-----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, ACC6uXVuBOMXqE5c/YhYU8Dxex7mm1JMk7/Eoj8uJAmq02dlImZHkeW+01G0nbFD GtsPb381o5TqyNgtIDUfsg== 0000950134-99-002965.txt : 19990416 0000950134-99-002965.hdr.sgml : 19990416 ACCESSION NUMBER: 0000950134-99-002965 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 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: 99594334 BUSINESS ADDRESS: STREET 1: UNIMARK HOUSE STREET 2: 124 MCMAKIN RD CITY: BARTONVILLE STATE: TX ZIP: 76226 BUSINESS PHONE: 8174912992 10-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 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, 1998 OR [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to ____________________ Commission file number 0-26096 THE UNIMARK GROUP, INC. (Exact name of registrant as specified in its charter) TEXAS 75-2436543 (State of incorporation or organization) (I.R.S. Employer Identification No.) UNIMARK HOUSE 124 MCMAKIN ROAD BARTONVILLE, TEXAS 76226 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 491-2992 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The approximate aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold as of April 9, 1999 was $21,946,000. The number of shares of common stock outstanding as of April 9, 1999 was 13,938,326. DOCUMENTS INCORPORATED BY REFERENCE: The UniMark Group, Inc.'s 1999 Proxy Statement contains much of the information required in Part III of this Form 10-K, and portions of the 1999 Proxy Statement are incorporated by reference herein from the applicable sections thereof. The Items of this Form 10-K, where applicable, specify which portions of the 1999 Proxy Statement are incorporated by reference. The portions of the 1999 Proxy Statement that are not incorporated by reference shall not be deemed to be filed with the Commission as part of this Form 10-K. 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 company conducts substantially all of its operations through its wholly owned operating subsidiaries. In Mexico, the Company's subsidiaries include: Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"), Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE") and AgroMark, S.A. de C.V. ("AgroMark"). In the United States, the Company's subsidiaries include: UniMark Foods, Inc. ("UniMark Foods"), UniMark International, Inc. ("UniMark International") and Simply Fresh Fruit, Inc. ("Simply Fresh"). In Canada, the Company's subsidiary is Les Produits Deli-Bon Inc. ("Deli-Bon") and in the United Kingdom the Company's subsidiary is UniMark Foods Europe, Ltd. ("UniMark Europe"). The Company operates and competes in two distinct business segments: packaged fruit and juice & oil. The UniMark Group, Inc. was organized in 1992 to combine the packaged fruit operations of ICMOSA, a Mexican citrus and tropical fruit processor which commenced operations in 1974, with UniMark Foods, a company that marketed and distributed ICMOSA's products in the United States. The Company focuses on niche citrus and tropical fruit products including fresh, chilled, frozen and canned cut fruits and other specialty food ingredients. The packaged fruit segment processes and packages its products at five plants in Mexico, one in California, and one in Quebec, Canada. The Company's Mexican and Californian plants are strategically located in major fruit growing regions. The Company utilizes food brokers and distributors to market and distribute its packaged fruit products, under the brand names SUNFRESH(R), Fruits of Four Seasons(R), Flavor Fresh(TM) and Kledor(R) and under various private labels to supermarket chains, foodservice distributors, wholesale clubs, specialty grocery stores and industrial users throughout the United States and Canada. In addition, the Company has developed and utilizes a unique processing method that separates cold-peeled citrus fruit into individual juice-containing "cell-sacs." These cell-sac products and other citrus products are sold to food and soft drink manufacturers in Japan to enhance the flavor and texture of fruit juices and desserts. Sales to the Company's Japanese consumers are facilitated through Japanese trading companies. 2 3 With its acquisition of GISE in 1996, UniMark became a major Mexican producer of citrus concentrate, oils and juices. The juice division operates three juice concentrate plants strategically located in the citrus growing region of Mexico. The Company's citrus concentrate and single strength citrus juices are sold directly to major juice importers and distributors in North America, Europe and the Pacific Rim. GISE is a leading Mexican producer and exporter of citrus concentrate, oils and juices. While its primary product is frozen concentrate orange juice ("FCOJ"), GISE also produces single strength orange juice (SSOJ) and grapefruit, tangerine, Persian lime and lemon products. In addition, GISE is developing , pursuant to a long-term supply contract with an affiliate of the Coca-Cola Company, 8,650 acres of lemon groves. The planting program began in November, 1996 and harvesting of the first crops is projected to begin in late 2000 with full production scheduled for 2013. Presently, the Company has acquired substantially all of the land for the project and has planted approximately 3,000 acres. GISE operates three modern facilities in Mexico, which collectively have the capacity to process 1,200 metric tons of fruit per day, with 19 juice extractors and over 115,000 square feet of plant space. The facilities are strategically located close to the United States and the ports of Tampico and Veracruz. The plant locations offer cost-effective transportation and distribution and faster time to market. PACKAGED FRUIT SEGMENT UniMark's strategic objective is to become the leading vertically integrated grower, processor, marketer and distributor of niche fruit and other selected agricultural products. To achieve this objective, the key elements of UniMark's operating and acquisition strategies are as follows: Expand vertical integration of growing, processing, marketing and distribution operations. UniMark intends to continue its vertical integration strategy. UniMark believes that by vertically integrating its growing, processing, marketing and distribution operations, the Company can effectively control the availability, cost and quality of its products. Expand fruit growing operations in Mexico. To ensure the availability of the highest quality raw materials, UniMark intends to expand its fruit growing operations in Mexico, utilizing advanced agricultural practices. UniMark believes that Mexico's favorable climate and soil conditions, coupled with competitive labor and land costs, offer significant opportunities to grow high quality fruits in a cost effective manner. Capitalize on brand awareness and market penetration. In the retail market, UniMark intends to capitalize on the brand awareness and market penetration attained by its SUNFRESH(R) brand name products. Utilizing its Fruit Made Easy(R) concept, UniMark plans to expand its line of specialty chilled, frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of healthy, low-fat foods with a multitude of vitamins to the increasingly health conscious consumer. Introduce New Packaged Fruit Products. UniMark believes that a significant opportunity exists for the introduction of new cut fruit products. In 1999, the Company plans to introduce or expand introduction of three new product categories: Canned Products. Initial market introductions of the Company's canned citrus and tropical fruit products were successful. During 1999, the Company intends to expand these canned products into broader distribution. Fruit Jelite. In 1998 UniMark reintroduced its Fruit Jelite(R) line of chilled gelatin snack products. Based upon the results of the most recent market tests, the Company plans to expand regional distribution of this product. Frozen to Fresh. Utilizing the Company's cryogenic freezing technology, UniMark plans to introduce two product lines, one for food service and one for retail, of "frozen to fresh" single- 3 4 serve cups. At the same time, the Company intends to improve its initial individual quick frozen ("IQF") food service concepts. UniMark's product development and commercialization efforts are subject to all of the risks inherent in the development of new products. Achieving market acceptance for the Company's new products will require substantial marketing efforts and the expenditure of significant funds. The Company's prospects will be significantly affected by its ability to commercialize its new products. Expand Into New Markets. In the fall of 1997, UniMark opened a trading office in the United Kingdom. This subsidiary, UniMark Europe, focuses on the sales and marketing of UniMark's frozen products within the United Kingdom and Europe. Presently, the Company is concluding market tests in several restaurant chains in the United Kingdom. Current Products The Company's principal products are derived from citrus and tropical fruits. The Company has focused on applying its knowledge of fruit growing and processing with its international marketing and distribution capabilities to develop three key product categories. These categories include cut fruits, specialty food ingredients and fresh fruit. The following is a description of each of these categories and their specific products: PACKAGED FRUITS. Under the brand names of SUNFRESH(R), Fruits of Four Seasons(R), Kledor(R), Flavor Fresh(TM) and under various private labels, UniMark markets: Chilled fruit. The chilled fruit line includes mango slices, grapefruit segments, orange segments, pineapple chunks, sliced papaya, and a variety of fruit salads. These products are packed for retail, wholesale club and food service customers. Canned fruit. The canned fruit line includes orange segments and grapefruit segments as well as citrus and tropical salads packed for retail and foodservice customers. IQF fruit. UniMark is expanding its retail and foodservice business by marketing citrus and tropical fruit products utilizing its IQF process. UniMark believes that this IQF process allows it to process fruits at the peak of their season while preserving the fresh-like texture and taste of the fruit. The frozen line of fruit includes melon, mango, orange, grapefruit, papaya, pineapple and various combinations of products packed for food service and industrial customers. SPECIALTY FOOD INGREDIENTS. UniMark believes that significant market opportunities exist in providing customers with specialty food ingredient products that can be derived from processing citrus and tropical fruits. Presently, UniMark's specialty food ingredients include: Citrus cell-sacs. The Company has developed and utilizes a unique processing method that separates cold-peeled citrus fruit into individual juice-containing cell-sacs. These cell-sac products are sold to food and soft drink manufacturers in Japan to enhance the flavor and texture of fruit juices and desserts. Citrus segments. The Company markets citrus sections packaged in industrial sizes to food and soft drink manufacturers in Japan to enhance the flavor and texture of fruit juices and desserts. FRESH FRUIT. The Company is doing limited marketing of fresh pineapple under the Simply Fresh(R)brand name. 4 5 Marketing, Sales and Distribution MARKETING. UniMark's marketing department develops brand strategies for the Company's products, including product development, pricing strategy, consumer and trade promotion, advertising, publicity and package design. This department's responsibilities include determining the allocation of resources between consumer and trade spending programs, pricing and profitability analysis, as well as product and packaging designs. In the retail and wholesale club markets, the Company's primary focus has been on the chilled and canned fruit categories. UniMark intends to capitalize and strengthen the brand awareness and market penetration attained by its SUNFRESH(R) brand in the United States and the Kledor(R) brand in Canada. Under its "Fruit Made Easy(R)" slogan, UniMark's marketing strategy includes continued expansion of its comprehensive line of brand name specialty chilled, frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of healthy, low-fat foods with a multitude of vitamins to the health conscious consumer. The Company's marketing objectives include increasing "impulse buying" of its retail products by building greater product visibility through "eye-catching" package designs, innovative rack systems and trial package promotions. In addition, the Company utilizes trade promotions, such as quarterly price allowances, to generate "feature promotion activity" for its products. The SUNFRESH(R) product line also receives substantial advertising support in trade publications and national food shows throughout the year. In the foodservice arena, the focus is on securing market leadership in the chilled fruit category, primarily through private label programs with major foodservice distributors, and a strong branded approach utilizing the SUNFRESH(R) and Fruits of Four Seasons(R) labels in the United States and the Kledor(R) brand in Canada. Marketing efforts in these channels are directed toward trade usage programs and yearly trade rebates. SALES. UniMark's sales organization consists of five sales management teams primarily focusing on the management of independent food brokers or international representatives that directly interface with the customer. These teams are: retail sales, Japanese sales, wholesale club sales, foodservice sales and Canadian sales. The retail team is led by a sales manager and consists of four regional managers, each with geographic responsibility for approximately 25 percent of the United States. The Company's Japanese exports are directed by an export sales manager located in Mexico City who deals with agents primarily from Japanese trading companies. In addition, the Company's senior executives handle relationships with the Company's Japanese customers. The wholesale club market has one sales manager interfacing directly with key wholesale club distributors. The foodservice team is guided by a vice president of foodservice sales and four regional managers. The Company's Canadian sales team operates out of Deli-Bon utilizing independent food brokers throughout Canada although its primary focus is within the Province of Quebec. The following table shows, for the last three years, the amount and percentage of net sales contributed by the various distribution channels for the Company's packaged fruit products:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1996 1997 1998 ------------------- ------------------- ------------------- NET NET NET SALES PERCENT SALES PERCENT SALES PERCENT ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Packaged Fruit: Retail $18,190 34.4% $27,202 40.2% $31,433 46.2% Foodservice 15,122 28.6 23,042 34.1 19,539 28.7 Japan 7,367 13.9 3,393 5.0 4,144 6.1 Wholesale club 7,894 14.9 11,303 16.7 7,605 11.2 Industrial and other 4,289 8.2 2,665 4.0 5,249 7.8 ------- ------- ------- ------- ------- ------- Total $52,862 100.0% $67,605 100.0% $67,970 100.0% ======= ======= ======= ======= ======= =======
5 6 Retail sales. UniMark markets its products to more than 200 regional and national supermarket chains and wholesalers throughout the United States and Canada. In conjunction with its own national sales force, UniMark utilizes over 50 independent food brokers and distributors to sell its products. Food service sales. Sales to the United States government, fast food chains, restaurants, hospitals and other food service customers are made either directly to or through food service distributors by the Company's foodservice sales force. The Company is represented by more than 40 food service brokers. Japanese sales. UniMark exports a line of pasteurized citrus products and juice-containing citrus cell-sac products to Japan for use in the food and beverage industries. Although sales to industrial customers in Japan are facilitated through Japanese trading companies, the Company maintains direct relationships with its industrial customers. Wholesale club sales. UniMark indirectly sells products to Sam's Wholesale Clubs, Costco Wholesale and other wholesale clubs throughout the United States. European sales. UniMark sells products directly to industrial users of IQF products, including orange, pineapple, mango and papaya products. The Company also sells its single serve "Frozen to Fresh" single serve cups to foodservice operators through certain foodservice distributors. In the UK, the Company uses its Flavor Fresh(TM) trade name. Industrial and other sales. Industrial and other sales consist primarily of IQF sales to industrial users in the United States for re-packing or further processing, as well as fresh pineapple. UniMark utilizes independent food brokers to sell its products to industrial users in the United States. DISTRIBUTION. UniMark operates its own trucking fleet to transport finished packaged fruit products from its Mexican processing facilities to its distribution center in McAllen, Texas. From there, deliveries are made through an arrangement the Company has with England Logistics, Inc. ("England"), a division of C.R. England & Sons of Salt Lake City, Utah. In Canada, deliveries are made to customers by independent trucking companies from Deli-Bon's facilities. Products exported to Japan are shipped directly from Mexico. Products sold by UniMark Europe are shipped directly to its customers. Procurement Currently, a substantial quantity of the fruit processed by the Company is purchased from third parties. However, the Company's Mexican grapefruit growing operations supply a majority of the Company's grapefruit demand. In addition, the Company purchases grapefruit from growers in the Texas Rio Grande Valley for processing at its ICMOSA plant. Substantially all of the oranges and melons used in the Company's operations are purchased from third-party growers throughout Mexico. UniMark has commenced a significant pineapple growing project. Initial production from this project began in 1997 and UniMark intends to maintain this project at a level where the Company has sufficient supply for its own processing needs. UniMark believes that production from this project not only will provide UniMark with a high quality supply of pineapples for processing, but also will produce a significant amount of pineapple for the North American fresh fruit market. Processing Upon arrival at the Company's processing plants, the fruit is inspected and washed. On the production line, the fruit is peeled and cut into various presentations (slices, sections, chunks, balls). Following this process, some fruits are further processed into juice-containing cell-sacs. In addition, some processed fruits are frozen utilizing the Company's IQF process. Other processed fruits are transferred directly into bulk storage or final product packaging (pails, jars and cans). After further processing, the juice-containing cell-sacs are canned while the frozen products are packaged in plastic bags or trays. The ICMOSA plant is the 6 7 Company's main plant and serves as the hub for the Company's other Mexican processing plants, which primarily produce semi-processed products. At the ICMOSA plant, products are labeled and packaged for final shipment. ICMOSA also delivers bulk semi-processed raw materials to Deli-Bon and Simply Fresh for packing into final presentations. Only limited processing takes place at Deli-Bon. While Simply Fresh relies mostly on raw materials from California growing regions, some semi-processed raw materials are provided by ICMOSA. The Company cans fruit at its Montemorelos and Puebla plants. JUICE & OIL SEGMENT Recent Developments On April 6, 1999, the Company announced that it has retained Rabobank International as its financial advisor to assist the Company in exploring strategic alternatives for its juice business. The Company is exploring these strategic alternatives to take advantage of changing industry conditions and to reduce its exposure to fluctuating world markets for frozen concentrate orange juice. Strategy In addition to exploring available strategic alternatives, GISE's strategy includes: (1) reduce operating costs through optimization of plant capacities, (2) enter the growing not from concentrate ("NFC") orange juice market, (3) expand relationships with key customers and (4) increase vertical integration. Reduce Operating Costs through Optimization of Plant Capacities. To optimize its plant capacities, GISE is focusing its efforts on finding fruit other than oranges to process, e.g. lemon, lime, apple, and grapefruit. A substantial component of this strategy is the execution of its long-term agreements to grow, supply and process Italian lemons for an affiliate of the Coca-Cola Company. Since lemons are harvested and processed during the orange "off-season" (September through November) the Company should be able to operate its facilities near full capacity throughout the year. The Company believes that this will allow the Company to allocate its fixed operating cost over a greater production volume, which should afford the Company with a competitive cost advantage for its primary orange production. Expand Relationship with Key Customers. Over the years GISE has been able to expand its supply relationship with existing key customers. Management believes that it will be able to further expand these relationships by supplying existing customers with additional products. Expand position as a leading Mexican juice exporter to U.S., European and Asian markets. The Company's goal is to expand its position as a leading exporter of high quality Mexican citrus juices to the U.S., European and Asian markets. Because of the high quality of Mexican citrus juice, it is often blended with juices from other citrus producing regions to enhance the quality of these other juices. Current Products The Company, through GISE, markets directly to major industrial users a full line of citrus juice products including citrus concentrates and single strength juices: Citrus concentrate. Citrus juice concentrates are produced from oranges, grapefruits, tangerines, Persian limes and lemons. Single strength juices. Citrus juices are produced from oranges. Citrus oils. Citrus oils are extracted from oranges, grapefruits, tangerines, Persian limes and lemons. These oils are primarily used by the Company's customers in beverages, perfumes and other scented products. 7 8 Cattle feed. As a by-product of the juice production, the Company produces cattle feed. This by-product is sold to local farmers. Procurement The Company purchases citrus from growers throughout Mexico. GISE's three juice plants are located in Cd. Victoria, Tamaulipas; Alamo, Veracruz; and Poza Rica, Veracruz in the heart of Mexico's major citrus growing region. The State of Veracruz, located along the east coast of Mexico, is Mexico's largest orange producing state followed by the neighboring states of Tamaulipas and San Luis Potosi. Citrus from this region is available for processing at GISE's Veracruz facilities early in the season because of this region's southern location. GISE's Cd. Victoria plant processes fruit grown primarily in the northeastern region of Mexico. The fruit is transported by common carrier to GISE's three plants located in Mexico. Marketing, Sales and Distribution Most of GISE's production is sold to industrial users and bottlers of juice. Mexican orange juice is often used for blending with juice from other locations. The Mexican juice is used to enhance the flavor and color of the final product. GISE transports finished product in tankers or drums by common carrier to North American customers. Products to overseas customers are shipped directly in ocean freight containers. Juice and oil sales for the years ended December 31, 1996, 1997 and 1998 were $12.4, $13.7 and $22.2 million, respectively. Processing GISE's operations are substantially automated. Once the fruit arrives at a plant, it is unloaded onto rollers. The fruit is then washed and inspected. Bruised and damaged fruit is removed by hand and the remaining fruit is then routed to rollers with short needles, which extract the oil from the peel. Once the oil is removed, the fruit is sorted by size and sent to slicing and squeezing machines. These machines slice the fruit and squeeze the juice and pulp completely from the peel. The juice is then separated from the pulp and the water is extracted from the juice. Upon further processing, the juice and juice concentrate are stored on site until it is shipped directly to customers. RESEARCH AND DEVELOPMENT The Company's research and development department provides product, packaging and process development, analytical and microbiological services, as well as agricultural research. EMPLOYEES As of December 31, 1998, UniMark employed approximately 3,000 employees in its packaged fruit operations and approximately 450 in its juice and oil operations, most of whom were located in Mexico. In Mexico, labor relations are governed by separate collective labor agreements between UniMark and the unions representing the particular group of employees. All of UniMark's employees in Mexico, whether seasonal or permanent, are affiliated with labor unions which are generally affiliated with a national confederation. Consistent with other labor practices in Mexico, wages are negotiated every year while other terms are negotiated every two years. In the United States and Canada, UniMark's employees are not covered by collective bargaining agreements. UniMark believes that its relations with all of its employees are good. COMPETITION The food industry, including each of the markets in which the Company competes, is highly competitive with respect to price and quality (including taste, texture, healthfulness and nutritional value). The Company faces direct competition from citrus processors with respect to its existing product lines and faces potential 8 9 competition from numerous, well established competitors possessing substantially greater financial, marketing, personnel and other resources than the Company. The Company's fruit juice products compete broadly with all beverages available to consumers. In addition, the food industry is characterized by frequent introduction of new products, accompanied by substantial promotional campaigns. In recent years, numerous companies have introduced products positioned to capitalize on growing consumer preference for fresh fruit products. It can be expected that the Company will be subject to increasing competition from companies whose products or marketing strategies address these consumer preferences. ENVIRONMENTAL MATTERS As a result of its agricultural, food and juice processing activities, the Company is subject to numerous foreign and domestic environmental laws and regulations. The operations of UniMark in Mexico are subject to Mexican federal and state laws and regulations relating to the protection of the environment. The principal legislation is the federal General Law of Ecological Balance and Environmental Protection (the "Ecological Law"), which is enforced by the Ministry of Social Development ("Sedesol"). Under the Ecological Law, rules have been promulgated concerning water pollution, air pollution, noise pollution and hazardous substances. Sedesol can bring administrative and criminal proceedings against companies that violate these environmental laws, and can also close non- complying facilities. The operations of UniMark in Canada are subject to Canadian federal and provincial laws and regulations relating to the protection of the environment including an Act Respecting Occupational Health and Safety (Quebec), the Canadian Environmental Protection Act (Canada), and the Environment Quality Act (Quebec). Similarly, the operations of UniMark in the United States are subject to United States federal and state laws and regulations relating to the protection of the environment. Although the Company believes that its facilities currently are in compliance with all applicable environmental laws, failure to comply with any such laws could have a material adverse effect on the Company. GOVERNMENT REGULATION The manufacture, processing, packing, storage, distribution and labeling of food and juice products are subject to extensive regulations enforced by, among others, the FDA and state, local and foreign equivalents thereof and to inspection by the United States Department of Agriculture and other federal, state, local and foreign agencies. Applicable statutes and regulations governing food products include "standards of identity" for the content of specific types of foods, nutritional labeling and serving size requirements and under "Good Manufacturing Practices" with respect to production processes. The Company believes that its products satisfy, and its new products will satisfy, all applicable regulations and that all of the ingredients used in its products are "Generally Recognized as Safe" by the FDA for the intended purposes for which they will be used. The Company, on a daily basis, tests its products at its internal laboratories and, from time to time, submits samples of its products to independent laboratories for analysis. Failure to comply with applicable laws and regulations could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on the Company. PRODUCT LIABILITY AND PRODUCT RECALL The testing, marketing, distribution and sale of food and beverage products entails an inherent risk of product liability and product recall. There can be no assurance that product liability claims will not be asserted against the Company or that the Company will not be obligated to recall its products. Although the Company maintains product liability insurance coverage in the amount of $5,000,000 per occurrence, there can be no assurance that this level of coverage is adequate. A product recall or a partially or completely uninsured judgment against the Company could have a material adverse effect on the Company. 9 10 INTELLECTUAL PROPERTY RIGHTS The Company regards its trademarks, trade dress, trade secrets and similar intellectual property as important to its success. The Company has been issued a registered trademark for its SUNFRESH(R), Fruits of Four Seasons(R), Jalapeno Sam(R), Fruit Made Easy(R), Fruit Jelite(R), Simply Fresh(R) and Kledor(R) trademarks. The Company also utilizes the Flavor Fresh(TM) tradename. In addition, the Company holds patent rights with respect to certain fruit cutting machinery and a non-assignable, exclusive license to manufacture and sell certain fruit products in the United States, Canada and Mexico. ITEM 2. PROPERTIES. GROWING OPERATIONS To ensure the availability of the highest quality raw materials, UniMark intends to expand its fruit growing operations in Mexico, utilizing advanced agricultural practices. UniMark believes that Mexico's favorable climate and soil conditions, coupled with competitive labor and land costs, offer significant opportunities to grow high quality fruits in a cost effective manner. Presently, a majority of the Company's raw materials are provided by growers under various arrangements, including operating agreements and individual fixed price contracts to purchase entire production. The following table sets forth the Company's various agricultural projects:
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 Laborcitas Grove............ Cd. Victoria, 240 acres Oranges and Owned Tamaulipas, Mexico Italian lemons El Milagro Grove ........... Cd. Victoria, 120 acres Italian lemons Owned Tamaulipas, Mexico Paraiso Grove .............. Cd. Victoria, 264 acres Italian lemons Owned Tamaulipas, Mexico El Cielo Grove ............. Gomez Farias, 1,680 acres Italian lemons Owned Tamaulipas, Mexico (73% planted) Flor De Maria Grove......... Cd. Valles, San Luis 4,080 acres Italian lemons to Owned Potosi, Mexico be planted. La Estrella Grove........... Cd. Victoria, 185 acres Italian lemons to Owned Tamaulipas, Mexico be planted.
- --------- (1) Presently, this grove consists of approximately 240 acres of pink grapefruit, 300 acres of pineapple and 60 acres of hearts of palm. (2) Villa Azueta is the southern headquarters of UniMark's agricultural operations. The agricultural headquarters is used for the development of pineapple seedlings, as well as other agricultural crops, and the packing of fresh pineapple. In 1995, the Company entered into a 10-year lease for this facility and has an option to purchase the facility for fair market value determined at the time such option is exercised. 10 11 (3) In 1994, ICMOSA entered into a 10-year operating agreement with the owners of this grove, which is located near the ICMOSA plant in Montemorelos. Pursuant to the agreement, ICMOSA operates the grove and purchases all the grapefruit at a formula price tied to the price of grapefruit purchased from unrelated third parties. The grove consists of approximately 13,000 grapefruit trees and incorporates advanced agricultural technology. Each tree has a watering and feeding system which can also be utilized as an anti-freeze system utilizing mist generated by three 500 horsepower boilers. FACILITIES The Company's principal processing facilities are described below:
APPROXIMATE NUMBER OF EMPLOYEES APPROXIMATE (AS OF SQUARE MARCH NAME LOCATION FOOTAGE 1999) INTEREST ---- -------- ----------- ----------- -------- PACKAGED FRUIT OPERATIONS ICMOSA Plant ................ Montemorelos, Nuevo Leon, Mexico 80,000 1,003 Owned (1) IHMSA Plant.................. Montemorelos, Nuevo Leon, Mexico 40,000 628 Leased (2) Azteca Plant................. Montemorelos, Nuevo Leon, Mexico 50,000 489 Leased (2) Puebla Plant................. Tlatlauquipec, Puebla, Mexico 50,000 391 Owned Isla Plant................... Isla, Veracruz, Mexico 32,000 245 Leased San Rafael Plant (4)......... San Rafael, Veracruz, Mexico 28,500 -- Leased Zamora Plant (4)............. Zamora, Michoacan, Mexico 41,000 -- Leased Deli-Bon Plant............... Quebec City, Quebec, Canada 16,800 20 Owned Simply Fresh Plant........... Los Angeles, California 45,000 125 Leased Flavor Fresh Plant (3)....... Lawrence, Massachusetts 60,000 -- Leased (2) JUICE AND OIL OPERATIONS Victoria Juice Plant......... Cd. Victoria, Tamaulipas, Mexico 65,700 142 Owned (1) Frutalamo Juice Plant........ Alamo, Veracruz, Mexico 27,700 111 Leased Veracruz Juice Plant......... Poza Rica, Veracruz, Mexico 22,900 66 Owned
- ---------- (1) This property is subject to individual mortgages with the real estate as collateral. (2) The agreement pursuant to which this facility is leased by the Company grants the Company the option to purchase the facility prior to the expiration of such agreement at a purchase price equal to the then current fair market value of the facility. (3) This plant is idle and commencing April 1, 1999 has been sub-leased through August, 2002. (4) These plants are idle and are being offered for sub-lease. The Company's other supporting facilities are described below: In addition to the properties described above, the Company maintains its corporate headquarters in Bartonville, Texas; a distribution center in McAllen, Texas; and a lodging facility in Cd. Victoria, Tamaulipas, Mexico. Corporate Headquarters. UniMark leases approximately 13,000 square feet of office space for its corporate headquarters in Bartonville, Texas (located 20 miles from the Dallas/Fort Worth International Airport) from an entity controlled by Jorn Budde, the Company's President, Chief Executive Officer and Chairman of the Board prior to his resignation in February 1998. As of March 1, 1999, UniMark employed 38 people at this facility with space well utilized for the corporate headquarters. 11 12 McAllen Distribution Center. The Company's refrigerated distribution center began operations in August 1997 in McAllen, Texas (on the Texas/Mexico border) which consists of approximately 110,000 square feet and is fully utilized. As of March 1, 1999, 18 people were employed at this company-owned facility. Hidalgo Distribution Center. The Company's previous refrigerated distribution center in Hidalgo, Texas consists of approximately 20,000 square feet and is currently vacant and being offered for sale. The GISE Conference Facility. In connection with the GISE acquisition in May 1996, the Company acquired a "hacienda" which has been declared a historic landmark. This lodging facility is located near GISE's plant in Cd. Victoria, Tamaulipas, Mexico, occupies approximately 90,000 square feet and is situated on approximately 10 acres. The Company utilizes this facility, in part, as a conference center. ITEM 3. LEGAL PROCEEDINGS. From time to time the Company is involved in litigation relating to claims arising from its operations in the normal course of business or otherwise the outcome of which is not expected to have a materially adverse affect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Company's Annual Meeting of Shareholders held on November 20, 1998, the proposed ten member Board of Directors was elected in a non-contested vote and the selection of Ernst & Young, LLP as the Company's independent public accountants for the year ended December 31, 1998 was ratified. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is quoted on the Nasdaq National Market under the symbol "UNMG". The following table sets forth, for the periods indicated, the high and low sale prices as reported on the Nasdaq National Market.
HIGH LOW -------- ------- Year Ended December 31, 1997: First Quarter................................. $ 10.625 $ 6.000 Second Quarter................................ 8.875 4.625 Third Quarter................................. 9.125 7.000 Fourth Quarter................................ 8.250 2.750 Year Ended December 31, 1998: First Quarter................................. 5.375 3.438 Second Quarter................................ 6.625 3.875 Third Quarter................................. 4.375 2.000 Fourth Quarter................................ 3.250 1.875
- ---------- The quotations in the tables above reflect inter-dealer prices without retail markups, markdowns or commissions. On April 9, 1999, the last reported sale price for the Common Stock on the Nasdaq National Market was $2.75. As of April 9, 1999 there were 131 shareholders of record of the Common Stock and approximately 2,000 beneficial shareholders. 12 13 The Company has not paid any cash dividends since its inception and for the foreseeable future intends to follow a policy of retaining all of its earnings, if any, to finance the development and continued expansion of its business. There can be no assurance that dividends will ever be paid by the Company. Additionally, the Company's loan agreements with Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A. ("Rabobank Nederland") restrict the Company from declaring or paying any dividends on its shares of Common Stock without the prior written consent of Rabobank Nederland. Any future determination as to payment of dividends will depend upon the Company's financial condition, results of operations and such other factors as the Board of Directors deems relevant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth, for the periods and at the dates indicated, selected historical consolidated financial data of the Company. The selected historical consolidated financial data has been derived from the historical consolidated financial statements of the Company and in the case of the fiscal years ended December 31, 1996, 1997 and 1998 should be read in conjunction with such financial statements and the notes thereto included elsewhere herein.
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1994 1995 1996 (1) 1997 1998 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Net sales .................................. $ 25,346 $ 36,866 $ 65,238 $ 81,284 $ 90,141 Gross profit ............................... 7,403 12,674 18,626 22,004 25,083 Income (loss) from operations .............. 1,530 4,251 1,027 (5,950) 1,999 Extraordinary gain ......................... -- -- 330 139 -- Net income (loss) .......................... 1,015 2,947 543 (9,680) (2,965) Basic earnings (loss) per share: Income (loss) before extraordinary gain .. $ 0.28 $ 0.57 $ 0.03 $ (1.15) $ (0.29) Extraordinary gain ....................... -- -- 0.04 .02 -- -------- -------- -------- -------- -------- Net income (loss) ........................ $ 0.28 $ 0.57 $ 0.07 $ (1.13) $ (0.29) ======== ======== ======== ======== ======== Diluted earnings (loss) per share: Income (loss) before extraordinary gain .. $ 0.28 $ 0.53 $ 0.03 $ (1.15) $ (0.29) Extraordinary gain ....................... -- -- 0.04 .02 -- -------- -------- -------- -------- -------- Net income (loss) ........................ $ 0.28 $ 0.53 $ 0.07 $ (1.13) $ (0.29) ======== ======== ======== ======== ======== Shares used in per share calculations: Basic .................................. 3,642 5,213 7,450 8,590 10,131 Diluted ................................ 3,642 5,571 7,796 8,590 10,131 Total assets ............................... $ 11,176 $ 26,498 $ 76,683 $ 94,616 $ 93,513 Long-term debt ............................. 919 699 4,332 8,626 7,833 Stockholders' equity ....................... 6,392 14,978 47,800 38,252 48,712
- ------------------- (1) Includes the results of operations of GISE and Simply Fresh since April 1, 1996, and Deli-Bon since January 3, 1996, the effective dates of these acquisitions. 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION The following discussion should be read in conjunction with the consolidated financial statements and notes thereto and "Selected Financial Data" included elsewhere herein. This discussion does not include the results of operations of Deli-Bon, GISE and Simply Fresh before their respective acquisition dates. CONVERSION TO U.S. GAAP The Company conducts substantially all of its operations through its wholly owned operating subsidiaries. ICMOSA is a Mexican corporation with its headquarters located in Montemorelos, Nuevo Leon, Mexico, whose principal activities consist of operating five citrus processing plants and various citrus groves throughout Mexico. GISE is a Mexican corporation with its headquarters located in Victoria, Tamaulipas, Mexico, whose principal activities consist of operating three citrus juice and oil processing plants. ICMOSA and GISE maintain their accounting records in Mexican pesos and in accordance with Mexican generally accepted accounting principles and are subject to Mexican income tax laws. ICMOSA's and GISE's financial statements have been converted to United States generally accepted accounting principles ("U.S. GAAP") and U.S. dollars. Deli-Bon maintains its accounting records in Canadian dollars and in accordance with Canadian generally accepted accounting principles and is subject to Canadian income tax laws. UniMark Europe maintains its accounting records in British pounds sterling and in accordance with United Kingdom generally accepted accounting principles and is subject to United Kingdom income tax laws. Unless otherwise indicated, all dollar amounts included herein are set forth in U.S. dollars in accordance with U.S. GAAP. The functional currency of UniMark and its subsidiaries is the U.S. dollar. RESULTS OF OPERATIONS The following table sets forth certain consolidated financial data expressed as a percentage of net sales for the periods indicated:
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 ------ ------ ------ Net sales ............................................ 100.0% 100.0% 100.0% Cost of products sold ................................ 71.4 72.9 72.2 ------ ------ ------ Gross profit ......................................... 28.6 27.1 27.8 Selling, general and administrative expenses ......... 27.0 34.4 25.6 ------ ------ ------ Income (loss) from operations ........................ 1.6 (7.3) 2.2 Other income (expense): Interest expense ................................... (2.2) (4.1) (4.6) Interest income .................................... 0.8 0.5 0.2 Other .............................................. (0.3) (1.1) (0.1) ------ ------ ------ Loss before income taxes and extraordinary gain ...... (0.1) (12.0) (2.3) Income tax expense (benefit) ......................... (0.4) 0.1 1.0 ------ ------ ------ Income (loss) before extraordinary gain .............. 0.3 (12.1) (3.3) Extraordinary gain, net of applicable income taxes ... 0.5 0.2 -- ------ ------ ------ Net income (loss) .................................... 0.8% (11.9)% (3.3)% ====== ====== ======
Years Ended December 31, 1997 and 1998 Net Sales increased 10.9% from $81.3 million in 1997 to $90.1 million in 1998. This increase was primarily due to increases in citrus juice and oil sales as well as packaged fruit retail sales. Citrus juice and oil sales increased 62% from $13.7 million in 1997 to $22.2 million in 1998. This increase was primarily 14 15 the result of a relative large orange crop and comparatively favorable market conditions for "from concentrate orange juice". These favorable market conditions reversed in the fourth quarter of 1998. The Company has a negative outlook on its citrus juice and oil sales as a result of declining futures prices and a much smaller orange crop in Mexico. Packaged fruit retail sales increased 15.4% from $27.2 million in 1997 to $31.4 million in 1998. This increase was the result of new distribution of the Company's canned fruit and fresh-cut fruit product lines. The Company expects this trend to continue for 1999. The Company also saw an increase in sales to Japan and other industrial customers. The Japanese sales increased 20.6% from $3.4 million in 1997 to $4.1 million in 1998. Although no assurances can be given, the Company anticipates increased demand for its products from Japan in 1999, as a leading soft drink supplier is introducing a new product with the Company's products as a key ingredient. Industrial and other sales increased 92.6% from $2.7 million in 1997 to $5.2 million in 1998. These sales are primarily comprised of bulk IQF products and fresh pineapple. The Company anticipates limited growth in industrial sales, but a significant increase in sales of pineapple, as the Company's pineapple project is beginning significant production in the second quarter of 1999. The sales increase was negatively impacted by declining sales in the Company's food service and wholesale club businesses. Food service sales declined 15.2% from $23.0 million in 1997 to $19.5 in 1998. This decline can be attributed to the Company's closing of its Lawrence, MA plant and distribution facility in the fourth quarter of 1997. The Company believes that the reduction in sales has leveled off and management expects an increase for 1999 from new product introductions. The wholesale club business declined 32.7% from $11.3 million in 1997 to $7.6 million in 1998. The decline was the result of discontinuing production of the Company's avocado products in the first quarter of 1998. The Company also lost significant distribution of its chilled fruit products to a competitor. While the Company's overall retail sales increased in 1998, the Company did experience significant competitive pressures as a competitor entered the category with a new line of similar products accompanied with substantial promotional campaigns. This resulted in smaller than anticipated growth for the Company's chilled fruit category. Although no assurances can be given, the Company expects sales of this category to improve in 1999 because of its newly formulated promotional programs. Gross Profit as a percentage of net sales increased from 27.1% in 1997 to 27.8% in 1998. The increase can be attributed to the prior years inflation in Mexico, which significantly increased the Company's cost of production. The gross profits were negatively impacted by the relative increase in citrus juice and oil sales as compared to packaged fruit sales, since citrus juice and oil sales generally yield lower margins. Gross profit on packaged fruit sales decreased from 29.8% in 1997 to 29.5% in 1998. This decrease was primarily the result of higher than anticipated fruit cost resulting from the aftermath of the recent El Nino weather pattern and crop failures in the Company's pineapple project. At December 31, 1998, the Company wrote-off $1.3 million as a result of crop failures in the Company's pineapple project. While most crops have returned to normal in the first quarter of 1999, the Company's California operations is anticipated to be negatively impacted by the freeze damage done to most of the California orange crop in late 1998. Gross profit on citrus juice and oils increased from 13.7% in 1997 to 22.7% in 1998 primarily as a result of lower product cost due to increased production volume and improved market prices. Gross profit for the citrus juice and oil segment is anticipated to be significantly lower in 1999 as a result of higher fruit prices resulting from a smaller crop and unfavorable market conditions. Selling, general and administrative expenses ("SG&A") as a percentage of net sales decreased from 34.4% in 1997 to 25.6% in 1998. Actual SG&A expenses decreased 17.4% from $28.0 million in 1997 to $23.1 million in 1998. This decrease is partly the result of the relative increase in citrus juice and oil sales that do not require significant sales and marketing expenditures. It is also the result of cost savings realized 15 16 from the Company's reorganization of its packaged fruit operations and the overall increase in sales volume. SG&A expenses in 1998 were negatively impacted by a charge of $540,000 to write-off certain capital improvements and other capitalized costs, primarily related to closed plant facilities. Interest expense increased from 4.1% of net sales in 1997 to 4.6% in 1998. Actual interest expense increased from $3.3 million in 1997 to $4.1 million in 1998. This increase was primarily the result of increased levels of debt maintained to support capital expenditures and increased cost of funds from the Company's primary lender. Interest income of $436,000 was earned in 1997 and $141,000 in 1998 primarily from the temporary cash investment of excess cash balances. A foreign currency translation net loss of $945,000 in 1997 and $167,000 in 1998 resulted primarily from the conversion of the Company's foreign subsidiaries' financial statements to U.S. GAAP. As a result of the foregoing, the Company reported net losses of $9.7 million in 1997 and $3.0 million in 1998. Years Ended December 31, 1996 and 1997 Net sales increased 24.6% from $65.2 million in 1996 to $81.3 million in 1997. This increase was primarily due to increases in foodservice sales, retail sales and club sales. Foodservice sales increased 52.4% from $15.1 million in 1996 to $23.0 million in 1997. Retail sales increased 50.0% from $18.2 million in 1996 to $27.2 million in 1997 and warehouse club sales increased 43.2% from $7.9 million in 1996 to $11.3 million in 1997. These increases resulted from increased distribution and expansion of product lines facilitated primarily by the Company's acquisition of Simply Fresh effective March 31, 1996 and the addition of new customers, particularly in the Northeast United States in August 1996. In addition, growth of existing product lines and new canned product introductions contributed to these increases in 1997. The increase in net sales was adversely impacted by a decline in sales of the Company's specialty food ingredient products in the Japanese market. Sales to Japan decreased from $7.4 million in 1996 to $3.4 million in 1997 primarily as a result of decreased demand in Japan for the Company's specialty food ingredient products. The Company believes that this decrease in demand was due to a decline in sales of the Japanese products containing the Company's specialty food ingredients and resulting higher than anticipated inventory levels of the Company's specialty food ingredients held by distributors in Japan. Present indications are that inventory levels in Japan have been reduced. The increase in net sales was also positively impacted by a 10.5% increase in citrus juice and oil sales from $12.4 million in 1996 to $13.7 million in 1997. The Company acquired GISE, a citrus juice and oil processor in Mexico effective March 31, 1996, therefore the 1996 sales amount represents only nine months of operations compared with twelve months of operations in 1997. Gross profit as a percentage of net sales decreased from 28.6% in 1996 to 27.1% in 1997. The Company's results of operations were adversely impacted by an increase in inflation in Mexico (15.7%), which was not offset by a corresponding devaluation of the Mexico peso (2.5%), resulting in increased wages, benefits and other operating expenses in U.S. dollar terms. Gross profit on cut fruit sales decreased from 31.0% in 1996 to 29.8% in 1997 while gross profit on citrus juice and oil sales decreased from 18.1% in 1996 to 13.7% in 1997. The decrease in gross profit on cut fruit sales resulted primarily from charges of approximately $3.1 million in the fourth quarter of 1997 for additional costs incurred associated with the closing of the Flavor Fresh, San Rafael and Zamora plant facilities and the restructuring of production, warehousing and distribution operations. Gross profit on cut fruit sales was adversely affected from the decline in Japanese sales. Although the loss of Japanese production volume adversely impacted the Company's 1997 operating results, the 16 17 Company has taken affirmative steps to replace the lost production volume. During 1997, these efforts included the introduction of new canned product lines that accounted for approximately $2.5 million of sales. Gross profit on citrus juice and oil sales were adversely affected by lower than expected market prices but benefited from improved raw material costs. Frozen concentrate orange juice futures prices remained depressed throughout 1997 but have shown favorable improvement in early 1998. Selling, general and administrative expenses ("SG&A") as a percentage of net sales increased from 27.0% in 1996 to 34.4% in 1997. This increase resulted primarily from charges of approximately $1.2 million in the fourth quarter of 1997 for costs associated with the closing of the Flavor Fresh, Zamora and San Rafael plant facilities and certain licensing and product development costs. SG&A as a percentage of net sales was also adversely impacted by the relative decrease in sales to Japan and juice and oil sales. Sales of the Company's specialty food ingredient products are facilitated through independent Japanese trading companies primarily on an FOB ICMOSA plant basis. The Company's orange juice products are primarily sold direct to juice blenders primarily on an FOB GISE plant basis. Therefore, the Company does not typically incur delivery costs and sales commissions with respect to these sales. Consequently, the relative decrease in these sales from 30.3% to 21.0% of net sales in 1996 and 1997, respectively, adversely impacted SG&A as a percentage of sales during 1997. Interest expense increased from 2.2% of net sales in 1996 to 4.1% in 1997. Actual interest expense increased from $1.4 million in 1996 to $3.3 million in 1997. This increase was primarily the result of increased levels of debt necessary to support capital expenditures and increased levels of inventory and trade receivables associated with the increase in sales volume. Interest income of $548,000 was earned in 1996 and $436,000 in 1997 primarily from the temporary cash investment of excess cash balances. A foreign currency translation net loss of $248,000 in 1996 and $945,000 in 1997 resulted primarily from the conversion of Company's foreign subsidiaries' financial statements to U.S. GAAP. Income taxes. A consolidated income tax benefit of $272,000 in 1996 resulted primarily from the recognition of future benefits from tax losses generated. A consolidated income tax provision of $77,000 resulted primarily from the recording of a valuation allowance to reduce the carrying amount of the Company's deferred tax assets related to U.S. tax losses. Extraordinary gains, net of applicable taxes, of $330,000 and $139,000 were realized in 1996 and 1997, respectively. In 1996, the Company reported a net gain from the forgiveness of certain existing debt obligations with Mexican banks pursuant to Mexican government programs to stimulate the economy and support the banking system. In May, 1997, ICMOSA retired certain outstanding long-term debt with Union de Credito Allende, a Mexican credit union, at a discount of 50%. The discount was granted pursuant to a Mexican government program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME") and through the participation of Nacional Financiera ("NAFINSA"), a Mexican development bank, to help provide liquidity to the Mexican credit unions. The debt reduction amounted to approximately $2.0 million pesos or approximately US $248,000. Provisions for Mexican income taxes and statutory employee profit sharing of 34% and 10%, respectively, have been provided on these gains from debt forgiveness. As a result of the foregoing, the Company reported net income of $543,000 in 1996 while reporting a net loss of $9.7 million in 1997. 17 18 STATUTORY EMPLOYEE PROFIT SHARING All Mexican companies are required to pay their employees, in addition to their agreed compensation benefits, profit sharing in an aggregate amount equal to 10% of net income, calculated for employee profit sharing purposes, of the individual corporation employing such employees. All of UniMark's Mexican employees are employed by its subsidiaries, each of which pays profit sharing in accordance with its respective net income for profit sharing purposes. Tax losses do not affect employee profit sharing. Statutory employee profit sharing expense is reflected in the Company's cost of goods sold and selling, general and administrative expenses, depending upon the function of the employees to whom profit sharing payments are made. The Company's net income on a consolidated basis as shown in the Consolidated Financial Statements is not a meaningful indication of net income of the Company's subsidiaries for profit sharing purposes or of the amount of employee profit sharing. Provisions for Mexican employee profit sharing expense were $436,000, $544,000 and $209,000 in 1996, 1997 and 1998, respectively. EXCHANGE RATE FLUCTUATIONS The Company's consolidated results of operations are affected by changes in the valuation of the Mexican peso to the extent that ICMOSA or GISE have peso denominated net monetary assets or net monetary liabilities. In periods where the peso has been devalued in relation to the U.S. dollar, a gain will be recognized to the extent there are peso denominated net monetary liabilities while a loss will be recognized to the extent there are peso denominated net monetary assets. In periods where the peso has gained value, the converse would be recognized. The Company's consolidated results of operations are also subject to fluctuations in the value of the peso as they affect the translation to U.S. dollars of ICMOSA's net deferred tax assets or net deferred tax liabilities. Since these assets and liabilities are peso denominated, a falling peso results in a transaction loss to the extent there are net deferred tax assets or a transaction gain to the extent there are net deferred tax liabilities. MARKET RISK FACTORS A significant portion of the Company's operations consists of processing and sales activities in foreign jurisdictions. The Company processes its products in the United States, Mexico and Canada and sells the products in those markets as well as European markets and Japan. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products. The Company's operating results are exposed to changes in exchange rates between the U.S. dollar and the Mexican peso, Canadian dollar, British pound and the Japanese yen. When the U.S. dollar strengthens against these foreign currencies, the value of nonfunctional currency sales decreases. When the U.S. dollar weakens, the functional currency amount of sales increases. Overall, the Company is a net payer of currencies other than the U.S. dollar and, as such, benefits from a stronger dollar. The Company procures and processes substantially all of its products in Mexico for export to the United States, Canada, Europe and Japan. The cost of citrus procured in Mexico generally reflects the spot market price for citrus in the United States and all of UniMark's export sales from Mexico are denominated in U.S. dollars. As such, UniMark does not anticipate sales revenues and raw material expenses to be materially affected by changes in the valuation of the Mexican peso. Labor and certain other processing costs are Mexican peso denominated and, consequently, these costs are impacted by fluctuations in the value of the Mexican peso relative to the U.S. dollar. The Company's juice and oil segment primarily produces and sells frozen concentrate orange juice. The price the Company is able to sell this product for is generally determined by reference to the commodity futures market price, over which the Company has no control. The Company's interest expense is most sensitive to changes in the general level of U.S. interest rates and London interbank offered rates ("LIBOR"). In this regard, changes in these interest rates affect the interest paid on the Company's debt. 18 19 The following table presents principal cash flows and related weighted-average interest rates by expected maturity dates for the Company's debt obligations. INTEREST RATE SENSITIVITY Principal Amount by Expected Maturity Average Interest Rate
Estimated Fair There- Value (dollars in thousands) 1999 2000 2001 2002 2003 after Total 12/31/98 ---------------------- -------- -------- -------- -------- -------- -------- -------- --------- Long-term debt, including current portion Fixed rate $ 520 $ 583 $ 324 $ 157 $ 192 $ 211 $ 1,987 $ 1,987 Average interest rate 9.9% 10.8% 12.6% 18.5% 18.5% 18.5% Variable rate $ 243 $ 302 $ 378 $ 3,957 $ 116 $ 1,613 $ 6,609 $ 6,609 Average interest rate 12.1% 12.0% 11.9% 10.9% 9.0% 9.0%
The Company does not have a significant exposure to foreign currency denominated debt obligations. At December 31, 1998, all long-term debt is U.S. dollar denominated except for $881,000 which is Mexican peso denominated and $122,000 which is Canadian dollar denominated. DEPENDENCE UPON AVAILABILITY AND PRICE OF FRESH FRUIT The Company obtains a substantial amount of its raw materials from third-party suppliers throughout various growing regions in Mexico, Texas and California. A crop reduction or failure in any of these fruit growing regions resulting from factors such as weather, pestilence, disease or other natural disasters, could increase the cost of the Company's raw materials or otherwise adversely affect the Company's operations. Competitors may be affected differently depending upon their ability to obtain adequate supplies from sources in other geographic areas. If the Company is unable to pass along the increased raw materials cost, the financial condition and results of operations of the Company could be materially adversely affected. SEASONALITY Demand for UniMark's citrus and tropical fruit products is strongest during the fall, winter and spring when seasonal fresh products such as mangos, peaches, plums, and nectarines are not readily available for sales in supermarkets in North America. In addition, a substantial portion of UniMark's exports to Japan are processed and shipped during the first and fourth quarter each year. Management believes UniMark's quarterly net sales will continue to be impacted by this pattern of seasonality. YEAR 2000 ISSUES As a result of certain computer programs and certain embedded computer chip technology utilizing two digits rather than four to define the applicable year, any of the Company's computer programs or systems that have date sensitive software or computer chip technology may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, generate invoices, or engage in similar normal business activities. Failure by the Company and/or any third parties that the Company materially relies on, such as power utility providers, financial institutions, other critical suppliers and major customers, to complete Year 2000 readiness activities in a timely manner could have a material adverse effect on the Company's business and results of operations. 19 20 The Company is engaged in a company-wide effort to achieve Year 2000 readiness for both information technology ("IT") and non-information technology ("non-IT") systems. The Company expects to achieve company-wide Year 2000 readiness by mid-1999. The Company has formed a team consisting of senior management, information technology staff and consultants to assess, remediate, test and implement processes to meet Year 2000 readiness. In late 1997, the Company completed its assessment of all IT systems which indicated that most of the Company's significant accounting systems could be affected, particularly the general ledgers, billing, inventory and payment systems. To date, the Company has completed implementation of Year 2000 compliant accounting systems in its U.S. and Canada operations and expects to complete implementation in its Mexico operations by mid-1999. The Company is approximately 75% complete in its assessment of non-IT systems which, to date, has not revealed any significant problems, and expects to complete its assessment in the second quarter of 1999. Any remediation, testing and implementation necessary will be expected to be completed by the end of 1999. The Company has begun inquiries of its significant suppliers, contractors and other third-party support services and customers to assess their Year 2000 readiness efforts. Letters of compliance have been requested from such third parties. To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. Contingency plans to choose alternative third-party agents, if necessary, will be formalized in the third quarter of 1999. The Company is primarily utilizing internal resources to assess, remediate, test and implement Year 2000 modifications while utilizing outside consultants when necessary. The total cost of the Year 2000 project is not expected to exceed $100,000 for the entire effort. Because the Company's readiness program is not yet fully implemented and is subject to certain risks and uncertainties, including readiness efforts of material third parties, there can be no assurance that the Company will not incur material costs beyond the anticipated costs described above. The cost of the Year 2000 project and the dates by which the Company believes it will be Year 2000 ready are based on management's current best estimates, which were dependent on numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. There can be no assurance, however, that these estimates will be achieved and actual results could differ materially from those anticipated. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, cash and cash equivalents totaled $4.2 million, an increase of $3.0 million from year-end 1997. During 1998, operating activities generated cash of $6.8 million primarily from a $2.3 million decrease in trade receivables and a $500,000 decrease in inventories. During 1998, UniMark utilized cash of $5.7 million in investing activities. Of this amount, $5.2 million was expended on property, plant and equipment primarily related to the Company's lemon orchard project in Mexico. The Company's financing activities provided net cash of $13.4 million from the sale of common stock and $240,000 from additional long-term borrowings, primarily equipment financing. Cash was utilized to reduce short-term borrowings by $9.8 million and long-term debt by $1.9 million. Effective May 1, 1998, the Company issued an additional 23,993 common shares to the former owner of Deli-Bon pursuant to the price protection provisions of the January 3, 1996 acquisition agreement. On June 29, 1998 an arbitration award was issued against the Company in its proceedings with the former shareholders of Simply Fresh regarding the price protection provisions of the May 9, 1996 acquisition agreement and related issues. Pursuant to the award, on August 5, 1998 the Company paid in cash to the former Simply Fresh shareholders (i) $1,005,036 in settlement of the common stock price 20 21 protection issues, (ii) $67,391 in interest on the price protection settlement amount and (iii) $110,000 in settlement of related employment contract issues. On July 17, 1998, the Company sold 3,305,500 newly issued shares of common stock at a purchase price of $4.5375 per share, for an aggregate purchase price of $14,998,706, to M & M Nominee L.L.C. ("M & M"). In connection with the transaction, the Company granted M & M options to acquire an additional 2,000,000 shares of common stock at a purchase price of $4.5375 per share, representation on the Company's Board of Directors and certain veto rights regarding financial and corporate matters. On March 29, 1999, the Company sold 2,000,000 newly issued shares of common stock at a purchase price of $2.50 per share, for an aggregate purchase price of $5,000,000 to M & M. In connection with the transaction, M & M surrendered options to acquire an additional 2,000,000 shares of common stock at a purchase price of $4.5375 per share issued to them in July 1998. The Company has existing loan agreements with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term dollar denominated debt of up to $24.5 million. These agreements are as follows: (i) a revolving credit agreement to provide up to $9.5 million collateralized by finished goods inventories in the US and accounts receivable from US customers and (ii) revolving credit agreements to provide up to $15.0 million collateralized by finished goods inventories in Mexico and accounts receivable from export sales by the Company's Mexican subsidiaries. These agreements are cross-collateralized and guaranteed by the Company and its subsidiaries and require the Company to maintain certain consolidated financial performance levels relative to tangible net worth, working capital, and total debt. In addition, the agreements contain restrictions on the issuance of additional shares of stock and the payment of dividends, among other things, without the prior written consent of the bank. At December 31, 1998 the Company was in violation of certain financial covenants and restrictions under these agreements, which Rabobank Nederland has waived as of that date. At December 31, 1998 the Company had outstanding loan balances under the revolving credit agreements of $15.2 million. These agreements were scheduled to mature on May 17, 1999 but, in a commitment letter dated April 13, 1999, the lender agreed to extend the maturity to January 3, 2000. In recent years, the Company has relied upon bank financing, principally short term, to finance its working capital and certain of its capital expenditure needs. Although these revolving credit facilities with Rabobank Nederland are being extended until January 3, 2000, no assurances can be given that Rabobank Nederland will continue to renew such loan facilities. Presently, the Company is in discussions with Rabobank Nederland and other financial institutions to further extend or replace existing working capital facilities and to establish a permanent long-term debt facility. Although no assurances can be given, the Company believes it will be able to obtain such working capital and long-term debt facilities on terms acceptable to the Company. The failure to obtain such facilities could have a material adverse affect on the Company and its ability to continue as a going concern. In April 1998, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an affiliate of The Coca-Cola Company, entered into a new twenty year Supply Contract, with a ten year renewal option, for the production of Italian lemons. Pursuant to the terms of the new Supply Contract, which supersedes all previous agreements, GISE will plant and grow 3,500 hectares (approximately 8,650 acres) of Italian lemons within the next three years for sale to Coca-Cola at pre-determined prices. The Supply Contract requires Coca-Cola to provide, free of charge, up to 875,000 lemon trees, enough to plant approximately 2,800 hectares. In addition, the Supply Contract requires Coca-Cola to purchase all the production from the project. The planting program began in November, 1996 and harvesting of the first crops is projected to begin in late 2000 with full production scheduled for 2013. Total capital requirements for the project including land acquisition, seedlings, capital equipment and planting costs are estimated to be approximately $18.5 million of which $5.6 million has been expended as of December 31, 1998 and $8.2 million is estimated to be required in 1999. Presently, the Company is exploring various financing alternatives for this project. There can be no assurances that financing for this project can be obtained on acceptable terms, or at all. The inability to obtain third party financing for the project could have a material adverse effect on the Company. The Company's cash requirements for the remainder of 1999 and beyond will depend primarily upon the level of sales, expenditures for capital equipment and improvements, investments in agricultural projects, 21 22 the level of inventories, the success of newly introduced products and necessary reductions of debt. Presently, the Company is in discussions with Rabobank Nederland and other financial institutions regarding further extending or replacing its existing debt facilities. Although no assurances can be given, the Company believes it will be able to obtain such debt facilities on terms acceptable to the Company. The failure to obtain such debt facilities could have a material adverse affect on the Company. UniMark believes that anticipated revenue from operations and existing and future debt facilities will be adequate for its working capital requirements for at least the next twelve months. 22 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors..................................................... 23 Consolidated Balance Sheets as of December 31, 1997 and 1998....................... 24 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998............................................... 25 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1997 and 1998............................................... 26 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998............................................... 27 Notes to Consolidated Financial Statements......................................... 28
REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders The UniMark Group, Inc. We have audited the accompanying consolidated balance sheets of The UniMark Group, Inc. (the Company) as of December 31, 1997 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The UniMark Group, Inc. at December 31, 1997 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Dallas, Texas April 13, 1999 23 24 THE UNIMARK GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ---------------------- 1997 1998 -------- -------- ASSETS Current assets: Cash and cash equivalents ............................... $ 1,237 $ 4,247 Accounts receivable -- trade, net of allowance of $685 in 1997 and $657 in 1998 ................................ 11,599 9,270 Accounts receivable - other ............................. 716 731 Inventories ............................................. 24,152 22,320 Income and value added taxes receivable ................. 2,312 1,560 Prepaid expenses ........................................ 1,605 1,315 -------- -------- Total current assets ............................ 41,621 39,443 Property, plant and equipment, net ........................ 39,704 41,347 Deferred income taxes ..................................... 1,847 1,365 Goodwill, net ............................................. 6,606 6,425 Identifiable intangible assets ............................ 1,823 1,535 Due from related parties .................................. 1,678 1,651 Other assets .............................................. 1,337 1,747 -------- -------- Total assets .................................... $ 94,616 $ 93,513 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings ................................... $ 31,452 $ 21,654 Current portion of long-term debt ....................... 1,655 763 Accounts payable - trade ................................ 3,983 5,156 Payable to related parties .............................. 104 -- Accrued liabilities ..................................... 4,439 3,484 Income taxes payable .................................... 40 38 Deferred income taxes ................................... 6,050 5,873 -------- -------- Total current liabilities ....................... 47,723 36,968 Long-term debt, less current portion ...................... 8,626 7,833 Deferred income taxes ..................................... 15 -- Commitments Shareholders' equity: Common stock, $0.01 par value: Authorized shares -- 20,000,000 Issued and outstanding shares -- 8,598,833 in 1997 and 11,938,326 in 1998 ................................. 86 119 Additional paid-in capital .............................. 45,419 58,811 Accumulated deficit ..................................... (7,253) (10,218) -------- -------- Total shareholders' equity ...................... 38,252 48,712 -------- -------- Total liabilities and shareholders' equity ...... $ 94,616 $ 93,513 ======== ========
See accompanying notes. 24 25 THE UNIMARK GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1997 1998 -------- -------- -------- Net sales ....................................... $ 65,238 $ 81,284 $ 90,141 Cost of products sold ........................... 46,612 59,280 65,058 -------- -------- -------- 18,626 22,004 25,083 Selling, general and administrative expenses .... 17,599 27,954 23,084 -------- -------- -------- Income (loss) from operations ................... 1,027 (5,950) 1,999 Other income (expense): Interest expense .............................. (1,407) (3,294) (4,146) Interest income ............................... 548 436 141 Foreign currency transaction loss ............. (248) (945) (167) Other income .................................. 21 11 75 -------- -------- -------- (1,086) (3,792) (4,097) -------- -------- -------- Loss before income taxes and extraordinary gain . (59) (9,742) (2,098) Income tax expense (benefit) .................... (272) 77 867 -------- -------- -------- Income (loss) before extraordinary gain ......... 213 (9,819) (2,965) Extraordinary gain on forgiveness of debt, net of applicable income taxes of $259 in 1996 and $109 in 1997 ................................. 330 139 -- -------- -------- -------- Net income (loss) ............................... $ 543 $ (9,680) $ (2,965) ======== ======== ======== Basic and diluted earnings (loss) per share: Income (loss) before extraordinary item ....... $ 0.03 $ (1.15) $ (0.29) Extraordinary item ............................ 0.04 0.02 -- -------- -------- -------- Net income (loss) ............................. $ 0.07 $ (1.13) $ (0.29) ======== ======== ========
See accompanying notes. 25 26 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, 1996 .................. 5,918,050 $ 59 $ 13,035 $ 1,884 $ 14,978 Exercise of warrants and options .......... 64,250 1 305 -- 306 Shares issued for cash in secondary public offering, net of offering expenses ................................ 1,677,000 17 22,175 -- 22,192 Shares issued in acquisitions of GISE, Simply Fresh and Deli-Bon ............... 902,033 9 9,772 -- 9,781 Net income ................................ -- -- -- 543 543 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1996 ................ 8,561,333 86 45,287 2,427 47,800 Exercise of options ....................... 37,500 -- 132 -- 132 Net loss .................................. -- -- -- (9,680) (9,680) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1997 ................ 8,598,833 86 45,419 (7,253) 38,252 Exercise of options ....................... 10,000 -- 35 -- 35 Additional shares issued in acquisition of Deli-Bon ............................ 23,993 -- -- -- -- Cash paid to former Simply Fresh shareholders pursuant to arbitration award ................................... -- -- (1,005) -- (1,005) Shares issued for cash in a private offering, net of offering expenses ....... 3,305,500 33 14,362 -- 14,395 Net loss .................................. -- -- -- (2,965) (2,965) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1998 ................ 11,938,326 $ 119 $ 58,811 $ (10,218) $ 48,712 ========== ========== ========== ========== ==========
See accompanying notes. 26 27 THE UNIMARK GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1997 1998 -------- -------- -------- OPERATING ACTIVITIES Net income (loss) ......................................... $ 543 $ (9,680) $ (2,965) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ......................... 1,751 3,465 3,621 Deferred income taxes ................................. 408 634 290 Extraordinary gain .................................... (589) (248) -- Impairment loss ....................................... -- -- 1,840 Changes in operating assets and liabilities: Receivables ........................................ (3,348) (2,313) 3,066 Inventories ........................................ (8,927) (6,315) 532 Prepaid expenses ................................... (351) (834) 290 Accounts payable and accrued liabilities ........... (2,263) 1,846 114 Income taxes payable ............................... (16) (854) (2) -------- -------- -------- Net cash provided by (used in) operating activities ....... (12,792) (14,299) 6,786 INVESTING ACTIVITIES Acquisition of Deli-Bon, GISE and Simply Fresh shares, net of cash acquired ................................... (2,590) -- -- Purchases of property, plant and equipment ................ (13,158) (11,578) (5,214) (Increase) decrease in identifiable intangible assets ..... (919) 89 (121) Decrease (increase) in amounts due from related parties ... (542) (1,046) 27 Increase in other assets .................................. (1,194) (260) (410) -------- -------- -------- Net cash used in investing activities ..................... (18,403) (12,795) (5,718) FINANCING ACTIVITIES Net proceeds from the issuance of common shares ........... 22,498 132 13,425 Increase (decrease) in short-term borrowings .............. 6,303 22,982 (9,798) Proceeds from long-term debt .............................. 1,204 2,613 240 Payments of long-term debt ................................ (828) (1,664) (1,925) -------- -------- -------- Net cash provided by financing activities ................. 29,177 24,063 1,942 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ...... (2,018) (3,031) 3,010 Cash and cash equivalents at beginning of year ............ 6,286 4,268 1,237 -------- -------- -------- Cash and cash equivalents at end of year .................. $ 4,268 $ 1,237 $ 4,247 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid ........................................... $ 1,049 $ 3,170 $ 4,059 ======== ======== ======== Income taxes received ................................... $ 98 $ 470 $ 65 ======== ======== ========
See accompanying notes. 27 28 THE UNIMARK GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Company is in the business of growing, processing, marketing and distributing niche citrus and tropical fruit products, including chilled and canned packaged fruits, citrus juices and oils and other specialty food ingredients. The UniMark Group, Inc. ("the Company") was incorporated in the state of Texas on January 3, 1992. The Company's wholly-owned subsidiaries include UniMark Foods, Inc. ("UniMark Foods"), UniMark International, Inc. ("UniMark International"), Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"), AgroMark, S.A. de C.V. ("AgroMark"), UniMark Foods Europe, Ltd. ("UniMark Europe"), Les Produits Deli-Bon Inc. ("Deli-Bon"), Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE") and Simply Fresh Fruit, Inc. ("Simply Fresh"). During 1996, the Company acquired Deli-Bon, a Quebec, Canada fruit processor; GISE, a Mexican citrus juice and oil processor; and Simply Fresh, a Los Angeles, California fruit processor and distributor. See Note 3 - Acquisitions. As discussed in Notes 9 and 15, the Company has several projects and commitments requiring substantial capital. Although the Company is exploring various financing options and believes sufficient capital will ultimately be available, there can be no assurances that adequate financing or capital can be obtained on acceptable terms or at all. The inability to obtain sufficient debt or equity capital for these projects and commitments could have a material adverse effect on the Company and its projects including the realization of the amounts capitalized and costs deferred related to these projects and commitments. Additionally, the Company has, in recent years, relied upon bank financing to finance its working capital and certain of its capital expenditure needs (see Notes 7 and 8). Although the revolving credit facilities are being extended until January 3, 2000, no assurances can be given that the lender will continue to renew such loan facilities. The Company's cash requirements for 1999 and beyond will depend primarily upon the level of sales, expenditures for capital equipment and improvements, investments in agricultural projects, the timing of inventory purchases, the success of newly introduced products and necessary reductions of debt. Presently, the Company is in discussions with its primary lender and other financial institutions regarding further extending or replacing its existing debt facilities. Although no assurances can be given, the Company believes it will be able to obtain such debt facilities on terms acceptable to the Company. The failure to obtain such debt facilities could have a material adverse affect on the Company. The Company's revolving credit facilities were scheduled to mature on May 17, 1999 but, in a commitment letter dated April 13, 1999, the lender has agreed to extend the maturity to January 3, 2000. The Company obtains a substantial amount of its raw materials from third-party suppliers throughout various growing regions in Mexico, Texas and California. A crop reduction or failure in any of these fruit growing regions resulting from factors such as weather, pestilence, disease or other natural disasters, could increase the cost of the Company's raw materials or otherwise adversely affect the Company's operations. Competitors may be affected differently depending upon their ability to obtain adequate supplies from sources in other geographic areas. If the Company is unable to pass along the increased raw materials cost, the financial condition and results of operations of the Company could be materially adversely affected. 28 29 Principles of Consolidation: The consolidated financial statements include the accounts of The UniMark Group, Inc. and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Foreign Operations: A significant portion of the Company's operations are located in Mexico and a significant portion of the Company's fruit is procured in Mexico. In addition, substantially all of the Company's Mexican employees are affiliated with labor unions. As is typical in Mexico, wages are renegotiated every year while other terms are negotiated every two years. Recently, Mexico has faced turbulent political and economic times. Should political unrest spread or political leadership or other causes vastly change economic conditions in Mexico, the Company's operations could be adversely affected. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Concentration of Credit Risk: The Company processes and sells niche citrus and tropical fruit products, citrus juices and oils and other specialty food ingredients to customers in the foodservice and retail industries in the United States, Europe, Canada and Japan. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Trade receivables generally are due within 30 days. Credit losses have been within management's expectations. No one customer accounted for more than 10%of the Company's net sales for the years ended December 31, 1996, 1997 and 1998 Advertising Costs: The Company expenses advertising costs as incurred. Advertising expense was $528,000, $262,000 and $369,000 for the years ended December 31, 1996, 1997 and 1998, respectively. Inventories: Inventories held in the United States and Canada are carried at the lower of cost or market using the first-in, first-out method. Mexican inventories are valued at the lower of cost or market using average cost. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the following estimated useful lives: Buildings...................................... 20 years Pineapple orchards............................. 2 years Machinery and equipment........................ 5-12.5 years Transportation equipment....................... 5-7 years Computer equipment............................. 4-7 years Office equipment............................... 5-10 years Automobiles.................................... 3-5 years
The Company reviews its property, plant and equipment and other non-current assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset less disposal costs. The Company capitalizes costs incurred to plant and maintain orchards until they become commercially productive. The capitalized costs of the Company's pineapple orchards are depreciated over a two-year period. The Company's lemon orchards are expected to become commercially productive by 2003 at which time they will begin to be depreciated over their estimated useful lives. 29 30 Foreign Currency Transactions: The functional currency of the Company and its subsidiaries is the United States dollar. Transactions in foreign currency are recorded at the prevailing exchange rate on the day of the related transaction. Assets and liabilities denominated in foreign currency are remeasured to dollars at the prevailing exchange rate as of the balance sheet date. Exchange rate differences are reflected in the current year's operations. The Company's consolidated results of operations are affected by changes in the valuation of the Mexican peso to the extent that ICMOSA or GISE have peso denominated net monetary assets or net monetary liabilities. In periods where the peso has been devalued in relation to the U.S. dollar, a gain will be recognized to the extent there are peso denominated net monetary liabilities while a loss will be recognized to the extent there are peso denominated net monetary assets. In periods where the peso has gained value, the converse would be recognized. The Company's consolidated results of operations are also subject to fluctuations in the value of the peso as they affect the translation to U.S. dollars of ICMOSA's net deferred tax assets or net deferred tax liabilities. Since these assets and liabilities are peso denominated, a falling peso results in a transaction loss to the extent there are net deferred tax assets or a transaction gain to the extent there are net deferred tax. Income Taxes: Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Segment Reporting: In 1998, the Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131) and has provided prior years disclosures in accordance therewith. Reclassifications: Certain prior year items have been reclassified to conform to the current year presentation in the accompanying financial statements. NOTE 2 EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share for income (loss) before extraordinary gains:
YEAR ENDED DECEMBER 31, ----------------------------------- 1996 1997 1998 -------- -------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) NUMERATOR Income (loss) before extraordinary gain ......... $ 213 $ (9,819) $ (2,965) DENOMINATOR Denominator for basic earnings per share - Weighted average shares ....................... 7,450 8,590 10,131 Effect of dilutive securities: Employee and director stock options ........... 294 -- -- Warrants ...................................... 52 -- -- -------- -------- -------- Dilutive potential common shares ................ 346 -- -- -------- -------- -------- Denominator for diluted earnings per share - Weighted average shares adjusted for assumed Conversions ................................... 7,796 8,590 10,131 ======== ======== ======== Basic and diluted earnings (loss) per share ..... $ 0.03 $ (1.15) $ (0.29) ======== ======== ========
30 31 At December 31, 1997 and 1998 the Company had options and warrants outstanding of 668,000 and 2,447,000, respectively, that were not included in there respective years per share calculations because there effect would have been anti-dilutive. See Note 17 - Subsequent Event. NOTE 3 ACQUISITIONS On January 3, 1996, the Company acquired, in a purchase transaction, all of the outstanding shares of capital stock of Les Produits Deli-Bon, Inc. (Deli-Bon), a Quebec corporation that principally processes and sells fruit salads to the food service industry in Canada. The total consideration given for the purchase of the shares included (i) approximately $787,000 in cash, (ii) a $49,000 six month promissory note and (iii) 28,510 shares of common stock for an aggregate purchase price of approximately $1.5 million. The Company's consolidated statement of operations for the year ended December 31, 1996 includes the results of operations of Deli-Bon since the date of the acquisition. The excess purchase price over the estimated fair value of the net assets acquired was $303,000 and is being amortized using the straight-line method over twenty years. Accumulated amortization was $30,000 and $45,000 at December 31, 1997 and 1998, respectively. On May 9, 1996, the Company acquired all of the outstanding shares of capital stock of Simply Fresh Fruit, Inc. (Simply Fresh), in exchange for (i) $2,500,000 cash, (ii) 90,909 shares of Unimark common stock and (iii) five-year covenants not to compete totaling $1,000,000 in a purchase transaction for an aggregate purchase price of $5.0 million. Simply Fresh is a fruit processing and distribution company located in Los Angeles, California. The Company's consolidated statement of operations for the year ended December 31, 1996 includes the results of operations of Simply Fresh since April 1, 1996, the effective date of the acquisition. The excess purchase price over the estimated fair value of the net assets acquired was $3,359,000 and is being amortized using the straight-line method over forty years. Accumulated amortization was $147,000 and $231,000 at December 31, 1997 and 1998, respectively. The Company provided price protection on the shares issued in the Deli-Bon and Simply Fresh acquisitions. This price protection required the Company to issue additional shares (or cash at its discretion) to the sellers in the event of a decline in the public market value of the UniMark shares below an established level during the period in which the sellers' shares were restricted from trading. During 1998, the Company satisfied the price protection provisions of these agreements. See Note 13. Also on May 9, 1996, the Company acquired all of the outstanding shares of capital stock of Grupo Industrial Santa Engracia, S.A. de C.V. (GISE), in exchange for 782,614 shares of common stock in a purchase transaction representing a purchase price of $12 million. In addition, Unimark agreed to pay up to an additional $8.0 million during the next four years if GISE achieves certain financial operating targets. GISE operates three juice plants in the heart of major citrus growing regions in Mexico. The Company's consolidated statement of operations for the year ended December 31, 1996 includes the results of operations of GISE since April 1, 1996, the effective date of the acquisition. The excess purchase price over the estimated fair value of the net assets acquired was $3,264,000 and is being amortized using the straight-line method over forty years. Accumulated amortization was $143,000 and $224,000 at December 31, 1997 and 1998, respectively. NOTE 4 INVENTORIES Inventories consist of the following:
DECEMBER 31, ------------------- 1997 1998 ------- ------- (IN THOUSANDS) Finished goods: Cut fruits ................ $12,983 $12,212 Juice and oils ............ 2,592 1,663 ------- ------- 15,575 13,875 Pineapple orchards ........... 3,140 2,964 Raw materials and supplies ... 4,433 4,376 Advances to suppliers ........ 1,004 1,105 ------- ------- Total .............. $24,152 $22,320 ======= =======
31 32 NOTE 5 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consists of the following:
DECEMBER 31, ------------------- 1997 1998 ------- ------- (IN THOUSANDS) Land ......................... $ 1,819 $ 3,223 Orchards ..................... 2,804 5,022 Construction in progress ..... 2,201 2,121 Buildings and improvements ... 13,084 13,562 Machinery and equipment ...... 25,023 25,419 ------- ------- 44,931 49,347 Accumulated depreciation ..... 5,227 8,000 ------- ------- Total .............. $39,704 $41,347 ======= =======
Depreciation expense was $1,263,000, $2,625,000 and $3,031,000 for the years ended December 31, 1996, 1997 and 1998, respectively. At December 31, 1998, the Company recorded a charge of $1.3 million to reduce the carrying value of its pineapple orchards based on current crop estimates for the next two years. This charge is reflected in cost of products sold. In addition, the Company recorded a charge of $540,000 to write-off certain other assets, primarily related to closed plant facilities, which is reflected in selling, general and administrative expenses. All of these charges were related to the Company's packaged fruit operations. NOTE 6 IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets consist of the following:
DECEMBER 31, ----------------- 1997 1998 ------ ------ (IN THOUSANDS) Covenants not to compete ......... $1,508 $1,628 Tradename ........................ 704 704 Other ............................ 351 352 ------ ------ 2,563 2,684 Less accumulated amortization .... 740 1,149 ------ ------ $1,823 $1,535 ====== ======
The covenants not to compete relate to agreements with the former owners of acquired businesses and the Company's former President and Chief Executive Officer. These amounts are being amortized on the straight-line method over the two to five-year terms of these agreements. The tradename relates to the Flavor Fresh brand name and is being amortized on a straight-line basis over twenty years. NOTE 7 SHORT-TERM BORROWINGS During 1997, the Company entered into loan agreements, described below, with a bank to provide short-term dollar denominated debt totaling up to $34.5 million. In February 1997, the Company entered into a revolving credit agreement to provide up to $9.5 million (as amended) in the United States collateralized by US finished goods inventories and US accounts receivable. In April 1997, the Company entered into additional revolving credit agreements to provide up to $15.0 million (as amended) in Mexico 32 33 collaterialized by Mexico finished goods inventories and Mexico accounts receivable from export sales. In May 1997, the Company entered into a bridge loan agreement for short-term dollar denominated debt in Mexico of up to $10.0 million to partially finance investments in plants, expansion and upgrading of facilities and agricultural operations. This bridge loan was retired in July, 1998. The revolving credit agreements are cross-collateralized and guaranteed by the Company and its subsidiaries and require the Company to maintain certain consolidated financial performance levels relative to tangible net worth, working capital, total debt and debt service. In addition, the agreements contain restrictions on the issuance of additional shares of stock and the payment of dividends, among other things, without the prior written consent of the bank. At December 31, 1998, the Company was in violation of certain financial covenants and restrictions under these agreements, which the lender has waived as of that date. At December 31, 1998, the Company had outstanding loan balances under the revolving credit agreements of $15.2 million, which were fully utilized. These agreements were scheduled to mature on May 17, 1999 but, in a commitment letter dated April 13, 1999, the lender agreed to extend the maturity to January 3, 2000. In November, 1997, ICMOSA entered into a three year unsecured loan agreement with a Mexican bank for short-term dollar denominated debt of up to $6.0 million. Advances under this loan agreement are generally for a period of 60 to 90 days and are personally guaranteed by certain shareholders of the Company. At December 31, 1998, the Company had outstanding loan balances under this agreement of $4.0 million. In December, 1998, GISE entered into an unsecured loan agreement with a Mexican bank for short-term dollar denominated debt of $2.5 million. This loan is personally guaranteed by certain shareholders of the Company and is scheduled to mature on April 16, 1999. The weighted-average interest rate on short-term borrowings as of December 31, 1997 and 1998 was 8.6% and 9.1%, respectively. NOTE 8 LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ------------------- 1997 1998 ------- ------- (IN THOUSANDS) Note payable to bank, collateralized by plant and equipment in Mexico; interest at Libor + 5% payable quarterly with annual principal payments, unpaid principal due February 2002 ............. $ 4,000 $ 4,000 Note payable to bank, collateralized by McAllen, Texas warehouse property and improvements; principal and interest at Prime + .5% payable monthly, unpaid principal and interest due September 2012 ................................................. 2,053 1,997 Non-compete covenant obligations totaling $1.5 million, discounted at 9%, payable monthly through May 2001 ................. 986 671 Note payable to bank, collateralized by plant and equipment in Mexico; principal and interest at 18.5% payable monthly; unpaid principal and interest due November 2004 .................... 1,168 881 Note payable to bank; collateralized by plant and equipment in Mexico; principal and interest at Libor + 8% payable monthly; unpaid principal and interest due December 2001 .................... 759 490 Other notes payable .................................................. 1,315 557 ------- ------- 10,281 8,596 Less current portion ................................................. 1,655 763 ------- ------- $ 8,626 $ 7,833 ======= =======
33 34 The Company currently has short-term notes payable to a Mexican bank totaling $4.0 million that have been classified as long-term debt based on the Company's intention to refinance these obligations into one long-term obligation. The bank has approved the Company's application to refinance this debt and is currently processing the final loan documentation. Certain of the loan contracts establish restrictions and obligations with respect to the application of funds and require maintenance of insurance of the assets and timely presentation of financial information. All long-term debt at December 31, 1998 is U.S. dollar denominated except for $881,000 which is Mexican peso denominated and $122,000 which is Canadian dollar denominated. Based on interest rates provided by the Company's long-term debt and the floating rates provided on its short-term borrowings, the Company believes the carrying amounts of its short and long-term debt approximate their fair value. During the year ended December 31, 1998, interest expense of $318,000 was capitalized as a portion of the Company's long-term orchard development costs. Maturities of long-term debt are as follows:
(IN THOUSANDS) 1999............................... $ 763 2000............................... 885 2001............................... 702 2002............................... 4,114 2003............................... 308 Thereafter......................... 1,824
NOTE 9 RELATED PARTY TRANSACTIONS Effective January 1, 1995, the Company entered into a five year operating agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant to the terms of the operating agreement, the Company is obligated to pay IHMSA an operating fee sufficient to cover the interest payments on IHMSA's existing outstanding debt (approximately $4.6 million). The Company is responsible for all raw material and operating costs and the sale of the finished goods produced at the IHMSA plant. Payments made pursuant to the operating agreement were $116,000, $42,000 and $470,308 during the years ended December 31, 1996, 1997 and 1998, respectively. The Vaquero family owns collectively an approximate 8% interest in IHMSA. Certain members of the Vaquero family are officers, shareholders and directors of the Company. During the five year term of the operating agreement, the Company has the right of first refusal to buy the IHMSA facility at its then fair market value. The Company has subsequently elected to advance funds to IHMSA to retire certain of its outstanding debt since, under the terms of the operating agreement, the Company would benefit from the IHMSA debt reduction. At December 31, 1998 amounts due from IHMSA of $1,481,000 represent cash advances applied to reduce IHMSA's outstanding debt. This amount is expected to be applied to the purchase price when, and if, the Company elects to exercise its purchase option. Effective July 1, 1995, the Company entered into a ten year operating agreement with Empacadora de Naranjas Azteca, S.A. de C.V. ("Azteca"), to operate a processing plant in Montemorelos, Nuevo Leon, Mexico. The operating agreement provides for payments in the amount of (i) interest on existing debt of approximately $220,000 with credit institutions, (ii) asset tax and (iii) annual property tax. Prior to this time, Azteca "co-packed" chilled grapefruit sections and mango slices for the Company. The Vaquero family owns collectively an approximate 14.3% interest in Azteca. Payments made pursuant to the operating agreement were $1,000, $61,000 and $-0- during the years ended December 31, 1996, 1997 and 1998, 34 35 respectively. During the term of the operating agreement, the Company has the right of first refusal to buy the Azteca facility at its then fair market value. Transactions with related parties are as follows:
YEAR ENDED DECEMBER 31, -------------------------- 1996 1997 1998 ------ ------ ------ (IN THOUSANDS) Sales ........ $ -- $ -- $ -- ====== ====== ====== Purchases .... $ 121 $ 190 $ 286 ====== ====== ======
In November, 1995, the Company entered into a lease agreement with Loma Bonita Partners, a Texas general partnership, for approximately 200 hectares (494 acres) of land located in Loma Bonita, Veracruz, Mexico for the development of citrus groves. The lease commenced in December 1995 and expires after ten years. Loma Bonita Partners is 50% owned by an officer, who is also a director and shareholder of the Company. The Company believes that said lease agreement is on terms no less favorable to the Company than would be available from unrelated third parties. Rent expense on this lease was $68,870, $78,000 and $78,000 for the years ended December 31, 1996, 1997 and 1998, respectively. P&C Services, Inc. (P&C) is a California corporation owned by a former officer and certain management of Simply Fresh that leased the hourly plant employees to Simply Fresh. This employee leasing arrangement was terminated in 1997. Payments made to P&C during 1997 amounted to approximately $741,000. Receivable and payable balances with related parties are as follows:
DECEMBER 31, ----------------- 1997 1998 ------ ------ (IN THOUSANDS) Accounts receivable: Empacadora de Naranjas Azteca, S.A. de C.V. (Azteca) .......... $ 213 $ 170 Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA) ... 1,465 1,481 ------ ------ $1,678 $1,651 ====== ====== Accounts payable: P&C Services, Inc. ........................................... $ 104 $ -- ====== ======
The Company operates a 144 acre grapefruit grove located close to the ICMOSA plant in Montemorelos pursuant to a ten year operating agreement that expires in 2000. Per the agreement, the Company operates the grove and purchases all the grapefruit produced at a formula price tied to purchases from unrelated third parties. The grove is owned by a partnership that consists primarily of shareholders of Azteca. The Vaquero family owns a 14.3% interest in this partnership. The Company believes that said arrangement is on terms no less favorable to the Company than would be available from unrelated third parties. Fruit purchases from the grove were $121,000, $190,000 and $286,000 for the years ended December 31, 1996, 1997 and 1998, respectively. The Company leases its corporate office facility from a company owned by an individual who served as the Company's president and was a shareholder of the Company through February 1998. Rent expense on this lease was $98,250, $110,700 and $110,700 for the years ended December 31, 1996, 1997 and 1998, respectively. During 1996, 1997 and 1998, the Company paid Jordaan and Pennington, PLLC (and its predecessor Jordaan, Howard and Pennington, PLLC) amounts of $299,723, $179,962 and $310,182, respectively, for legal services rendered. Mr. Jordaan, a director and, commencing in February 1998, chairman of the Company, is a member of Jordaan and Pennington, PLLC. 35 36 At December 31, 1998 the Company had notes receivable from directors of $230,000. The notes are unsecured, bear interest at the rate of 10% per annum and are for terms of up to two years. NOTE 10 LEASES The Company leases buildings, various plant facilities, certain equipment and citrus groves under operating leases. The Isla plant lease is for a period of ten years, expiring in 2005. The San Rafael plant lease is for a period of nine years, expiring in 2003, and contains the right of first refusal to purchase the facility at its then fair market value. The Simply Fresh plant lease is for a period of ten years, expiring in 2004. The lease for the Lawrence, Massachusetts plant facility is for an initial period of six years, expiring in 2002, and contains a purchase option exercisable during the term of the lease for the then fair market value of the property. The Company has under lease approximately 926 acres of citrus groves in Mexico for periods of ten to fifteen years expiring in 2005 and 2010. As described in Note 9, the Company leases its corporate office facility and a 494 acre citrus grove from related parties. The related party building lease expires in 2000, but its term may be renewed for a five-year period. The related party citrus grove lease expires in 2005. Future minimum payments under non-cancelable operating leases with initial terms of one year or more at December 31, 1998, consist of the following:
RELATED PARTIES OTHER TOTAL ------- ----- ----- (IN THOUSANDS) 1999............. $ 78 $ 904 $ 982 2000............. 78 913 991 2001............. 78 648 726 2002............. 78 514 592 2003............. 78 387 465 Thereafter....... 156 556 712
Rent expense was $1,159,000, $1,234,000 and $1,382,000 for the years ended December 31, 1996, 1997 and 1998, respectively. The Company has entered into a sublease agreement for the idle Lawrence plant facility commencing April 1, 1999 at an amount approximating its obligations under the lease. Future minimum rentals to be received under this non-cancelable sublease total $720,000. NOTE 11 INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1997 and 1998 are as follows:
DECEMBER 31, -------------------- 1997 1998 ------- ------- (IN THOUSANDS) Deferred tax assets: Net operating loss carryforwards ......... $ 4,332 $ 4,897 Inventories .............................. 582 424 Asset tax credit ......................... 1,057 928 Credit available to offset Mexican tax ... 249 237 Accrued expenses ......................... 318 145 Bad debt reserve ......................... 260 215 Intangible assets ........................ 232 345 Other .................................... 114 329 ------- ------- Total deferred tax assets .................. 7,144 7,520 Less U.S. valuation allowance .............. (2,990) (3,868) ------- ------- Net deferred tax assets .................... $ 4,154 $ 3,652 ======= ======= Deferred tax liabilities: Depreciation ............................. $ 2,091 $ 1,954 Inventories .............................. 5,862 5,689 Other .................................... 419 517 ------- ------- Deferred tax liabilities ................... $ 8,372 $ 8,160 ======= =======
36 37 Income (loss) before income taxes and extraordinary gain relating to operations in the United States and Mexico is as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ------- ------- ------- (IN THOUSANDS) United States .... $(2,749) $(7,102) $(2,378) Mexico ........... 2,690 (2,640) 473 Other ............ -- -- (193) ------- ------- ------- $ (59) $(9,742) $(2,098) ======= ======= =======
The components of the provision for income taxes include the following:
YEAR ENDED DECEMBER 31, --------------------------- 1996 1997 1998 ----- ----- ----- (IN THOUSANDS) U.S. federal -- current ... $(386) $ (76) $ -- U.S. state -- current ..... (48) 14 -- U.S. deferred ............. (488) 565 -- ----- ----- ----- (922) 503 -- ----- ----- ----- Foreign -- current ........ 127 40 160 Foreign -- deferred ....... 523 (466) 707 ----- ----- ----- 650 (426) 867 ----- ----- ----- $(272) $ 77 $ 867 ===== ===== =====
Principal reconciling items from income tax computed at the U.S. statutory rate of 34% are as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ------- ------- ------- (IN THOUSANDS) Provision at 34% statutory rate ............. $ (20) $(3,312) $ (713) State income tax (net of federal benefit) ... (103) (228) (69) Permanent differences ....................... (438) 852 1,200 Effect of foreign rates ..................... 3 (2) (418) Other ....................................... 286 (223) (11) Change in valuation allowance ............... -- 2,990 878 ------- ------- ------- $ (272) $ 77 $ 867 ======= ======= =======
The Company has a net operating loss carryforward in the United States of $7,350,000 which begins to expire in 2011 and in Mexico of $6,294,000 which begins to expire in 2006. The Mexican subsidiaries have asset tax credits totaling $928,000 available to offset Mexican income tax which begin to expire in 1999. One Mexican subsidiary also has a job creation credit of $235,000 available to offset income tax in Mexico, which will begin to expire in 2006. 37 38 NOTE 12 STOCK OPTIONS In 1994, the Company adopted an employee stock option plan and an outside director stock option plan ("the Plans"). The Plans authorize the Board of Directors to grant options to employees and consultants of the Company and to outside directors of the Company to purchase up to 820,000 shares of common stock under the employee stock option plan, as amended, and 100,000 shares under the outside directors stock option plan. The terms and the vesting period of any option granted under the Plans is fixed by the Board of Directors at the time the option is granted, provided that the exercise period may not be greater than 10 years from the date of grant. The exercise price of any option granted under the employee stock option plan shall not be less than 100% and 85% of the fair market value of the stock on the date of the grant for Incentive Stock Options and Nonstatutory Stock Options, as defined, respectively. The exercise price of any option granted under the outside directors stock option plan shall not be less than 100% of the fair market value of the stock on the date of the grant. The Company has reserved 820,000 and 100,000 shares for issuance pursuant to the employee stock option plan and the outside directors stock option plan, respectively.
EMPLOYEE STOCK OUTSIDE DIRECTORS STOCK OPTION PLAN OPTION PLAN -------------------------- ---------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE ------- ---------------- ------- ---------------- Options outstanding, January 1, 1996 ..... 378,000 $ 3.98 67,500 $ 3.90 Granted .............................. 12,500 11.30 7,500 17.00 Exercised ............................ (23,500) 3.50 (7,000) 3.50 Forfeited ............................ (5,000) 3.50 -- -- -------- -------- Options outstanding, December 31, 1996 ... 362,000 4.27 68,000 5.39 Granted .............................. 195,000 7.25 7,500 6.88 Exercised ............................ (37,500) 3.50 -- -- Forfeited ............................ (5,000) 3.50 -- -- -------- -------- Options outstanding, December 31, 1997 ... 514,500 5.46 75,500 5.54 Granted .............................. 20,000 2.91 25,000 2.88 Exercised ............................ (10,000) 3.50 -- -- Forfeited ............................ (196,000) 4.56 (60,500) 4.35 -------- -------- Options outstanding, December 31, 1998 ... 328,500 5.91 40,000 5.67 ======== ======== Exercisable at December 31, 1996 ................................. 117,250 $ 3.89 68,000 $ 5.39 1997 ................................. 181,125 4.13 75,500 5.54 1998 ................................. 142,500 4.85 40,000 5.67 Weighted-average fair value of options granted during the years ended: December 31, 1996 .................... $ 4.51 $ 6.27 December 31, 1997 .................... 3.10 2.53 December 31, 1998 .................... 1.22 1.01
Exercise prices for employee options outstanding as of December 31, 1998 ranged from $3.50 to $7.50. The weighted-average remaining contractual life of those options is 2.4 years. Exercise prices for outside directors options outstanding as of December 31, 1998 ranged from $2.88 to $17.00. The weighted-average remaining contractual life of those options is 3.9 years. All options granted under the outside directors stock option plan are immediately exercisable. Options issued to employees during 1996, 1997 and 1998 vest ratably over four years. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee and outside director stock options because, as discussed below, the alternative fair value accounting provided 38 39 for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" (FASB 123), requires use of option valuation models that were not developed for use in valuing stock options. Under APB 25, because the exercise price of the Company's stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FASB 123 and has been determined as if the Company had accounted for its stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998, respectively: risk-free interest rates of 5.7%, 6.2% and 4.7% and a weighted-average expected life of the option of 3.5, 4.0 and 3.6 years. In addition, dividend yields of 0% and volatility factors of the expected market price of the Company's common stock of .45 were assumed for each year. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except for per share amounts):
YEARS ENDED DECEMBER 31, --------------------------------------- 1996 1997 1998 --------- --------- --------- Pro forma net income (loss) ............ $ 419 $ (9,859) $ (3,126) Pro forma earnings (loss) per share: Basic .............................. $ 0.06 $ (1.15) $ (0.31) Diluted ............................ $ 0.05 $ (1.15) $ (0.31)
Because FASB 123 is applicable only to options and stock-based awards granted subsequent to December 31, 1994, its proforma effect is not fully reflected in the information for years prior to 1998. NOTE 13 SHAREHOLDERS' EQUITY In conjunction with the Company's initial public offering on August 11, 1994, the Company issued warrants to its underwriting representatives ("the Representatives' Warrants") to purchase up to 55,000 units consisting of a total of 165,000 shares of its common stock and 110,000 Redeemable Common Stock Purchase Warrants. The Representatives' Warrants are exercisable for a period of five years from the offering date at a price per unit of $15.00. The Company reserved 275,000 shares for issuance upon the exercise of the Representatives' Warrants and the underlying Redeemable Common Stock Purchase Warrants. During 1996, the Company issued 33,750 shares of common stock on the exercise of 6,750 Representatives' Warrants and the 13,500 underlying Redeemable Common Stock Purchase Warrants with gross proceeds to the Company of $162,000. At December 31, 1998 there were 15,638 Representatives' Warrants outstanding. On June 14, 1996, the Company completed its secondary public offering whereby it sold 1,677,000 shares of its common stock at $14.50 per share with net proceeds to the company of $22.2 million. Effective May 1, 1998, the Company issued an additional 23,993 common shares to the former owner of Les Produits Deli-Bon Inc. pursuant to the price protection provisions of the January 3, 1996 acquisition agreement. 39 40 On June 29, 1998 an arbitration award was issued against the Company in its proceedings with the former shareholders of Simply Fresh Fruit, Inc. ("Simply Fresh") regarding the price protection provisions of the May 9, 1996 acquisition agreement and related issues. Pursuant to the award, on August 5, 1998 the Company paid in cash to the former Simply Fresh shareholders (i) $1,005,036 in settlement of the common stock price protection issues, (ii) $67,391 in interest on the price protection settlement amount and (iii) $110,000 in settlement of related employment contract issues. On July 17, 1998, the Company sold 3,305,500 newly issued shares of common stock at a purchase price of $4.5375 per share, for an aggregate purchase price of $14,998,706, to M & M Nominee L.L.C. ("M & M"). In connection with the transaction, the Company granted M & M options to acquire an additional 2,000,000 shares of common stock at a purchase price of $4.5375 per share, representation on the Company's Board of Directors and certain veto rights regarding financial and corporate matters. Under the terms of its loan agreements with a bank, the Company may not declare or pay any dividends on its shares without the bank's prior written consent. NOTE 14 EXTRAORDINARY GAIN In July, 1996, the Mexican government enacted a new program, Acuerdo Para El Financiamiento del Sector Attropecuario y Pesquero ("FINAPE"), whereby certain agricultural and commercial enterprises were eligible for a one time reduction in their existing debt obligations with Mexican banks as a means of stimulating the economy and supporting the Mexican banking system. Pursuant to the provisions of FINAPE, GISE obtained a reduction in its debt principal with Banamex of $4,000,000 pesos or approximately US $532,000. In August, 1996, the Mexican government enacted a second program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME"), of debt reduction for other commercial enterprises. Pursuant to the provisions of FOPIME, ICMOSA obtained a reduction in its debt principal with Union de Credito Allende of approximately US $57,000. In May, 1997, ICMOSA retired certain outstanding long-term debt with Union de Credito Allende, a Mexican credit union, at a discount of 50% granted pursuant to FOPIME and through the participation of Nacional Financiera, a Mexican development bank, to help provide liquidity to the Mexican credit unions. The debt reduction amounted to $2.0 million pesos or approximately US $248,000. Provisions for Mexican income taxes and statutory employee profit sharing of 34% and 10%, respectively, have been provided on these gains from debt forgiveness. NOTE 15 COMMITMENTS AND CONTINGENCIES In May, 1996, the Company entered into a non-assignable, exclusive license and technical assistance agreement with a Japanese company for the right to manufacture and sell certain fruit products in the US, Canada and Mexico. Pursuant to the agreement, the Company pays a 3% royalty based on the net sales of these products, subject to an annual minimum royalty amount, which is reported and paid quarterly. The agreement is for an initial term of five years with automatic one year renewals unless terminated by either party. At December 31, 1998 minimum annual royalties of $200,000 are payable through April, 2001. In April, 1998, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an affiliate of The Coca-Cola Company, entered into a new twenty year Supply Contract, with a ten year renewal option, for the production of Italian lemons. Pursuant to the terms of the new Supply Contract, which supersedes the previous October, 1996 agreement, GISE will plant and grow 3,500 hectares (approximately 8,650 acres) of Italian lemons within the next three years for sale to Coca-Cola at pre-determined prices. The Supply Contract requires Coca-Cola to provide, free of charge, up to 875,000 lemon trees, enough to plant approximately 2,800 hectares. In addition, the Supply Contract requires Coca-Cola to purchase all the 40 41 production from the project. The planting program began in November, 1996 and harvesting of the first crops is projected to begin in late 2000 with full production scheduled for 2013. Total capital requirements for the project including land acquisition, seedlings, capital equipment and planting costs are estimated to be approximately $18.5 million of which $5.6 million has been expended as of December 31, 1998 and $8.2 million is estimated to be required in 1999. Presently, the Company is exploring various financing alternatives for this project. There can be no assurances that financing for this project can be obtained on acceptable terms, or at all. The inability to obtain third party financing for the project could have a material adverse effect on the Company. In December, 1996, the Company entered into a deposit, operation and stock purchase agreement with the owners of Frutalamo, S.A. de C.V. ("Frutalamo") for the operation of the Frutalamo juice processing plant. Pursuant to the terms of the agreement, the Company is to pay a non-refundable guaranty deposit of $1.9 million for the right to purchase all the issued and outstanding shares of stock of Frutalamo from its existing shareholders. An initial deposit of $650,000 was paid upon execution of the agreement with the balance payable in annual installments of $420,000 each through October 30, 1999. As of December 31, 1998, the deposit amounted to $1,490,000. The stock purchase option is exercisable on October 30, 1999 for an additional sum of $6.0 million, with $1.8 million payable at that time and the balance payable over a five year period with interest at an annual rate of 7%. Additionally, the agreement requires the Company to pay a contractual penalty of $1.0 million to the owners of Frutalamo in the event the agreement is rescinded. The Company does not presently expect to exercise its purchase option and is negotiating a new agreement with the owners of Frutalamo for the continued use of the plant facility. The Company currently expects to complete a new agreement whereby the deposit already paid will allow the Company to extend its purchase option and the contractual penalty of $1.0 million is waived. Effective January 1, 1995, the Company entered into a five year operating agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant to the terms of the operating agreement, the Company is obligated to pay IHMSA an operating fee sufficient to cover the interest payments on IHMSA's existing outstanding debt. During the five year term of the operating agreement, the Company has the right of first refusal to buy the IHMSA facility at its then fair market value. Since, under the terms of the operating agreement, the Company would benefit from the reduction of IHMSA's debt, the Company elected to advance funds to IHMSA to retire certain of its outstanding debt. At December 31, 1998 amounts due from IHMSA of $1,481,000 represent cash advances applied to reduce IHMSA's outstanding debt. This amount is expected to be applied to the purchase price when, and if, the Company elects to exercise its purchase option. Presently, the fair market value of the IHMSA plant is approximately $6.5 million and IHMSA has outstanding debt of approximately $3.4 million. NOTE 16 SEGMENT AND GEOGRAPHIC INFORMATION The Company has two reportable segments: packaged fruit and juice and oil. The Company's packaged fruit division consists of four operating units that sell hand-processed tropical and citrus fruit products directly to retail supermarkets and warehouse clubs, foodservice providers and distributors, and to industrial food and beverage processors. This division also operates the Company's pineapple and citrus orchards. The Company's juice and oil division consists of one operating unit which produces frozen concentrate orange juice and other citrus juices that it sells directly to juice bottlers. This division also extracts essential oils from citrus fruits which it sells directly to commercial users and is developing the Company's lemon orchards. The Company evaluates segment performance and allocates resources based on profit or loss from operations before income taxes and does not allocate corporate general and administrative expenses and amortization of intangibles to its segments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Inter-segment sales and transfers are recorded at cost; there is no intercompany profit or loss on inter-segment sales or transfers. 41 42 The Company's reportable segments are business units that offer different products. The reportable segments are each managed separately because they process and distribute distinct products with different production processes.
PACKAGED JUICE FRUIT & OIL TOTAL -------- -------- -------- YEAR ENDED DECEMBER 31, 1998 Revenues from external customers........... $ 67,970 $ 22,171 $ 90,141 Inter-segment revenues..................... 350 14 364 Interest expense........................... 2,505 1,564 4,069 Interest revenue........................... 47 94 141 Depreciation & amortization expense........ 2,540 358 2,898 Impairment loss............................ 1,840 -- 1,840 Segment profit (loss)...................... (2,859) 2,919 60 Segment assets............................. 93,255 27,923 121,178 Expenditures for long-lived assets......... 1,108 4,582 5,690 YEAR ENDED DECEMBER 31, 1997 Revenues from external customers........... $ 67,605 $ 13,679 $ 81,284 Inter-segment revenues..................... 1,098 100 1,198 Interest expense........................... 2,064 1,217 3,281 Interest revenue........................... 278 158 436 Depreciation & amortization expense........ 2,553 246 2,799 Segment profit (loss)...................... (5,923) (1,839) (7,762) Segment assets............................. 82,157 26,490 108,647 Expenditures for long-lived assets......... 7,219 4,488 11,707 YEAR ENDED DECEMBER 31, 1996 Revenues from external customers........... $ 52,862 $ 12,376 $ 65,238 Inter-segment revenues..................... 1,161 -- 1,161 Interest expense........................... 645 762 1,407 Interest revenue........................... 476 72 548 Depreciation & amortization expense........ 1,276 131 1,407 Segment profit (loss)...................... 1,089 462 1,551 Segment assets............................. 75,077 16,193 91,270 Expenditures for long-lived assets......... 12,432 2,246 14,678
The following are reconciliations of reportable segment revenues, profit or loss, and assets to the Company's consolidated totals.
YEARS ENDED DECEMBER 31, --------------------------------------- 1996 1997 1998 --------- --------- --------- REVENUES Total external revenues for reportable segments ....... $ 65,238 $ 81,284 $ 90,141 Inter-segment revenues for reportable segments ........ 1,161 1,198 364 Elimination of inter-segment revenues ................. (1,161) (1,198) (364) --------- --------- --------- Total consolidated revenues .......... $ 65,238 $ 81,284 $ 90,141 ========= ========= ========= PROFIT OR LOSS Total profit or loss for reportable segments .......... $ 1,551 $ (7,762) $ 60 Increase in intercompany profit in inventory .......... (149) (173) -- Subsidiary acquisition costs recognized in consolidation ....................................... (279) (370) (370) Unallocated corporate general and administrative expenses ............................................ (1,182) (1,437) (1,788) --------- --------- --------- Loss before income taxes and extraordinary gain ........ $ (59) $ (9,742) $ (2,098) ========= ========= ========= ASSETS Total assets for reportable segments .................. $ 91,270 $ 108,647 $ 121,178 Other assets .......................................... 48,037 50,089 53,338 Elimination of intercompany profits in inventory ...... (375) (548) (548) Elimination of intercompany receivables ............... (50,561) (46,359) (62,991) Allocation of acquisition costs of subsidiaries recorded in consolidation ........................... (9,563) (14,949) (15,319) Reclassification of deferred tax assets recorded in consolidation ....................................... (2,125) (2,264) (2,145) --------- --------- --------- Total consolidated assets ....... $ 76,683 $ 94,616 $ 93,513 ========= ========= =========
42 43 OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED TOTALS ADJUSTMENTS TOTALS ------- ----------- ------------ Year ended December 31, 1998: Interest expense ....................... $ 4,069 $ 77 $ 4,146 Depreciation & amortization expense .... 2,898 723 3,621 Expenditures for long-lived assets ..... 5,690 185 5,875 Year ended December 31, 1997: Interest expense ....................... 3,281 13 3,294 Depreciation & amortization expense .... 2,799 666 3,465 Expenditures for long-lived assets ..... 11,707 391 12,098 Year ended December 31, 1996: Depreciation & amortization expense .... 1,407 344 1,751 Expenditures for long-lived assets ..... 14,678 686 15,364
The reconciling item to adjust expenditures for segment assets is the amount of acquisitions by the corporate office which are not allocated to operating segments. The reconciling item to adjust depreciation and amortization expense relates to amortization of goodwill and depreciation of assets recorded in consolidation as well as depreciation of corporate assets None of the other adjustments to consolidated totals are significant. The following geographic information attributes revenues to countries based on the location of the customers.
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 ------- ------- ------- REVENUES United States ......................... $46,068 $70,875 $66,218 Japan ................................. 7,367 3,393 4,144 Mexico ................................ 7,427 1,943 1,831 Canada ................................ 3,193 3,268 4,598 Europe ................................ 1,183 1,805 13,350 ------- ------- ------- Consolidated total ... $65,238 $81,284 $90,141 ======= ======= ======= LONG-LIVED ASSETS United States ......................... $11,153 $12,833 $11,435 Mexico ................................ 27,195 35,518 38,601 Other foreign countries ............... 1,264 1,119 1,018 ------- ------- ------- Consolidated total ... $39,612 $49,470 $51,054 ======= ======= =======
43 44 NOTE 17 SUBSEQUENT EVENT On March 29, 1999, the Company sold 2,000,000 newly issued shares of common stock at a purchase price of $2.50 per share, for an aggregate purchase price of $5,000,000 to M & M. In connection with the transaction, M & M surrendered options to acquire an additional 2,000,000 shares of common stock at a purchase price of $4.5375 per share issued to them in July 1998. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference from the section "Directors and Executive Officers" in the Company's 1999 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference from the sections "Compensation of Executive Officers" and "Compensation of Directors" in the Company's 1999 Proxy Statement. Information in the section and subsection titled "Report of the UniMark Group, Inc. Board of Directors Compensation Committee" and "Performance Graph" is not incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference from the section "Security Ownership of Principal Shareholders, Directors and Management" in the Company's 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference from the sections "Compensation of Executive Officers", "Compensation of Directors" and "Certain Transactions" in the Company's 1999 Proxy Statement. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (1) FINANCIAL STATEMENTS: See Index to Financial Statements (Item 8). 44 45 (2) FINANCIAL STATEMENT SCHEDULES: All schedules have been omitted since they are either not applicable or the information is contained elsewhere in "Item 8. Financial Statements and Supplementary Data." (3) EXHIBITS
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)
45 46 10.21 Lease Agreement by and among Ralphs Grocery Company, Simply Fresh Fruit, Inc. and Davalon Sales, Inc. dated as of March 1, 1994(7) 10.22 Revolving Credit Agreement by and among UniMark Foods, Inc., The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. dated February 12, 1997. (9) 10.23 Supply Contract between The Coca-Cola Export Corporation and Grupo Industrial Santa Engracia, S.A. de C.V. dated October 7, 1996. (9) 10.24 Loan Agreement made between Industrias Citricolas de Montemorelos, S.A. de C.V., Grupo Industrial Santa Engracia, S.A. de C.V., Agromark, S.A. de C.V., as borrowers; The UniMark Group, Inc., as guarantor, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", as lender, dated May 29, 1997. (10) 10.25 Revolving Loan Agreement with Security Interest by and between Industrias Citricolas de Montemorelos, S.A. de C.V., as borrower, Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale Raiffeisen-Boerenleenbank B."Rabobank Nederland" New York Branch dated April 10, 1997. (10) 10.26 Revolving Loan Agreement with Security Interest by and between Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", as borrower, Industrias Citricolas de Montemorelos, S.A. de C.V. "Icmosa", Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New York Branch dated April 10, 1997. (10) 10.27 First Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated October 7, 1997. (10) 10.28 Second Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated November 12, 1997. (10) 10.29 Third Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated May 22, 1998. (14) 10.30 Fourth Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated December 31, 1998. (14) 10.31 Letter given by Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch to UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Industrias Citricolas de Montemorelos, S.A. de C.V., Grupo Industrial Santa Engracia, S.A. de C.V., and Agromark, S.A. de C.V. regarding the renewal of financing. (14) 10.32 Articles of Association of Gisalamo, S.A. de C.V. (11) 10.33 Deposit, Operation, Exploitation and Stock Purchase Option Agreement by and among The UniMark Group, Inc. and Mr. Francisco Domenech Tarrago and Mr. Francisco Domenech Perusquia dated December 17, 1996 (11) 10.34 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and Frutalamo, S.A. de C.V. dated December 17, 1996 (11) 10.35 Non-Competition Agreement by and among The UniMark Group, Inc. and Jorn Budde dated February 18, 1998 (12) 10.36 Supply Agreement between the Coca-Cola Export Corporation and Grupo Industrial Santa Engracia, S.A. de C.V. dated April 2, 1998 (13) 21 Subsidiaries of the Registrant (11) 23 Consent of Ernst & Young LLP (14) 27 Financial Data Schedule, year ended December 31, 1998 (14) 27.1 Financial Data Schedule, restated, year ended December 31, 1997 (14)
- --------------------- (1) Previously filed as an Exhibit to the Registrant's Registration Statement on Form SB-2, as amended, SEC Registration No. 33-78352-D. (2) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994. (3) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1995. (4) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 16, 1995. (5) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. (6) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated May 10, 1996. (7) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1, as amended, SEC Registration No. 333-3539. (8) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996. (9) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 46 47 (10) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (11) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (12) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated February 18, 1998 (13) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998. (14) Filed herewith. (4) REPORTS ON FORM 8-K The Company filed no current reports on Form 8-K during the fourth quarter ended December 31, 1998. 47 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The UniMark Group, Inc. (Registrant) By: /s/ Soren Bjorn --------------------------------------- Soren Bjorn President and Chief Executive Officer Dated: April 13, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report was signed below by the following persons on behalf of the registrant and in the capacities and on the dates stated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Jakes Jordaan Director, Chairman April 13, 1999 -------------------------------------- Jakes Jordaan /s/ Soren Bjorn President, Chief Executive Officer and April 13, 1999 -------------------------------------- Director (Principal Executive Officer) Soren Bjorn /s/ Rafael Vaquero Bazan Chief Operating Officer and Director April 13, 1999 -------------------------------------- Rafael Vaquero Bazan /s/ Charles A. Horne Chief Financial Officer (Principal April 13, 1999 -------------------------------------- Financial and Accounting Officer) Charles A. Horne /s/ Federico Chavez Peon Director April 13, 1999 -------------------------------------- Federico Chavez Peon /s/ Luis A. Chico Pardo Director April 13, 1999 -------------------------------------- Luis A. Chico Pardo /s/ Jose I. De Abiega Pons Director April 13, 1999 -------------------------------------- Jose I. De Abiega Pons /s/ Eduardo Vaquero Bazan Director April 13, 1999 -------------------------------------- Eduardo Vaquero Bazan /s/ Jose Martinez Brohez Director April 13, 1999 -------------------------------------- Jose Martinez Brohez /s/ Fernando Camacho Casas Director April 13, 1999 -------------------------------------- Fernando Camacho Casas /s/ Jerry W. Johnson Director April 13, 1999 -------------------------------------- Jerry W. Johnson
48 49 INDEX TO EXHIBITS
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)
50 10.21 Lease Agreement by and among Ralphs Grocery Company, Simply Fresh Fruit, Inc. and Davalon Sales, Inc. dated as of March 1, 1994(7) 10.22 Revolving Credit Agreement by and among UniMark Foods, Inc., The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. dated February 12, 1997. (9) 10.23 Supply Contract between The Coca-Cola Export Corporation and Grupo Industrial Santa Engracia, S.A. de C.V. dated October 7, 1996. (9) 10.24 Loan Agreement made between Industrias Citricolas de Montemorelos, S.A. de C.V., Grupo Industrial Santa Engracia, S.A. de C.V., Agromark, S.A. de C.V., as borrowers; The UniMark Group, Inc., as guarantor, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", as lender, dated May 29, 1997. (10) 10.25 Revolving Loan Agreement with Security Interest by and between Industrias Citricolas de Montemorelos, S.A. de C.V., as borrower, Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale Raiffeisen-Boerenleenbank B."Rabobank Nederland" New York Branch dated April 10, 1997. (10) 10.26 Revolving Loan Agreement with Security Interest by and between Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", as borrower, Industrias Citricolas de Montemorelos, S.A. de C.V. "Icmosa", Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New York Branch dated April 10, 1997. (10) 10.27 First Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated October 7, 1997. (10) 10.28 Second Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated November 12, 1997. (10) 10.29 Third Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated May 22, 1998. (14) 10.30 Fourth Amendment to Revolving Credit Agreement by and among UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch dated December 31, 1998. (14) 10.31 Letter given by Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch to UniMark Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark International, Inc., Simply Fresh Fruit, Inc., the guarantors, and Industrias Citricolas de Montemorelos, S.A. de C.V., Grupo Industrial Santa Engracia, S.A. de C.V., and Agromark, S.A. de C.V. regarding the renewal of financing. (14) 10.32 Articles of Association of Gisalamo, S.A. de C.V. (11) 10.33 Deposit, Operation, Exploitation and Stock Purchase Option Agreement by and among The UniMark Group, Inc. and Mr. Francisco Domenech Tarrago and Mr. Francisco Domenech Perusquia dated December 17, 1996 (11) 10.34 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and Frutalamo, S.A. de C.V. dated December 17, 1996 (11) 10.35 Non-Competition Agreement by and among The UniMark Group, Inc. and Jorn Budde dated February 18, 1998 (12) 10.36 Supply Agreement between the Coca-Cola Export Corporation and Grupo Industrial Santa Engracia, S.A. de C.V. dated April 2, 1998 (13) 21 Subsidiaries of the Registrant (11) 23 Consent of Ernst & Young LLP (14) 27 Financial Data Schedule, year ended December 31, 1998 (14) 27.1 Financial Data Schedule, restated, year ended December 31, 1997 (14)
- --------------------- (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. 51 (3) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1995. (4) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 16, 1995. (5) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. (6) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated May 10, 1996. (7) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1, as amended, SEC Registration No. 333-3539. (8) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996. (9) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (10) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (11) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (12) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated February 18, 1998 (13) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998. (14) Filed herewith. EX-10.29 2 THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.29 THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT made as of May 22, 1998, by and among UNIMARK FOODS, INC., a Texas corporation which is the "BORROWER", and THE UNIMARK GROUP, INC., a Texas corporation ("GROUP") of which the Borrower is a wholly-owned subsidiary, UNIMARK INTERNATIONAL, INC., a Texas corporation and a wholly-owned subsidiary of Group, and SIMPLY FRESH FRUIT, INC., a California corporation and a wholly-owned subsidiary of Borrower (each of which shall be a "GUARANTOR" hereunder and which collectively shall be "GUARANTORS"); and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a Netherlands Cooperative Banking Organization which is the "LENDER". R E C I T A L S: A. The Borrower, the Guarantors and the Lender are parties to a Revolving Credit Agreement dated as of February 12, 1997, as amended by that First Amendment to Revolving Credit Agreement ("FIRST AMENDMENT") dated October 7, 1997, and the Second Amendment to Revolving Credit Agreement dated November 14, 1997 ("SECOND AMENDMENT") (collectively, the "CREDIT AGREEMENT"), and the revolving loan now outstanding to Borrower from Lender under such Credit Agreement matures on April 30, 1998; B. Group, its Subsidiaries, and Lender, among others, are parties to an Extension Agreement and Waiver of Defaults dated as of April 30, 1998, whereby Lender extended the maturity of the Restated Revolving Note dated as of February 12, 1997 to May 22, 1998, and waived certain defaults existing under the Credit Agreement. C. Group and its Subsidiaries, including the Borrower, taken as a whole, have now requested that the Lender renew and extend such revolving loan under the Credit Agreement and also make certain changes in the terms and conditions thereunder; and D. The Lender has agreed to renew and extend the revolving loan now outstanding under the Credit Agreement and to make certain changes in the terms and conditions of the Credit Agreement, subject to the terms and conditions hereinafter provided. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. SAME TERMS. All terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein, unless the context hereof otherwise requires or provides. In addition, all references in the Loan Documents to the "Agreement" shall mean the Credit Agreement as amended by the First Amendment, the Second Amendment, and by this Third Amendment to Revolving Credit Agreement ("THIRD AMENDMENT"), and as the same shall hereafter be amended from time to time. THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 1 2 2. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date above, the following changes shall be made to the Credit Agreement: a. The definition of "Capital Expenditures" shall be added to the Appendix to the Credit Agreement by inserting the following paragraph in verbatim after the definition of "Business Day" and before the definition of "Capital Lease": "Capital Expenditures" of a Person means expenditures by such Person for assets which will be used in the ordinary course of such Person's business in a year or years subsequent to the year in which the expenditures are made and which are properly classifiable in the Financial Statements of such Person as property, equipment, improvements, fixed assets, or a similar type of capitalized asset in accordance with GAAP, provided that: (i) such term shall include, whether or not such inclusion is in conformity with GAAP: (A) the capitalized portion of each Capital Lease; and (B) expenditures for equipment purchased simultaneously with the trade-in of existing equipment owned by each Person to the extent of the excess of the purchase price of the equipment so purchased over the book value of the equipment hereby traded in; and (ii) such term shall not include, whether or not such exclusion is in conformity with GAAP, expenditures for replacement or restoration of property to the extent reimbursed with insurance or condemnation proceeds. b. The definition of "Default Rate" in the Appendix to the Credit Agreement shall be deleted and the following paragraph containing the new definition of "Default Rate" in the Appendix is substituted in verbatim therefor: "Default Rate" means the lesser of: (i) the Highest Lawful Rate; or (ii) the sum of the Base Rate from time to time plus three percent (3%) per annum and thereafter the Highest Lawful Rate. c. The definition of "EBITDA" shall be added to the Appendix to the Credit Agreement by inserting the following paragraph in verbatim after the definition of "Dollar" and before the definition of "Eligible Accounts": "EBITDA" means for any period an amount equal to the remainder of: (i) the sum of: (A) Net Income for such period; plus (B) the aggregate amount in respect of Interest Expense, depreciation, amortization, and other non-cash charges which in accordance with GAAP were deducted in determining Net Income for such period; plus (C) charges for federal, state, local, and foreign income taxes for such period; plus (D) any extraordinary losses which were deducted in calculating Net Income; minus (ii) any extraordinary gains which were included in calculating Net Income. THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 2 3 d. The definition of "Expiration Date" in the Appendix to the Credit Agreement is hereby deleted and the following paragraph containing the new definition of "Expiration Date" in the Appendix is substituted in verbatim therefor: "Expiration Date" means January 1, 1999 or any other date on which the Commitment terminates pursuant to the terms hereof. e. The definition of "Fixed Charges" shall be added to the Appendix to the Credit Agreement by inserting the following paragraph in verbatim after the definition of "Financial Statements" and before the definition of "Foreign Benefit Law": "Fixed Charges" for any period means the sum of the following amounts for such period: (i) Interest Expense; plus (ii) scheduled payments of principal of Debt (including the principal component of Capital Lease obligations); plus (iii) dividends paid on any class of capital stock of such Person. f. The definition of "Interest Expense" shall be added to the Appendix to the Credit Agreement by inserting the following paragraph in verbatim after the definition of "Intangible Assets" and before the definition of "Interest Rate Option": "Interest Expense" means for any period: (i) the sum of: (a) aggregate interest expense for such period determined in accordance with GAAP, in any event including all bank fees, discounts, commissions, discounts, and other fees and charges owed with respect to letters of credit and banker's acceptances and net costs under interest rate protection agreements and the portion of any obligation allocable to interest expense under a Capital Lease; plus (b) interest expense of the type described in clause (a) above capitalized during such period (but excluding amortization of discount interest paid in property other than cash or any other interest expense not payable in cash); minus (ii) any net payments received under interest rate protection agreements. g. The definitions of "Net Income" and "Non-Cash Items" shall be added to the Appendix to the Credit Agreement by inserting the following paragraphs in verbatim after the definition of "Multiemployer Plan" and before the definition of "Notes": "Net Income" means of a Person means such Person's net earnings (after income taxes) determined in accordance with GAAP but excluding: (i) any gain or loss arising from the sale of capital assets; (ii) any gain arising from any write-up of assets; (iii) earnings of any entity, substantially all of the assets of which have been acquired by such Person in any manner, to the extent that such earnings were realized by such entity prior to the date of such acquisition; (iv) earnings of any entity which has become a Subsidiary of such Person to the extent such earnings were realized prior to THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 3 4 the date such entity became such a Subsidiary; (v) net earnings of any entity in which such Person has an ownership interest (unless such interest is greater than 50%), unless such earnings have actually been received by such Person in the form of cash distributions, and in the case of an ownership interest greater than 50%, net earnings properly allocable to minority interests; (vi) earnings of any entity to which substantially all of the assets of such Person have been sold, transferred, or disposed of, or into which such Person has merged, to the extent that such earnings arise prior to the date of such transaction; and (vii) any gain arising from the acquisition of any securities of such Person. "Non-Cash Items" means a Person's depreciation, amortization and other non-cash items for any period which in accordance with GAAP were deducted in determining Net Income for such period. h. The definition of "Revolving Note" in the Appendix to the Credit Agreement is deleted and the following paragraph containing a new definition of "Revolving Note" which includes the Renewal Revolving Note of even date herewith shall be substituted in verbatim therefor: "Revolving Note" means the completed and executed Renewal Revolving Note payable to the Lender in the form attached hereto as Exhibit 2.2B. and any renewals, extensions, rearrangements or restatements thereof and any substitutions or replacements therefor. i. In Section 2.4(a)(i), the reference to the Margin for Base Rate Tranches which is 0.00% shall be 1.00% and Section 2.4(a)(i) shall now read in verbatim as follows: (i) For the Base Rate Tranche, a fluctuating rate per annum equal to the sum of the Base Rate plus the appropriate Margin determined as follows: Period Margin Daily 1.00% j. In Section 2.4(a)(ii), the reference to the Margin for LIBOR Tranches which is 1.75% shall now be 2.75% and Section 2.4(a)(ii) shall now read in verbatim as follows: (ii) for LIBOR Tranches, a rate equal to the sum of the LIBOR Rate plus the appropriate percentage determined as follows: THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 4 5 Period Margin 30, 60, 90 & 180 days 2.75% k. In Section 2.4(a)(iii) the reference to the Margin for Federal Funds Tranches which is now 1.75% shall be 2.75% and Section 2.4(a)(iii) shall now read in verbatim as follows: (iii) for Federal Funds Tranches, a rate equal to the sum of the Federal Funds Rate plus the appropriate percentage determined as follows: Period Margin For any period which ends 2.75% no later than the last Business Day occurring before the Expiration Date. l. To require Borrower to provide Lender a listing of all aged accounts receivable and accounts payable, Section 5.9(b) shall be amended and restated and shall now read in verbatim as follows: (b) The Borrower will deliver or cause to be delivered to Lender as soon as available and in any event within fifteen (15) days after the last day of each accounting month in each fiscal year, unless requested more frequently by Lender, a Borrowing Base Certificate substantially in the form of Exhibit 5.9(b) executed by the Chief Financial Officer of Borrower on behalf of himself and as authorized agent for each of the Obligated Parties including information as at the end of such month; and (ii) a monthly listing of all aged accounts receivable and accounts payable of Borrower. m. To require Group to inform Lender as to the status of the progress of Group and its Subsidiaries, taken as a whole, in achieving the planned restructuring of Group and its Subsidiaries, Section 5.9(d) shall be added and shall read in verbatim as follows: (d) Group will deliver or cause to be delivered to Lender within ten (10) days after the end of each calendar month a written status report certified and executed by the Chief Executive Officer of Group as to the progress in accomplishing the planned restructuring of Group and its Subsidiaries, taken as a whole. THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 5 6 n. The internally prepared unaudited individual Financial Statements shall now be certified by the Chief Financial Officer of Group, and therefore, Section 5.9(a)(i) shall be amended and restated and shall now read in verbatim as follows: (i) as soon as practicable, and in any event within thirty (30) days after the end of each accounting month in each fiscal year, internally prepared unaudited individual Financial Statements of each of Borrower, Group and the other Obligated Parties from the beginning of the current fiscal year to the end of such month as at the end of such period, certified by the Chief Financial Officer of Group; o. To require Group to provide to Lender a budget of Group and its Subsidiaries on a consolidated basis for each fiscal year beginning with the 1998 fiscal year budget, Section 5.9(e) shall be amended and restated and shall read in verbatim as follows: (e) Group shall prepare and deliver or have delivered to Lender a fiscal year budget for the current fiscal year for Group and each of its Subsidiaries on a consolidated basis, consisting of monthly balance sheets, income statements, and statements of cash flow (excluding the effects of intercompany transactions), as soon as available but by no later than April 30, 1998 for fiscal year 1998, and thereafter within ninety (90) days of the end of each fiscal year. p. To restrict the Obligated Parties from at any time to time acquiring any other Person, Section 6.3 shall be amended and restated and shall now read in verbatim as follows: 6.3 LIQUIDATION, MERGER, CONSOLIDATION, ACQUISITION. No Obligated Party will wind up, liquidate, or dissolve, or be a party to any merger or consolidation or any partnership, nor purchase or otherwise acquire all or substantially all of the assets of any Person or any shares of stock of, or similar interest in, any Person, or change or modify its existing structure." q. Section 6.12 shall be amended and restated and shall read in verbatim as follows: 6.12 MANAGEMENT CHANGES. Group will not fail to maintain Rafael Vaquero Bazan as Chief Executive Officer of Group, except in the instances of death or incapacity, in which instances the substitute or replacement for Rafael Vaquero Bazan will be satisfactory to Lender. r. To restrict Group or any Subsidiary of Group from incurring any Debt from any party other than Lender, Section 6.14 shall be added and shall read in verbatim as follows: THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 6 7 6.14 DEBT LIMITATIONS. None of the Group or any of its Subsidiaries will individually or collectively create, incur, assume, permit to exist or become liable for any Debt, or advances or deposits from customers, except: (a) the borrowings contemplated by this Agreement; (b) in connection with Debt incurred prior to the date hereof in connection with the Permitted Liens; (c) accounts payable (other than for money borrowed) incurred in the ordinary course of business and which mature on or before the date ninety (90) days after the date incurred; (d) Debt incurred directly to finance Capital Expenditures authorized under this Agreement; provided, however, that any debt or other form of financing of any nature obtained by any of Group or any of its Subsidiaries for the development of 3,500 hectares of lemon groves in the State of Tamaulipas, Mexico, which are to be developed by Group or its Subsidiaries in accordance with Group's 1998 fiscal year budget at a capital expenditure cost of $7,671,000 pursuant to a production and processing agreement with Coca-Cola (the "Lemon Project"), must be satisfactory in all respects to Lender; and (e) that indebtedness listed on Exhibit 4.25 (which includes any indebtedness in existence on May 1, 1998) and renewals or extensions of same (but no increases of any of same). s. Section 7.1 shall be wholly replaced in verbatim by the following: 7.1 MINIMUM TANGIBLE NET WORTH. Group and its Subsidiaries will maintain a Tangible Net Worth on a consolidated basis at all times of not less than $28,000,000. t. Section 7.2 shall be wholly replaced in verbatim by the following: 7.2 CURRENT RATIO. The ratio of the Current Assets of Group and its Subsidiaries on a consolidated basis to the Current Liabilities of Group and its Subsidiaries on a consolidated basis shall be not less than 1.25 to 1.0 at any time to time. u. Section 7.3 shall be wholly replaced in verbatim by the following: 7.3 MAXIMUM LEVERAGE. The ratio of the Debt of the Group and its Subsidiaries on a consolidated basis to Tangible Net Worth of the Group and its Subsidiaries on a consolidated basis shall not be greater than 1.85 to 1.0 at any time to time. v. Section 7.4 shall be added and shall read in verbatim as follows: 7.4 FIXED CHARGE COVERAGE RATIO. The ratio of EBITDA to Fixed Charges of Group and its Subsidiaries on a consolidated basis shall be no less than 1.0-to-1.0: (i) on the last day of the period beginning January 1, 1998 to and including June 30, 1998; (ii) on the last day of the period THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 7 8 beginning January 1, 1998 to and including September 30, 1998; (iii) on the last day of the period beginning January 1, 1998 to and including December 31, 1998; and (iv) thereafter, on each of every March 31, June 30, September 30, and December 31 (separately, the "LAST DAY OF THE QUARTER") for the preceding twelve (12) month period ending on each Last Day of the Quarter. w. To restrict Group and its Subsidiaries on a consolidated basis from making capital expenditures in excess of the amounts set forth in the fiscal year budgets of Group and its Subsidiaries to be provided Lender hereunder, Section 7.5 shall be added and shall read in verbatim as follows: 7.5 CAPITAL EXPENDITURES. Group and its Subsidiaries on a consolidated basis will not make any Capital Expenditures in excess of $2,720,000 in the aggregate, excluding any capital expenditures on the Lemon Project, plus amounts properly charged to depreciation and amortization on the books of Group and its Subsidiaries on a consolidated basis for the immediately preceding fiscal year, during any fiscal year ending after the date hereof. x. Exhibit 2.2A, Form of Restated Revolving Note, shall be wholly replaced by Exhibit 2.2B, Form of Renewal Revolving Note, which is attached hereto as Exhibit 2.2B and incorporated herein by reference. 3. CERTAIN REPRESENTATIONS. Each Obligated Party, jointly and severally, represents and warrants that, as of the date hereof: a. the representations and warranties contained in the Credit Agreement are true and correct on and as of the date hereof as made on and as of such date; b. no event has occurred and is continuing which constitutes a Default or an Event of Default; c. the Borrower and each of the Guarantors have full power and authority to execute this Third Amendment and this Third Amendment constitutes the legal, valid and binding obligation of the Borrower and each of the Guarantors enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the enforcement of creditors' rights generally; d. no authorization, approval, consent or other action by, notice to, or filing with, any governmental authority or other person is required for the execution, delivery and performance by the Borrower or any of the Guarantors of this Third Amendment; and THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 8 9 e. there shall have occurred no change, in the aggregate, in the financial condition of an Obligated Party or of Group or of any Subsidiary of Group or any other Person, who is a party to any of the Loan Documents from the facts represented in any such Loan Document, including this Amendment, which would have a Material Adverse Effect on an Obligated Party or on Group or any Subsidiary of Group or on the Group and its Subsidiaries, taken as a whole. 4. GUARANTORS' ACKNOWLEDGMENT. By signing below, each of the Guarantors: (i) acknowledges and consents to the execution, delivery and performance of this Third Amendment; (ii) agrees that its obligations in respect of its Guaranty are not released, modified, impaired or affected in any manner by this Third Amendment or any of the provisions contemplated herein; and (iii) acknowledges that it has no claims or offsets against, or defenses or counterclaims to, its Guaranty. 5. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be effective as of the date and year first above written, subject to the following: a. The Lender shall have received this Third Amendment executed by Borrower and each Guarantor; b. The Lender shall have received the Renewal Revolving Note executed by Borrower, such Renewal Revolving Note to be in renewal and extension of the unpaid principal balance of the Restated Revolving Note dated as of February 12, 1997; c. The Borrower shall have duly executed and delivered to Lender a Restated Borrowing Base Report in the form of Exhibit 5.9(b)A to the Credit Agreement; d. The Lender shall have received certificates of incumbency and containing specimen signatures of all officers of each Obligated Party who will be authorized to execute or attest to any of the documents contemplated hereby on behalf of each Obligated Party executed by the President and by the Secretary of each Obligated Party on the date hereof, and such certification may be conclusively relied upon by the Lender until the Lender receives notice in writing from each Obligated Party to the contrary and providing a substitute certificate conforming to the requirements hereof; e. The Lender shall have received copies of resolutions of each Obligated Party approving the execution, delivery, and performance of each Loan Document to which it is a party and authorizing all transactions contemplated in or in connection with this Agreement and the other Loan Documents duly adopted by its Board of Directors, accompanied by a certificate signed by the Secretary of the approving entity certifying that such copies are true and correct copies of resolutions duly adopted at a meeting of the Board of Directors and that such resolutions have not been amended, modified, or revoked in any respect and are in full force and effect on the date hereof; THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 9 10 f. All of the conditions precedent set forth in Section 3.2, Additional Conditions, of the Credit Agreement shall be satisfied; g. The Lender shall have received an opinion of Jordaan, Howard & Pennington, PLLC, counsel for each Obligated Party, dated the date hereof, in form and substance satisfactory to the Lender and covering such matters as the Lender or counsel to the Lender may request, which opinion each Obligated Party hereby directs counsel to deliver; and h. The Lender shall have received such other documents, opinions, certifications, consents, waivers, agreements, and evidence as the Lender may reasonably request. 6. LIMITATION ON AGREEMENTS. The modifications set forth herein are limited precisely as written and shall not be deemed: (a) to be a consent under or a waiver of or an amendment to any other term or condition in the Credit Agreement or any of the other Loan Documents; or (b) to prejudice any right or rights which the Lender now has or may have in the future under or in connection with the Credit Agreement and the other Loan Documents, each as amended hereby, or any of the other documents referred to herein or therein. This Third Amendment shall constitute a Loan Document for all purposes. The Credit Agreement, as amended by this Third Amendment and all other Loan Documents executed in connection therewith shall remain in full force and effect and are each hereby ratified and confirmed. 7. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all costs and expenses of the Lender in connection with the preparation, reproduction, execution and delivery of this Third Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto and with respect to advising the Lender as to its rights and responsibilities under the Revolving Credit Agreement, as amended by this Third Amendment). 8. EXECUTION IN COUNTERPARTS. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 9. ENTIRETY, ETC. This instrument together with all of the other Loan Documents embodies the entire agreement between the parties. THIS AGREEMENT AND ALL OF THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 10 11 IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Revolving Credit Agreement to be effective as of the date and year first above written. BORROWER AND OBLIGATED PARTY: UNIMARK FOODS, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Notice Address: 124 McMakin Road Bartonville, Texas 76226 (817) 491-2992 OTHER OBLIGATED PARTIES: THE UNIMARK GROUP, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- UNIMARK INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 11 12 SIMPLY FRESH FRUIT, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- LENDER: COOPERATIEVE CENTRALE RAIFFEISENBOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a Netherlands Cooperative Banking Organization By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- NOTICE ADDRESS: 245 Park Avenue New York, New York 10167 Attention: Corporate Services cc: Rabobank Nederland 13355 Noel Road One Galleria Tower, Suite 1000 Dallas, Texas 75240 Attention: Gordon E. Arnold THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT - PAGE 12 EX-10.30 3 FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.30 FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT This Fourth Amendment to Revolving Credit Agreement (the "FOURTH AMENDMENT") made as of December 31, 1998, by and among UNIMARK FOODS, INC., a Texas corporation which is the "BORROWER," and THE UNIMARK GROUP, INC., a Texas corporation ("GROUP") of which the Borrower is a wholly-owned subsidiary, and UNIMARK INTERNATIONAL, INC., a Texas corporation and a wholly-owned subsidiary of Group, and SIMPLY FRESH FRUIT, INC., a California corporation and a wholly-owned subsidiary of Borrower (each of which shall be a "GUARANTOR" hereunder and which collectively shall be "GUARANTORS") (Borrower, Group, and the Guarantors shall collectively be referred to herein as "UNIMARK"); and INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A. DE C.V. ("ICMOSA"), a Mexican corporation and wholly-owned subsidiary of Group, GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V. ("GISE"), a Mexican corporation and wholly-owned subsidiary of Group, and AGROMARK, S.A. DE C.V. ("AGROMARK"), a Mexican corporation and wholly-owned subsidiary of Group, and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a New York State licensed branch of a Netherlands Cooperative Banking Organization which is the "LENDER." R E C I T A L S A. The Borrower, the Guarantors and the Lender are parties to a Revolving Credit Agreement dated as of February 12, 1997, as amended by that First Amendment to Revolving Credit Agreement dated October 7, 1997 (the "FIRST AMENDMENT"), the Second Amendment to Credit Agreement dated November 14, 1997 (the "SECOND AMENDMENT"), the Extension Agreement and Waiver of Defaults dated as of April 30, 1998 (the "EXTENSION AGREEMENT"), and the Third Amendment to Revolving Credit Agreement made as of May 22, 1998 (the "THIRD AMENDMENT") (collectively, the "CREDIT AGREEMENT"), and such revolving loan in the original principal amount of $9,500,000 now outstanding to Borrower from Lender under such Credit Agreement matures on January 1, 1999, and is evidenced by the Renewal Revolving Note dated as of May 22, 1998 (the "NOTE"). B. The obligations of the Borrower to the Lender under the Credit Agreement are secured by, among other things: (i) Security Agreements dated February 12, 1997 by and between Lender and each of Borrower, Group and the Guarantors (the "SECURITY AGREEMENTS"); (ii) Pledge Agreements dated February 12, 1997 by and between Lender and each of Borrower and Group (the "PLEDGE AGREEMENTS"); and (iii) Unconditional Guaranty Agreements dated as of February 12, 1997 by and between Lender and each of the Guarantors (collectively, the "U.S. GUARANTY"). C. GISE, as borrower, and the Lender executed a Revolving Loan Agreement with Security Interest on April 10, 1997 (the "GISE LOAN AGREEMENT") by means of which the Lender, subject to the terms and conditions set forth therein, extended to GISE an uncommitted U.S. $8,500,000 (Eight Million Five Hundred Thousand Dollars, currency of the United States of America) revolving loan facility, which Loan Agreement was thereafter amended. FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 1 2 D. ICMOSA, as borrower, and the Lender executed a Revolving Loan Agreement with Security Interest on April 10, 1997 (the "ICMOSA LOAN AGREEMENT") by means of which the Lender, subject to the terms and conditions set forth therein, extended to the ICMOSA an uncommitted U.S.$7,500,000 (Seven Million Five Hundred Thousand Dollars, currency of the United States of America) revolving loan facility, which Loan Agreement was thereafter amended. E. ICMOSA, GISE and Agromark, as borrowers, and the Lender executed a Loan Agreement on May 29, 1997 by means of which the Lender, subject to the terms and conditions set forth therein, made available a $10,000,000 bridge loan facility to ICMOSA, GISE and Agromark (the "BRIDGE LOAN AGREEMENT"), which loan was thereafter paid in full (with the ICMOSA Loan Agreement, as amended, and the GISE Loan Agreement, as amended, being collectively called herein the "MEXICAN LOAN AGREEMENTS"). F. Group did execute a guaranty agreement dated April 10, 1997 by which Group did guarantee the obligations arising under the Mexican Loan Agreements ("MEXICAN GUARANTY"). G. ICMOSA and Agromark executed the GISE Loan Agreement in order to guarantee the punctual payment of the GISE obligations under the GISE Loan Agreement by GISE (the "GISE GUARANTY"). H. GISE and Agromark executed the ICMOSA Loan Agreement in order to guarantee the punctual payment of the ICMOSA Obligations under the ICMOSA Loan Agreement (the "ICMOSA GUARANTY") (with the Mexican Guaranty, the U.S. Guaranty, ICMOSA Guaranty and the GISE Guaranty being collectively known herein as the "GUARANTY AGREEMENTS") (with Borrower, Group, the Guarantors, ICMOSA, GISE and Agromark being known individually herein as a "LOAN PARTY" and collectively herein as the "LOAN PARTIES"). I. Group and its Subsidiaries, including the Borrower, and the Lender did execute and deliver that Waiver of Defaults dated as of August 12, 1998 by the terms of which the Lender did waive certain defaults existing under the Credit Agreement and the Mexican Loan Agreements (with the Credit Agreement and the Mexican Loan Agreements being known herein collectively as the "LOAN AGREEMENTS"). J. Group and its Subsidiaries, including the Borrower, taken as a whole, have now requested that the Lender renew and extend the revolving loan now extended to the Borrower under the Credit Agreement and evidenced by the Note dated as of May 22, 1998, which Note matures on January 1, 1999, and also make certain changes in the terms and conditions of the Credit Agreement. K. The Lender has agreed to renew and extend the revolving loan now outstanding under the Credit Agreement and evidenced by the Note and to make certain changes in the terms and conditions of the Credit Agreement, subject to the terms and conditions hereinafter provided. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows: FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 2 3 1. LOAN DOCUMENTS ARE IN FULL FORCE. Except as specifically provided herein, all the terms of the Credit Agreement, the Note and the security agreement, the pledge agreement and the other Loan Documents (as defined in the Credit Agreement) and the other Loan Agreements and their related documents are unaffected hereby and remain in full force and effect. 2. SAME TERMS. All terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein, unless the context hereof otherwise requires or provides. In addition, all references in the Credit Agreement and in the Loan Documents (as defined in the Credit Agreement) to the "Agreement" shall mean the Credit Agreement as amended by the First Amendment, the Second Amendment, the Extension Agreement, the Third Amendment and this Fourth Amendment to Revolving Credit Agreement ("FOURTH AMENDMENT") and as the same shall hereafter be amended from time to time. 3. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date above, the following changes shall be made to the Credit Agreement: a. The definition of "Expiration Date" in the Appendix of the Credit Agreement as previously amended pursuant to the terms of the Third Amendment is hereby deleted and the following paragraph containing the new definition of "Expiration Date" in the Appendix of the Credit Agreement is substituted in verbatim therefor: "Expiration Date" means May 17, 1999, or any other date on which the Commitment terminates pursuant to the terms hereof. b. In Section 2.4(a)(i), the reference to the Margin for Base Rate Tranches which is 1.00% pursuant to the terms of the Third Amendment, shall hereafter be .25% per annum and, therefore, Section 2.4(a)(i) shall now read in verbatim as follows: "(i) For Base Rate Tranches, a rate equal to the sum of Base Rate plus appropriate percentage determined as follows: Period Margin ------ ------ Daily .25%" c. In Section 2.4(a)(ii), the reference to the Margin for LIBOR Tranches which is 2.75% pursuant to the terms of the Third Amendment, shall hereafter be 2.00% per annum and, therefore, Section 2.4(a)(ii) shall now read in verbatim as follows: "(ii) for LIBOR Tranches, a rate equal to the sum of the LIBOR Rate plus the appropriate percentage determined as follows: Period Margin ------ ------ 30, 60, 90 & 180 days 2.00%" FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 3 4 d. In Section 2.4(a)(iii), the reference to the Margin for Federal Funds Tranches which is 2.75% pursuant to the Third Amendment, shall hereafter be 2.00% per annum and, therefore, Section 2.4(a)(iii) shall now read in verbatim as follows: "for Federal Funds Tranches, a rate equal to the sum of the Federal Funds Rate plus the appropriate percentage determined as follows: Period Margin ------ ------ For any period which ends 2.00%" no later than the last Business Day occurring before the Expiration Date e. Section 6.12, MANAGEMENT CHANGE, is hereby deleted in all respects. f. New Section 7.6, Interest Coverage, shall be added to include the new Interest Coverage Ratio and, therefore, the new Section 7.6 shall now read in verbatim as follows: "7.6 INTEREST COVERAGE RATIO. The ratio of EBITDA to Interest Expense of Group and its Subsidiaries on a consolidated basis shall be no less than 1.85 to 1.0 on March 31, 1999 and on each June 30, September 30, December 31, and March 31 thereafter (separately, the "LAST DAY OF THE QUARTER") for the preceding twelve (12) month period ending on each such Last Day of the Quarter." g. Exhibit 2.2B, Form of Restated Revolving Note, shall be wholly replaced by Exhibit 2.2C, Form of Renewal Revolving Note, which is attached hereto as Exhibit 2.2C and incorporated herein by reference. 4. REPRESENTATIONS AND WARRANTIES OF LOAN PARTIES. As an inducement to Lender to enter into this Agreement, each Loan Party makes the following representations and warranties to Lender (which survive the execution and delivery of this Agreement): a. Each Loan Party is in compliance in all material respects with all covenants contained in each of the Loan Agreements and the documents related thereto. b. All representations and warranties of each Loan Party contained in the Loan Agreements are true and correct in all material respects on and as of this date. c. No Event of Default exists under any of the Loan Agreements. d. No adverse change in condition (financial or otherwise) of Group or any of its Subsidiaries (as defined in the Credit Agreement) not previously disclosed to the Lender in FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 4 5 writing or any other event has occurred which creates a possibility of adversely affecting: (i) the condition (financial or otherwise) of Group or any of its Subsidiaries, or Group and its Subsidiaries taken as a whole; (ii) the validity or enforceability of any of the Loan Agreements or any documents related thereto; or (iii) the ability of Group, or any Subsidiary of Group, to meet and carry out their respective obligations under the Loan Agreements or any documents related thereto or to perform the transactions contemplated thereby. e. All information that any Loan Party or any Subsidiary of a Loan Party has provided to Lender in connection herewith is true and accurate and no Loan Party nor any Subsidiary of a Loan Party has failed to disclose any information of a material nature regarding its financial condition. f. Each of the Loan Parties has the full power, authority and legal right to execute, deliver, perform and observe the provisions of the Loan Agreements, this Agreement and any document executed pursuant to this Agreement, and to carry out the transactions contemplated hereby and thereby. g. The execution, delivery and performance by each of the Loan Parties of its respective obligations under the Loan Agreements and the documents related thereto have been duly authorized by all necessary action, and does not and will not require any registration with, consent or approval of, or notice to, or any action by, any person. The Loan Agreements and the documents related thereto including this Agreement constitute the legal, valid and binding obligation of the Loan Parties and each of them enforceable against such party in accordance with their respective terms. h. The execution and delivery of this Agreement, and the compliance with its terms as contemplated herein, will not result in a breach of any of the terms or conditions of, or result in the imposition of any lien, charge or encumbrance upon any of the collateral referred to in any Loan Agreement or any document related thereto (the "COLLATERAL") or constitute a default (with due notice or lapse of time or both) or result in an occurrence of any event of default for which any holder or holders of indebtedness for borrowed money may declare the same due and payable under any indenture, agreement, order, judgment or instrument under which any Loan Party is a party or by which any Loan Party or the Collateral may be bound or affected, and will not violate any provision of applicable law. i. There are no suits, actions or proceedings (whether or not purportedly on behalf of Group or any Subsidiary of Group) pending, or to the knowledge of any Loan Party threatened, against or affecting any Loan Party or the Collateral at law or in equity, before or by any person which, if determined adversely to any Loan Party, would have a material adverse effect on the business or condition (financial or otherwise) of any Loan Party or the Collateral. No Loan Party is in violation of or in default with respect to any applicable laws or regulations which materially affect the operations or conditions (financial or otherwise) of any Loan Party or the Collateral, nor is it in violation of or in default with respect to any order, writ, injunction, demand or decree of any court or any person or in violation or in default in any material respect under any indenture, agreement or instrument, under which any Loan Party is a party or may be bound, other than as may exist under the Note. FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 5 6 j. No property, tangible or intangible, subject to any security interest, mortgage, deed of trust, pledge, lien, or encumbrance to Lender is subject to any other security interest, mortgage, deed of trust or encumbrance. k. The Borrower is a corporation duly organized, validity existing and in good standing under the laws of the State of Texas and is authorized to transact business in all necessary jurisdictions. Each Loan Party, jointly and severally, agrees to indemnify and hold Lender harmless against any losses, claim, damage, liability or expense (including, without limitation, attorneys' fees) incurred as a result of any representation or warranty made by it herein proving to be untrue in any respect. 5. RATIFICATION OF GUARANTY. Each of the Guarantors, ICMOSA, GISE and Agromark hereby recognizes, ratifies, approves and confirms the validity of the respective Guaranty Agreements and agrees that each of said Guaranty Agreements continues to secure the indebtedness evidenced by the Loan Agreements and the documents related thereto. 6. REPRESENTATIONS AND WARRANTIES OF GUARANTORS. As an inducement to Lender to enter into this Agreement, each of the Guarantors, ICMOSA, GISE and Agromark make the following representations and warranties to Lender (which survive the execution and delivery of this Agreement): a. No adverse change in condition (financial or otherwise) of any Guarantor or ICMOSA, GISE or Agromark not previously disclosed to the Lender in writing or any other event has occurred which creates the possibility of adversely affecting: (i) the condition (financial or otherwise) of any Guarantor, ICMOSA, GISE or Agromark; (ii) the validity or enforceability of any Guaranty; or (iii) the ability of any Guarantor, ICMOSA, GISE or Agromark to meet and carry out its respective obligations under any Guaranty Agreement. b. Each of the Guarantors, ICMOSA, GISE and Agromark is in compliance in all material respects with all covenants contained in the Guaranty Agreements. c. All representations and warranties of each of the Guarantors, ICMOSA, GISE, and Agromark contained in the Guaranty Agreements are true and correct in all material respects on and as of this date. 7. NO RELEASE OF ANY LOAN PARTY. Nothing herein contained shall operate to release any Loan Party from liability to keep and perform all of the terms, conditions, obligations and agreements contained in the Credit Agreement or any of the other Loan Documents or any of the other Loan Agreements or the documents related thereto. FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 6 7 8. NO RELEASE OF GUARANTORS. Nothing herein contained shall operate to release any of the Guarantors, ICMOSA, GISE or Agromark from liability to keep and perform all of the terms, conditions, obligations and agreements contained in each respective Guaranty Agreement. 9. OBLIGATIONS UNAFFECTED. Except as otherwise specified herein, the terms and provisions hereof shall in no manner impair, limit, restrict or otherwise affect the obligations of the Loan Parties to Lender as evidenced by the Loan Agreements. As a material inducement to Lender to execute and deliver this Agreement, each of the Loan Parties acknowledges that there are no claims or offsets against, or defenses or counterclaims to, the terms or provisions of and the other obligations created or evidenced by the Credit Agreement or any other Loan Agreement or any document related thereto. 10. NO WAIVER BY THIS AGREEMENT. Each of the parties hereto acknowledges that, except to the extent expressly set forth herein, the execution of this Agreement by Lender is not intended nor shall it be construed as: (a) an actual or implied waiver of any default under any Loan Agreement or any document related thereto; or (b) an actual or implied waiver of any condition or obligation imposed upon any of the parties hereto pursuant to the Loan Agreements or any document related thereto; (c) an actual or implied waiver of any condition or obligation imposed upon any of the Loan Parties; or (d) affecting any right or rights which Lender may now have or may have in the future under or in connection with the Loan Agreements or any document related thereto. 11. CONDITIONS OF EFFECTIVENESS. a. The Lender shall have received this Fourth Amendment executed by Borrower, each Guarantor, ICMOSA, GISE and Agromark. b. The Lender shall have received the Renewal Revolving Note dated as of January 1, 1999 and executed by Borrower, such Renewal Revolving Note to be in renewal and extension of the unpaid principal balance of the Restated Revolving Note dated as of May 22, 1998. c. Corporate resolutions of each of Borrower, Guarantor, ICMOSA, GISE and Agromark authorizing the execution, delivery and performance of this Fourth Amendment and satisfactory to Lender in form and content. d. Incumbency Certificate to the satisfaction of Lender from Group containing specimen signatures of all officers of Group who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of Group executed by the President and by the Secretary of Group; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from Group to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. e. Incumbency Certificate to the satisfaction of Lender from Foods containing specimen signatures of all officers of Foods who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of Foods executed by the President and FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 7 8 by the Secretary of Foods; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from Foods to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. f. Incumbency Certificate to the satisfaction of Lender from International containing specimen signatures of all officers of International who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of International executed by the President and by the Secretary of International; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from International to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. g. Incumbency Certificate to the satisfaction of Lender from Simply Fresh containing specimen signatures of all officers of Simply Fresh who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of Simply Fresh executed by the President and by the Secretary of Simply Fresh; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from Simply Fresh to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. h. Incumbency Certificate to the satisfaction of Lender from GISE containing specimen signatures of all officers of GISE who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of GISE executed by the President and by the Secretary of GISE; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from Gise to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. i. Incumbency Certificate to the satisfaction of Lender from ICMOSA containing specimen signatures of all officers of ICMOSA who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of ICMOSA executed by the President and by the Secretary of ICMOSA; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from Icmosa to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. j. Incumbency Certificate to the satisfaction of Lender from Agromark containing specimen signatures of all officers of Agromark who are authorized to execute or attest to this Fourth Amendment or any of the other Loan Documents on behalf of Agromark executed by the President and by the Secretary of Agromark; such certification may be conclusively relied upon by Lender until Lender receives notice in writing from Agromark to the contrary and provides a substitute certificate conforming to the requirements specified by Lender. k. All the conditions precedent set forth in Section 3.2, ADDITIONAL CONDITIONS, of the Credit Agreement shall be satisfied. l. Payment of all costs and expenses of Lender (including the reasonable fees of Lender's counsel) in connection with the preparation of this Fourth Amendment and any other documents in connection therewith. FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 8 9 m. The Lender shall have received such other documents, opinions, certifications, consents, waivers, agreements and evidence as the Lender may reasonably request. 12. EXPENSES, WAIVER FEE AND INDEMNITY. The parties hereto agree, whether or not the transactions herein contemplated shall become effective, to reimburse and hold Lender harmless against any liability for the payment of all out-of-pocket expenses arising in connection with the preparation, delivery, administration (including, without limitation, any modification of, or consent or waiver under, the Credit Agreement or any other Loan Agreement), amendment, interpretation or enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of legal counsel for Lender. Further, each of the Loan Parties jointly and severally agree to indemnify Lender from and hold it harmless against any and all losses, liabilities, claims, damages and expenses incurred by Lender arising out of its entering into any of this Agreement, including without limitation, the fees and disbursements of counsel incurred in connection with any litigation or other proceeding arising out of or by reason of any of the aforesaid. 13. CONFIRMATION OF CONTINUED EFFECTIVENESS OF LOAN AGREEMENTS. Each Loan Party hereby confirms and agrees that each of the Loan Agreements and each of the documents related thereto secures and shall continue to secure, in the same manner and to the same extent provided therein, the payment and performance of the obligations, as extended by this Agreement. 14. SEVERABILITY OF PROVISIONS. In case any one or more of the provisions contained in this Agreement should be invalid, illegal, or unenforceable in any respect, the validity, legality, or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of each of the Loan Parties and Lender and their respective heirs, administrators, successors and assigns; provided, however, that none of such entities may not transfer its rights under this Agreement to any other person without the prior written consent of Lender. 16. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. 17. AMENDMENT AND WAIVER. No provision of this Agreement (including, without limitation, any of the documents that are attached hereto in the form of exhibits) may be amended, modified, supplemented, changed, waived, discharged or terminated unless each party hereto consents in writing. 18. FURTHER ASSURANCES. Each of the Loan Parties shall from time to time execute and deliver all such other documents, instruments and assurances hereof and take all such other actions as may be necessary or reasonably required by Lender to carry into force and effect the purpose and intent of this Agreement. FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 9 10 19. AGREEMENT CONTROLLING. In the event of a conflict between the terms and provisions of this Agreement and the terms and provisions of any of the Loan Agreements, the terms and provisions of the Loan Agreement shall control. 20. ENTIRE AGREEMENT. This Agreement (including its recitals and exhibits) constitutes the entire agreement between the parties with respect to the subject matter hereof, and this Agreement (including its recitals and exhibits) supersedes all previous negotiations, discussions and agreements between the parties with respect to the waiver of defaults, and no parol evidence of any prior or other agreement with respect thereto shall be permitted to contradict or vary the terms hereof. 21. COUNTERPART EXECUTION. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All such counterparts shall be construed together and shall constitute one instrument. In making proof hereof it shall only be necessary to produce one such counterpart. 22. HEADINGS. The headings of the sections, paragraphs and subdivisions of this Agreement are for the convenience of reference only, and are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof. 23. NO ORAL AGREEMENTS. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS THEREIN DESCRIBED AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective duly authorized officers on the dates of the notary certifications below to be effective as of the date first above written. BORROWER: UNIMARK FOODS, INC., a Texas corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 10 11 LENDER: COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a New York State licensed branch of a Netherlands Cooperative Banking Organization By: ---------------------------------------- David Streeter, Vice President By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- GUARANTORS: THE UNIMARK GROUP, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- UNIMARK INTERNATIONAL, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 11 12 SIMPLY FRESH FRUIT, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V., a Mexican corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A. DE C.V., a Mexican corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- AGROMARK S.A. DE C.V., a Mexican corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, PAGE 12 EX-10.31 4 LETTER GIVEN BY COOPERATIVE CENTRALE RAIFFEISEN 1 EXHIBIT 10.31 April 13, 1999 VIA TELECOPY 817-491-1272 The UniMark Group, Inc. Attn: Soren Bjorn, President and CEO 124 McMakin Road P.O. Box 229 Argyle, Texas 76226 RE: RENEWAL OF FINANCING Dear Mr. Bjorn: This letter is given by COOPERATIEVE CENTRALE RAIFFEISEN - BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a New York State licensed branch of a Netherlands Cooperative Banking Organization which is the "Lender," to UNIMARK FOODS, INC., a Texas corporation which is the "BORROWER," of which THE UNIMARK GROUP, INC., a Texas corporation ("GROUP") (of which the Borrower is a wholly-owned subsidiary), and UNIMARK INTERNATIONAL, INC., a Texas corporation (and a wholly-owned subsidiary of Group), and SIMPLY FRESH FRUIT, INC., a California corporation (and a wholly-owned subsidiary of Borrower) are each guarantors of the outstanding indebtedness owed by Borrower to Lender (each of which shall be a "GUARANTOR" hereunder and which collectively shall be "Guarantors"); and INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A. DE C.V. ("ICMOSA"), a Mexican corporation (and wholly-owned subsidiary of Group), GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V. ("GISE"), a Mexican corporation (and wholly-owned subsidiary of Group), and AGROMARK, S.A. DE C.V. ("AGROMARK"), a Mexican corporation (and wholly-owned subsidiary of Group) (Borrower, Group, the Guarantors, ICMOSA, GISE and Agromark shall collectively be referred to herein as "UNIMARK"). Subject to the below specified modifications and amendments of certain of the covenants and other terms and conditions of the existing credit facilities now extended to Borrower and to ICMOSA and GISE by Lender, being set forth in amendments to the Credit Agreement (as defined below) and the Mexican Loan Agreements (as defined below) and any other instrument, document or agreement related to the Credit Agreement or the Mexican Loan Agreements that Lender in its sole discretion may require and with each such amendment, document or agreement (collectively, the "AMENDMENTS") being in form and content satisfactory to Lender, in its sole discretion, and such Amendments being executed and delivered to Lender by UniMark prior to May 17, 1999, the current maturity date, Lender is pleased to confirm: (i) its commitment to extend the maturity date in its existing $9,500,000 revolving credit facility to the Borrower and the Guarantors (the "CREDIT AGREEMENT") from May 17, 1999 to January 3, 2000; and (ii) the continuation of its existing uncommitted credit facilities to ICMOSA and GISE of which Group and Agromark are each guarantors (the "MEXICAN LOAN AGREEMENTS") (collectively, the Credit Agreement and the Mexican 2 The UniMark Group, Inc. April 13, 1999 Page 2 - ----------------------- Loan Agreements shall be known herein as the "LOAN AGREEMENTS"). All capitalized terms used herein shall be defined herein as each is defined in the Credit Agreement or the Mexican Loan Agreements (as applicable) unless specifically otherwise defined herein. 1. MODIFICATIONS. The modifications and amendments to the covenants and other terms and conditions of the Loan Agreements shall be as follows: A. TERMINATION. The definition of "Expiration Date" in the Credit Agreement shall now mean January 3, 2000. B. FINANCIAL COVENANTS. (i) The conditions precedent to the execution and delivery of the Amendments shall require and, in particular, Section 7.6 of the Credit Agreement (Interest Coverage Ratio) and Section 8.4 of the Mexican Loan Agreements (Debt Service Coverage Ratio) shall be amended to provide, that the ratio of EBITBA to Interest Expense of Group and its Subsidiaries on a consolidated basis shall be no less than: 1.50 to 1.0 on the date that such Amendment is executed and delivered to Lender (which date shall be no later than May 17, 1999), 1.40 to 1.0 on June 30, 1999 and 1.85 to 1.0 on September 30, 1999. (ii) Section 6.2 of the Credit Agreement shall be amended to disallow the payment at any time by Group of any Restricted Payments including any dividend distributions, thereby eliminating the current $1,000,000 permitted limit on Restricted Payments by Group. (iii) Section 7.5 of the Credit Agreement shall be amended to provide that Group and its Subsidiaries on a consolidated basis will not make any Capital Expenditures in excess of $3,600,000 in the aggregate; however, there shall not be any such Capital Expenditures permitted for, related to or concerning the Lemon Project unless prior to the expenditure of such Capital Expenditure Group raises an amount of additional equity capital which is equal to or greater than any such Capital Expenditure for, related to, or concerning the Lemon Project. Such $3,600,000 Capital Expenditures figure represents an increase from the present figure of $2,720,000. (iv) Section 5.9(a)(iv) of the Credit Agreement shall be amended to provide that the time period after the end of each fiscal year in which 3 The UniMark Group, Inc. April 13, 1999 Page 3 - ----------------------- the annual audited financial statements shall be provided to Lender has been increased from 90 days to 105 days. (v) Section 5.18 of the Credit Agreement shall be amended to provide that each Obligated Party will submit to and bear audits of the Collateral (and the costs and expenses thereof) which shall occur on a semi-annual basis or on any other occasion as Lender may determine in its sole discretion. C. PRICING. (i) Section 2.4(a) of the Credit Agreement shall be amended to increase the interest rate by 50 basis points to LIBOR plus 2.50%. (ii) As to the revolving loan facilities issued under the Mexican Loan Agreements, the interest rate for such facilities shall be increased by 50 basis points to LIBOR plus 3.50%. 2. OPINION. Simultaneously with the execution of the Amendments by UniMark and as a condition precedent to the execution of same by Lender, UniMark agrees to provide Lender with an opinion of Jordaan, Howard & Pennington, PLLC, counsel for each Obligated Party, dated the date hereof, in form and substance satisfactory to the Lender and covering such matters as the Lender or counsel to the Lender may request. 3. OTHER TERMS AND CONDITIONS OF LOAN AGREEMENTS. Subject to the proposed modifications and amendments to the Loan Agreements set forth above, and the covenants, terms and conditions of the Amendments as executed and delivered in accordance with the terms hereof, all other terms and conditions of the existing Loan Agreements and related documents among the aforementioned parties shall continue in full force and effect. 4. EXTENSION FEE. In order for the Lender to proceed with this commitment, the Lender requires an extension fee of $45,000. This fee is non-refundable and is for the purpose of having Lender use its time, personnel and resources in connection with the proposed transaction. It should be understood that in accepting this fee, Lender's commitment hereunder is subject to each of the terms and conditions hereof, including, without limitation, the above- referenced requirement that UniMark (and each of the entities comprising same) execute and deliver to Lender instruments, documents and agreements in which the modifications and amendments to the Credit Agreement and the Mexican Loan Agreements are specifically set forth with each of such instruments, documents and agreements being in form and content satisfactory to Lender, in its sole discretion, and if the 4 The UniMark Group, Inc. April 13, 1999 Page 4 - ----------------------- transactions as contemplated herein terminate prior to execution and delivery of such documents, Lender has the right to retain the full $45,000 fee. 5. EXPENSES. The Borrower agrees to reimburse Lender for all reasonable costs incurred by the Lender in connection with the negotiation, preparation and documentation of the modifications, amendments and transactions proposed herein, including, without limitation, the fees and out-of-pocket expenses of the Lender's counsel, regardless of whether such documents are executed. 6. RELIANCE/ASSIGNMENT. No party other than the parties hereto shall be entitled to rely on this letter. This letter is not assignable by UniMark (or any entity comprising same). 7. LIMITATION ON COMMITMENT. This letter is based upon information UniMark has furnished the Lender to this date and is further subject to there being no adverse change in condition (financial or otherwise) of Group or any of its Subsidiaries not previously disclosed to the Lender in writing or any other event has occurred which adversely affects: (i) the condition (financial or otherwise) of Group or any of its Subsidiaries, or Group and its Subsidiaries taken as a whole; (ii) the validity or enforceability of the Credit Agreement or the Mexican Loan Agreements or any documents related thereto; or (iii) the ability of Group, or any Subsidiary of Group, to meeting and carry out their respective obligations under the Credit Agreement or the Mexican Loan Agreements or any documents related thereto or to perform the transactions contemplated thereby, and to the satisfaction of any conditions precedent specifically set forth herein. No Event of Default shall exist under the Credit Agreement, the Mexican Loan Agreements, or any documents related thereto at the time of execution of the documents representing the transactions contemplated herein. 8. ADDITIONAL PROVISIONS. The terms and conditions which will be contained in the amendments to the Credit Agreement and the Mexican Loan Agreements and any documents related thereto are not limited to the provisions set forth herein. This is because the completion of the transaction will require further discussions between the parties hereto and approval by the parties' legal counsel. 9. EXPIRATION. If the Borrower desires to accept the terms and conditions of this letter, please sign below and return this letter to the Lender in care of the undersigned promptly. This letter and its terms and conditions will be deemed to have been withdrawn and this letter shall be of no further force or effect if the Lender has not received this letter executed by the Borrower by the close of business on April 14, 1999. 5 The UniMark Group, Inc. April 13, 1999 Page 5 - ----------------------- 10. SECTION 26.02 NOTICE. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES (PENDING EXECUTION OF THE DOCUMENTS) AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Sincerely, COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH By: ---------------------------------------- David L. Streeter, Vice President By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- ACKNOWLEDGED AND ACCEPTED: BORROWER: UNIMARK FOODS, INC., a Texas corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- 6 The UniMark Group, Inc. April 13, 1999 Page 6 - ----------------------- LENDER: COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH, a New York State licensed branch of a Netherlands Cooperative Banking Organization By: ---------------------------------------- David L. Streeter, Vice President By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- GUARANTORS: THE UNIMARK GROUP, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- UNIMARK INTERNATIONAL, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- 7 The UniMark Group, Inc. April 13, 1999 Page 7 - ----------------------- SIMPLY FRESH FRUIT, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- GRUPO INDUSTRIAL SANTA ENGRACIA, S.A. DE C.V., a Mexican corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- INDUSTRIAS CITRICOLAS DE MONTEMORELOS, S.A. DE C.V., a Mexican corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- AGROMARK S.A. DE C.V., a Mexican corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- EX-23 5 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-78352-D) pertaining to The UniMark Group, Inc. 1994 Employee Stock Option Plan and The UniMark Group, Inc. 1994 Stock Option Plan for Directors of our report dated April 13, 1999, with respect to the financial statements of The UniMark Group, Inc. included in this Annual Report on Form 10-K for the year ended December 31, 1998. ERNST & YOUNG LLP Dallas, Texas April 13, 1999 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 4,247 0 9,927 657 22,320 39,443 49,347 8,000 93,513 36,968 7,833 0 0 119 48,593 93,513 90,141 90,141 65,058 65,058 0 84 4,146 (2,098) 867 (2,965) 0 0 0 (2,965) (0.29) (0.29)
EX-27.1 7 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,237 0 12,284 685 24,152 41,621 44,931 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)
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