price for citrus in the United States. All of UniMark's sales 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 peso. Labor and certain other production costs are peso denominated. Consequently, these costs are impacted by fluctuations in the value of the peso relative to the U.S. dollar. 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 has 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 18 19 to the extent there are net deferred tax assets or a transaction gain to the extent there are net deferred tax liabilities. SEASONALITY Demand for UniMark's citrus and tropical fruit products is strongest during the fall, winter and spring when seasonal fresh products such as mangos, peaches, plums, and nectarines are not readily available for sales in supermarkets in North America. In addition, a substantial portion of UniMark's exports to Japan is processed and shipped during the first and fourth quarter each year. Management believes UniMark's quarterly net sales will continue to be impacted by this pattern of seasonality. YEAR 2000 ISSUES The Company has completed an initial review of the impact of the year 2000 on its operations and data processing and does not anticipate that the year 2000 issue will have a significant adverse impact. The Company is currently implementing new software and computer systems that are year 2000 compliant at an estimated project cost of $625,000. This implementation is expected to be completed by January, 1999. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, cash and cash equivalents totaled $1.2 million, a decrease of $3.0 million from year end 1996. During 1997, operating activities utilized cash of $14.3 million primarily to finance a $6.3 million increase in inventories, a $2.3 million increase in trade receivables and other operating activities of $5.7 million. During the second half of 1997, the Company initiated several changes in its US and Mexico operations to improve production efficiencies and return the Company to profitability. These measures are expected to positively impact the Company's operating results in 1998. Finished goods inventories increased $3.2 million as a result of the increased sales volume while maintaining a turnover rate of 3.8 times in both 1996 and 1997. Inventory costs associated with the Company's orchards increased $1.6 million in 1997 as the Company continues to expand its agricultural operations in Mexico. Trade accounts receivable also increased as the result of the increased sales volume while maintaining a turnover rate of 7.0 in 1997 as compared to 7.1 in 1996. During 1997, UniMark utilized cash of $12.8 million in investing activities. Of this amount, $11.6 million was expended on property, plant and equipment and $1.0 million was advanced on behalf of related parties. In March, 1997, the Company purchased a warehouse and distribution facility located in McAllen, Texas for a total cash consideration of approximately $1.2 million. In connection therewith, the Company entered into a construction loan agreement with Texas State Bank for approximately $2.1 million collateralized by the property and improvements and guaranteed by the Company. The Company expended approximately $1.6 million on capital improvements to the property and commenced operations from the property in August, 1997. Also during 1997, the Company expended $7.9 million on plant facilities and improvements, equipment and land in Mexico. During 1997, the Company completed the acquisition of a juice processing facility located in Poza Rica, Veracruz for approximately $3.1 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. 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. In May, 1997 the Company advanced funds to IHMSA to retire its outstanding debt with Union de Credito Allende in the amount of $1.2 million at a discount of 50% through programs available in Mexico for debt reduction. During the five year term of the operating agreement, the Company has the 19 20 right of first refusal to buy the IHMSA facility at its then fair market value. At December 31, 1997 amounts due from IHMSA of $1,465,000 represent cash advances applied to reduce IHMSA's outstanding debt. This amount is expected to be applied to the purchase price when, and if, the Company elects to exercise its purchase option. The Company's financing activities provided net cash of $23.0 million from additional short-term borrowings and $2.6 million from additional long-term borrowings, primarily the McAllen warehouse mortgage loan of $2.1 million. Cash was utilized to reduce long-term debt by $1.7 million in 1997. The Company received cash proceeds of $1.0 million from additional unsecured short-term borrowings from Bancrecer in Mexico. In connection therewith, the Company renegotiated the renewal term of its outstanding $4.0 million of unsecured debt with Bancrecer from three months to eighteen months. During 1997, the Company entered into loan agreements with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term dollar denominated debt of up to $34.5 million. In February, the Company entered into a revolving credit agreement to provide up to $9.5 million (as amended) in the United States collateralized by US finished goods inventories and US accounts receivable. In April, the Company entered into additional revolving credit agreements to provide up to $15.0 million (as amended) in Mexico collateralized by Mexico finished goods inventories and Mexico accounts receivable from export sales. In May, the Company entered into a loan agreement for short-term dollar denominated debt in Mexico of up to $10.0 million to partially finance investments in plants, expansion and upgrading of facilities and agricultural operations. This bridge loan is collateralized by land and improvements and equipment in Mexico. 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, total debt and debt service. In addition, the agreements contain restrictions on the issuance of additional shares of stock and the payment of dividends, among other things, without the prior written consent of the bank. At December 31, 1997 the Company was in violation of certain financial covenants and restrictions under these agreements, which Rabobank Nederland has waived as of that date and has established new financial covenant levels and restrictions for 1998. Among the new restrictions, the Company will be charged a $25,000 monthly fee in the event the $10.0 million bridge loan facility is not paid in full by July 31, 1998. At December 31, 1997, the Company had outstanding loan balances under the revolving credit agreements and bridge loan agreement of $19.2 and $10.0 million, respectively, which were fully utilized. These agreements are now scheduled to mature on January 1, 1999. During 1997, the Company has relied upon bank financing, principally short term, to finance its working capital and certain of its capital expenditure needs. Although these loan facilities with Rabobank Nederland have been extended until January 1, 1999, no assurances can be given that Rabobank Nederland will continue to renew such loan facilities. Presently, the Company is in discussions with Rabobank Nederland and other financial institutions to extend or replace existing working capital facilities and to establish a permanent long-term debt facility to replace the bridge loan. 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 would have a material adverse affect on the Company and its ability to continue as a going concern. In May, 1997, ICMOSA retired approximately $500,000 of outstanding long-term debt with Union de Credito Allende, a Mexican credit union, at a discount of 50%. The discount was granted pursuant to a Mexican government program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME") and through the participation of Nacional Financiera ("NAFINSA"), a Mexican development bank, to help provide liquidity to the Mexican credit unions. In October, 1996, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an affiliate of The Coca-Cola Company, entered into a ten year Supply Contract, with a ten year renewal option, for the 20 21 production of Italian lemons. Pursuant to the terms of this Supply Contract, GISE will plant and grow approximately 12,000 acres of Italian lemons for sale to Coca-Cola at pre-determined prices. The Supply Contract requires Coca-Cola to provide, free of charge, 750,000 lemon trees, enough to plant approximately 7,200 acres. In addition, the Supply Contract requires Coca-Cola to purchase all the production from the project. The planting program began in November, 1996 and is scheduled to be completed in February, 2000 with harvesting of the first crops to begin in late 1998. The Company estimates that this project will require capital expenditures of $4.5 million in 1998. The total capital requirements for the project is estimated to be approximately $27.0 million over the next four years. Presently, the Company is exploring various financing alternatives for this project. There can be no assurances that financing for this project can be obtained on acceptable terms, or at all. The inability to obtain third party financing for the project could have a material adverse effect on the Company. The Company's cash requirements for 1998 and beyond will depend primarily upon the level of sales, expenditures for capital equipment and improvements, investments in agricultural projects, the timing of inventory purchases, the success of newly introduced products and necessary reductions of debt. Presently, the Company is in discussions with Rabobank Nederland and other financial institutions regarding 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 would have a material adverse affect on the Company. UniMark believes that anticipated revenue from operations and existing and future debt facilities will be adequate for its working capital requirements for at least the next twelve months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors .................................... 22 Consolidated Balance Sheets as of December 31, 1996 and 1997 .......................................................... 23 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 .............................. 24 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 .............................. 25 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 .............................. 26 Notes to Consolidated Financial Statements ........................ 27
21 22 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, 1996 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The UniMark Group, Inc. at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Dallas, Texas March 27, 1998 22 23 THE UNIMARK GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ----------------------- 1996 1997 ------- ------- ASSETS Current assets: Cash and cash equivalents.................................... $4,268 $1,237 Accounts receivable -- trade, net of allowance of $142 in 1996 and $685 in 1997..................................... 9,244 11,599 Accounts receivable -- other................................. 758 716 Inventories.................................................. 19,411 25,726 Income and value added taxes receivable...................... 1,418 2,312 Deferred income taxes........................................ 196 -- Prepaid expenses............................................. 771 1,605 ------- ------- Total current assets................................. 36,066 43,195 Property, plant and equipment, net of accumulated depreciation of $2,712 in 1996 and $5,227 in 1997............ 29,177 38,130 Deferred income taxes.......................................... 373 1,847 Goodwill....................................................... 6,787 6,606 Identifiable intangible assets................................. 2,320 1,823 Due from related parties....................................... 632 1,678 Other assets................................................... 1,328 1,337 ------- ------- Total assets......................................... $76,683 $94,616 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings........................................ $12,604 $31,452 Current portion of long-term debt............................ 1,114 1,655 Accounts payable -- trade.................................... 4,466 3,983 Payable to related parties................................... 106 104 Accrued expenses............................................. 2,108 4,439 Income taxes payable......................................... -- 40 Deferred income taxes........................................ 3,915 6,050 ------- ------- Total current liabilities............................ 24,313 47,723 Long-term debt, less current portion........................... 4,332 8,626 Deferred income taxes.......................................... 238 15 Commitments Shareholders' equity: Common stock, $0.01 par value: Authorized shares -- 20,000,000 Issued and outstanding shares -- 8,561,333 in 1996 and 8,598,833 in 1997....................................... 86 86 Additional paid-in capital................................... 45,287 45,419 Retained earnings (deficit).................................. 2,427 (7,253) ------- ------- Total shareholders' equity........................... 47,800 38,252 ------- ------- Total liabilities and shareholders' equity........... $76,683 $94,616 ======= =======
See accompanying notes. 23 24 THE UNIMARK GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1995 1996 1997 -------- -------- -------- Net sales ............................................. $ 36,866 $ 65,238 $ 81,284 Cost of products sold ................................. 24,192 46,612 59,280 -------- -------- -------- 12,674 18,626 22,004 Selling, general and administrative expenses .......... 8,423 17,599 27,954 -------- -------- -------- Income (loss) from operations ......................... 4,251 1,027 (5,950) Other income (expense): Interest expense .................................... (318) (1,407) (3,294) Interest income ..................................... 470 548 436 Foreign currency transaction gain (loss) ............ 124 (248) (945) Other income ........................................ 98 21 11 -------- -------- -------- 374 (1,086) (3,792) -------- -------- -------- Income (loss) before income taxes and extraordinary gain ................................. 4,625 (59) (9,742) Income tax expense (benefit) .......................... 1,678 (272) 77 -------- -------- -------- Income (loss) before extraordinary gain ............... 2,947 213 (9,819) Extraordinary gain on forgiveness of debt, net of applicable income taxes of $259 in 1996 and $109 in 1997 ....................................... -- 330 139 -------- -------- -------- Net income (loss) ..................................... $ 2,947 $ 543 $ (9,680) ======== ======== ======== Basic earnings (loss) per share: Income (loss) before extraordinary item ............. $ 0.57 $ 0.03 $ (1.15) Extraordinary item .................................. .-- 0.04 0.02 -------- -------- -------- Net income (loss) ................................... $ 0.57 $ 0.07 $ (1.13) ======== ======== ======== Diluted earnings (loss) per share: Income (loss) before extraordinary item ............. $ 0.53 $ 0.03 $ (1.15) Extraordinary item .................................. .-- 0.04 0.02 -------- -------- -------- Net income (loss) ................................... $ 0.53 $ 0.07 $ (1.13) ======== ======== ========
See accompanying notes. 24 25 THE UNIMARK GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS SHARES STOCK CAPITAL (DEFICIT) TOTAL --------- ------ ------- --------- -------- Balance at January 1, 1995 ....................... 4,650,000 $47 $ 7,408 $(1,063) $ 6,392 Exercise of warrants and options, net of offering expenses ........................ 1,268,050 12 5,627 -- 5,639 Net income ..................................... -- -- -- 2,947 2,947 --------- --- ------- ------- -------- Balance at December 31, 1995 ..................... 5,918,050 59 13,035 1,884 14,978 Exercise of warrants and options ............... 64,250 1 305 -- 306 Shares issued for cash in secondary public offering, net of offering expenses ..................................... 1,677,000 17 22,175 -- 22,192 Shares issued in acquisitions of GISE, Simply Fresh and Deli-Bon .................... 902,033 9 9,772 -- 9,781 Net income ..................................... -- -- -- 543 543 --------- --- ------- ------- -------- Balance at December 31, 1996 ..................... 8,561,333 86 45,287 2,427 47,800 Exercise of options ............................ 37,500 -- 132 -- 132 Net loss ....................................... -- -- -- (9,680) (9,680) --------- --- ------- ------- -------- Balance at December 31, 1997 ..................... 8,598,833 $86 $45,419 $(7,253) $ 38,252 ========= === ======= ======= ========
See accompanying notes. 25 26 THE UNIMARK GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1995 1996 1997 ------- -------- -------- OPERATING ACTIVITIES Net income (loss) .......................................... $ 2,947 $ 543 $ (9,680) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization .......................... 495 1,751 3,465 Deferred income taxes .................................. 1,406 408 634 Extraordinary gain ..................................... -- (589) (248) Changes in operating assets and liabilities: Receivables ......................................... (1,793) (3,348) (2,313) Inventories ......................................... (3,280) (8,927) (6,315) Prepaid expenses .................................... (192) (351) (834) Accounts payable and accrued expenses ............... 3,615 (2,263) 1,846 Income taxes payable ................................ (112) (16) (854) ------- -------- -------- Net cash provided by (used in) operating activities ........ 3,086 (12,792) (14,299) INVESTING ACTIVITIES Acquisition of Deli-Bon, GISE and Simply Fresh shares, net of cash acquired .................................... -- (2,590) -- Purchases of property, plant and equipment ................. (5,209) (13,158) (11,578) (Increase) decrease in identifiable intangible assets ...... -- (919) 89 Decrease (increase) in amounts due from related parties .... 199 (542) (1,046) Increase in other assets ................................... (14) (1,194) (260) ------- -------- -------- Net cash used in investing activities ...................... (5,024) (18,403) (12,795) FINANCING ACTIVITIES Net proceeds from the issuance of common shares ............ 5,639 22,498 132 Net increase in short-term borrowings ...................... 2,305 6,303 22,982 Proceeds from long-term debt ............................... -- 1,204 2,613 Payments of long-term debt ................................. (523) (828) (1,664) ------- -------- -------- Net cash provided by financing activities .................. 7,421 29,177 24,063 ------- -------- -------- Net increase (decrease) in cash and cash equivalents ....... 5,483 (2,018) (3,031) Cash and cash equivalents at beginning of year ............. 803 6,286 4,268 ------- -------- -------- Cash and cash equivalents at end of year ................... $ 6,286 $ 4,268 $ 1,237 ======= ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid ............................................ $ 289 $ 1,049 $ 3,170 ======= ======== ======== Income taxes paid (received) ............................. $ 521 $ (98) $ (470) ======= ======== ========
See accompanying notes. 26 27 THE UNIMARK GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Company is in the business of growing, processing, marketing and distributing niche citrus and tropical fruit products, including chilled and canned cut fruits, citrus juices and oils and other specialty food ingredients. During 1996, the Company acquired Les Produits Deli-Bon Inc. (Deli-Bon), a Quebec, Canada fruit processor; Grupo Industrial Santa Engracia, S.A. de C.V. (GISE), a Mexican citrus juice and oil processor; and Simply Fresh Fruit, Inc. (Simply Fresh), a Los Angeles, California fruit processor and distributor. See Note 3 - Acquisitions. The UniMark Group, Inc. ("the Company") was incorporated in the state of Texas on January 3, 1992. During the period from January 3, 1992 (inception) through December 31, 1992, 3,000,000 shares of the Company's common stock were exchanged for the issued and outstanding common shares of UniMark Foods, Inc., which was owned by the same shareholders as the Company. Since the companies were under common control, the transaction was accounted for using historical costs. Additionally, 800 shares of common stock of UniMark International, Inc. were acquired for $800 during that same period, giving the Company an 80% interest which was increased to a 100% interest with the acquisition of the remaining 200 shares during 1994. On August 11, 1994, 1,300,950 shares of the Company's common stock were exchanged for all of the issued and outstanding common shares of Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"), a Mexican corporation. The transaction was accounted for in a manner similar to a pooling-of-interests using historical costs and, accordingly, the accompanying financial statements include the accounts and operations of ICMOSA for all periods presented. As discussed in Notes 9 and 17, the Company has several projects and commitments requiring substantial capital. Although the Company is exploring various financing options and believes sufficient capital will ultimately be available, there can be no assurances that adequate financing or capital can be obtained on acceptable terms or at all. The inability to obtain sufficient debt or equity capital for these projects and commitments could have a material adverse effect on the Company and its projects including the realization of the amounts capitalized and costs deferred related to these projects and commitments. Additionally, the Company has recently relied upon bank financing to finance its working capital and certain of its capital expenditure needs (see Notes 7 and 8). Although the principal loan facilities have been extended until January 1, 1999, no assurances can be given that the lender will continue to renew such loan facilities. The Company's cash requirements for 1998 and beyond will depend primarily upon the level of sales, expenditures for capital equipment and improvements, investments in agricultural projects, the timing of inventory purchases, the success of newly introduced products and necessary reductions of debt. Presently, the Company is in discussions with is primary lender and other financial institutions regarding 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 would have a material adverse affect on the Company. Principles of Consolidation: The consolidated financial statements include the accounts of The UniMark Group, Inc. and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Foreign Operations: A significant portion of the Company's operations are located in Mexico and a significant portion of the Company's fruit is procured in Mexico. In addition, substantially all of the 27 28 Company's Mexican employees are affiliated with labor unions. As is typical in Mexico, wages are renegotiated every year while other terms are negotiated every two years. Recently, Mexico has faced turbulent political and economic times. Should political unrest spread or political leadership or other causes vastly change economic conditions in Mexico, the Company's operations could be adversely affected. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Concentration of Credit Risk: The Company manufactures and sells niche citrus and tropical fruit products, citrus juices and oils and other specialty food ingredients to customers in the foodservice and retail industries in the United States, Europe, Canada and Japan. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Trade receivables generally are due within 30 days. Credit losses have been within management's expectations. A significant portion of sales has historically been made to two customers. One customer accounted for 27.5%, 8.9% and 3.9% and another customer accounted for 17.6%, 8.3% and 6.63% of the Company's net sales for the years ended December 31, 1995, 1996 and 1997, respectively. Advertising Costs: The Company expenses advertising costs as incurred. Advertising expense was $137,000, $528,000 and $262,000 for the years ended December 31, 1995, 1996 and 1997, respectively. Inventories: Inventories held in the United States and Canada are carried at the lower of cost or market using the first-in, first-out method. Mexican inventories are valued at the lower of cost or market using average cost. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the following lives: Building............................................... 20 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
The Company reviews its property, plant and equipment and other non-current assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset less disposal costs. Foreign Currency Transactions: The functional currency of the Company and its subsidiaries is the United States dollar. Transactions in foreign currency are recorded at the prevailing exchange rate on the day of the related transaction. Assets and liabilities denominated in foreign currency are remeasured to dollars at the prevailing exchange rate as of the balance sheet date. Exchange rate differences are reflected in the current year's operations. 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. 28 29 Segment Reporting: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131), which is effective for years beginning after December 15, 1997. Statement 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Statement 131 is effective for financial statements for years beginning after December 15, 1997, and therefore the Company will adopt the new requirements retroactively in 1998. Management has not completed its review of Statement 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's reported segments. Reclassifications: Certain prior year items have been reclassified to conform to the current year presentation in the accompanying financial statements. NOTE 2 EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which was required to be adopted on December 31, 1997. In accordance therewith, the Company changed the method previously used to compute earnings per share and restated all prior period amounts. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options and warrants are excluded. Under the new requirements for calculating diluted earnings per share, the dilutive effect of stock options and warrants are calculated based on the average market price of the Company's common stock during each period utilizing the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for income from continuing operations:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------ ------ ------- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) NUMERATOR Income (loss) before extraordinary gain .......... $2,947 $ 213 $(9,819) DENOMINATOR Denominator for basic earnings per share - weighted average shares ........................ 5,213 7,450 8,590 Effect of dilutive securities: Employee and director stock options ............ 189 294 -- Warrants ....................................... 169 52 -- ------ ------ ------- Dilutive potential common shares ................. 358 346 -- ------ ------ ------- Denominator for diluted earnings per share - weighted average shares adjusted for assumed conversions .................................... 5,571 7,796 8,590 ====== ====== ======= Basic earnings (loss) per share .................. $ 0.57 $ 0.03 $ (1.15) ====== ====== ======= Diluted earnings (loss) per share ................ $ 0.53 $ 0.03 $ (1.15) ====== ====== =======
NOTE 3 ACQUISITIONS On January 3, 1996, the Company acquired, in a purchase transaction, all of the outstanding shares of capital stock of Les Produits Deli-Bon, Inc. (Deli-Bon), a Quebec corporation that principally processes 29 30 and sells fruit salads to the food service industry in Canada. The total consideration given for the purchase of the shares included approximately (i) $787,000 in cash, (ii) a $49,000 six month promissory note and (iii) 28,510 shares of common stock for an aggregate purchase price of $1.5 million. The Company's consolidated statement of operations for the year ended December 31, 1996 includes the results of operations of Deli-Bon since the date of the acquisition. The excess purchase price over the estimated fair value of the net assets acquired was $303,000 and is being amortized using the straight-line method over twenty years. Accumulated amortization was $14,000 and $30,000 at December 31, 1996 and 1997, respectively. On May 9, 1996, the Company acquired all of the outstanding shares of capital stock of Simply Fresh Fruit, Inc. (Simply Fresh), in exchange for (i) $2,500,000 cash, (ii) 90,909 shares of Unimark common stock and (iii) five-year covenants not to compete totaling $1,000,000 in a purchase transaction for an aggregate purchase price of $5.0 million. Simply Fresh is a fruit processing and distribution company located in Los Angeles, California. The Company's consolidated statement of operations for the year ended December 31, 1996 includes the results of operations of Simply Fresh since April 1, 1996, the effective date of the acquisition. The excess purchase price over the estimated fair value of the net assets acquired was $3,359,000 and is being amortized using the straight-line method over forty years. Accumulated amortization was $63,000 and $147,000 at December 31, 1996 and 1997, respectively. In addition, price protection exists on the shares issued in the Deli-Bon and Simply Fresh acquisitions whereby the Company is required to issue additional shares (or cash at its discretion) to the sellers in the event of a decline in the public market value of the UniMark shares below an established level during the period in which the sellers' shares are restricted from trading. See Note 17. Also on May 9, 1996, the Company acquired all of the outstanding shares of capital stock of Grupo Industrial Santa Engracia, S.A. de C.V. (GISE), in exchange for 782,614 shares of common stock in a purchase transaction representing a purchase price of $12 million. In addition, Unimark agreed to pay up to an additional $8.0 million during the next four years if GISE achieves certain financial operating targets. GISE operates three juice plants in the heart of major citrus growing regions in Mexico. The Company's consolidated statement of operations for the year ended December 31, 1996 includes the results of operations of GISE since April 1, 1996, the effective date of the acquisition. The excess purchase price over the estimated fair value of the net assets acquired was $3,264,000 and is being amortized using the straight-line method over forty years. Accumulated amortization was $61,000 and $143,000 at December 31, 1996 and 1997, respectively. The following unaudited pro forma summary presents the consolidated results of operations of the Company as if the GISE and Simply Fresh acquisitions had occurred at the beginning of each year (in thousands, except for per share amounts).
(UNAUDITED) YEAR ENDED DECEMBER 31, --------------------------- 1995 1996 --------- --------- Revenue.................................... $ 62,374 $ 70,743 Income before extraordinary gain........... 4,502 649 Net income................................. 4,502 979 Net income per share (fully diluted)....... $ .67 $ .12
The above amounts are based upon certain assumptions and estimates which the Company believes are reasonable. The pro forma results do not necessarily represent results which would have occurred if acquisitions had actually taken place at the date and on the basis assumed above. In August, 1996, the Company commenced plant operations in Lawrence, Massachusetts after purchasing certain assets in a secured party sale from Fleet National Bank and entering into a lease 30 31 agreement with Gato Realty Trust for a fruit processing facility. The Company purchased certain inventory, equipment, vehicles and intangible assets for a total cash consideration of approximately $2.4 million. In addition, the Company entered into a lease agreement for a plant facility with an initial lease term of six years and monthly rental payments of $18,000. The Company also paid initial lease costs of approximately $337,000 in cash. NOTE 4 INVENTORIES Inventories consist of the following :
DECEMBER 31, ------------------- 1996 1997 ------- ------- (IN THOUSANDS) Finished goods: Cut fruits .......................... $10,536 $12,983 Juice and oils ...................... 1,796 2,592 ------- ------- 12,332 15,575 Orchards and advances to suppliers ..... 4,134 5,718 Raw materials and supplies ............. 2,945 4,433 ------- ------- Total ........................ $19,411 $25,726 ======= =======
NOTE 5 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consists of the following:
DECEMBER 31, ------------------- 1996 1997 ------- ------- (IN THOUSANDS) Land .............................. $ 1,084 $ 1,928 Construction in progress .......... 2,775 2,201 Buildings and improvements ........ 9,364 13,084 Machinery and equipment ........... 18,666 26,144 ------- ------- 31,889 43,357 Accumulated depreciation .......... 2,712 5,227 ------- ------- Total ................... $29,177 $38,130 ======= =======
Depreciation expense was $431,000, $1,263,000 and $2,625,000 for the years ended December 31, 1995, 1996 and 1997, respectively. NOTE 6 IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets consist of the following:
DECEMBER 31, ----------------- 1996 1997 ------ ------ (IN THOUSANDS) Covenants not to compete .......... $1,508 $1,508 Tradename ......................... 704 704 Other ............................. 486 351 ------ ------ 2,698 2,563 Less accumulated amortization ..... 378 740 ------ ------ $2,320 $1,823 ====== ======
31 32 The covenants not to compete relate to the agreements with the former owners of acquired businesses and are being amortized on a straight-line basis over the five-year terms of the agreements. The tradename relates to the Flavor Fresh brand name and is being amortized on a straight-line basis over twenty years. NOTE 7 SHORT-TERM BORROWINGS During 1997, the Company entered into loan agreements with a bank to provide short-term dollar denominated debt of up to $34.5 million. In February 1997, the Company entered into a revolving credit agreement to provide up to $9.5 million (as amended) in the United States collateralized by US finished goods inventories and US accounts receivable. In April 1997, the Company entered into additional revolving credit agreements to provide up to $15.0 million (as amended) in Mexico collateralized by Mexico finished goods inventories and Mexico accounts receivable from export sales. In May 1997, the Company entered into a bridge loan agreement for short-term dollar denominated debt in Mexico of up to $10.0 million to partially finance investments in plants, expansion and upgrading of facilities and agricultural operations. This bridge loan is collateralized by land and improvements and equipment in Mexico. 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, total debt and debt service. In addition, the agreements contain restrictions on the issuance of additional shares of stock and the payment of dividends, among other things, without the prior written consent of the bank. At December 31, 1997 the Company was in violation of certain financial covenants and restrictions under these agreements, which the lender has waived as of that date and has established new financial covenant levels and restrictions for 1998. Among the new restrictions, the Company will be charged a $25,000 monthly fee in the event the $10.0 million bridge loan facility is not paid in full by July 31, 1998. At December 31, 1997, the Company had outstanding loan balances under the revolving credit agreements and bridge loan agreement of $19.2 and $10.0 million, respectively, which were fully utilized. These agreements are now scheduled to mature on January 1, 1999. 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. At December 31, 1997 the outstanding loan balance was $2.0 million which is scheduled to mature on June 9, 1998. The weighted average interest rate on short-term borrowings as of December 31, 1997 was 8.6%. NOTE 8 LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ------------------- 1996 1997 ------- ------- (IN THOUSANDS) Note payable to bank, unsecured; interest at Libor + 5% payable quarterly, unpaid principal due February 1, 1999 ........... $ -- $ 2,400 Note payable to bank, unsecured; interest at Libor + 5% payable quarterly, unpaid principal due March 1, 1999 .............. -- 1,600 Note payable to bank, collateralized by McAllen, Texas warehouse property and improvements; principal and interest at Prime + .5% payable monthly, unpaid principal and interest due September 6, 2012 ..................................... -- 2,053 Non-compete covenant obligations totaling $1.5 million, discounted at 9%, payable monthly through May 1, 2001 ............... 1,327 986 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 25, 2004 ................ 1,243 1,168 Note payable to bank, collateralized by machinery and equipment in the United States; principal and interest at 8.66% payable in monthly installments of $16,475; unpaid principal and interest due January 1, 2002 ......................... 800 666 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 30, 2001 ....... 759 759 Other notes payable .................................................. 1,317 649 ------- ------- 5,446 10,281 Less current portion ................................................. 1,114 1,655 ------- ------- $ 4,332 $ 8,626 ======= =======
32 33 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, 1997 is U.S. dollar denominated except for $1,168,000 which is Mexican peso denominated and $42,000 which is Canadian dollar denominated. Based on interest rates provided by the Company's long-term debt and the floating rates provided on its short-term borrowings, the Company believes the carrying amounts of its short and long-term debt approximate their fair value. Maturities of long-term debt are as follows:
(IN THOUSANDS) 1998........................................... $ 1,655 1999........................................... 4,792 2000........................................... 826 2001........................................... 582 2002........................................... 283 Thereafter..................................... 2,143 -------- $ 10,281 ========
NOTE 9 RELATED PARTY TRANSACTIONS Effective January 1, 1995, the Company entered into a five year operating agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant to the terms of the operating agreement, the Company is obligated to pay IHMSA an operating fee sufficient to cover the interest payments on IHMSA's existing outstanding debt (approximately $4.6 million). The Company is responsible for all raw material and operating costs and the sale of the finished goods produced at the IHMSA plant. Payments made pursuant to the operating agreement were $347,000, $116,000 and $42,000 during the years ended December 31, 1995, 1996 and 1997, respectively. The Vaquero family owns collectively an approximate 8% interest in IHMSA. Certain members of the Vaquero family are officers, shareholders and directors of the Company. During the five year term of the operating agreement, the Company has the right of first refusal to buy the IHMSA facility at its then fair market value. The Company has subsequently elected to advance funds to IHMSA to retire certain of its outstanding debt since, under the terms of the operating agreement, the Company would benefit from the IHMSA debt reduction. At December 31, 1997 amounts due from IHMSA of $1,465,000 represent cash advances applied to reduce IHMSA's outstanding debt. This amount is expected to be applied to the purchase price when, and if, the Company elects to exercise its purchase option. 33 34 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. During the six-month period ended June 30, 1995, Azteca co-packed approximately $1.4 million of fruit for the Company. The Vaquero family owns collectively an approximate 14.3% interest in Azteca. Payments made pursuant to the operating agreement were $143,000, $1,000 and $61,000 during the years ended December 31, 1995, 1996 and 1997, respectively. During the term of the operating agreement, the Company has the right of first refusal to buy the Azteca facility at its then fair market value. Transactions with related parties are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ---- ---- ---- (IN THOUSANDS) Sales ........................ $ 379 $ -- $ -- ====== =========== ==== Purchases .................... $2,016 $ 121 $190 ====== =========== ====
In November, 1995, the Company entered into a lease agreement with Loma Bonita Partners, a Texas general partnership, for approximately 200 hectares (494 acres) of land located in Loma Bonita, Veracruz, Mexico for the development of citrus groves. The lease commenced in December, 1995 and expires in 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 $5,670, $68,870 and $78,000 for the years ended December 31, 1995, 1996 and 1997, respectively. P&C Services, Inc. (P&C) is a California corporation owned by officers and management of Simply Fresh that leased the hourly plant employees to Simply Fresh. This employee leasing arrangement was terminated in 1997. Payments made to P&C during 1996 and 1997 amounted to approximately $1.0 million and $741,000, respectively. The balance payable to P&C at December 31, 1997 represents non-interest bearing cash advances from P&C to Simply Fresh. Receivable and payable balances with related parties are as follows:
DECEMBER 31, ----------------- 1996 1997 ------ ------ (IN THOUSANDS) Accounts receivable: Empacadora de Naranjas Azteca, S.A. de C.V. (Azteca) .......... $ 221 $ 213 Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA) ... 320 1,465 Other ......................................................... 91 -- ------ ------ $ 632 $1,678 ====== ====== Accounts payable: P&C Services, Inc. ........................................... $ 103 $ 104 Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA) ... 3 -- ------ ------ $ 106 $ 104 ====== ======
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 34 35 parties. Fruit purchases from the grove were $8,000, $121,000 and $190,000 for the years ended December 31, 1995, 1996 and 1997, respectively. The Company leases its corporate office facility from a company owned by an individual who served as the Company's president and was a shareholder of the Company through February, 1998. Rent expense on this lease was $36,000, $98,250 and $110,700 for the years ended December 31, 1995, 1996 and 1997, respectively. During 1995, 1996 and 1997, the Company paid Jordaan, Howard and Pennington, PLLC amounts of $106,145, $299,723 and $179,962, respectively, for legal services rendered. Mr. Jordaan, a director and, commencing in February, 1998, chairman of the Company, is a member of Jordaan, Howard & Pennington, PLLC. 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, and contains a purchase option through July 1, 1998 for $850,000. The San Rafael plant lease is for a period of nine years, expiring in 2003, and contains the right of first refusal to purchase the facility at its then fair market value. The Simply Fresh plant lease is for a period of ten years, expiring in 2004, and contains a purchase option exercisable from August 15, 1996 through August 14, 1998 for $4.5 to $4.75 million. The plant lease for the Lawrence, MA facility is for an initial period of six years, expiring in 2002, and contains a purchase option exercisable during the term of the lease for the then fair market value of the property. The Company has under lease approximately 926 acres of citrus groves in Mexico for periods of ten to fifteen years expiring in 2005 and 2010. As described in Note 9, the Company leases its corporate office facility and a 494 acre citrus grove from related parties. The related party building lease expires in 2000, but its term may be renewed for a five-year period. The related party citrus grove lease expires in 2005. Future minimum payments under non-cancelable operating leases with initial terms of one year or more at December 31, 1997, consist of the following:
RELATED PARTIES OTHER TOTAL ------- ----- ----- (IN THOUSANDS) 1998............. $ 78 $916 $ 994 1999............. 78 865 943 2000............. 78 874 952 2001............. 78 625 703 2002............. 78 513 591 Thereafter....... 234 943 1,177
Rent expense was $670,000, $1,159,000 and $1,234,000 for the years ended December 31, 1995, 1996 and 1997, respectively. 35 36 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, 1996 and 1997 are as follows:
DECEMBER 31, ------------------- 1996 1997 ------- ------ (IN THOUSANDS) Deferred tax assets: Net operating loss carryforwards ............... $ 1,132 $4,332 Inventories .................................... 200 582 Asset tax credit ............................... 975 1,057 Credit available to offset Mexican tax ......... 192 249 Accrued expenses ............................... 156 318 Bad debt reserve ............................... -- 260 Intangible assets .............................. -- 232 Other .......................................... 171 114 ------- ------ Total deferred tax assets ........................ 2,826 7,144 Less valuation allowance ......................... -- (2,990) ------- ------ Net deferred tax assets .......................... $ 2,826 $4,154 ======= ====== Deferred tax liabilities: Depreciation ................................... $ 2,251 $2,091 Inventories .................................... 4,003 5,862 Other .......................................... 156 419 ------- ------ Deferred tax liabilities ......................... $ 6,410 $8,372 ======= ======
Income (loss) before income taxes and extraordinary gain relating to operations in the United States and Mexico is as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1996 1997 ------- ------- ------- (IN THOUSANDS) United States ...................... $ 364 $(2,749) $(7,102) Mexico ............................. 4,261 2,690 (2,640) ------- ------- ------- $ 4,625 $ (59) $(9,742) ======= ======= =======
The components of the provision for income taxes include the following:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------- ----- ----- (IN THOUSANDS) U.S. federal -- current ................ $ 198 $(386) $ (76) U.S. state -- current .................. 31 (48) 14 U.S. deferred .......................... (32) (488) 565 ------- ----- ----- 197 (922) 503 ------- ----- ----- Foreign -- current ..................... 43 127 40 Foreign -- deferred .................... 1,438 523 (466) ------- ----- ----- 1,481 650 (426) ------- ----- ----- $ 1,678 $(272) $ 77 ======= ===== =====
36 37 Principal reconciling items from income tax computed at the U.S. statutory rate of 34% are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ------- ----- ------- (IN THOUSANDS) Provision at 34% statutory rate ............. $ 1,573 $ (20) $(3,312) State income tax (net of federal benefit) ... 21 (103) (228) Permanent differences ....................... -- (438) 852 Effect of foreign rates ..................... 273 3 (2) Other ....................................... 22 286 (223) Change in valuation allowance ............... (211) -- 2,990 ------- ----- ------- $ 1,678 $(272) $ 77 ======= ===== =======
The Company has a net operating loss carryforward in the United States of $4,633,000 which begins to expire in 2011 and in Mexico of $7,628,000 which begins to expire in 2006. The Mexican subsidiaries have asset tax credits totaling $1,057,000 available to offset Mexican income tax which begin to expire in 1999. One Mexican subsidiary also has a job creation credit of $249,000 available to offset income tax in Mexico, which will begin to expire in 2006. NOTE 12 STOCK OPTIONS In 1994, the Company adopted an employee stock option plan and an outside director stock option plan ("the Plans"). In 1997, the Company amended the employee stock option plan to reserve an additional 340,000 shares of common stock for issuance thereunder. The Plans authorize the Board of Directors to grant options to employees and consultants of the Company and to outside directors of the Company to purchase up to 820,000 shares of common stock under the employee stock option plan, as amended, and 100,000 shares for the outside directors stock option plan. The terms and the vesting period of any option granted under the Plans is fixed by the Board of Directors at the time the option is granted, provided that the exercise period may not be greater than 10 years from the date of grant. The exercise price of any option granted under the employee stock option plan shall not be less than 100% and 85% of the fair market value of the stock on the date of the grant for Incentive Stock Options and Nonstatutory Stock Options, as defined, respectively. The exercise price of any option granted under the outside directors stock option plan shall not be less than 100% of the fair market value of the stock on the date of the grant. The Company has reserved 820,000 and 100,000 shares for issuance pursuant to the employee stock option plan and the outside directors stock option plan, respectively.
EMPLOYEE STOCK OUTSIDE DIRECTORS STOCK OPTION PLAN OPTION PLAN ---------------------- ----------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE ------- --------- ------- --------- Options outstanding, January 1, 1995 ........ 220,000 $ 3.50 60,000 $ 3.50 Granted ................................. 163,000 4.61 7,500 7.13 Exercised ............................... (5,000) 3.50 -- .-- ------- ------ Options outstanding, December 31, 1995 ...... 378,000 3.98 67,500 3.90 Granted ................................. 12,500 11.30 7,500 17.00 Exercised ............................... (23,500) 3.50 (7,000) 3.50 Forfeited ............................... (5,000) 3.50 -- .-- ------- ------ Options outstanding, December 31, 1996 ...... 362,000 4.27 68,000 5.39 Granted ................................. 195,000 7.25 7,500 6.88 Exercised ............................... (37,500) 3.50 -- .-- Forfeited ............................... (5,000) 3.50 -- .-- ------- ------ Options outstanding, December 31, 1997 ...... 514,500 5.46 75,500 5.54 ======= ====== Exercisable at December 31, 1995 .................................... 50,000 $ 3.50 67,500 $ 3.90 1996 .................................... 117,250 3.89 68,000 5.39 1997 .................................... 181,125 4.13 75,500 5.54 Weighted-average fair value of options granted during the years ended: December 31, 1995 ....................... $ 1.87 $ 2.60 December 31, 1996 ....................... 4.51 6.27 December 31, 1997 ....................... 3.10 2.53
37 38 Exercise prices for employee options outstanding as of December 31, 1997 ranged from $3.50 to $12.25. The weighted-average remaining contractual life of those options is 2.5 years. Exercise prices for outside directors options outstanding as of December 31, 1997 ranged from $3.50 to $17.00. The weighted-average remaining contractual life of those options is 1.6 years. All options granted under the outside directors stock option plan are immediately exercisable. Options issued to employees during 1995, 1996 and 1997 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 1995, 1996 and 1997, respectively: risk-free interest rates of 7.0%, 5.7% and 6.2%; dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the Company's common stock of .45, .45 and .45; and a weighted-average expected life of the option of 3.9, 3.5 and 4.0 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except for per share amounts):
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1996 1997 ------------ ---------- ------------ Pro forma net income (loss) ............ $ 2,872 $ 419 $ (9,859) Pro forma earnings (loss) per share: Basic .............................. $ 0.55 $ 0.06 $ (1.15) Diluted ............................ $ 0.52 $ 0.05 $ (1.15)
38 39 Because FASB 123 is applicable only to options and stock-based awards granted subsequent to December 31, 1994, its proforma effect will not be fully reflected until 1998. NOTE 13 CAPITAL STOCK On August 11, 1994, the Company completed an initial public offering of 550,000 units consisting of a total of 1,650,000 shares of its common stock and 1,100,000 Redeemable Common Stock Purchase Warrants ("the Warrants"). The Warrants were transferable separately from the common stock and entitled the holder to purchase one share of the Company's common stock at an exercise price of $4.50 per share. On June 8, 1995 the Company notified all registered holders of the Warrants of its intention to redeem all of the outstanding Warrants by July 21, 1995 at a call price of $0.05 per warrant. During 1995, the Company issued 1,099,990 shares of common stock on the exercise of a like amount of the Warrants with gross proceeds to the Company of $4,949,955. In conjunction with the initial public offering on August 11, 1994, the Company issued warrants to its underwriting representatives ("the Representatives' Warrants") to purchase up to 55,000 units consisting of a total of 165,000 shares of its common stock and 110,000 Redeemable Common Stock Purchase Warrants. The Representatives' Warrants are exercisable for a period of five years from the offering date at a price per unit of $15.00. The Company reserved 275,000 shares for issuance upon the exercise of the Representatives' Warrants and the underlying Redeemable Common Stock Purchase Warrants. During 1995, the Company issued 163,060 shares of common stock on the exercise of 32,612 Representatives' Warrants and the 65,224 underlying Redeemable Common Stock Purchase Warrants with gross proceeds to the Company of $782,688. During 1996, the Company issued 33,750 shares of common stock on the exercise of 6,750 Representatives' Warrants and the 13,500 underlying Redeemable Common Stock Purchase Warrants with gross proceeds to the Company of $162,000. At December 31, 1997 there were 15,638 Representatives' Warrants outstanding. On June 14, 1996, the Company completed its secondary public offering whereby it sold 1,677,000 shares of its common stock at $14.50 per share with net proceeds to the company of $22.2 million. NOTE 14 RESTRICTIONS ON RETAINED EARNINGS 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 15 SEGMENT AND GEOGRAPHIC INFORMATION The Company's operations involve a single industry segment; growing, processing, marketing and distributing citrus and tropical fruit products, including chilled and canned cut fruits, citrus juices and oils, and other specialty food ingredients. Financial information, summarized by geographic location, is as follows:
UNITED STATES AND CANADA MEXICO ELIMINATIONS CONSOLIDATED ---------- ------ ------------ ------------ (IN THOUSANDS) Year ended December 31, 1995: Sales to unaffiliated customers .......... $ 23,898 $ 12,968 $ -- $ 36,866 Transfers between geographic areas ....... -- 12,937 (12,937) -- -------- -------- -------- -------- Total revenue ............................ $ 23,898 $ 25,905 $(12,937) $ 36,866 ======== ======== ======== ======== Operating profit ......................... $ 364 $ 4,410 $ (149) $ 4,625 ======== ======== ======== ======== Identifiable assets ...................... $ 9,679 $ 17,165 $ (226) $ 26,618 ======== ======== ======== ======== Year ended December 31, 1996: Sales to unaffiliated customers .......... $ 44,118 $ 21,120 $ -- $ 65,238 Transfers between geographic areas ....... 2,733 24,161 (26,894) -- -------- -------- -------- -------- Total revenue ............................ $ 46,851 $ 45,281 $(26,894) $ 65,238 ======== ======== ======== ======== Operating profit (loss) .................. $ (2,594) $ 2,939 $ (404) $ (59) ======== ======== ======== ======== Identifiable assets ...................... $ 29,132 $ 39,215 $ 8,336 $ 76,683 ======== ======== ======== ======== Year ended December 31, 1997: Sales to unaffiliated customers .......... $ 65,763 $ 15,521 $ -- $ 81,284 Transfers between geographic areas ....... 4,599 36,173 (40,772) -- -------- -------- -------- -------- Total revenue ............................ $ 70,362 $ 51,694 $(40,772) $ 81,284 ======== ======== ======== ======== Operating profit (loss) .................. $ (6,497) $ (2,266) $ (979) $ (9,742) ======== ======== ======== ======== Identifiable assets ...................... $ 30,608 $ 60,862 $ 3,146 $ 94,616 ======== ======== ======== ========
39 40 NOTE 16 EXTRAORDINARY GAIN In July, 1996, the Mexican government enacted a new program, Acuerdo Para El Financiamiento del Sector Attropecuario y Pesquero ("FINAPE"), whereby certain agricultural and commercial enterprises were eligible for a one time reduction in their existing debt obligations with Mexican banks as a means of stimulating the economy and supporting the Mexican banking system. Pursuant to the provisions of FINAPE, GISE obtained a reduction in its debt principal with Banamex of $4,000,000 pesos or approximately US $532,000. In August, 1996, the Mexican government enacted a second program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME"), of debt reduction for other commercial enterprises. Pursuant to the provisions of FOPIME, ICMOSA obtained a reduction in its debt principal with Union de Credito Allende of approximately US $57,000. In May, 1997, ICMOSA retired certain outstanding long-term debt with Union de Credito Allende, a Mexican credit union, at a discount of 50% granted pursuant to FOPIME and through the participation of Nacional Financiera, a Mexican development bank, to help provide liquidity to the Mexican credit unions. The debt reduction amounted to $2.0 million pesos or approximately US $248,000. Provisions for Mexican income taxes and statutory employee profit sharing of 34% and 10%, respectively, have been provided on these gains from debt forgiveness. NOTE 17 COMMITMENTS AND CONTINGENCIES In May, 1996, the Company entered into a non-assignable, exclusive license and technical assistance agreement with a Japanese company for the right to manufacture and sell certain fruit products in the US, Canada and Mexico. Pursuant to the agreement, the Company pays a 3% royalty based on the net sales of these products, subject to an annual minimum royalty amount, which is reported and paid quarterly. The agreement is for an initial term of five years with automatic one year renewals unless terminated by either party. At December 31, 1997 minimum annual royalties of $200,000 are payable through April, 2001. In October, 1996, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an affiliate of The Coca-Cola Company, entered into a ten year Supply Contract, with a ten year renewal option, for the production of Italian lemons. Pursuant to the terms of this Supply Contract, GISE will plant and grow approximately 12,000 acres of Italian lemons for sale to Coca-Cola at pre-determined prices. The Supply Contract requires Coca-Cola to provide, free of charge, 750,000 lemon trees, enough to plant approximately 7,200 acres. In addition, the Supply Contract requires Coca-Cola to purchase all the production from the project. The Company estimates that this project will require capital expenditures of $4.5 million in 1998. The total capital requirements for the project are estimated to be approximately $27.0 million over the next four years. Presently, the Company is exploring various financing alternatives for this project. There can be no assurances that financing can be obtained on acceptable terms, or at all. The inability to obtain third party financing for this project could have a material adverse effect on the Company. 40 41 In December, 1996, the Company entered into a deposit, operation and stock purchase agreement with the owners of Frutalamo, S.A. de C.V. for the operation of the Frutalamo juice processing plant. Pursuant to the terms of the agreement, the Company is to pay a non-refundable guaranty deposit of $1.9 million for the right to purchase all the issued and outstanding shares of stock of Frutalamo from its existing shareholders. An initial deposit of $650,000 was paid upon execution of the agreement with the balance payable in annual installments of $420,000 each through October 30, 1999. As of December 31, 1997,the deposit amounted to $950,000. The stock purchase option is exercisable on October 30, 1999 for an additional sum of $6.0 million, with $1.8 million payable at that time and the balance payable over a five year period with interest at an annual rate of 7%. Additionally, the agreement requires the Company to pay a contractual penalty of $1.0 million to the owners of Frutalamo in the event the agreement is rescinded. Effective January 1, 1995, the Company entered into a five year operating agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant to the terms of the operating agreement, the Company is obligated to pay IHMSA an operating fee sufficient to cover the interest payments on IHMSA's existing outstanding debt. During the five year term of the operating agreement, the Company has the right of first refusal to buy the IHMSA facility at its then fair market value. Since, under the terms of the operating agreement, the Company would benefit from the reduction of IHMSA's debt, the Company elected to advance funds to IHMSA to retire certain of its outstanding debt. At December 31, 1997 amounts due from IHMSA of $1,465,000 represent cash advances applied to reduce IHMSA's outstanding debt. This amount is expected to be applied to the purchase price when, and if, the Company elects to exercise its purchase option. Presently, the fair market value of the IHMSA plant is approximately $6.5 million and IHMSA has outstanding debt of approximately $3.4 million. During 1997, the previous owners of Simply Fresh Fruit, Inc. requested that the common stock price protection provisions of the May 9, 1996 acquisition agreement be satisfied by the Company. The Company had previously issued 90,909 shares of its common stock in consideration of $1.5 million of the acquisition purchase price. This request as well as other issues related to the acquisition agreement are presently the subject of binding arbitration proceedings. The actual number of additional shares to be issued by the Company, if any, has yet to be determined. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 41 42 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 1998 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 1998 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 1998 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 1998 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 42 43
NUMBER EXHIBIT EXHIBIT ------- ------- 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) 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)
43 44 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 Articles of Association of Gisalamo, S.A. de C.V. (11) 10.30 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) 10.31 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and Frutalamo, S.A. de C.V. dated December 17, 1996 (11) 10.32 Non-Competition Agreement by and among The UniMark group, Inc. and Jorn Budde dated February 18, 1998 (12) 21 Subsidiaries of the Registrant (11) 23 Consent of Ernst & Young LLP (11) 27 Financial Data Schedule, year ended December 31, 1997 (11) 27.1 Financial Data Schedule, restated, year ended December 31, 1996 (11)
- --------------------- (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) Filed herewith. (12) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated February 18, 1998. --------------------------------------------------------------------------- (4) REPORTS ON FORM 8-K The Company filed no current reports on Form 8-K during the fourth quarter ended December 31, 1997. 44 45 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/ Rafael Vaquero Bazan -------------------------------------- Rafael Vaquero Bazan President and Chief Executive Officer Dated: March 27, 1998 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:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Jakes Jordaan Director, Chairman March 27, 1998 --------------------------------- Jakes Jordaan /s/ Rafael Vaquero Bazan President, Chief Executive Officer, March 27, 1998 --------------------------------- Chief Operating Officer and Director Rafael Vaquero Bazan (Principal Executive Officer) /s/ Keith Ford Vice-president -- Finance, March 27, 1998 --------------------------------- Secretary and Treasurer (Principal Keith Ford Financial and Accounting Officer) /s/ Eduardo Vaquero Bazan Director March 27, 1998 --------------------------------- Eduardo Vaquero Bazan /s/ Jose Martinez Brohez Director March 27, 1998 --------------------------------- Jose Martinez Brohez /s/ Pedro Vaquero Garcia Director March 27, 1998 --------------------------------- Pedro Vaquero Garcia /s/ Fernando Camacho Casas Director March 27, 1998 --------------------------------- Fernando Camacho Casas
45 46
NUMBER EXHIBIT EXHIBIT INDEX ------- 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)
47 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) 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.
48 "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 Articles of Association of Gisalamo, S.A. de C.V. (11) 10.30 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) 10.31 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and Frutalamo, S.A. de C.V. dated December 17, 1996 (11) 10.32 Non-Competition Agreement by and among The UniMark group, Inc. and Jorn Budde dated February 18, 1998 (12) 21 Subsidiaries of the Registrant (11) 23 Consent of Ernst & Young LLP (11) 27 Financial Data Schedule (11) 27.1 Financial Data Schedule (11)
- --------------------- (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) Filed herewith. (12) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated February 18, 1998. EX-10.29 2 ARTICLES OF ASSOCIATION OF GISALAMO 1 EXHIBIT 10.29 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee VOLUME XCV PAGE NUMBER TWO HUNDRED AND TWO DOCUMENT NUMBER THREE THOUSAND FIVE HUNDRED AND NINETY-TWO IN VICTORIA, CAPITAL CITY OF THE STATE OF TAMAULIPAS, at twelve noon on the Seventh Day of October of Nineteen Hundred and Ninety-Six, I, LICENCIADA BLANCA AMALIA CANO GARZA DE BELLO, Assigned to Notary Public Number 187 (One Hundred and Eighty-Seven) the title of which is held by Licenciado Leopoldo Juan Bello Lopez, with jurisdiction in the First Judicial District of the State and residing in this capital city; hereby spread upon the record the Contract forming a Corporation named: "GISALAMO", SOCIEDAD ANONIMA DE CAPITAL VARIABLE executed by "GRUPO INDUSTRIAL SANTA ENGRACIA", S.A. DE C.V. represented herein by the President of the Board of Directors, ENGINEER JOSE MARIA MARTINEZ BROHEZ and by their own rights ENGINEER FRANCISCO DOMENECH TARRAGO and LICENCIADO FRANCISCO DOMENECH PERUSQUIA pursuant to the following: D E C L A R A T I O N S ONE: The contracting parties hereby declare that on the 10th (tenth) day of September of Nineteen Hundred and Ninety-Six (1996) permission was granted by the Secretaria de Relaciones Exteriores [Department of Foreign Affairs] to form a corporation named "GISALAMO", SOCIEDAD ANONIMA DE CAPITAL VARIABLE; with the following particulars: PAGE SIX HUNDRED AND FORTY-ONE (641); RECORD NO.: NINE SIX TWO EIGHT ZERO ZERO ZERO SIX TWO FIVE (9628000625), PERMISSION NO.: TWO EIGHT ZERO ZERO ZERO SIX THREE FOUR (28000634). A R T I C L E SOLE: The contractual parties hereby form a corporation, of the type known as "SOCIEDAD ANONIMA DE CAPITAL VARIABLE" governed by the following: 1 [English translation of original Spanish document] 2 ARTICLES OF ASSOCIATION NAME ONE: The name of the corporation is "GISALAMO", which shall be followed by the words SOCIEDAD ANONIMA DE CAPITAL VARIABLE" or the abbreviation S.A. DE C.V. PURPOSE TWO: The purposes for which this corporation is organized are: 1. The production, purchase and sale, importation, exportation, packaging and distribution under its own name or under the name of a third party, of all types of fruit, as well as any article or product related to agriculture, cattle, industry or commerce, including the manufacture of said articles and products. 2. The purchase, sale, rent or fabrication and general handling of appropriate and necessary equipment, machinery and raw materials to carry out the activities of the corporation. 3. In general, the exercise of any activity related to the products and articles described in the foregoing points, whether in the Republic of Mexico or in foreign countries, including those activities pertaining to commission agents, representatives, intermediaries or distributors. 4. The installation, construction, creation, operation and exploitation of factories, offices, plants, warehouses, repair shops and any other activities which may be required for the exercise of the corporation's activities. 5. The execution of all documents and legal business, whether such be civil, administrative or commercial, related to the execution of any type of contract, including those pertaining to production and leasing of goods, personal property or real-estate for the development of the corporation's activities. 6. Provide or receive all type of technical, administrative and management services by companies or individuals, whether they be Mexican or foreign. 7. The use, exploitation and registration either under its own name or that of another party, by means of licenses, contracts, or any other means, of industrial or commercial trademarks, patents, formulas and fabrication processes which are the property of Mexicans or foreigners, related to the products or articles described hereinabove. 8. The acquisition of all types of stocks or interest in partnerships, associations or corporations, by means of the subscription of capital stock, or by purchases from other Shareholders, whether they be nationals or foreigners. 9. The negotiation of loans or credits of any type for the exercise of the corporate purposes, as well as the act of constituting surety for third parties, in whatever manner deemed appropriate through the granting of guarantees such as endorsements, bonds, mortgages or any other type. 2 3 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee 10. The acquisition by any legal title of personal property or real estate which may be necessary or appropriate for the development of the corporate purposes, as well as the performance of any business, subject only to the permissions which may be required by the authorities. 11. In general, the exercise and execution of all documents, agreements, contracts and operations which are appropriate for the development of the corporation. ADDRESS THREE: The address of the corporation shall be in Ciudad Victoria, Tamaulipas, and branch offices, agencies and offices may be set up in any place within the Republic of Mexico or abroad. TERM FOUR: The term of the corporation shall be for ninety-nine (99) years from the date of execution of these Articles of Association. NATIONALITY FIVE: The corporation shall be a Mexican corporation, and may admit foreign partners. It is hereby agreed that: "Any foreigner who acquires an interest or share in the corporation is hereby formally required by the Secretaria de Relaciones Exteriores [Department of Foreign Affairs] to be treated as a Mexican with respect to the shares of stock acquired or which may be held as well as the goods, rights, concessions, shares or interest held by the corporation, that is the rights and obligations derived from the contracts in which the corporation is a party with Mexican Authorities, and they may not invoke the protection of their governments; should they do so, they would be penalized by losing the shares acquired for the benefit of the country." CAPITAL STOCK AND SHARES SIX: The capital of the corporation shall be variable. The Minimum Fixed Capital Stock fully subscribed and paid, is in the amount of $60,000.00 (SIXTY THOUSAND AND NO/100 PESOS NATIONAL CURRENCY), represented by 60,000 (SIXTY THOUSAND) Series "A" Shares The Variable Capital Stock fully subscribed and paid, is in the amount of $40,000.00 (FORTY THOUSAND PESOS NO/100 NATIONAL CURRENCY), represented by 40,000 (FORTY THOUSAND) Series "B" Shares. 3 [English translation of original Spanish document] 4 The total amount of Variable Capital Stock is unlimited, represented by the number of Shares which may be determined by the General Regular Shareholders Meeting. The movements of Variable Capital Stock shall be carried out according to the requirements of the operations of the corporation, and shall be approved at the General Regular Shareholders Meetings, in which each increase or decrease may be approved individually, as well as movements which may be required over a specified period of time. SEVEN: The Minimum Capital stock is divided into Series "A" and Series "B" Registered Common Stock, with a par VALUE of $1.00 (ONE PESO NO/100 NATIONAL CURRENCY), having equal rights and obligations and equal participation in the Capital Stock and in the distribution of dividends. Series "A" Shares represent the Minimum Fixed Capital Stock of the corporation. Series "B" Shares represent the Variable part of the Capital Stock of the corporation. The Series "B" shares, issued and not subscribed, shall be retained in the Corporation's Treasury. Should there be various issues of Series "B" Shares, they shall be numbered progressively according to the increases in the Variable part of the Capital Stock approved by the General Regular Shareholders Meeting. The Series "A" Shares corresponding to the Minimum Fixed Capital Stock and the Series "B" which correspond to the Variable part of the Capital Stock, may be acquired by (i) Individuals, whether Mexican or foreign, (ii) Foreign individuals which are immigrants, and (iii) Mexican or foreign entities. EIGHT: The corporation shall keep a registry of Registered Shares which shall set forth the information required by Article 128 (one hundred and twenty-eight) of the General Corporate Law. The registry shall be kept either by the corporation directly or by an Institution or Society legally authorized to do so. The corporation shall consider, as owners of shares, those whose names are written as such in said registry. To this affect, any holder may request that the corporation record the transactions which may be carried out, provided that the provisions of these Articles of Associations are fulfilled, as well as any applicable legal requirements. NINE: Both final and temporary stock certificates, as the case may be, which represent the stock of the corporation shall contain: (i) the provisions and requirements set forth in Article 125 (one hundred and twenty-five) of the General Corporate Law, (ii) the records set forth in the Law of Foreign Investment, (iii) the complete text of Articles Five, Six and Seven of these Articles of Association, and (iv) the signed signatures of two Members of the Board of Directors or the stamped signature of one of them, on the condition that, in the latter case, the original signature be recorded in the Public Registry of Property and Commerce corresponding to the Main Office of the corporation. 4 [English translation of original Spanish document] 5 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee The Board of Directors, shall be fully empowered to issue said titles or certificates and to exchange them upon the request of the title holders. TEN: In the event of any increase in the Capital Stock by means of new contributions, whether in the fixed part or the variable part of the capital, the shareholders shall have a preferential right, in proportion to the number of shares held, to subscribe the shares represented in the increase. This right shall be exercised according to the provisions of Article 132 (one hundred thirty-two) of the General Corporate Law; except in the case that the increase be approved by the General Shareholders Meeting, whether Full, Regular, or Special, under the terms of Article 188 (one hundred eighty-eight) of the aforementioned law, in which case, if the total amount of increase of stock: (i) by unanimous agreement of the Shareholders shall be completely subscribed in the respective Meeting, it shall not be necessary to publish a Notice and furthermore, the corporation's shareholders shall not have the right to exercise the preferential right within the period of fifteen (15) days conferred by the aforementioned law, and: (ii) should the amount not be completely subscribed in the respective Shareholders Meeting, it shall not be necessary to publish any Notice, it being understood that the aforementioned period of 15 (fifteen) days shall begin on the day following the respective Shareholders Meeting. ADMINISTRATION: ELEVEN: The Administration of the Corporation shall be the responsibility of a Sole Administrator or a Board of Directors elected by the General Regular Shareholders Meeting, made up of a minimum of seven (7) regular members or a maximum number as shall be determined at the Shareholders Meeting. The number of alternates, should such be named, may not be greater than the number of Regular Members. A Sole Administrator or a Board of Directors: (i) shall serve for one year, or until such time as successors shall be elected by the General Regular Shareholders Meetings, and shall take up their posts; and (ii) shall receive the remuneration determined by the General Regular Shareholders Meeting. TWELVE: The Sole Administrator or the Members of the Board of Directors shall be elected by simple majority vote of the shares represented in the General Regular Shareholders Meeting respectively, without computing, should such be the case, the votes of the minority shareholders hereinafter referenced. Any minority shareholder or group of shareholders, for each 25% (twenty-five percent) of Capital Stock with voting rights, shall have the right to name a Regular Member of the board and a respective alternate. In the event the 5 [English translation of original Spanish document] 6 shares representing the Capital Stock shall be recorded in the stock section of the National Stock Registry and intermediaries as referenced in the Stock Market Law, in said case, any minority shareholder or group of shareholders shall have the right to name a Regular Member of the Board and a respective alternate for every 10% (ten percent) of Capital Stock with voting rights represented. THIRTEEN: The Board of Directors, in turn, shall appoint a President from among its members if one is not named by the General Shareholders Meeting In the supposed absence of a Regular Member, an Alternate Member specifically elected by the General Regular Shareholders Meeting, shall replace him/her. If an alternate has not been appointed, any of the Alternate Members shall substitute for the absent Member, in the order in which said were appointed by the Shareholders Meeting. The Board of Directors, may resolve that the Alternate Members attend their meetings, even when said alternate members are not replacing a Regular Member. In the event that the General Regular Shareholders Meeting not do so, the Board of Directors shall name a Secretary from its own members, which may even be a person who is not a Regular or Alternate Member of the Board. In the event of temporary or permanent absences of the Secretary, an alternate appointed by the Members of the Board of Directors shall replace him/her. FOURTEEN: The Sole Administrator or the Board of Directors shall have the general powers of attorney required to fulfill the purposes of the corporation, and shall be limited only by the requirements of the Law and these Articles of Association, and to said effect, shall be invested with the powers set forth by the first three paragraphs of Article 2554 (two thousand five hundred and fifty-four) of the Civil Code for the Federal District and its corollaries in the Civil Codes for the States of the Republic, for Lawsuits and Collection, for Administrative and Ownership Acts, and even those required by Special Clause and Exchange Power to subscribe, draw, accept, endorse and guarantee all types of Credit Instruments. The Administrator or Board of Directors shall have the use of the corporate signature and may delegate said powers to one or more persons, thereby conferring upon them General or Special Powers of Attorney with or without the power of substitution or revocation, for Lawsuits and Collection, for Acts of Administration, for Acts of Ownership and Exchange which may be revoked at any time, without cause. FIFTEEN: The Meetings of the Board of Directors shall be held at least twice a year at the Corporate address, with prior Notice to the Board of Directors, or whenever the President shall call a meeting. They may also be held in any other part of the country, or abroad, by prior agreement of the Board as adopted in a previous meeting or meetings. The Secretary of the Board shall send written notice to all Members and Corporate Officials, whether Regular or Alternate, at least three (3) calendar 6 7 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee days prior to the date of the Meetings. Said notices shall be sent to the addresses recorded by the Secretary of the Board. The Notice shall include the time, date and place of the Meeting. SIXTEEN: In order for the Board of Directors to function legally, a majority of the members must attend, and its resolutions will be valid when made by a majority of the members present. QUORUM FOR INSTALLATION AND VOTING FOR THE BOARD OF DIRECTORS. - The presence and affirmative vote of all Regular Members of the Board of Directors or their respective alternates shall be required in Special Sessions held to: 1) Carry out of the acquisition, sale, lien or disposition by any legal means of corporations, associations, trusts or legal entities, with or without legal capacity or of their stocks, shares, goods and services, when the amount of the operation shall exceed 20% (twenty percent) of the net worth, according the last Corporate Financial Statement. 2) Carry out the acquisition, sale, lien or disposition by any legal means of the fixed assets or inventories, outside of normal operations, which amount shall exceed 10% (ten percent) of the Net Worth, according to the latest Corporate Financial Statement. 3) The negotiation of any credit, financing or debt which results in a rate of liabilities to net worth which exceeds a one for one value according to the latest Corporate Financial Statement. 4) The granting of any type of guarantee of third party operations, except those of the subsidiaries of the corporation. 5) The granting of credit or financing to third parties, except to the subsidiaries of the corporation. 6) The sale, assignment, lien or disposition by any legal means, of patents, trademarks, certificates of investment, technical knowledge, or technologies which are the property of the Corporation. 7) The granting or revoking of General or Special Powers of Attorney for performing Acts of Ownership and the granting of endorsements, except those which are granted to be exercised solely to guarantee the operations of the subsidiaries of the corporation. The term the "subsidiaries of the corporation" as used in this Article, shall mean a corporation, association, trust, or legal entity, with or without legal capacities, in which: (i) the Corporation shall own at least 51% (fifty-one percent) of its Stock, shares, assets and services; or (ii) 51% (fifty-one percent) of its stock, shares, assets, and services shall be owned by a company which is a subsidiary of the Corporation. The Minutes of the Meetings shall be signed by those who have presided as President and Secretary of the Board of Directors, and the Secretary of the 7 [English translation of original Spanish document] 8 Board shall have the authority to issue certified copies of the records of the minute book of the Corporation, as well as related documents. SEVENTEEN. The Board of Directors may legally hold meetings and pass resolutions, even if not all the requirements for Notice of the Meeting established in Article Fifteen of these Articles have been met, provided that there is 100% (one hundred percent) attendance of both the regular or alternate members of the board and the regular or alternate Auditor at the meeting. Resolutions passed unanimously outside of the Board of Directors Meeting, with all Regular Board Members voting shall, for all legal effects, have the same legal force as if they had been adopted during the Meeting of the Board of Directors, provided that the resolutions be confirmed in writing by all the Regular Board Members. EIGHTEEN. In the General Regular Shareholders Meetings in which either a Sole Administrator or Board of Directors Members are elected, the following may be resolved: (i) the amount of guarantee that each Board Member shall furnish (which shall be the same in each case for all Members, without making any distinction between them) to insure the responsibilities they may incur during the performance of their duties, in which case, the guarantees which were furnished shall not be paid off until the Financial Statement corresponding to the period of their management shall be approved in the General Regular Shareholders Meeting; or (ii) that all Board Members be relieved of the obligation to furnish a guarantee to insure the performance of their duties. THE AUDITING OF THE CORPORATION NINETEEN. The auditing of the Corporation shall be delegated to a Regular Auditor, which will be named by the General Shareholders Meeting. The Shareholders Meeting may name an Alternate Auditor. Auditors: (i) shall have the authorities and responsibilities set forth in the General Corporate Law; (ii) shall serve in their office for one year, or until successors be elected by another General Regular Shareholders Meeting and have taken up their posts; and (iii) shall receive the remuneration determined by the General Regular Shareholders Meeting. In the General Regular Shareholders Meetings in which Auditors shall be elected, the following may be resolved: (i) the amount of the guarantee that each of the Auditors shall furnish (which shall be the same in each case for all the Auditors, without making any distinction between them) to insure the responsibilities they may incur during the performance of their duties, in which case, the guarantees which were furnished shall not be paid off until the Financial Statement corresponding to the period of their management shall be approved at the General Regular Shareholders Meeting; or (ii) that all Auditors be relieved of the obligation to furnish a guarantee to insure the performance of their duties. 8 9 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee GENERAL SHAREHOLDERS MEETINGS TWENTY. The General Shareholders Meetings shall be either Regular, and/or Special, and shall have the respective authorities granted them in Articles 180 (one hundred eighty), 181 (one hundred eighty-one) and 182 (one hundred and eighty-two) of the General Corporate Law, with the exception noted in Article Six. TWENTY-ONE. The First Notice for any type of General Shareholders Meeting shall be published in one of the Newspapers with the highest circulation in the vicinity of the Corporation, at least 10 (ten) calendar days prior to the date indicated for the meeting to be held, and the second or subsequent Notices shall be published at least 5 (five) calendar days prior to the Meeting according to the aforementioned provisions of this Article. The Notice for any type of General Shareholder meeting shall contain the date, time, address and the agenda with the points which will be brought before the Shareholders Meeting. If all the shares corresponding to the Capital Stock of the Corporation are represented at the time of the installation and voting of the Shareholders Meeting, the meeting may be held without the need for prior Notice. The resolutions taken outside of the General Shareholders Meetings, by unanimous vote of the shareholders representing all the shares corresponding to the Capital Stock of the Corporation shall, for all legal effects, be as valid as if they had been adopted in the General Shareholders Meeting, provided that the respective resolutions be confirmed in writing by all shareholders. TWENTY-TWO. The shareholders may personally attend the Shareholders Meetings or may be represented by proxy agents designated for said purpose. For proxy purposes, the simple issuance of a proxy document signed before two witnesses shall suffice. Neither the Members of the Board of Directors nor the Auditors may be proxy agents. Those shareholders wishing to attend the Shareholders Meeting either in person or by proxy, shall obtain an entrance card from the Board of Directors at least 1 (one) working day before the date indicated for the meeting. TWENTY-THREE. With respect to the First Shareholders Meeting, (i) for the General Regular Shareholders Meeting to be considered as having been legally convened, at least 70% (seventy percent) of the total shares representing the Capital Stock must be represented, and resolutions shall be passed by an affirmative vote of at least 50% (fifty percent) of the total shares representing the Capital Stock. 9 [English translation of original Spanish document] 10 TWENTY-FOUR. The Shareholders Meetings shall be presided over by the President of the Board of Directors. In his absence, the Meetings shall be presided over by the person so designated by the attendees. The Secretary shall be the Secretary of the Board of Directors, or in his absence, the person so designated by the attendees. The President shall appoint two tellers [vote inspectors] from those persons present. The Minutes of the Shareholders Meetings shall be kept in the book reserved for that purpose and shall be signed by the President and the Secretary of the Meeting, as well as by the attending Auditor. FISCAL YEAR, FINANCIAL INFORMATION AND EARNINGS TWENTY-FIVE. Pursuant to the terms set forth in Article 8A (eight A) of the General Corporate Law, the Fiscal Year of the Corporation shall be from the 1st (first) of January to the 31st (thirty-first) of December of each year. TWENTY-SIX. At the General Regular Shareholders Meeting, the Board of Directors shall present the financial report stipulated by Article 172 (one hundred and seventy-two) of the General Corporate Law. TWENTY-SEVEN. Dividends which are not collected for 5 (five) years from the date on which they were eligible according to the published payment notice, shall be prescribed to the Corporation and credited toward the accumulated earnings of the previous fiscal years. DISSOLUTION AND LIQUIDATION TWENTY-EIGHT. The Corporation may be dissolved in those cases referenced in paragraphs I, II, IV and V of Article 229 (two hundred and twenty-nine) of the General Corporate Law, or as determined by the Special Shareholders Meeting. Once the Corporation is dissolved, the Shareholders at their Meeting shall name a Liquidator by majority vote, and shall specify the term for the fulfillment of his duties as well as his remuneration. The Liquidator shall perform the liquidation according to the rules so established by the Special Shareholders Meeting, and where not specified by said rules, according to the following norms: I. Pending business shall be concluded according to the manner judged most beneficial to the corporation, credits shall be collected and debts shall be paid, in order to dispose of the assets of the corporation, which must be sold for this purpose. II. The final balance of liquidation shall be drawn up and delivered to the Public Business Registry. 10 11 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee III. After the final balance of the liquidation is approved, the resulting liquid assets shall be distributed among the shareholders, in proportion to the number of shares held. IV. The Liquidator shall, during the liquidation process, perform all activities and duties set forth in Article 242 (two hundred and forty-two) of the General Corporate Law. TRANSITIONAL AGREEMENTS: FIRST: The meeting held by the contracting parties upon execution of these Articles of Association, shall constitute the First General Shareholders Meeting, in which the following agreements were unanimously adopted by the attendees: I. The Capital of the Corporation is Variable: a) The Minimum Fixed Capital Stock shall be the amount of $60,000.00 (SIXTY THOUSAND PESOS AND NO/100 NATIONAL CURRENCY), represented by 60,000 (SIXTY THOUSAND) Series "A" Registered Common Stock, with a par value of $1.00 (ONE PESO AND NO/100 NATIONAL CURRENCY) per share, b) the Variable Capital Stock shall be unlimited and as of this date, $40,000.00 (FORTY THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) is subscribed, represented by 40,000 (FORTY THOUSAND) Series "B" Registered Common Stock, with a par value per share of $1.00 (ONE PESO and NO/100 NATIONAL CURRENCY); the Minimum Fixed Capital Stock and its variable part is fully subscribed and paid in the following manner:
SHAREHOLDERS SERIES "A" STOCK TOTAL PAID ------------ ---------------- ------------- GRUPO INDUSTRIAL SANTA 60,000 $ 60,000.00 ENGRACIA, S.A. DE C.V. SERIES "B" STOCK ---------------- ING. FRANCISCO DOMENECH TARRAGO 27,000 $ 27,000.00 LIC. FRANCISCO DOMENECH PERUSQUIA 13,000 $ 13,000.00 TOTAL SERIES "A" SHARES 60,000 $ 60,000.00 TOTAL SERIES "B" SHARES 40,000 $ 40,000.00 ------- ------------ TOTALS 100,000 $ 100,000.00
II. The administration of the Corporation shall be by means of a Board of Directors for which purpose, the following persons are herein named: PRESIDENT: ING. JOSE MARIA MARTINEZ BROHEZ SECRETARY: ING. FRANCISCO DOMENECH TARRAGO TREASURER: M.V.Z. MANUAL MARTINEZ ARTEAGA FIRST DIRECTOR: LIC. RAFAEL VAQUERO BAZAN SECOND DIRECTOR: LIC FRANCISCO DOMENECH PERUSQUIA 11 [English translation of original Spanish document] 12 THIRD DIRECTOR: ING. FEDERICO MARTINEZ ZAMBRANO FOURTH DIRECTOR: MA. TERESA PERUSQUIA QUINTERO III. Each of the members of the Board of Directors shall furnish a guarantee in the amount of $100.00 (ONE HUNDRED PESOS AND NO/100 NATIONAL CURRENCY) to insure the proper fulfillment of their duties, said amount being deposited in the Corporation's treasury. IV. C.P. PEDRO GARZA SALAZAR is hereby named as AUDITOR of the Corporation. V. The Auditor shall deposit in the Treasury of the Corporation the amount of $100.00 (ONE HUNDRED PESOS AND NO/100 NATIONAL CURRENCY) to insure the proper fulfillment of his duties. VI. The Variable Capital Stock subscribed shall be reduced to par value in the following manner: A) In October of 1999 (Nineteen Hundred and Ninety-Nine), the sum of $12,000.00 (TWELVE THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 12,000 (TWELVE THOUSAND) Series "B" Shares. B) In October of 2000 (Two Thousand), the sum of $12,000.00 (TWELVE THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 12,000 (TWELVE THOUSAND) Series "B" Shares. C) In October of 2001 (Two Thousand and One), the sum of $4,000.00 (FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR THOUSAND) Series "B" Shares. D) In October of 2002 (Two Thousand and Two), the sum of $4,000.00 (FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR THOUSAND) Series "B" Shares. E) In October of 2003 (Two Thousand and Three), the sum of $4,000.00 (FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR THOUSAND) Series "B" Shares. F) In October of 2004 (Two Thousand and Four), the sum of $4,000.00 (FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR THOUSAND) Series "B" Shares. VII. Any partner wishing to withdraw from the Corporation shall give at least two months prior written notice to Corporate Management. With respect to the sale of shares of said partner, the current shareholders shall have preference in proportion to the percentage of shares held and the payment for said shares may be made within 1 (one) year and with respect to the buyer's purchasing capacity. VIII. The attendees shall be subject to the Courts of Ciudad Victoria, Tamaulipas, for the interpretation and fulfillment of these Articles of Association. IX. The President of the Board of Directors, INGENIERO JOSE MARIA MARTINEZ BROHEZ, is herein granted the following powers of attorney along with all general and special powers which, according to law, require a special clause, under the term of Article 2554 of the Civil Code of the Federal District, in common matters, applicable to the whole Republic with respect to federal 12 13 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee matters, as well as its corollaries in the Civil Codes of the States, including Article 1890 of the Civil Code for the State of Tamaulipas, as listed below, including but not limited to the following: 1. GENERAL POWER OF ATTORNEY FOR LAWSUITS AND COLLECTIONS. To exercise this Power before all types of persons and Judicial and Administrative authorities, whether civil, penal, labor, local and federal, and specifically, to present all types of claims, charges and actions, and to abandon such, to commit to arbitration, to prepare and answer interrogatories, to challenge judges, to accept assignment of property, to receive payments and grant receipts and cancellations; to give account and deliver monies at all times and places when so petitioned by the principal, to prosecute lawsuits, whether civil, commercial, penal or any other type, to answer demands, and charges, and to continue proceedings until their final termination; to present proceedings for relief and abandon such, to make all types of petitions, accusations or claims of any type, in any penal process, to join the Public Ministry as a coadjutor, to grant pardons to the accused parties when action is taken, to present proofs in penal processes, subject to the provisions of Article 9 of the Code of Penal Proceedings of the Federal District and the Corollary Articles in the Penal Codes of the States of the Mexican Republic and the Code of Penal Proceedings. 2. GENERAL POWER OF ATTORNEY FOR LABOR MATTERS, with authority of Employer Representation, in accordance with and to the effects of Articles 11, 45, 47, 134, Sections III (sic.), 523, 692 Sections I, II, and III, 786, 878, 880, 883, and 884 of the Federal Workers Law. The power granted and the Employer Representation that is conferred shall be exercised in accordance with the following authorities which are set forth, including but not limited to: the power to act before labor unions with which Collective Labor Contracts have been signed, and before individual workers, and in general to take action in all employee-employer matters, and to exercise these powers before any of the Labor or Social Service Authorities referred to in Article 523 of the Federal Workers Law; and also to appear before Settlement and Arbitration Boards, whether local or federal, and to exercise Employer Representation pursuant to Articles 11, 46 and 47 of the Federal Worker Law, and also to exercise Legal Representation representing legal status and capacity in trials or outside of trials under the terms of Article 692, Sections II and III; to appear to answer interrogatories under the terms of Articles 787 and 788 of the Federal Workers Law, with authority to answer any and every interrogatory; to indicate the elected domicile for hearing and receiving notification, under the terms of Article 876 of the Federal Workers Law, to appear in the place and stead of Employer in all legal matters, accepted and sufficient for the hearings referred to in Article 8733 of the Federal Workers Law, with respect to the three phases of: conciliation, 13 [English translation of original Spanish document] 14 petition and defense, and offering and admitting evidence, under the terms of Article 875, 876, Sections I and IV, 877, 878, 879, and 990 of the Federal Workers Law, to attend hearings to answer interrogatories, under the terms of Articles 883 and 884 of the Federal Workers Law, to make settlement arrangements and executive transactions, to make all types of decisions, to negotiate and sign labor agreements, to mediate proceedings for relief and abandon the same, to answer interrogatories, to execute Individual and Collective Contracts and terminate or rescind the same. 3. GENERAL POWER OF ATTORNEY FOR ADMINISTRATIVE ACTS, to manage the goods and business of the Corporation and: A) To carry out all operations inherent to the Purpose of the Corporation: such as executing Contracts, whether Lease, Comodatum, Building, Construction, Work Contracts, whether individual or collective, or any other type required in the exercise of the broadest administrative authority. B) To receive and make payments, grant receipts and releases and sign all documents and instruments which will evidence each and every document that is executed, along with the articles, terms, prices and other conditions deemed appropriate. C) To carry out and interpret the decisions of the Shareholders Meetings, and promote their fullest enforcement and fulfillment. D) To appoint and remove personnel and managers who may come to work for the corporation as well as advise them of their authorities, obligations and remunerations. 4. GENERAL POWER OF ATTORNEY FOR ACTS OF OWNERSHIP; being hereby authorized to exercise acts of ownership with respect to the assets and rights of the Corporation, having all the authorities of owner, including that of performing any act, even when same would involve the sale or encumbrance of the personal property or real estate, as well as granting all types of guarantees. 5. GENERAL POWER OF ATTORNEY FOR BILLS OF EXCHANGE, Authority is hereby granted under the terms of Article 9 of the General Law of Titles and Credit Operations, to open bank accounts, to deposit and withdraw funds, to issue, grant, subscribe, draw, endorse, guarantee, accept, refuse, negotiate and in general, to carry out any other act related to the obligations, business or civil documents, and Credit Instruments; to negotiate and obtain from any Banking or Credit Institution loans or lines of credit which may be deemed necessary for the operations of the Corporation, as well as to invest said Loans or Credits in the business of the Corporation; to sign the corporate signature on all types of documents, contracts, and credit instruments required by the aforementioned institutions, as well as those arising from the credit requirements of the corporation. 14 15 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee 6. To carry out and interpret the decisions of the Shareholders Meetings, and promote their fullest enforcement and fulfillment. 7. SUBSTITUTIONS AND LIMITATIONS OF AUTHORITIES. The President may delegate his authorities by substitution with the express reservation of the same and grant powers, with the authorities that he deems pertinent in each case, as appropriate, as well as revoke the powers granted. The President shall bear the legal representation of the corporation and may exercise his authority without the need of prior consultation with the Shareholders, without prejudice that the Shareholders may delegate such authorities as deemed appropriate to any other of its members. X. The Secretary of the Board of Directors, Ingeniero Francisco Domenech Tarrago is herein granted the following powers: 1. GENERAL POWER OF ATTORNEY FOR LAWSUITS AND COLLECTIONS. To exercise this Power before all types of persons and Judicial and Administrative authorities, whether civil, penal, labor, local and federal, and specifically, to present all types of claims, charges and actions, and to abandon such, to commit to arbitration, to prepare and answer interrogatories, to challenge judges, to accept assignment of property, to receive payments and grant receipts and cancellations; To give account and deliver monies at all times and places when so petitioned by the principal, to prosecute lawsuits, whether civil, commercial, penal or any other type, to answer demands, and charges, and to continue proceedings until their final termination; to present proceedings for relief and abandon such, to make all types of petitions, accusations or claims of any type, in any penal process, to join the Public Ministry as a coadjutor, to grant pardons to the accused parties when action is taken, to present proofs in penal processes, subject to the provisions of Article 9 of the Code of Penal Proceedings of the Federal District and the Corollary Articles in the Penal Codes of the States of the Mexican Republic and the Code of Penal Proceedings. 2. GENERAL POWER OF ATTORNEY FOR LABOR MATTERS, with authority of Employer Representation, in accordance with and to the effects of Articles 11, 45, 47, 134, Sections III (sic.), 523, 692 Sections I, II, and III, 786, 878, 880, 883, and 884 of the Federal Workers Law. The power granted and the Employer Representation that is conferred shall be exercised in accordance with the following authorities which are set forth, including but not limited to: the power to act before labor unions with which Collective Labor Contracts have been signed, and before individual workers, and in general to take action in all employee-employer matters, and to exercise these powers before any of the Labor or Social Service Authorities referred to in Article 523 of the Federal 15 [English translation of original Spanish document] 16 Workers Law; and also to appear before Settlement and Arbitration Boards, whether local or federal, and to exercise Employer Representation pursuant to Articles 11, 46 and 47 of the Federal Worker Law, and also to exercise Legal Representation representing legal status and capacity in trials or outside of trials under the terms of Article 692, Sections II and III; to appear to answer interrogatories under the terms of Articles 787 and 788 of the Federal Workers Law, with authority to answer any and every interrogatory; to indicate the elected domicile for hearing and receiving notification, under the terms of Article 876 of the Federal Workers Law, to appear in the place and stead of Employer in all legal matters, accepted and sufficient for the hearings referred to in Article 8733 of the Federal Workers Law, with respect to the three phases of: conciliation, petition and defense, and offering and admitting evidence, under the terms of Article 875, 876, Sections I and IV, 877, 878, 879, and 990 of the Federal Workers Law, to attend hearings to answer interrogatories, under the terms of Articles 883 and 884 of the Federal Workers Law, to make settlement arrangements and executive transactions, to make all types of decisions, to negotiate and sign labor agreements, to mediate proceedings for relief and abandon the same, to answer interrogatories, to execute Individual and Collective Contracts and terminate or rescind the same. 3. GENERAL POWER OF ATTORNEY FOR ADMINISTRATIVE ACTS, to manage the goods and business of the Corporation and: A) To carry out all operations inherent to the Purpose of the Corporation: such as executing Contracts, whether Lease, Comodatum, Building, Construction, Work Contracts, whether individual or collective, or any other type required in the exercise of the broadest administrative authority. B) To receive and make payments, grant receipts and releases and sign all documents and instruments which will evidence each and every document that is executed, along with the articles, terms, prices and other conditions deemed appropriate. C) To carry out and interpret the decisions of the Shareholders Meetings, and promote their fullest enforcement and fulfillment. D) To appoint and remove personnel and managers who may come to work for the corporation as well as advise them of their authorities, obligations and remunerations. E) To open bank accounts. PERSONAL CIRCUMSTANCES INGENIERO (ENGINEER) JOSE MARIA MARTINEZ BROHEZ, a Mexican national, of age, married, businessman, with Federal Taxpayer Number MABM-(??illegible)0608, originally from and residing in this capital city, residing at Sonora and Nueve, Number Two Thousand Seven North, Subdivision of San Jose, Postal Code ;87040. 16 17 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee INGENIERO (ENGINEER) FRANCISCO DOMENECH TARRAGO, a Mexican national, of age, married under the Rule of Separation of Property to Mrs. Maria Teresa Perusquia Quintero, Oenology Engineer, with Federal Taxpayer Number 00TF-410904-A82, originally from and residing in the City of Mexico, Federal District, residing at Bosque de Capulinas, number One hundred Eighty-Five, Bosques de las Lomas and temporarily in this City. Postal Code: 11700. LICENCIADO FRANCISCO DOMENECH PERUSQUIA, a Mexican national, of age, single, with a degree in Business Administration, with Federal Taxpayer Number DOPF-681023-ML6, originally from and residing in the City of Mexico, Federal District, residing at Bosques de Capulinas, Number One Hundred Eighty-Five, Bosques de las Lomas, and temporarily in this City. Postal Code: 11700. LEGAL STATUS Jose Maria Martinez Brohez, attests to the legal existence of GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V., with Public document number Nine Hundred Fifty-three, dated the 2nd of August of Nineteen Hundred Eighty-Eight, contained in Volume Thirteen of the Registry of documents in the trust of the undersigned; whose First Testimony has been duly recorded in the Public Registry of Property and Commerce of the State; Commerce Section, Number 65, Book 57, Municipality of Victoria, Tamaulipas, dated August 27, 1988, by means of which the corporation "GRUPO INDUSTRIAL SANTA ENGRACIA" S.A. DE C.V. was formed, I hereby attest that I have personally viewed same and the relevant information is as follows: DECLARATIONS: ONE: Having met to form the Corporation with Variable Capital, and having obtained from the Secretaria de Relaciones Exteriores [Department of Foreign Affairs] the required permission, said permission number 828539 was granted on the Ninth day of May of Nineteen Hundred Eighty-Eight: ARTICLES OF ASSOCIATION: ARTICLE I: The name of the Corporations is "GRUPO INDUSTRIAL SANTA ENGRACIA" SOCIEDAD ANONIMA DE CAPITAL VARIABLE....ARTICLE II. The corporation is a Mexican corporation whose address is located in the Municipality of Hidalgo, Tamaulipas...and will submit to the elected domicile. ARTICLE III. 1. The purpose of the corporation is the production, purchase, sale, importation, exportation, packaging and distribution of all types of fruits under its own name or that of a third party. 2. The purchase, sale, rent or fabrication and general business relating to the equipment, machinery and raw materials appropriate and necessary for the performance of the activities indicated in the foregoing point. 3. In general, the exercise of any activity related to the products and articles described in the foregoing points. 4. The installation, construction, creation, operation and exploitation of factories - and any other activity that may be 17 [English translation or original Spanish document] 18 required for the performance of the foregoing purposes. 5. The execution of all documents and legal business....for the development of the corporation's activities. 6. Provide or receive all type of technical, administrative and management services by companies or individuals, whether they be Mexican or foreign. 7. The use, exploitation and registration either under its own name or that of another party, by means of licenses, contracts or any other means, of industrial or commercial trademarks...related to the products or articles described hereinabove. 8. The acquisition of all types of stocks or interest in partnerships, associations or corporations, by means of the subscription of capital stock, or by purchase from other Shareholders, whether they be nationals or foreigners. 9. The negotiation of loans or credits of any type for the exercise of the corporate purposes...10. The acquisition by any legal title of personal property or real estate which may be necessary...ARTICLE IV. The term shall be for (99) ninety-nine years. ARTICLE V. The Capital Stock shall be variable. ARTICLE VI. Minimal Capital Stock is $4,000.000.00 (FOUR MILLION PESOS AND NO/100 NATIONAL CURRENCY). ARTICLE VII. ...3. The variable part may be increased with no formal requirements other than approval by the General Shareholders Meeting. ARTICLE VIII. The Board of Directors shall have the following powers: 1. Exercise Acts of Ownership...2. Administer the business and assets of the Corporation...3. Exercise Powers of Lawsuits and Collections...4. Issue, accept, remit, subscribe, release, endorse and guarantee all types of credit instruments as well as grant bonds or guarantees of any type with respect to the contractual obligations of the instruments issued by the corporation or by third parties. TRANSITORY AGREEMENTS: The First Board of Directors, by resolution of the Shareholders shall be composed as follows: PRESIDENT: ING. JOSE MARIA MARTINEZ BROHEZ... 18 19 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee NOTARIAL CERTIFICATE I, the undersigned, in my capacity as Notary, do hereby attest and certify: a) that the inserted and reported text agrees with the originals which I personally viewed and to which I have referred. b) that the individuals who have appeared before me are personally known to me, and do hereby under oath declare that they have the legal capacity to enter into this contract and obligation, there being no legal impediment to their doing so. c) that I have advised the signatories of this instrument of their obligation to evidence within thirty days of execution of the same, that an application for registration at the Federal Taxpayers Registry has been submitted in the name of the legal entity formed by this instrument, and in the event to the contrary, these Articles of Association shall not be authorized; likewise, they have been advised of their obligation to record the First Testimony in the Public Registry of Property and Business. d) that ARTICLE 1890 OF THE CIVIL CODE OF THE STATE OF TAMAULIPAS literally states: "In all the general powers for lawsuits and collections, it shall suffice to say that all general powers and special powers which according to law require a special clause are granted, in order for it to be understood that same are conferred without any limitation. In the general powers for administering property, it shall suffice to state that they are given with this nature in order that the attorney-in-fact shall have all types of administrative authorities. With respect to the general power for Acts of Ownership, it shall suffice to state that said general powers are given in this capacity so that the attorney-in-fact may have all ownership authorities, both with respect to the assets, as well as to take any measures in order to defend or administer them. When it is desired to limit the powers of the attorneys-in-fact, in the three aforementioned cases, the limitations shall be consigned, or shall be granted, with respect to special powers. The notaries shall insert this article in the testimonies of the powers granted before them. They shall insert the same at the foot of the document and before the ratifying signatures if such were not inserted into the text of the document by the interested parties, that is the officials before whom the executing grantors and witnesses ratified their signatures according to Section II of Article 1887 in relation to Article 1891. e) In witness whereof, having read these Articles of Association to the individual [sic.] who appeared before me, and having explained the scope and legal force of the document being executed, the undersigned, having stated his [sic.] agreement with same, hereby ratified and signed this instrument before me 19 [English translation of original Spanish document] 20 at ten o'clock on the twenty-sixth day of August of Nineteen Hundred and Ninety-Six. ING. JOSE MARIA MARTINEZ BROHEZ, ING. FRANCISCO DOMENECH TARRAGO, LIC. FRANCISCO DOMENECH PERUSQUIA. Signatures. ATTESTED TO BY: LIC. BLANCA AMALIA CANO GARZA DE BELLO. Signature. IN WITNESS WHEREOF, BEFORE ME, the aforementioned individuals appeared and signed this instrument at twelve o'clock noon on the seventh day of October of Nineteen Hundred and Ninety-Six. LIC. BLANCA AMALIA CANO GARZA DE BELLO. Signature. Notarial Seal. DEFINITIVE AUTHORIZATION. This instrument is hereby definitively authorized at twelve fifty-two on the twenty-second day of November of Nineteen Hundred and Ninety-Six, said being the date on which the interested parties presented a copy of the registration in the Federal Taxpayers Registry, issued by the Oficina Federal de Hacienda [Treasury Department], with registration number GIS961007Q96. IN WITNESS WHEREOF: LIC BLANCA AMALIA CANO GARZA DE BELLO. Signature. Notarial Seal. ATTACHMENTS: The following documents are attached as ATTACHMENTS. A) Permission from the Secretaria de Relaciones Exteriores [Department of Foreign Affairs] - copy B) Notice to the Secretaria de Relaciones Exteriores [Department of Foreign Affairs] of the use of the name with the pertinent information -original C) Federal Taxpayer Roll - copy D) Copy of the public document No. Nine Hundred Fifty-Three, whereby the Company UNIMARK, GROUP INC. was formed. E) Copy of the Public Document No. One Thousand Five Hundred Eighty, in which the Power for Lawsuits and Collections, Acts of Administration and Strict Ownership were granted to INGENIERO JOSE MARIA MARTINEZ BROHEZ. I HEREBY ATTEST that this is the FIRST OFFICIAL COPY, a faithful and exact copy of the original which is located in Volume XCV, and the respective appendix of the Official Registry of Public Instruments in my trust, with a notation written by the original regarding its issuance, twelve letter size pages were issued, corrected, collated, and signed and sealed, for the legal uses and ends required by the corporation "GISALAMO, SOCIEDAD ANONIMA DE CAPITAL VARIABLE, as petitioner, in the capital of the State of Tamaulipas, on the twenty-second day of the month of November of Nineteen Hundred and Ninety-Six. 20 21 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee [Signature] LIC BLANCA AMALIA CANO GARZA DE BELLO A.N.P. No. 187 21 [English translation of orginal Spanish document] 22 Registration Information: Registered under number 89 Book No. ..624.. Commerce Section Fees $692.00, Receipt No. D00032-01 dated ________________________ Cd. Victoria, Tam. ..28 Nov. 1996.. Director of Pub. Reg. of Prop. SEAL: LIC. LEOPOLDO JUAN BELLO LOPEZ NOTARY PUBLIC NO. 187 CD. VICTORIA, TAM. SEAL: GOVERNMENT OF THE FREE AND SOVEREIGN STATE OF TAMAULIPAS PUBLIC REGISTRY OF PROPERTY COMMERCE 22 23 Notary Public No. 187 Cd. Victoria, Tamps. Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza Title Holder Appointee The undersigned, LICENCIADA BLANCA AMALIA CANO GARZA DE BELLO, assigned to Notary Public Number 187 (One Hundred Eighty-Seven) held by Licenciado Leopoldo J. Bello Lopez, with jurisdiction in this capital; I HEREBY CERTIFY: that the present photocopy is a faithful and exact copy of the original of Public Document Number Three Thousand Five-hundred Ninety-Five, dated October the seventh of Nineteen Hundred and Ninety-Six, contained in Volume XCV of the Official Registry entrusted to the undersigned, with respect to the Articles of Association of the corporation named "GISALAMO", S.A. DE C.V.; a document which is registered in the Public Registry of the Property of the State in the COMMERCE SECTION, NUMBER 89, BOOK 6224, DATED NOVEMBER 28, OF 1996, AND I HEREBY ATTEST that I have personally viewed the twelve two-sided pages and returned same to the presenter. GIVEN UNDER MY HAND AND SEAL in Victoria, Capital City of the State of Tamaulipas, at sixteen hundred hours on the Twenty-Eighth day of November of Nineteen Hundred and Ninety-Six. Cert. No. 2056, of the Book of Certification of Documents and Official Registry. [Signature] LIC. BLANCA AMALIA CANO GARZA DE BELLO A. N. P. No. 187 EX-10.30 3 STOCK OPTION AGREEMENT 1 EXHIBIT 10.30 DEPOSIT, OPERATION, EXPLOITATION AND STOCK PURCHASE OPTION AGREEMENT ENTERED INTO BY AND BETWEEN MR. FRANCISCO DOMENECH TARRAGO AND MR. FRANCISCO DOMENECH PERUSQUIA, IN THEIR OWN RIGHT, HEREINAFTER REFERRED TO AS "STOCKHOLDERS" AND "UNIMARK GROUP INC", REPRESENTED HEREIN BY MR. RAFAEL VAQUERO BAZAN, HEREINAFTER REFERRED TO AS "DEPOSITOR" PURSUANT TO THE FOLLOWING: D E C L A R A T I O N S BY "STOCKHOLDERS" I. That they are individuals, of legal age, with legal capacity to execute any document or agreement, whether of a civil or commercial nature, as allowed by the law. II. That they are the sole and legitimate owners of 500 shares of registered stock, Series "A", Class I and 120,270 shares of Series "A", Class II stock, with a nominal value of $100.00 (One hundred and 00/100 Mexican pesos), each, which in their totality represent all capital stock as of this date of the Corporation known as "FRUTALAMO, S.A. DE C.V.", which is the issuing company and that they are designated by the documents and business records of such as acting in behalf of the company. III. That the corporation which issued the stocks and is owner of all the real estate and personal property of juice production (THE PLANT), was duly organized under the laws of Mexico, as attested to by document number 16,471 dated August 3, 1992, sworn to before LIC. ROGELIO MAGANA LUNA, Notary number 156 of the Federal District, and is duly registered in the Public Property and Commercial Registry in its jurisdiction, and listed in the Federal Taxpayer Registry under number FRU-920803-8H2. IV. That it is their desire and that no legal impediment exists for "STOCKHOLDERS" to transfer to "DEPOSITOR" or to "GISALAMO, S.A. DE C.V." the complete operation and exploitation of all real and personal property for juice production (THE PLANT), which is the property of "FRUTALAMO, S.A. DE C.V." and the stock purchase option referred to hereinabove in Provision II, as owners of said stock, subject to the terms and conditions set forth hereunder. THE "DEPOSITOR" I. That it is a foreign corporation, with foreign residence, duly organized under the laws of the Sate of Texas, as attested to by the document granted on the ninth of September of 1996, by the Secretary of the State of Texas, of the United States of America. 1 [English translation of original Spanish document] 2 II. That the powers exercised by its representative were granted under the laws of the State of Texas, as attested by the document dated July 26, 1996, sworn to before Viki L. Coffman, Notary Public of the State of Texas, of the United States of America. III. That it has the necessary powers to execute any document or agreement, whether civil or commercial, allowed by the laws of Mexico or the United States of America, as well as the necessary means for the full operation and exploitation of the real and personal property for juice production (THE PLANT), which is the property of "FRUTALAMO, S.A. DE C.V." and it wishes to have the option to purchase the stock which is the property of "STOCKHOLDERS". Therefore, in consideration of the aforementioned provisions, the Parties hereby agree to the following: A R T I C L E S ARTICLE ONE: The operation and exploitation of THE PLANT, shall be granted to a new corporation named "GISALAMO, S.A. DE C.V." in which 60% of the stock shall be held by "DEPOSITOR", or whomever such may designate, and 40% shall be held by "STOCKHOLDERS". Said stockholdings may only vary pursuant to the articles of association of "GISALAMO, S.A. DE C.V." or until the end of the term fixed in the following ARTICLE TWO. ARTICLE TWO: The term referred to in the foregoing article shall be three (3) years or until payment in full of the price established for the stock purchase option referred to in article nine, should such option be exercised. ARTICLE THREE: The administration and control of the corporation operating and exploiting THE PLANT shall be the sole and exclusive responsibility of "GISALAMO, S.A. DE C.V." ARTICLE FOUR: In the event that at the end of the term, or before, as specified in Article Nine, "DEPOSITOR" shall exercise its stock purchase option, "STOCKHOLDERS" may, at their election, continue to share in stockholdings in the percentage corresponding to the payments made. ARTICLE FIVE: During the period in which "STOCKHOLDERS" have stock participation in "GISALAMO, S.A. DE C.V.", the company which shall operate and exploit THE PLANT, should "DEPOSITOR" not make full payment of the amounts set forth in Articles Six and Nine upon exercising its option to buy, "STOCKHOLDERS" may continue to draw their respective dividends, with the following exception: 2 [English translation of original Spanish document] 3 a) The first $420,000.00 dollars of dividends, resulting in each of the years, from this date until the end of three (3) years, whichever shall occur first, shall be payable to "DEPOSITOR" or to whomever shall be the stockholder of "GISALAMO, S.A, DE C.V.", and any amount which shall exceed said specified amount, shall be distributed according to holdings to each stockholder. The aforementioned amount, shall not be cumulative for the second and third years. b) The dividends produced after the period specified in the foregoing paragraph a), shall be payable 60% to "DEPOSITOR" or to the shareholder of "GISALAMO, S.A. DE C.V." and 40% or less to "STOCKHOLDERS", according to the percentages specified in the articles of association of the latter, as long as the former has not paid the latter the full amount agreed upon for the purchase option established in Article Nine of this Agreement. ARTICLE SIX: In order for "GISALAMO, S.A. DE C.V.", to initiate operation and exploitation of THE PLANT, "DEPOSITOR" shall deliver to "STOCKHOLDERS" or to "FRUTALAMO, S.A. DE C.V." a guaranty deposit in the amount of $1,910,000.00 (One million, nine hundred and ten thousand and no/100) as follows: a) $650,000.00 dollars upon execution of this Agreement. b) $420,000.00 no later than October 30, 1997 c) $420,000.00 no later than October 30, 1998 d) $420,000.00 no later than October 30, 1999 Deposits shall be designated for payment of debt accrued by "FRUTALAMO, S.A. DE C.V." as of this date. ARTICLE SEVEN: In order to exercise its option to purchase stock belonging to "STOCKHOLDERS", "DEPOSITOR" shall fulfill the provisions of the foregoing paragraph and attest to its desire to exercise its option to purchase referenced in Article Nine no later than October 30, 1999. ARTICLE EIGHT: In order for "DEPOSITOR" to exercise its option to buy under the terms set forth hereunder in Article Nine, "STOCKHOLDERS" shall undertake to render "FRUTALAMO, S.A. DE C.V." free of debt as of said date. In the event of the contrary, the price stipulated shall be discounted in the amount of debt that the latter shall have as of October 30, 1999. ARTICLE NINE: Upon exercise of its stock purchase option, "DEPOSITOR" shall pay "STOCKHOLDERS" in addition to the deposits aforementioned in Article Six of this Agreement, the amount of $6,000,000.00 (Six million dollars 3 [English translation of original Spanish document] 4 and no/100 U.S. Currency), in cash or in stock issued or to be issued by UNIMARK GROUP INC. for the same value or a combination of methods of payment, as mutually agreed upon by the Parties. Said amount shall be paid as follows: a) October 30, 1999 $ 1,800,000.00 dollars b) October 30, 2000 $ 1,800,000.00 dollars c) October 30, 2001 $ 600,000.00 dollars d) October 30, 2002 $ 600,000.00 dollars e) October 30, 2003 $ 600,000.00 dollars f) October 30, 2004 $ 600,000.00 dollars ARTICLE TEN: Upon exercise of its stock purchase option and provided that "DEPOSITOR" shall not have paid "STOCKHOLDERS" the total amount agreed upon in the foregoing article in cash, stocks or a combination of both, normal interest shall be accrued at the rate of 7% annually on unpaid balances, and said interest shall be payable in cash quarterly until total payment has been made. ARTICLE ELEVEN: Regardless of the fact that "STOCKHOLDERS" shall continued to draw the interest aforementioned in the preceding article, if total payment of the amount established in Article Nine is not made, they shall continue to hold 40% of the stockholdings or a lesser percentage according to the articles of association of "GISALAMO, S.A. DE C.V.", being the company which shall operate and exploit THE PLANT, along with the benefits resulting from said stock, with the exception of that which is expressly stated in Article Five of this Agreement. ARTICLE TWELVE: In the event that "DEPOSITOR" not exercise its stock purchase option no later than October 30, 1999, the real and personal property subject of the operation and exploitation comprising THE PLANT, shall revert back to the operation and exploitation of "FRUTALAMO, S.A. DE C.V." and/or to "STOCKHOLDERS". ARTICLE THIRTEEN: Should "DEPOSITOR" not exercise its stock purchase option no later than October 30, 1999, the deposits delivered to "STOCKHOLDERS" aforementioned in Article Six of this Agreement, and the real and personal property comprising THE PLANT shall remain with the latter as payment of rent accrued during the time same were operated and exploited by "GISALAMO, S.A. DE C.V." 4 [English translation of original Spanish document] 5 ARTICLE FOURTEEN: Should all requirements set forth in this Agreement be met, and the stock purchase option be EXERCISED, "STOCKHOLDERS" shall deliver and endorse to "DEPOSITOR" the stocks which are the subject of this agreement, free and clear of all liens and limitations of ownership. ARTICLE FIFTEEN: Both Parties attest that the agreed upon value of the shares, plus the desposits referred to in articles six and nine of this Agreement, is the total true value of the tangible and intangible assets OF "FRUTALAMO, S.A. DE C.V." with all which pertains to it de facto and de jure. ARTICLE SIXTEEN: Upon exercise of its option to purchase stock from "FRUTALAMO S.A. DE C.V.", "DEPOSITOR" shall be the sole legitimate shareholder of same and therefore shall be owner of all that pertains to the company which issued the stocks de facto and de jure, including the financial losses to be amortized as of the date the stock purchase option is exercised. ARTICLE SEVENTEEN: Upon exercising its stock purchase option, "STOCKHOLDERS" shall be obliged to deliver to "DEPOSITOR" all accounting, tax, and business documents as well as all contracts, authorizations, permissions and any other document pertaining to "FRUTALAMO, S.A. DE C.V." ARTICLE EIGHTEEN: As of this date, "STOCKHOLDERS" and "FRUTALAMO, S.A. DE C.V." shall not carry out any operations related to purchase/sale of merchandise, finished products or any other operation affecting the interest of "DEPOSITOR" or "GISALAMO S.A. DE C.V.", except for those operations required to continue the administration of the business until the stock purchase option is exercised, including but not limited to: payment of income and expenses accrued, payment of obligations contracted before or after, accounting, audits, administration, etc. ARTICLE NINETEEN: Should "DEPOSITOR" exercise his stock purchase option, DEPOSITOR shall be the only legitimate entity responsible for all operations carried out by "FRUTALAMO, S.A. DE C.V." as of said date, and shall leave the property of "STOCKHOLDERS" free of responsibility and same shall be free from any contingency which may arise, inasmuch as "STOCKHOLDERS" shall only be responsible for the debts accrued until the date that "DEPOSITOR" has to exercise his option to buy (October 30, 1999). ARTICLE TWENTY: The Parties mutually attest that until all obligations set forth in this Agreement have been fulfilled, they shall not grant as guaranty, or special guarantee, pledge or mortgage or an any other way encumber the real and personal property and other tangible or intangible assets which comprise THE PLANT which are the property of "FRUTALAMO, S.A. DE C.V." without the express consent of each of the Parties. 5 [English translation of original Spanish document] 6 ARTICLE TWENTY-ONE: Parties mutually agree that all amounts specified in this Agreement may be paid, reimbursed or refunded in United States Dollars or in the equivalent amount in Mexican currency at the exchange rate posted by the Banco de Mexico for sale on the date in question. ARTICLE TWENTY-TWO: "STOCKHOLDERS" shall be ensure that "FRUTALAMO, S.A. DE C.V." execute an agreement granting "GISALAMO, S.A. DE C.V." the corporation which shall operate and exploit THE PLANT, a contract of "Gratuitous Loan", for the temporary use and possession of the tangible and intangible assets which comprise THE PLANT, and which are property of "FRUTALAMO, S.A. DE C.V." under the terms set forth herein, which term shall not exceed October 30, 1999, in the event that the option to purchase shares is exercised pursuant to the provisions of Article Nine. ARTICLE TWENTY-THREE: In the event that "DEPOSITOR" not exercise its stock purchase option referred to herein, regardless of whether or not "GISALAMO S.A. DE C.V." returns to "FRUTALAMO, S.A. DE C.V.," the tangible and/or intangible assets granted in the gratuitous loan agreement, the Operating Company shall continue to grant "STOCKHOLDERS" participation in the income or dividends resulting from operations, and "STOCKHOLDERS" may request audits of financial statements of the Operating Company regardless of their percentage of stockholdings. ARTICLE TWENTY-FOUR: Regardless of the provision of Article Twenty, the Licenses, Permissions, Authorizations, Concessions, and Franchises and any other right which may exist, shall remain the property OF "FRUTALAMO, S.A. DE C.V." and/or "STOCKHOLDERS"; until all contractual obligations hereunder are fulfilled. ARTICLE TWENTY-FIVE: "FRUTALAMO, S.A. DE C.V." and/or "STOCKHOLDERS" shall allow "DEPOSITOR" and/OR "GISALAMO, S.A. DE C.V." the corporation which shall operate and exploit the real and personal property, the use of the list of clients and suppliers, operating systems and any other rights pertaining to the former, including but not limited to the use of the export quota authorization of products drawn up by the former and annually assigned by the Consejo National Agropecuario [National Department of Agriculture & Fishery]. ARTICLE TWENTY-SIX: The Parties mutually agree that "GISALAMO, S.A. DE C.V." the corporation which shall operate and exploit THE PLANT belonging to "FRUTALAMO, S.A. DE C.V.", by means of the gratuitous loan agreement executed, shall be administered pursuant to the terms set forth in the articles of association and that such do not interfere or in any way affect the provisions of this Agreement. 6 [English translation of original Spanish document] 7 ARTICLE TWENTY SEVEN: Should this Agreement be rescinded, there shall be a contractual penalty in the amount of $1,000,000.00 dollars (One million and no/100 U.S. Dollars). ARTICLE TWENTY-EIGHT: The following shall be considered as cause for the rescission of the contract and the application of the contractual penalty: Should "DEPOSITOR" a) not exercise its stock purchase option as referred to herein, no later than October 30, 1999. b) not liquidate the deposits and contractual sums for the stock purchase option, within the established periods, as referenced in Articles Six and Nine of this Agreement. c) not grant "STOCKHOLDERS", or whomever same shall designate, participation in the income and dividends that are their share IN "GISALAMO S.A. DE C.V.", the Operating Company of the tangible and intangible assets of "FRUTALAMO, S.A. DE C.V." d) not operate and/or exploit the tangible and intangible assets which are the property of "FRUTALAMO, S.A. DE C.V.", pursuant to the terms sets forth in the gratuitous loan agreement executed as of this date. e) Give as guaranty, loan, rent, mortgage, special guaranty, or in any other way encumber the tangible and/or intangible assets which are the property of "FRUTALAMO, S.A. DE C.V." and/or the "STOCKHOLDERS", without their express authorization. f) Either refuse to indemnify contracted personnel pursuant to Article Twenty-Six or refund to "STOCKHOLDERS" any expenditure that they may have had to make in order to comply with labor regulations, which are the duty of "DEPOSITOR". g) Refuse to return to "FRUTALAMO, S.A. DE C.V." the assets which comprise "THE PLANT", in the event that the stock purchase option is not exercised. h) Fail to comply with any of the contractual obligations hereunder. SHOULD "STOCKHOLDERS" 7 [English translation of original Spanish document] 8 a) Refuse to carry out the stock purchase option as referenced herein, when "DEPOSITOR" and/or "GISALAMO, S.A. DE C.V." shall have fulfilled all obligations established herein. b) Refuse to deliver shares or titles due "DEPOSITOR", upon fulfillment of the contractual obligations. c) Refuse to receive payments made by "DEPOSITOR", when these have been made within the terms established herein. d) Refuse to refund to "DEPOSITOR" the amounts that the latter may have expended to cover legal, tax, labor or any other obligation which are the duty of the "STOCKHOLDERS" or to the Company issuing the stocks until the date the stock purchase option referenced herein is exercised. e) Refuse to deliver to "DEPOSITOR" or to whomever the latter shall designate, the tangible and intangible assets necessary for operation and exploitation. f) Not provide the required advice to "DEPOSITOR" and/or to the company which shall operate and exploit THE PLANT, with respect to clients, suppliers, production, distribution and deny use of the export quota authorization, assigned annually by the Consejo National Agropecuario. g) Fail to comply with each and every contractual obligation herein. ARTICLE TWENTY-NINE: "DEPOSITOR" and/or "GISALAMO, S.A. DE C.V.", the corporation which shall operate and exploit THE PLANT, shall hire the administration and/or production personnel deemed necessary and which are currently employed by "FRUTALAMO, S.A. DE C.V.", AND "FRUTALAMO, S.A. DE C.V." and/or "STOCKHOLDERS" shall completely indemnify the personnel that the former does not require. The obligation of "FRUTALAMO, S.A. DE C.V." to indemnify the personnel that "DEPOSITOR" and/or "GISALAMO, S.A. DE C.V.", as the company that shall operate and exploit THE PLANT, do not require shall terminate March 31, 1997, should the latter not advise the former, no later than said date, that it does not require said personnel. ARTICLE THIRTY: The Parties mutually convene to execute this Agreement, before the notary public of their choosing, the expense of which shall be borne by "DEPOSITOR." ARTICLE THIRTY-ONE: For the purposes of this Agreement, the Parties give the following addresses: 8 [English translation of original Spanish document] 9 "STOCKHOLDERS" "DEPOSITOR" Rafael Rebollar No. 67 Carrera Torres Poniente No. 226 Col. San Miguel Chapultepec Cd. Victoria, Tamps. C.P. 11850 C.P. 87000 Mexico, D.F. ARTICLE THIRTY-TWO: The Parties attest that this Agreement was executed with their full consent and was drawn up without Fraud, Error or Bad Faith on the part of either one. ARTICLE THIRTY-THREE: The Parties mutually agree that the terms of this Agreement annul any other agreement which has been made to date verbally, or in any other document, contract, agreement, letter of intent, or other document signed by either Party. ARTICLE THIRTY-FOUR: The contractual Parties herein declare that any amendment made to this Agreement shall be made with the prior consent of the Parties before two witnesses and shall be attached hereto and constitute a part of this Agreement. With regard to the interpretation and fulfillment of this Agreement, the parties shall submit themselves to the jurisdiction of the Courts of the Federal District of Mexico, and hereby renounce any other jurisdiction which might apply, by reason of their present or future residence. The Parties subscribe this Agreement on the seventeenth day of the month of December, 1996, before two witnesses. "STOCKHOLDERS" "DEPOSITOR" (Signature) (Signature) - ------------------------- -------------------------- MR. FRANCISCO DOMENECH FOR "UNIMARK GROUP, INC." TARRAGO MR. RAFAEL VAQUERO BAZAN (Signature) (Signature) - ------------------------- -------------------------- LIC. FRANCISCO DONENECH FOR "FRUTALAMO,S.C. DE C.V." PERUSQUIA MR. FRANCISCO DOMENECH TARRAGO WITNESS WITNESS 9 [English translation of original Spanish document] 10 (Signature) (Signature) - ------------------------- -------------------------- JOSE MARIA MARTINEZ LUIS EDUARDO SERAFIN BROHEZ, ENGINEER GOMEZ 10 [English translation of original Spanish document] EX-10.31 4 LOAN AGREEMENT 1 EXHIBIT 10.31 GRATUITOUS LOAN AGREEMENT ENTERED INTO BY AND BETWEEN FRUTALAMO, S.A. DE C. V. REPRESENTED HEREIN BY MR. FRANCISCO DOMENECH TARRAGO, ENGINEER, HEREINAFTER AND FOR PURPOSES OF THIS AGREEMENT REFERRED TO AS "LENDER"; AND, "GISALAMO S.A. DE C.V." REPRESENTED HEREIN BY MR. JOSE MA. MARTINEZ BROHEZ, ENGINEER, HEREINAFTER AND FOR PURPOSES OF THIS AGREEMENT REFERRED TO AS "BORROWER"; PURSUANT TO THE FOLLOWING PROVISIONS AND ARTICLES: DECLARATIONS I. WHEREAS MR. FRANCISCO DOMENECH TARRAGO, Engineer, as representative of "LENDER" declares: a) That his principal is a Mexican company duly organized under the laws of the nation [Mexico] and is duly authorized to enter into contracts and assume such obligations, as attested to in public document number 16,471 dated August 3, 1992, given under oath before LIC. ROGELIO MAGANA LUNA, Notary Public No. 156 with jurisdiction in the Federal District and registered in the Public Registry of Commerce under Commercial Page No. 162665, of the Book of Commerce, on August 17, 1992. b) That his principal has as its primary business objective the processing, bottling, commercialization and sale of citrus fruit for juice extraction and manufacture of concentrate, as well as the performance of all types of agreements permitted by Law. c) That in his capacity as Legal Representative of "LENDER", he has sufficient legal authority to enter into this Agreement, the foregoing agreement, and has been granted powers under the Actos de Administracion y Dominio (Documents of Administration and Power) which have been conferred upon him, which to this date have not been revoked or restricted, which are confirmed in the public document cited in the foregoing paragraph a). d) That "LENDER" is the legitimate owner and has full possession of the assets which comprise the juice extraction "PLANT" (land, buildings, and equipment) which is equipped and ready for operation, including an evaporator and residual water treatment plant (installation pending on these latter two pieces of equipment), and holds all Permissions, Authorizations, and Licenses required by the various Municipal, State and Federal Authorities for its operation. e) That it is the "LENDER'S" desire to enter into this "GRATUITOUS LOAN AGREEMENT" pursuant to the terms and conditions set forth hereunder. 1 [English translation of original Spanish document] 2 II. Mr. JOSE MA. MARTINEZ BROHEZ, ENGINEER, as "BORROWER'S" representative, herein manifests: a) That his principal is a Mexican company duly organized under the laws of the nation [Mexico] and being duly authorized to enter into contracts and assume such obligations, as attested to in public document number 2,595 dated October 7, 1996, given under oath before LIC. BLANCA AMALIA CANO GARZA DE BELLO, Notary Public No. 187 with jurisdiction in Cd. Victoria, Tam., with pending registration in the Public Registry of Commerce. b) That his principal has as its primary objective the processing, bottling, commercialization and sale of citrus fruit for juice extraction and manufacture of concentrate, as well as the performance of all types of agreements permitted by Law. c) That in his capacity as Legal Representative of "BORROWER", he has sufficient legal authority to enter into this Agreement, the foregoing agreement, and has been granted powers under the Actos de Administracion y Dominio (Documents of Administration and Power) which have been conferred upon him, which to this date have not been revoked or restricted, which are confirmed in the public document cited in the foregoing paragraph a). d) That it is the "BORROWER'S" desire to enter into this "GRATUITOUS LOAN AGREEMENT", pursuant to the terms and conditions set forth hereunder. Both parties herein attest that this agreement is subscribed pursuant to Article Nineteen of the "DEPOSIT, OPERATION, EXPLOITATION AND OPTION TO PURCHASE AGREEMENT" executed October 30, 1997, between MR. FRANCISCO DOMENECH TARRAGO, ENGINEER, LIC. FRANCISCO DOMENECH PERUSQUIA, by his own right and in his capacity as representative of "FRUTALAMO, S.A. DE C.V." and "UNIMARK, GROUP INC." represented by MR. RAFAEL VAQUERO BAZAN" which is attached to this Agreement. Pursuant to the aforementioned provisions made by the Parties, the same agree to grant and submit to the following: A R T I C L E S ARTICLE ONE: PURPOSE: "LENDER" GRANTS TO "BORROWER" a "GRATUITOUS LOAN" of the assets mentioned in Provision 1, paragraph d) of this instrument, which are equipped and ready for operation, including an evaporator and residual water treatment plan (installation is pending on the latter two pieces of equipment). 2 [English translation of original Spanish document] 3 ARTICLE TWO: UTILIZATION: ""BORROWER" shall utilize the Industrial Facility (Land, Buildings and Equipment) for the exploitation of its Commercial Purpose, that being the processing, packaging, commercialization and sale of citrus fruit for juice extraction and production of concentrate. ARTICLE THREE: TERM: The term of this Agreement shall be from October 30, 1996 to October 30, 1999. ARTICLE FOUR: PAYMENT OF SERVICES: "BORROWER" shall bear the expenses of water, electricity and phone utilities. ARTICLE FIVE: MAINTENANCE COSTS AND INSURANCE PAYMENT: ""BORROWER" shall pay all costs incurred for maintenance required for the proper functioning of the Industrial Plant. Furthermore, "BORROWER" shall bear the expense of premiums for fire and liability insurance which it shall be required to obtain; and the beneficiary of said insurance shall be "FRUTALAMO, S.A. DE C.V." ARTICLE SIX: INDEMNIFICATION OF WORKERS: Inasmuch as "LENDER" currently employs thirty-seven workers, it shall indemnify them in order to terminate the contractual relationship no later than November 30 of the current year. Furthermore, and if it so desires, "BORROWER" shall have the option to rehire said personnel, thereby freeing "LENDER" from all employer-employee responsibility which may arise with said employees or with any other employee which may be hired, and all obligations and risks associated with those contracted employees shall be born by "BORROWER". ARTICLE SEVEN: PERMISSIONS AND AUTHORIZATIONS: "LENDER" promises "BORROWER" to maintain all Permissions, Authorizations, and Licenses which, as of this date, have been granted by the various Municipal, State and Federal Authorities, and furthermore shall obtain Land Use Permits from pertinent Municipal and State authorities as well as those permits required for the Concession of Water Wells and Residual Water Discharge provided that these are not significantly altered. ARTICLE EIGHT: EXPORT QUOTA TO THE UNITED STATES: "LENDER", during the term of this "GRATUITOUS LOAN AGREEMENT", assigns to "BORROWER" its assigned volume of quota for Orange Juice (Fresh and Concentrate). ARTICLE NINE: ASSIGNMENT: Both "LENDER" and "BORROWER" are in agreement to prohibit the partial or total assignment or transfer of the rights and obligations acquired herein in this "GRATUITOUS LOAN AGREEMENT"; the foregoing, without prior written consent of the other party. ARTICLE TEN: AMENDMENTS TO AGREEMENT: In the event that amendments to this "LOAN AGREEMENT" are required, both "LENDER" and "BORROWER" shall be required to carry out the respective Amendment Agreement, which must be signed by the parties as well as two witnesses, in order to incorporate said Amendment as an integral part of this Agreement. 3 [English translation of original Spanish document] 4 ARTICLE ELEVEN: INTEGRATION: Both "LENDER" and "BORROWER" herein declare that this Agreement is real, just and equitable, and is free of error, fraud, violence, ignorance, inexperience, unlawful enrichment, and injury which could nullify same; therefore, the parties convene that this is the sole document executed by both parties, and replaces any verbal or written agreement executed prior to this date. At the termination of this Agreement, "BORROWER" shall deliver to "LENDER" the goods delivered in this "GRATUITOUS LOAN AGREEMENT," in the same condition in which they were received, excepting normal wear and tear. ARTICLE TWELVE: ADDRESSES: The parties hereunder indicate their addresses: "LENDER" "BORROWER" Rafael Rebollar No. 67, Carrera Torres Poniente No. 226 Col. San Miguel Chapultepec Cd. Victoria, Tamaulipas Mexico, Distrito Federal C.P. 87000 C.P. 11850 ARTICLE THIRTEEN: JURISDICTION AND APPLICABLE LAW: The parties convene and expressly agree to abide by the jurisdiction of the Courts of Cd. Victoria, Tam., as well as the applicable laws of the State of Tamaulipas, and the foregoing shall be applied to the interpretation and fulfillment of this "GRATUITOUS LOAN AGREEMENT", and hereby renounce any other jurisdiction which might apply, by reason of their present or future residence. The parties, having read this Agreement and being duly informed of the scope of the same, do hereby execute the same in duplicate in the presence of two witnesses in the City of Cd. Victoria, Tam., on the 17th day of the month of December, 1996. "LENDER" "BORROWER" (Signature) (Signature) FOR "FRUTALALMO, S.A. DE C.V." FOR "GISALAMO, S.A. DE C.V." FRANCISCO DOMENECH JOSE MA. MARTINEZ TARRAGO, ENGINEER BROHEZ, ENGINEER 4 [English translation of original Spanish document] EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE UNIMARK GROUP, INC. 1. Unimark Foods, Inc., a Texas corporation 2. Unimark International, Inc., a Texas corporation 3. Industrias Citricolas de Montemorelos, S.A. de C.V., a company organized under the laws of Mexico 4. Grupo Industrial Santa Engracia, S.A. de C.V., a company organized under the laws of Mexico 5. Les Produits Deli-Bon Inc., a Canadian corporation 6. Simply Fresh Fruit, Inc., a California corporation 7. Agromark, S.A. de C.V., a company organized under the laws of Mexico 8. Gisalamo, S.A. de C.V., a company organized under the laws of Mexico 9. Unimark Foods Europe Ltd., a company organized under the laws of the United Kingdom
EX-23 6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 March 27, 1998, 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, 1997. ERNST & YOUNG LLP Dallas, Texas March 27, 1998 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,237 0 12,284 685 25,726 43,195 43,357 5,227 94,616 47,723 8,626 0 0 86 38,166 94,616 81,284 81,284 59,280 59,280 0 542 3,294 (9,742) 77 (9,819) 0 139 0 (9,680) (1.13) (1.13)
EX-27.1 8 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 4,268 0 9,386 142 19,411 36,066 31,889 2,712 76,683 24,313 4,332 0 0 86 47,714 76,683 65,238 65,238 46,612 46,612 0 100 1,407 (59) (272) 213 0 330 0 543 .07 .07
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