COLOR SPOT NURSERIES INC, 424B1, 1997-12-23

COLOR SPOT NURSERIES INC
424B1, 1997-12-23
MISCELLANEOUS NONDURABLE GOODS

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<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-37335

$100,000,000

[LOGO]

10 1/2% SENIOR SUBORDINATED NOTES DUE 2007
---------

Color Spot Nurseries, Inc. ("Color Spot" or the "Company") is offering
$100,000,000 aggregate principal amount of its 10 1/2% Senior Subordinated Notes
due 2007 (the "Notes") to the public (the "Notes Offering"). Concurrently with
the Notes Offering, the Company is offering 40,000 units (the "Units"), to the
public (the "Units Offering" and, together with the Notes Offering, the
"Offerings"), each Unit consisting of one share of 13% Series A Cumulative
Preferred Stock (the "Series A Preferred Stock") and warrants (the "Warrants")
representing the right to purchase 20.625 shares of common stock, par value
$.001 per share (the "Common Stock"), of the Company. The Notes Offering is
contingent upon the consummation of the Units Offering and the Units Offering is
contingent upon the consummation of the Notes Offering. See "Prospectus
Summary--Concurrent Offering."

Interest on the Notes will be payable semiannually on June 15 and December
15 of each year, commencing on June 15, 1998. The Notes will be redeemable, in
whole or in part, at the option of the Company, at any time on and after
December 15, 2002, at the respective redemption prices set forth herein plus
accrued and unpaid interest, if any, to the date of redemption. In addition, on
or prior to December 15, 2000, the Company may, at its option, use the net cash
proceeds of one or more Public Equity Offerings (as defined) to redeem up to an
aggregate of 35% of the Notes originally issued, at the redemption price set
forth herein. The Notes will not be entitled to the benefit of any mandatory
sinking fund. Upon a Change of Control (as defined), each holder of Notes will
have the right to require the Company to repurchase such holder's Notes at a
price equal to 101% of their principal amount plus accrued and unpaid interest
to the date of repurchase. See "Description of Notes."

The Notes will be senior subordinated unsecured obligations of the Company
and will be subordinated in right of payment to all Senior Debt (as defined) of
the Company, including indebtedness under the New Loan Agreement (as defined).
At September 25, 1997, after giving effect to the Offerings, the aggregate
outstanding amount of Senior Debt of the Company would have been approximately
$3.4 million, which amount excludes any amounts available to be borrowed under
the New Loan Agreement. The Notes will be effectively subordinated to all
obligations of the Company's subsidiaries. At September 25, 1997, the aggregate
amount of the liabilities of the Company's subsidiaries would have been
approximately $12.5 million. See "Risk Factors," "Capitalization" and
"Description of Notes--Subordination."

The Company does not intend to apply for listing of the Notes on any
national securities exchange. See "Underwriting."
----------------

SEE "RISK FACTORS" BEGINNING ON PAGE 1 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE NOTES.
-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
<S> <C> <C> <C>
Per Note............................................... 100% 3% 97%
Total.................................................. $100,000,000 $3,000,000 $97,000,000
</TABLE>

(1) Plus accrued interest, if any, from date of original issuance.

(2) The Company has agreed to indemnify the Underwriters (as defined) against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(3) Before deducting expenses of the offering payable by the Company estimated
at $600,000.
----------------

The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by counsel. It is expected that delivery of the Notes will
be made at the office of BT Alex. Brown Incorporated, 130 Liberty Street, New
York, New York, on or about December 24, 1997.
----------------
BT ALEX. BROWN DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS DECEMBER 22, 1997.
<PAGE>
[PHOTOS OF PRODUCTS AND FACILITIES AND
MAP SHOWING LOCATION OF PRODUCTION FACILITIES]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. REFERENCES TO THE COMPANY OR COLOR SPOT REFER TO COLOR SPOT
NURSERIES, INC. AND ITS CONSOLIDATED SUBSIDIARIES AND ITS PREDECESSORS. SEE
"COMPANY HISTORY." UNLESS OTHERWISE INDICATED, ALL STATEMENTS MADE IN THIS
PROSPECTUS REFLECT (I) THE MERGER OF CSN, INC. (THE PARENT COMPANY OF COLOR SPOT
NURSERIES, INC.) INTO COLOR SPOT NURSERIES, INC. WHICH WILL OCCUR SIMULTANEOUSLY
WITH THE CONSUMMATION OF THE OFFERINGS AND (II) A 0.69-FOR-ONE REVERSE STOCK
SPLIT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH
UNDER THE CAPTION "RISK FACTORS." AS USED IN THIS PROSPECTUS, "FISCAL 1996"
REFERS TO THE FISCAL YEAR COMMENCING SEPTEMBER 8, 1995 AND ENDING JUNE 30, 1996,
"FISCAL 1997" REFERS TO THE FISCAL YEAR ENDED JUNE 30, 1997 AND "FISCAL 1998"
REFERS TO THE FISCAL YEAR ENDING JUNE 30, 1998.

THE COMPANY

Color Spot is the largest wholesale nursery in the United States, based on
revenue and greenhouse square footage. The Company provides a wide assortment of
high quality plants as well as extensive merchandising services primarily to
leading home centers and mass merchants, such as Home Depot, Home Base, Wal-Mart
and Kmart. The Company distributes products to over 850 retail and 400
commercial customers, representing over 8,000 locations, primarily in the
western and southwestern regions of the United States. Since June 30, 1996, the
Company has completed 13 acquisitions, making it a leading consolidator in the
wholesale nursery industry, based on acquisitions completed by major
competitors. On a pro forma basis, the Company generated approximately $183.1
million in net sales and $22.7 million in EBITDA (as defined) in fiscal 1997.

The Company believes it is one of the few wholesale nurseries that has the
scale and distribution capabilities necessary to provide large volumes of high
quality product to its retail customers on a multi-regional basis. The Company
produces over 2,000 varieties of live plants, including bedding plants, shrubs,
potted flowering plants, ground cover and fresh cut Christmas trees. Through its
200 person salesforce, Color Spot also provides its retail customers with a
broad array of value-added services, such as in-store merchandising, product
display and maintenance, promotional planning and product reordering. The
Company believes that providing these services differentiates it from its
competitors and helps to establish Color Spot as a preferred supplier in the
industry. Color Spot operates 19 production facilities located in California,
Arizona, Texas, Oregon and Washington.

Gardening is one of the most popular leisure activities in the United
States. According to the 1996-1997 National Gardening Survey, 64% of the
approximately 101 million households in the U.S. participated in some form of
gardening in 1996. Retail sales of live plants totaled approximately $18 billion
in the U.S. in 1996. The live plant retail distribution channel has undergone
significant consolidation over the past ten years, as sales have shifted from
local independent nurseries to major national retailers. Despite this retail
consolidation, the wholesale nursery industry is still highly fragmented with
over 10,000 participants in the U.S. In 1996, the ten largest wholesale
nurseries accounted for approximately 8% of total wholesale production according
to Nursery Business Magazine.

The Company believes that it is well positioned to capitalize on
consolidation and growth opportunities in the highly fragmented wholesale
nursery industry. Color Spot's growth strategy is to continue to enter new
geographic markets through acquisitions, expand its presence in existing markets
and add new product lines. An important aspect of the Company's growth strategy
is to increase its penetration in targeted markets, which will enable the
Company to better serve its retail customers, enhance its brand name recognition
and increase operating efficiencies. Since June 30, 1996, both through
acquisitions and internal development, the Company has expanded its product line
into new areas of the wholesale nursery industry, including shrubs, potted
flowering plants and ground cover. In addition, the Company's recent entry into
the fresh cut Christmas tree business enables it to utilize available sales and
distribution capacity during the winter months.

i
<PAGE>
Color Spot America, Inc., a predecessor to the Company, was founded in 1983
by Michael F. Vukelich, the Company's current Chief Executive Officer. Following
a change of control in 1991, Mr. Vukelich left the Company and new management
was installed. Between 1992 and 1995, net sales and profitability of the
business declined. In September 1995, an investor group including Mr. Vukelich
formed the Company and acquired the business. Mr. Vukelich's management team
implemented a number of strategic and operational initiatives designed to
improve the Company's customer relationships and financial results. These
initiatives included revamping the Company's merchandising programs,
decentralizing its operations, revising its pricing strategies, renewing its
focus on operating efficiencies and restructuring its sales organization. As a
result of these strategies, the Company has experienced significant improvements
in net sales and operating results. With the improvement of its financial
results, Color Spot embarked on an aggressive acquisition strategy and has
completed 13 acquisitions since June 30, 1996. Color Spot believes it is now
well positioned to continue its growth and further consolidate the wholesale
nursery industry.

The Company's executive offices are located at 3478 Buskirk Avenue, Suite
260, Pleasant Hill, CA 94523, and its telephone number is (510) 934-4443. The
Company was incorporated in August 1995.

THE OFFERING

<TABLE>
<S> <C>
Securities Offered................ $100,000,000 principal amount of 10 1/2% Senior
Subordinated Notes due 2007.

Maturity Date..................... December 15, 2007.

Interest Payment Dates............ June 15 and December 15 of each year commencing June 15,
1998.

Optional Redemption............... On or after December 15, 2002, the Notes will be
redeemable, in whole or in part, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to December 15, 2000,
the Company may use the net cash proceeds of one or more
Public Equity Offerings (as defined) to redeem the Notes
at a redemption price equal to 110.5% of the aggregate
principal amount to be redeemed, together with accrued
and unpaid interest, if any, to the date of redemption;
provided that at least 65% of the original aggregate
principal amount of the Notes remains outstanding
immediately after any such redemption. See "Description
of Notes--Redemption."

Change of Control................. Upon the occurrence of a Change of Control (as defined),
each holder of Notes will have the right to require the
Company to repurchase such holder's Notes at a purchase
price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to
the date of repurchase. In the event of a Change of
Control, there can be no assurance that the Company will
have sufficient cash to fulfill such repurchase
obligation.

Ranking........................... The Notes will be unsecured, subordinated in right of
payment to all existing and future Senior Debt of the
Company and effectively subordinated to all obligations
of the Company's subsidiaries. The Notes will rank PARI
PASSU with any future senior subordinated indebtedness
of the Company and will rank senior to all other
subordinated debt of the Company. The
</TABLE>

ii
<PAGE>

<TABLE>
<S> <C>
Indenture permits the Company to incur additional
indebtedness, including up to $150.0 million of Senior
Debt available under the Company's credit facilities,
subject to certain limitations. As of September 25,
1997, after giving effect to the Offerings, the
aggregate amount of the Company's outstanding Senior
Debt would have been approximately $3.4 million
(excluding unused commitments), the Company would have
had $8.4 million of PARI PASSU indebtedness outstanding,
and the Company's subsidiaries would have had total
liabilities of approximately $12.5 million. See "Risk
Factors--Subordination" and "Capitalization."

Certain Covenants................. The indenture under which the Notes will be offered (the
"Indenture") will contain covenants that will, subject
to certain exceptions, limit, among other things, the
ability of the Company and its subsidiaries to (i) pay
dividends or make certain other restricted payments or
investments; (ii) incur additional Indebtedness and
issue disqualified stock and preferred stock; (iii)
create liens on assets; (iv) merge, consolidate, or sell
all or substantially all of their assets; (v) enter into
certain transactions with affiliates; (vi) create
restrictions on dividends or other payments by
subsidiaries to the Company; and (vii) create guar-
antees of indebtedness by subsidiaries. See "Description
of Notes."

Use of Proceeds................... The Company will use the proceeds from the Notes
Offering, together with approximately $40.0 million of
gross proceeds from the Units Offering, to repay
outstanding borrowings under the Company's existing
credit facility, to pay fees and expenses and for
general corporate purposes. See "Use of Proceeds."

Conditions........................ The closing of the Notes Offering is conditioned upon
consummation of the Units Offering.
</TABLE>

The Company does not intend to apply for a listing of the Notes on any
national securities exchange. See "Underwriting."

CONCURRENT OFFERING

Concurrently with the Notes Offering, Color Spot is offering 40,000 Units to
the public. The Notes Offering is contingent upon the consummation of the Units
Offering, and the Units Offering is contingent upon the consummation of the
Notes Offering.

iii
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company commenced operations on September 8, 1995 through the purchase
of certain assets of Color Spot, Inc. in a transaction accounted for under the
purchase method of accounting. Color Spot, Inc. commenced operations on March 1,
1993 through the purchase of certain assets of Color Spot America, Inc., in a
transaction accounted for under the purchase method of accounting. On December
31, 1996, an affiliate of Kohlberg & Company, LLC acquired control of the
Company through a series of stock transactions accounted for as a
recapitalization. As a result of these transactions and the Company's ongoing
acquisition program, the financial information presented below is not comparable
in certain respects.

The financial information of the Company presented below as of June 30, 1997
and for the fiscal year ended June 30, 1997 and for the period from September 8,
1995 through June 30, 1996 is derived from the audited financial statements of
the Company appearing elsewhere in this Prospectus. The financial information of
Color Spot, Inc. for the period from January 1, 1995 through September 8, 1995
and the year ended December 31, 1994 is derived from the audited financial
statements of Color Spot, Inc. The financial information of the Company as of
September 25, 1997 and for the periods from July 1, 1996 through September 26,
1996 and July 1, 1997 through September 25, 1997 is derived from the unaudited
interim financial statements of the Company, which, in the opinion of
management, contain all adjustments (including those of a normal recurring
nature) necessary to present fairly the financial position and results of
operations of the Company as of and for the periods presented.

The pro forma information presented below gives effect to the 13
acquisitions completed by the Company since June 30, 1996. See "Unaudited Pro
Forma Consolidated Statement of Operations."

<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
--------------------- -------------------------------------------------------------------
1/1/95 9/8/95 FISCAL YEAR
YEAR ENDED THROUGH THROUGH ENDED PRO FORMA 7/1/96 7/1/97
12/31/94 9/8/95 6/30/96(1) 6/30/97(2) FISCAL YEAR THROUGH THROUGH
---------- -------- ---------- ----------- ENDED 9/26/96 9/25/97(3)
6/30/97 ----------- ------------
-----------
(UNAUDITED) (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $39,411 $28,991 $51,995 $113,400 $183,074 $13,437 $25,482
Gross profit..................... 14,995 11,491 24,310 49,374 75,171 4,579 7,464
Operating expenses............... 17,869 14,438 18,475 39,458 59,997 6,048 11,682
Income (loss) from operations.... (2,874) (2,947) 5,835 9,916 15,174 (1,469) (4,218)
Interest expense................. 3,170 2,576 687 4,179 10,378 133 2,392
Income tax provision (benefit)... 2,269 2,830 2,357 (760) (3,021)
Income (loss) before
extraordinary loss............. (5,947) (5,485) 2,788 3,055 2,881(4) (820) (3,691)
Extraordinary loss............... 215
Net income (loss)................ (5,947) (5,485) 2,788 2,840 2,881 (820) (3,691)
Net income per share............. $0.34
Shares used in per share
calculation.................... 8,594,730
Supplemental net loss per share
(4)............................ $(0.66)
Shares used in per share
calculation.................... 6,399,357

OPERATING DATA:
EBITDA(6)........................ $(1,619) $(2,022) $6,433 $13,357 $22,662 $(1,170) $(2,898)
Cash flows from operating
activities..................... (2,720) (5,220) (3,485) (4,093) 847 2,043
Cash flows from investing
activities..................... (609) (260) (9,660) (58,234) (1,184) (43,569)
Cash flows from financing
activities..................... 3,715 5,587 13,846 64,388 557 40,445
Depreciation and amortization.... 1,255 925 598 3,441 7,488 299 1,320
Capital expenditures............. 668 260 1,529 6,181 10,450 1,263 3,030
Ratio of earnings to fixed
charges(5)(7).................. 4.68 2.10 1.44
Number of production
facilities(8).................. 6 6 6 13 19 7 19
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

iv
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 25, 1997
------------------------
AS
ACTUAL ADJUSTED(9)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $585 $20,453
Total assets............................................................................. 183,743 184,025
Long-term debt, excluding current portion................................................ 111,335 111,178
Stockholders' equity..................................................................... 5,897 10,407
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
FISCAL YEAR 7/1/96 7/1/97
ENDED THROUGH THROUGH
6/30/97 9/26/96 9/25/97
----------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................... $ 183,074 $ 25,292 $ 27,345
Gross profit............................................................ 75,171 7,508 7,796
Operating expenses...................................................... 59,997 11,309 12,808
Income (loss) from operations........................................... 15,174 (3,801) (5,012)
Interest expense........................................................ 10,378 2,138 2,798
Income tax provision (benefit).......................................... 2,357 (2,578) (3,552)
Net income (loss)....................................................... 2,881 (3,166) (4,338)
OPERATING DATA:
EBITDA(6)............................................................... $22,662 $ (2,188) $ (3,424)
Depreciation and amortization........................................... 7,488 1,613 1,588
Capital expenditures.................................................... 10,450 2,245 3,169
Ratio of earnings to fixed charges(5)(7)................................ 1.44
Number of production facilities(8)...................................... 19 19 19
</TABLE>

(FOOTNOTES FOR THIS AND PRECEDING PAGE)
- ------------------------

(1) Includes the financial results of Barcelo's Plant Growers from March 1996.

(2) Includes the financial results of NAB Nursery and B&C Growers from October
1996, Sunrise Growers from November 1996, Sunnyside Plants from January
1997, Lone Star Growers Co. from February 1997, Signature Trees from March
1997 and Hi-C Nursery from April 1997.

(3) Includes the financial results of Plants, Inc., Peters' Wholesale
Greenhouses, Inc. and Wolfe Greenhouses, LLC from July 1997, Cracon, Inc.
and Summersun Greenhouse Co. from August 1997 and Oda Nursery, Inc. from
September 1997.

(4) Supplemental net income per share has been calculated as if the
Recapitalization (as defined) and the consummation of the Offerings
described in this prospectus occurred on July 1, 1996. If these transactions
occurred on July 1, 1996, interest expense would have increased by
$1,626,000, dividends to holders of Series A Preferred Stock would have been
$5,200,000, and accretion of Series A Preferred Stock and Common Stock to
Liquidation Values would have been $1,000,000. As a result, net loss to
holders of Common Stock would have been $(4,213,000). See "Certain
Transactions--Recapitalization."

(5) If the recapitalization of the Company, all of the acquisitions which
occurred during fiscal 1997 and fiscal 1998 to date and the Offerings
described in this Prospectus occurred on July 1, 1996, interest expense
would have increased by $1,626,000 and net income would have decreased to
$1,987,000 for the year ended June 30, 1997, and interest expense would have
increased by $73,000 and net loss would have increased to $4,378,000 for the
period from July 1, 1997 through September 25, 1997. On such basis, the
ratio of earnings to fixed charges would have been 1.27 for the year ended
June 30, 1997, and earnings would have been insufficient to cover fixed
charges by $7,963,000 for the period from July 1, 1997 through September 25,
1997. In addition, Series A Preferred Stock dividends would have been
$5,200,000 and $1,300,000 for the year ended June 30, 1997 and the period
from July 1, 1997 through September 25, 1997, respectively. Earnings would
have been insufficient to cover fixed charges (including dividends on the
Series A Preferred Stock and accretion to liquidation value of the
redeemable Series A Preferred Stock and redeemable Common Stock) by
$6,843,000 and $10,577,000 for the year ended June 30, 1997 and the period
from July 1, 1997 through September 25, 1997, respectively. See "Certain
Transactions--Recapitalization."

(6) EBITDA represents income before interest expense, depreciation and
amortization expense, the provision for income taxes, other (income) expense
and extraordinary items. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Other companies may define EBITDA differently, and as a
result, those measures may not be comparable to the Company's EBITDA. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(7) For purposes of computing a ratio of earnings to fixed charges, "earnings"
consist of income (loss) before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover

v
<PAGE>
fixed charges by $5,947,000, $5,485,000, $1,580,000, $6,712,000, $5,744,000
and $7,890,000 for the year ended December 31, 1994, the period from January
1, 1995 through September 8, 1995, the period from July 1, 1996 through
September 26, 1996, the period from July 1, 1997 through September 25, 1997
and on a pro forma basis for the period from July 1, 1996 through September
26, 1996 and July 1, 1997 through September 25, 1997, respectively.

(8) Facilities include owned and leased properties as of the end of each period,
excluding Christmas tree fields.

(9) Adjusted to give effect to (i) $40 million gross proceeds from the sale of
Units offered in the Units Offering, (ii) the sale of $100 million aggregate
principal amount of the Notes offered in the Notes Offering at an assumed
interest rate of 10.5% per annum, (iii) issuance of Warrants, (iv) the
after-tax effects of nonrecurring charges as described below and (v) the
application of the net proceeds from the Offerings. Working capital
increased $16.9 million from the repayment of short-term debt and $1.2
million from net cash proceeds from the Offerings (after subtracting cash
used to eliminate the cash overdraft). Total assets increased $1.2 million
from net cash proceeds from the Offerings and $3 million of capitalizable
loan fees and decreased $4.4 million resulting from the write-off of
deferred financing fees relating to debt repaid from the proceeds of the
Offerings. Long-term debt increased $100 million as a result of the Notes
Offering and decreased by $100.2 million relating to debt repaid from the
proceeds of the Offerings. Stockholders' equity increased $8.3 million
relating to the fair value of the Warrants issued in connection with the
Units Offering and decreased $4.4 million from the write-off of deferred
financing fees, $2.0 million relating to termination of an annual management
fee and $0.4 million relating to bonuses to be paid to certain members of
management, offset by an income tax benefit of $3.1 million. See "Use of
Proceeds."

------------------------

In addition, during the fiscal quarter in which the Offerings are completed,
the Company will incur a $4.4 million non-cash pre-tax extraordinary charge
related to the write-off of deferred financing fees, and, in the fiscal quarter
following the fiscal quarter in which the Offerings are completed, the Company
will incur (i) a $2.0 million pre-tax charge related to the termination of an
annual management fee and (ii) a $0.4 million pre-tax change related to the
payment of bonuses to certain members of management.

vi
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE NOTES
OFFERED BY THIS PROSPECTUS, WHICH FACTORS THE COMPANY BELIEVES SUMMARIZE ALL
MATERIAL RISKS KNOWN TO IT AS OF THE DATE OF THIS PROSPECTUS.

SUBSTANTIAL LEVERAGE AND DEBT SERVICE. The Company will continue to be
significantly leveraged after the Offerings. See "Capitalization." As of
September 25, 1997, after giving effect to the Offerings, the Company would have
had approximately $111.2 million of consolidated long-term indebtedness and
approximately $10.4 million of common stockholders' equity. Upon consummation of
the Offerings, the Company expects to have $150.0 million available to be
borrowed under the New Loan Agreement. The Company and its subsidiaries may
incur additional indebtedness in the future, subject to certain limitations
contained in the instruments governing its indebtedness and capital stock.
Accordingly, the Company will have significant debt service obligations.

The Company's debt service obligations will have important consequences to
holders of the Notes, the Series A Preferred Stock and the Warrants including
the following: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for
operations, acquisitions, future business opportunities and other purposes and
increasing the Company's vulnerability to adverse general economic and industry
conditions; (ii) the Company's leveraged position may increase its vulnerability
to competitive pressures; (iii) the financial covenants and other restrictions
contained in the New Loan Agreement, the Indenture and the Certificate of
Designation (as defined) will require the Company to meet certain financial
tests and will restrict its ability to borrow additional funds, to dispose of
assets or to pay cash dividends on, or repurchase, preferred or common stock;
and (iv) funds available for working capital, capital expenditures, acquisitions
and general corporate purposes may be limited.

The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) and to
pay dividends and make redemption payments on the Series A Preferred Stock
depends on its future performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. Based
upon the current level of operations and anticipated growth, the Company
believes that future cash flow from operations, together with available
borrowings under the New Loan Agreement, will be adequate to meet the Company's
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments for the next 12 months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt, pay dividends, make
redemption payments and fund necessary capital expenditures. If unable to do so,
the Company may be required to refinance all or a portion of its existing debt,
including the Notes, to sell assets or to obtain additional financing. There can
be no assurance that any such refinancing or that any such sale of assets or
additional financing would be possible on terms reasonably favorable to the
Company, or at all. In addition, unforeseen problems, delays, expenses and
difficulties as well as changes in economic and regulatory or competitive
conditions may lead to cost increases that would make the Company's current cash
flow and borrowings under the New Loan Agreement insufficient to meet the
Company's capital needs. See "--Future Capital Needs; Uncertainty of Additional
Financing."

SUBORDINATION. The Company's obligations under the Notes will be
subordinate and junior in right of payment to all existing and future Senior
Debt of the Company and to all obligations of the Company's subsidiaries. As of
September 25, 1997, after giving effect to the Offerings, the aggregate amount
of the Company's outstanding Senior Debt would have been approximately $3.4
million (excluding unused commitments) and the aggregate obligations of the
Company's subsidiaries would have been approximately $12.5 million. Additional
Senior Debt may be incurred by the Company from time to time, subject

1
<PAGE>
to certain restrictions. By reason of such subordination, in the event of an
insolvency, liquidation, or other reorganization of the Company, the lenders
under the New Loan Agreement and other creditors who are holders of Senior Debt
or are creditors of the Company's subsidiaries must be paid in full before the
holders of Notes may be paid; accordingly, there may be insufficient assets
remaining after payment of prior claims to pay amounts due on the Notes. In
addition, under certain circumstances, no payments may be made with respect to
the Notes if a Default exists with respect to Senior Debt. See "Description of
Notes--Subordination."

DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH. The Company aggressively
pursues the acquisition of other companies. See "Business--Growth Strategy."
Acquisitions involve a number of risks, including effects on the Company's
reported operating results, the diversion of management's attention, the
dependence on hiring, training and retaining key personnel and risks associated
with unanticipated problems or legal liabilities, some or all of which could
have a material adverse effect on the Company. Historically, the Company has
financed acquisitions through the incurrence of additional debt and the issuance
of Company stock. See "--Substantial Leverage and Debt Service." The Company
completed one acquisition in fiscal 1996, seven acquisitions in fiscal 1997 and
six acquisitions to date in fiscal 1998. There can be no assurance that the
Company will be able to integrate its acquisitions or successfully implement its
business model in a timely manner without substantial costs, delays or other
problems. Once integrated and operating according to the Company's business
model, these acquisitions may not achieve sales, profitability and productivity
commensurate with the Company's historical operating results. In addition, there
can be no assurance that the Company's management and financial controls,
personnel, computer systems and other corporate support systems will be adequate
to manage the increase in the size and scope of the Company's operations as a
result of its acquisitions. Additionally, there can be no assurances that the
acquired businesses will enhance the Company's business or financial
performance.

The Company anticipates that one or more potential acquisition
opportunities, including those that would be material, may become available in
the near future. No assurances can be given that any acquisition by the Company
will occur, that if an acquisition does occur that it will not have a material
adverse effect on the Company, that any such acquisition will be successful in
enhancing the Company's business or that any such acquisition can be
successfully integrated into the Company's business. See
"--Future Capital Needs; Uncertainty of Additional Financing."

EFFECT OF GROWTH ON COMPANY RESOURCES. The recent growth and expansion of
the Company's business have placed, and are expected to continue to place, a
significant strain on the Company's management, operational and financial
resources. Continued growth will require an increase in Company personnel who
possess the training and experience necessary to operate the Company's
facilities. There can be no assurance that the Company will be able to continue
to attract, develop and retain the personnel necessary to pursue its growth
strategy. Moreover, as the Company continues to grow, it will need to expand its
production, warehouse and distribution facilities and may require additional
facilities to support such growth. In addition, the Company's rapid growth may
place significant pressure on its financial controls and inventory management
systems. Any failure by the Company to manage its growth effectively could have
a material adverse effect on the Company.

SHORT OPERATING HISTORY UNDER CURRENT MANAGEMENT. Color Spot America, Inc.
(together with its subsidiaries, "Color Spot America"), a California corporation
and a predecessor to the Company, which was managed by certain of the Company's
current management, was incorporated and commenced operations in 1983. The
current management of the Company operated Color Spot America until January 1991
when a subsidiary of PacifiCorp, a public utility (together with its
subsidiaries, "PacifiCorp"), obtained control and installed a new management
team that operated Color Spot America and its successor, Color Spot, Inc., an
Oregon corporation ("Color Spot Oregon"), from 1991 through September 1995.
During the period of PacifiCorp's control, the Company's predecessors
experienced declining net sales and profitability. In September 1995, the
Company commenced operations by purchasing Color Spot

2
<PAGE>
Oregon's assets from PacifiCorp. See "Company History." Accordingly, the
Company, under its current management team, has only a limited operating history
upon which investors may evaluate its performance. There can be no assurance
that the Company will be able to continue to achieve or sustain revenue growth
or profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company must, among other things,
respond to competitive developments, continue to attract, retain and motivate
qualified employees, and successfully manage and execute its expansion
strategies. There can be no assurance that the Company will be successful in
these efforts.

CUSTOMER CONCENTRATION; DEPENDENCE ON HOME DEPOT. The Company is highly
dependent on the purchases of its top eight retail customers, which together
accounted for 75% and 82% of the Company's net sales in fiscal 1997 and fiscal
1996, respectively. The Company's largest customer, Home Depot, accounted for
approximately 39% and 41% of the Company's net sales in fiscal 1997 and fiscal
1996, respectively. The Company expects that a small number of customers will
continue to account for a substantial portion of its net sales for the
foreseeable future. The Company does not have long-term contracts with any of
its retail customers, and there can be no assurance that they will continue to
purchase the Company's products. The loss of, or a significant adverse change
in, the relationship between the Company and Home Depot or any other major
customer could have a material adverse effect on the Company. The loss of, or
reduction in orders from, any significant retail customers, losses arising from
retail customers' disputes regarding shipments, fees, merchandise condition or
related matters, or the Company's inability to collect accounts receivable from
any major retail customer could have a material adverse effect on the Company.
In addition, there can be no assurance that revenue from customers that have
accounted for significant revenue in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
period. See "Business--Customers."

SEASONALITY; VARIABILITY OF QUARTERLY RESULTS AND CERTAIN CHARGES. The
Company's business is highly seasonal. In fiscal 1997, approximately 77% of net
sales and 125% of operating income occurred in the first half of the calendar
year. The Company has historically reported operating losses in its first and
second fiscal quarters, and the Company believes it will continue to report
operating losses during the first half of its fiscal year. The Company has
experienced and expects to continue to experience variability in net sales,
operating income and net income on a quarterly basis. Factors that may
contribute to this variability include: (i) weather conditions during peak
growing and gardening seasons; (ii) shifts in demand for live plant products;
(iii) changes in product mix, service levels and pricing by the Company and its
competitors; (iv) the effect of acquisitions; (v) the economic stability of the
Company's retail customers; and (vi) the Company's relationship with each of its
retail customers. See "--Weather; General Agricultural Risks" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Results."

In addition, during the fiscal quarter in which the Offerings are completed,
the Company will incur a $4.4 million non-cash pre-tax extraordinary charge
related to the write-off of deferred financing fees, and in the fiscal quarter
following the fiscal quarter in which the Offerings are completed, the Company
will incur (i) a $2.0 million pre-tax charge related to the termination of an
annual management fee and (ii) a $0.4 million pre-tax charge related to the
payment of bonuses to certain members of management.

Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results cannot be relied upon as indicators of
future performance. In the event that the Company's operating results in any
future period fall below the expectations of securities analysts and investors,
the trading price of the Common Stock would likely be materially and adversely
affected.

RESTRICTIONS IMPOSED BY NEW LOAN AGREEMENT. Simultaneously with the
completion of the Offerings, the Company will enter into a new senior credit
facility (the "New Loan Agreement") with a number of banking institutions, led
by Credit Agricole Indosuez, which will restrict, among other things, the
Company's ability to incur additional indebtedness, incur liens, pay or declare
dividends, enter into any transaction not in its usual course of business,
guarantee or otherwise become in any way liable with

3
<PAGE>
respect to the obligations of another party or entity, merge or consolidate with
another person or sell or transfer any collateral (except for the sale of
inventory in the ordinary course of the Company's business). A breach of any of
these covenants could result in a default under the New Loan Agreement. Upon the
occurrence of an Event of Default (as defined in the New Loan Agreement), the
lenders could elect to declare all amounts outstanding under the New Loan
Agreement, together with accrued interest, to be immediately due and payable. If
the Company were unable to pay those amounts, the lenders could proceed against
the collateral granted to them to secure that indebtedness. If the New Loan
Agreement indebtedness were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay the indebtedness in full
and other indebtedness of the Company. Substantially all of the assets of the
Company have been pledged as security under the New Loan Agreement. The
restrictions described above, in combination with the leveraged nature of the
Company, may limit the Company's ability to obtain financing in the future or
may otherwise restrict corporate activities. See "Description of Certain
Indebtedness."

ENCUMBRANCES ON ASSETS TO SECURE THE NEW LOAN AGREEMENT. In addition to
being subordinated to all existing and future Senior Debt of the Company, the
Notes will not be secured by any of the Company's assets. The Company's
obligations under the New Loan Agreement will be secured by substantially all of
the assets of the Company. If the Company becomes insolvent or is liquidated, or
if payment under the New Loan Agreement is accelerated, the lenders under the
New Loan Agreement will be entitled to exercise the remedies available to a
secured lender under applicable law. See "Description of Certain
Indebtedness--New Loan Agreement."

CHANGE OF CONTROL. The Indenture and the Certificate of Designation will
provide that, upon the occurrence of a Change of Control, the Company must make
an offer to purchase all or any part of the Notes at a price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase and all or any part of the Series A Preferred
Stock at a price in cash equal to 101% of the aggregate liquidation preference
thereof plus accrued and unpaid dividends to the date of purchase. The New Loan
Agreement prohibits the Company from repurchasing any Notes or Series A
Preferred Stock, except with certain proceeds of one or more Public Equity
Offerings. The New Loan Agreement also provides that certain change of control
events with respect to the Company would constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Debt to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing the Notes or Series A Preferred Stock, or if the Company is
required to make an Asset Sale Offer (as defined) pursuant to the terms of the
Notes, the Company could seek the consent of its lenders to purchase the Notes
or Series A Preferred Stock or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or
refinance such borrowings, the Company would remain prohibited from purchasing
the Notes or Series A Preferred Stock. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default (as defined) under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Debt, the subordination provisions in the Indenture would likely restrict
payments to the holders of the Notes. The Indenture will provide that the
Company may not offer to repurchase any Series A Preferred Stock upon the
occurrence of a Change of Control until the Company has completed its offer to
purchase the Notes. There can be no assurance that the Company will have
sufficient funds to repurchase the Notes or the Series A Preferred Stock after a
Change of Control. The provisions relating to a Change of Control included in
the Indenture and the Certificate of Designation may increase the difficulty of
a potential acquiror obtaining control of the Company. See "Description of
Notes--Change of Control" and "Description of Series A Preferred Stock--Change
of Control."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. There can be no
assurance that the net proceeds of the Offerings or borrowings under the New
Loan Agreement and funds from operations will be sufficient to meet the
Company's anticipated working capital, capital expenditure and acquisition

4
<PAGE>
financing requirements. The Company may need to raise additional funds through
the issuance of public or private debt or equity securities in order to take
advantage of unanticipated opportunities, including acquisitions of
complementary businesses, or otherwise respond to unanticipated competitive
pressures. There can be no assurance that additional financing will be available
on terms favorable to the Company, or at all. If adequate funds are not
available, or not available on acceptable terms, the Company may not be able to
take advantage of unanticipated opportunities or otherwise respond to
unanticipated competitive pressures. Such inability could have a material
adverse effect on the Company. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness."

WEATHER; GENERAL AGRICULTURAL RISKS. Inclement weather or production
difficulties occurring at a time of peak production or sales (in the second half
of the Company's fiscal year), particularly on weekends during the peak
gardening season, could cause declines in net sales and operating income that
could have a material adverse effect on the Company. In the event of severe
weather conditions, the Company does not have sufficient facilities to preserve
and protect all of its products. Meteorologists are currently predicting that a
severe weather phenomenon known as "El Nino" will continue to impact the United
States in late 1997 and early 1998, which may result in unusually cool and wet
weather conditions in many of the Company's markets. Such weather conditions
could delay the upcoming peak growing and gardening season and reduce the demand
for the Company's products. The Company intends to expand into new markets that
typically have greater weather variability than the Company's historic markets.
Failure by the Company to adequately manage this variability could have a
material adverse effect on the Company. The Company's operations also may be
materially affected by disease, pests or other natural hazards. Agricultural
production is highly dependent upon the availability of water. The Company has
not installed, and is not required to install, water reclamation systems at the
majority of its production facilities. The loss of access to water at any of the
Company's facilities would have a material adverse effect on the Company. See
"--Governmental Regulations; Minimum Wage." Given the perishable nature of the
Company's products, if sales do not materialize as expected, the Company could
experience a significant decline in profitability.

DEPENDENCE ON LEASED FACILITIES. The majority of the Company's production
facilities are leased. These leases expire at varying times in the next two to
15 years. Although the Company believes that it can extend most of its leases on
acceptable terms, failure to do so would require the Company to establish new
production facilities. No assurance can be given that any such leases can be
extended on acceptable terms or, if not so extended, that suitable replacement
production facilities can be established. Failure to extend the terms of any of
these leases could have a material adverse effect on the Company. See
"Business-- Properties and Facilities."

SENSITIVITY TO PRICE INCREASES OF CERTAIN RAW MATERIALS. The Company and
its competitors are vulnerable to price increases for raw materials. For fiscal
1997, raw material costs accounted for approximately 27.1% of the Company's net
sales. The Company does not have long-term contracts with the majority of its
raw material suppliers. Increases in the cost of raw materials essential to the
operations of the Company, including seed, plastic, chemicals and fertilizer,
would increase the Company's costs of production. Significant increases in the
price of petrochemicals or a scarcity of raw materials essential to plant
propagation could have a material adverse effect on the Company. There can be no
assurance that any such price increases can be passed on to the Company's
customers in the form of higher prices for the Company's products.

COMPETITION. The wholesale nursery industry is highly competitive.
Competition is based principally on product quality, breadth of product
offerings, customer service and price. The wholesale nursery industry is highly
fragmented with over 10,000 small and regional nurseries nationwide. In 1996,
the ten largest and 100 largest wholesale nurseries in the United States
accounted for approximately 8% and 22%, respectively, of total wholesale
production. The Company currently competes directly with a large number

5
<PAGE>
of western and southwestern wholesale nursery companies. On a multi-regional
basis, the Company competes with Hines Nurseries primarily in bedding plants and
shrubs and Monrovia Nursery Company primarily in shrubs. The fresh cut Christmas
tree market is also highly fragmented and, on a regional basis, the Company
competes in this market with Holiday Tree Farms and The Kirk Company.

GOVERNMENTAL REGULATIONS; MINIMUM WAGE. The Company is subject to certain
federal, state and local health, safety and environmental laws and regulations
regarding the production, storage and transportation of certain of its products
and the disposal of its waste. Certain of the Company's operations and
activities, such as water runoff from its production facilities and the use of
certain pesticides, are subject to regulation by the United States Environmental
Protection Agency (the "EPA") and similar state and local agencies. These
agencies may regulate or prohibit the use of such products, procedures or
operations, thereby affecting the Company's operations and profitability. In
addition, the Company must comply with a broad range of environmental laws and
regulations. Additional or more stringent environmental laws and regulations may
be enacted in the future and such changes could have a material adverse effect
on the Company. The Company uses reclamation water as one of the sources of
water supply for a few of its production facilities. The use and pricing of
reclamation water, including availability of subsidized water rates, is governed
by federal reclamation laws and regulations. Changes in the law could have a
material adverse effect on the Company.

In addition, the Company is subject to the Fair Labor Standards Act as well
as various federal, state and local regulations that govern such matters as
minimum wage requirements, overtime and working conditions. A large number of
the Company's employees are paid at or just above the federal minimum wage level
and, accordingly, changes in laws, regulations or ordinances could have a
material adverse effect on the Company by increasing the Company's costs. See
"Business--Government Regulation."

CONTROL BY SIGNIFICANT STOCKHOLDERS AND MANAGEMENT. KCSN Acquisition
Company, L.P. ("KCSN"), an affiliate of Kohlberg & Company, LLC, a New York
merchant banking firm ("Kohlberg"), owns approximately 69.2% of the outstanding
Common Stock (approximately 61.8% assuming exercise in full of the Warrants). In
addition, officers and directors own approximately 17.5% of the outstanding
Common Stock (approximately 15.6% assuming exercise in full of the Warrants).
Heller Equity Capital Corporation ("Heller") is the holder of an 8.0%
Subordinated Convertible Note (the "Heller Note"), which is convertible into
approximately 5.0% of the outstanding Common Stock (approximately 4.5% assuming
exercise in full of the Warrants). Heller also owns 2.6% of the outstanding
Common Stock (approximately 2.3% assuming exercise in full of the Warrants).
KCSN, Heller and the management stockholders are parties to a Stockholders
Agreement, which provides that the parties to the Stockholders Agreement shall
(i) consent to any merger, consolidation or sale of all or substantially all of
the Company's assets involving an independent third party and approved by a
majority of KCSN's shares and (ii) vote their shares to elect Michael F.
Vukelich, Jerry L. Halamuda, five KCSN designees and two independent designees
reasonably acceptable to KCSN as directors of the Company. Subject to the terms
of the Stockholders Agreement and the Certificate of Designation, KCSN is able
to elect all of the Company's directors and can determine the outcome of
corporate actions requiring stockholder approval, including adopting amendments
to the Company's Certificate of Incorporation (as defined) and approving or
disapproving mergers or sales of all or substantially all of the Company's
assets. In addition, KCSN and certain of the management stockholders are parties
to a put/call option agreement to effect the repurchase by the Company of shares
of Common Stock held by the management stockholders. Under the put/call option
agreement, KCSN retains an irrevocable proxy to vote the shares of Common Stock
not yet repurchased by the Company. As of September 25, 1997, KCSN had a proxy
to vote 20,211 shares of Common Stock held by the management stockholders. See
"Certain Transactions--Relationship with Kohlberg--Control by KCSN,"
"--Recapitalization," "Principal Stockholders" and "Description of Capital
Stock."

LACK OF PRIOR MARKET FOR THE NOTES. There is currently no public market for
the Notes and the Company has no present plan to list the Notes on a national
securities exchange or to include the Notes for

6
<PAGE>
quotation through an interdealer quotation system. There can be no assurance
that such a market will develop or, if such a market develops, as to the
liquidity of such market. The Company has been advised by the Underwriters that
the Underwriters intend to make a market in the Notes after consummation of the
Notes Offering, as permitted by applicable laws and regulations; however, the
Underwriters are not obligated to do so and any such market making activities
may be discontinued at any time without notice. See "Underwriting."

FRAUDULENT TRANSFER STATUTES. Under federal or state fraudulent transfer
laws, if a court were to find that, at the time the Notes were issued, the
Company (i) issued the Notes with the intent of hindering, delaying or
defrauding current or future creditors or (ii)(A) received less than fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by the Notes and (B)(1) was insolvent or was rendered insolvent by
reason of the issuance of the Notes, (2) was engaged, or about to engage, in a
business or transaction for which its assets were unreasonably small or (3)
intended to incur, or believed (or should have believed) it would incur, debts
beyond its ability to pay as such debts mature (as all of the foregoing terms
are defined in or interpreted under such fraudulent transfer statutes), such
court could avoid all or a portion of the Company's obligations to the holders
of the Notes, subordinate the Company's obligations to the holders of the Notes
to other existing and future indebtedness of the Company, the effect of which
would be to entitle such other creditors to be paid in full before any payment
could be made on the Notes, and take other action detrimental to the holders of
the Notes, including in certain circumstances, invalidating the Notes. In that
event, there would be no assurance that any repayment on the Notes would ever be
recovered by the holders of the Notes.

The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is being
applied in any such proceeding. However, the Company generally would be
considered insolvent at the time it incurs the indebtedness constituting the
Notes, if (i) the fair market value (or fair saleable value) of its assets is
less than the amount required to pay its total existing debts and liabilities
(including the probable liability on contingent liabilities) as they become
absolute or matured or (ii) it is incurring debts beyond its ability to pay as
such debts mature. There can be no assurance as to what standard a court would
apply in order to determine whether the Company was "insolvent" as of the date
the Notes were issued, or that, regardless of the method of valuation, a court
would not determine that the Company was insolvent on that date. Nor can there
be any assurance that a court would determine, regardless of whether the Company
was insolvent on the date the Notes were issued, that the payments constituted
fraudulent transfers on another ground. To the extent that proceeds from the
sale of the Notes are used to repay indebtedness under the Company's existing
indebtedness a court may find that the Company did not receive fair
consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Notes.

7
<PAGE>
COMPANY HISTORY

Color Spot America was founded in 1983 by Michael F. Vukelich, the Company's
current Chief Executive Officer, and it grew to become one of the largest
bedding plant producers in California. In February 1989, Color Spot America,
through a wholly owned subsidiary, acquired one of its largest competitors for
which PacifiCorp provided the acquisition financing. Immediately upon closing of
this financing, Color Spot America was in default of certain financial covenants
under the PacifiCorp financing. Other than the imposition of a default rate of
interest, PacifiCorp did not take any action with respect to these financial
covenant defaults until January 1991. At that time, Mr. Vukelich left Color Spot
America and PacifiCorp installed new management. In 1993, Color Spot America
sold substantially all of its assets and liabilities to Color Spot Oregon, a
corporation controlled by PacifiCorp. Net sales and profitability of Color Spot
America and Color Spot Oregon declined between 1992 and 1995.

In September 1995, the Company was formed to acquire the assets of Color
Spot Oregon from PacifiCorp by Heller, Mr. Vukelich and Jerry L. Halamuda, who
had previously worked with Mr. Vukelich at Color Spot America. With Mr. Vukelich
as Chief Executive Officer and Mr. Halamuda as President, management implemented
a number of strategic and operational programs designed to improve the Company's
customer relationships and financial results. These initiatives included
revamping the Company's merchandising programs, decentralizing its operations,
revising its pricing strategies, renewing its focus on operating efficiencies
and restructuring its sales organization. As a result of these strategies, the
Company has experienced significant improvements in net sales and operating
results. With the improvement of its financial results, Color Spot embarked on
an aggressive acquisition strategy and has completed 13 acquisitions since June
30, 1996. Color Spot believes it is now well positioned to continue its growth
and further consolidate the wholesale nursery industry.

In December 1996, the Company completed a recapitalization in which KCSN, an
affiliate of Kohlberg, acquired newly issued shares constituting a majority
interest in the Company and in which the Company repurchased the shares of
Common Stock held by Heller and a portion of the Common Stock held by management
(the "Recapitalization"). See "Certain Transactions."

RECENT ACQUISITIONS

Since June 30, 1996, the Company has completed 13 acquisitions. The
following table describes these acquisitions:

<TABLE>
<CAPTION>
COMPANY PRIMARY LOCATION DATE PRODUCT LINE
- -------------------------- ------------------ -------------- ------------------------------- REVENUES(1)
---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
NAB Nurseries Arizona October 1996 Bedding Plants and Foliage $ 4.8
Southern
B&C Growers California October 1996 Bedding Plants and Ground Cover 2.3
Southern
Sunrise Growers California November 1996 Bedding Plants 3.0
Northern
Sunnyside Plants California January 1997 Flowering Potted Plants 6.4
Lone Star Growers Co. Texas February 1997 Shrubs and Bedding Plants 22.2
Signature Trees Oregon March 1997 Christmas Trees 6.9
Northern
Hi-C Nursery California April 1997 Bedding Plants 4.5
Plants, Inc. Texas July 1997 Bedding Plants 7.9
Peters' Wholesale
Greenhouses, Inc. Texas July 1997 Bedding Plants 6.9
Wolfe Greenhouses, LLC Texas July 1997 Flowering Potted Plants 9.1
Cracon, Inc. Michigan August 1997 Christmas Trees 3.4
Summersun Greenhouse Co. Washington August 1997 Bedding Plants 8.3
Southern
Oda Nursery, Inc. California September 1997 Shrubs 11.7
</TABLE>

- ------------------------------

(1) Revenues for the 12 month period prior to acquisition by the Company.

8
<PAGE>
USE OF PROCEEDS

The gross proceeds to the Company from the Notes Offering, before deducting
underwriting discounts and estimated offering expenses, are estimated to be
approximately $100.0 million. The gross proceeds to the Company from the Units
Offering are estimated to be $40.0 million. The Company currently plans to repay
in full the outstanding borrowings under the Company's existing senior credit
facility, which totaled approximately $117.1 million at September 25, 1997, from
the net proceeds of the Offerings. The remaining net proceeds are expected to be
used for general corporate purposes. Pending such uses, the net proceeds of the
Offerings will be invested in short-term, interest bearing, investment grade
securities.

Loans under the Company's existing credit facility had interest rates
ranging from 8.4% to 10.3% per annum at September 25, 1997. The proceeds of
loans under the Loan Agreement during fiscal 1997 and the Company's fiscal
quarter ended September 25, 1997, were used principally to consummate the
Recapitalization, to finance acquisitions and for working capital.
Simultaneously with the completion of the Offerings, the Company will enter into
the New Loan Agreement which will provide three facilities, including (i) a
$75.0 million acquisition term loan facility, (ii) a $40.0 million revolving
credit facility and (iii) a $35.0 million supplemental facility. At the option
of the Company part of the supplemental facility can be designated as an
acquisition term loan facility or a revolving credit facility. The New Loan
Agreement will provide the Company with a source of funds for working capital
and future acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Certain Indebtedness."

The following table illustrates the sources and uses of funds from the
Offerings as if they occurred on September 25, 1997. The actual amounts of
sources and uses of funds may differ from amounts set forth below.

<TABLE>
<CAPTION>
AMOUNTS
-----------
<S> <C>
(IN
MILLIONS)
SOURCES OF FUNDS
Notes Offering....................................................... $100.0
Units Offering....................................................... 40.0
-----------
Total Sources of Funds............................................. $140.0
-----------
-----------
USES OF FUNDS
Repay debt under existing bank credit facility....................... $117.1
General corporate purposes........................................... 17.4
Estimated fees and expenses.......................................... 5.5
-----------
Total Uses of Funds................................................ $140.0
-----------
-----------
</TABLE>

DIVIDEND POLICY

The Company plans to retain earnings to finance future growth and has no
current plans to pay cash dividends to holders of any class of capital stock
following the Offerings, including the Series A Preferred Stock. During the
first five years after issuance of the Series A Preferred Stock, dividends on
the Series A Preferred Stock are expected to be paid in additional shares of
Series A Preferred Stock. The payment of any future cash dividends will be at
the sole discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, capital requirements, the general financial
condition of the Company and general business conditions. In addition, the
Company's New Loan Agreement, the Indenture and the Certificate of Designation
restrict the payment of dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of Certain Indebtedness," "Description of Notes" and "Description
of Series A Preferred Stock."

9
<PAGE>
CAPITALIZATION

The following table sets forth (i) the capitalization of the Company as of
September 25, 1997, and (ii) the capitalization of the Company as adjusted to
reflect the sale of the shares of Units in the Units Offering and the sale of
the Notes in the Notes Offering (after deducting underwriting discounts and
commissions and estimated expenses of the Offerings), and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." The table should be
read in conjunction with the Consolidated Financial Statements of the Company
and related Notes thereto included elsewhere in this Prospectus. See "Selected
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
SEPTEMBER 25, 1997
--------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Short-term debt............................................. $19,632(1) $971
--------- -----------
--------- -----------
Long-term debt:

Bank credit facility(2)................................... $ 100,157 $0
Other debt(3)............................................. 11,178 11,178
Senior Subordinated Notes................................. 100,000
--------- -----------
Total long-term debt.................................... 111,335 111,178
Series A Preferred Stock, $0.01 par value, 100,000 shares
authorized, no shares issued and outstanding; 40,000
shares outstanding as adjusted (mandatory redemption on
the eleventh anniversary of the date of issuance at
$40,000,000).............................................. 29,750(4)

Redeemable common stock..................................... 2,026 2,026

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding............
Common stock, $0.01 par value, 20,000,000 shares
authorized, 5,773,518 outstanding(5).................... 170 170
Additional paid-in capital................................ 50,798 50,798
Treasury stock, 6,200,228 shares as of September 25,
1997.................................................... (45,488) (45,488)
Warrants, 825,000 exercisable at $0.01 per share.......... 8,250(4)
Retained earnings......................................... 417 (3,323)(6)
--------- -----------
Total stockholders' equity.............................. 5,897 10,407
--------- -----------
Total capitalization.................................. $119,258 $153,361
--------- -----------
--------- -----------
</TABLE>

- --------------------------
(1) Includes cash overdraft of $1.7 million, which will be extinguished using
the proceeds from the Offerings.
(2) The bank credit facility ($100.2 million of long-term debt and $16.9 million
of short-term debt) will be repaid in full in connection with the Offerings.
(3) Other debt consists primarily of the Heller Note and payments to be paid
pursuant to noncompete agreements.
(4) Of the $40.0 million in gross proceeds from the Units Offering, $8.25
million has been allocated to the Warrants, which is based on a value of
$10.00 per share of Common Stock, less the exercise price of $.01 per share.
Of the remaining $31.75 million, $2.0 million has been allocated to fees and
expenses of the Units Offering, which results in $29.75 million being
allocated to the Series A Preferred Stock.
(5) Excludes 1,583,878 shares of Common Stock issuable upon exercise of stock
options outstanding at September 25, 1997 under the Company's stock option
plans and 367,602 shares issuable upon the conversion of the Heller Note.
See "Description of Certain Indebtedness--Heller Note."
(6) Reflects a $4.4 million non-cash pre-tax extraordinary charge related to the
write-off of deferred financing fees, which the Company will incur in the
fiscal quarter in which the Offerings are completed, and (i) a $2.0 million
pre-tax charge related to the termination of an annual management fee and
(ii) a $0.4 million pre-tax charge related to the payment of bonuses to
certain members of management, which the Company will incur in the fiscal
quarter following the fiscal quarter in which the Offerings are completed,
in each case net of income taxes of $3.1 million using an effective income
tax rate of 45%.

10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company commenced operations on September 8, 1995 through the purchase
of certain assets of its predecessor, Color Spot Oregon, in a transaction
accounted for under the purchase method of accounting. Color Spot Oregon
commenced operations on March 1, 1993 through the purchase of certain assets of
Color Spot America in a transaction accounted for under the purchase method of
accounting. On December 31, 1996, KCSN acquired control of the Company through a
series of stock transactions accounted for as a recapitalization. As a result of
these transactions and the Company's ongoing acquisition program, the financial
information presented below is not comparable in certain respects.

The financial information of the Company presented below as of June 30, 1997
and 1996 and for the fiscal year ended June 30, 1997 and for the period from
September 8, 1995 through June 30, 1996 is derived from the audited financial
statements of the Company appearing elsewhere in this Prospectus. The financial
information of the Company as of September 26, 1996 and September 25, 1997 and
for the periods from July 1, 1996 through September 26, 1996 and July 1, 1997
through September 25, 1997 is derived from the unaudited interim financial
statements of the Company, which, in the opinion of management, contain all
adjustments (including those of a normal recurring nature) necessary to present
fairly the financial position and results of operations of the Company as of and
for the periods presented. The financial information of Color Spot Oregon as of
September 8, 1995 and December 31, 1994 and for the period from January 1, 1995
through September 8, 1995 and the year ended December 31, 1994, is derived from
the audited financial statements of Color Spot Oregon. The financial information
as of December 31, 1993, February 28, 1993 and December 31, 1992 and for the
period from February 28, 1993 through December 31, 1993, the period from January
1, 1993 through February 28, 1993 and the year ended December 31, 1992 is
derived from the underlying records of Color Spot Oregon and Color Spot America,
which in the opinion of management, contains all adjustments (including those of
a normal recurring nature) necessary to present fairly the financial position
and results of operations of Color Spot Oregon and Color Spot America as of and
for the periods presented.
<TABLE>
<CAPTION>
THE PREDECESSORS
---------------------------------------------------------------
COLOR SPOT OREGON
-----------------------------------
COLOR SPOT AMERICA YEAR 1/1/95
------------------------- ENDED THROUGH
1/1/93 02/28/93 12/31/94 9/8/95
THROUGH THROUGH --------- ---------
02/28/93 12/31/93
----------- -----------
(UNAUDITED) (UNAUDITED)
YEAR
ENDED
12/31/92
-----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales................... $43,662 $3,015 $38,650 $39,411 $28,991
Gross profit................ 14,461 690 12,863 14,995 11,491
Sales, marketing and
delivery
expenses.................. 11,728 2,101 11,879 13,459 10,488
General and administrative
expenses.................. 4,164 88 3,370 3,986 3,659
Amortization of intangible
assets.................... 12 17 423 424 291
Income (loss) from
operations................ (1,443) (1,516) (2,809) (2,874) (2,947)
Interest expense............ 3,728 725 2,182 3,170 2,576
Other expense (income),
net....................... 214 (55) (83) (97) (38)
Income tax provision
(benefit)................. (1,061)
Income before extraordinary
gain (loss)............... (4,324) (2,186) (4,908) (5,947) (5,485)
Extraordinary gain (loss)... 149 (483)
----------- ----------- ----------- --------- ---------
Net income (loss)........... $(4,175) $(2,669) $(4,908) $(5,947) $(5,485)
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Per share amounts(4)
Income (loss) before
extraordinary
loss--primary...........
Income (loss) before
extraordinary
loss--fully diluted.....
Dividends per share.........

OPERATING DATA:
EBITDA(5)................... $(1,619) $(2,022)
Cash flows from operating
activities................ (2,720) (5,220)
Cash flows from investing
activities................ (609) (260)
Cash flows from financing
activities................ 3,715 5,587
Depreciation and
amortization.............. $1,201 $199 $956 1,255 925
Capital expenditures........ 683 93 1,148 668 260
Ratio of earnings to fixed
charges(6)................
Number of production
facilities(7)............. 7 7 6 6 6

BALANCE SHEET DATA (END OF
PERIOD):
Working capital............. $(13,807) $(11,230) $4,022 $(21,435) $(29,722)
Total assets................ 27,163 25,276 25,874 24,554 22,695
Long-term debt, excluding
current portion........... 6,124 10,991 5,785 4,249 1,430
Stockholders' equity
(deficit)................. (8,864) (11,533) (4,658) (10,605) (16,090)

<CAPTION>
THE COMPANY
---------------------------------------------------
9/8/95 YEAR
THROUGH ENDED 7/1/96 7/1/97
6/30/96(1) 6/30/97(2) THROUGH THROUGH
---------- ---------- 9/26/96 9/25/97(3)
----------- -----------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Net sales................... $51,995 $113,400 $13,437 $25,482
Gross profit................ 24,310 49,374 4,579 7,464
Sales, marketing and
delivery
expenses.................. 15,495 31,168 4,763 8,388
General and administrative
expenses.................. 2,886 7,300 1,204 2,682
Amortization of intangible
assets.................... 94 990 81 612
Income (loss) from
operations................ 5,835 9,916 (1,469) (4,218)
Interest expense............ 687 4,179 133 2,392
Other expense (income),
net....................... 91 (148) (22) 102
Income tax provision
(benefit)................. 2,269 2,830 (760) (3,021)
Income before extraordinary
gain (loss)............... 2,788 3,055 (820) (3,691)
Extraordinary gain (loss)... (215)
---------- ---------- ----------- -----------
Net income (loss)........... $2,788 $2,840 $(820) $(3,691)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Per share amounts(4)
Income (loss) before
extraordinary
loss--primary........... $0.48 $0.44 $(0.12) $(0.57)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Income (loss) before
extraordinary
loss--fully diluted..... 0.48 0.42 (0.12) (0.57)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Dividends per share......... 0.22
OPERATING DATA:
EBITDA(5)................... $6,433 $13,357 $(1,170) $(2,898)
Cash flows from operating
activities................ (3,485) (4,093) 847 2,043
Cash flows from investing
activities................ (9,660) (58,234) (1,184) (43,569)
Cash flows from financing
activities................ 13,846 64,388 557 40,445
Depreciation and
amortization.............. 598 3,441 299 1,320
Capital expenditures........ 1,529 6,181 1,263 3,030
Ratio of earnings to fixed
charges(6)................ 4.68 2.10
Number of production
facilities(7)............. 6 13 7 19
BALANCE SHEET DATA (END OF
PERIOD):
Working capital............. $6,136 $14,161 $2,251 $585
Total assets................ 33,219 133,417 28,944 183,743
Long-term debt, excluding
current portion........... 6,785 83,408 2,829 111,335
Stockholders' equity
(deficit)................. 12,535 4,075 11,765 5,897
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

11
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- ------------------------------
(1) Includes the financial results of Barcelo's Plant Growers from March 1996.

(4) Per share amounts exclude extraordinary loss which would decrease the
primary and fully diluted share amounts by $0.03 for the year ended June 30,
1997.

(5) EBITDA represents income before interest expense, depreciation and
amortization expense, the provision for income taxes, other expense (income)
and extraordinary items. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performances or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Other companies may define EBITDA differently, and as a
result, those measures may not be comparable to the Company's EBITDA. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(6) For purposes of computing a ratio of earnings to fixed charges, "earnings"
consist of income (loss) before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor) Earnings
were insufficient to cover fixed charges by $5,385,000, $2,186,000,
$4,908,000, $5,947,000, $5,485,000, $1,580,000 and $6,712,000 for the year
ended December 31, 1992, the period from January 1, 1993 through February
28, 1993, the period from February 28, 1993 through December 31, 1993, the
year ended December 31, 1994, the period from January 1, 1995 through
September 8, 1995, the period from July 1, 1996 through September 26, 1996
and the period from July 1, 1997 through September 25, 1997, respectively.

(7) Facilities include owned and leased properties as of the end of each period,
excluding Christmas tree fields.

12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)

The pro forma consolidated statement of operations for fiscal 1997 gives
effect to the 13 acquisitions completed by the Company since June 30, 1996,
which consist of the acquisition of NAB Nurseries (October 1996), B&C Growers
(October 1996), Sunrise Growers (November 1996), Sunnyside Plants (January
1997), Lone Star Growers Co. (February 1997), Signature Trees (March 1997), Hi-C
Nursery (April 1997), Plants, Inc. (July 1997), Peters' Wholesale Greenhouses,
Inc. (July 1997), Wolfe Greenhouses, LLC (July 1997), Cracon, Inc. (August
1997), Summersun Greenhouse Co. (August 1997) and Oda Nursery, Inc. (September
1997). Each acquisition was accounted for using the purchase method of
accounting. The information presented under "Year Ended June 30, 1997" presents
the actual results of the Company, including the results of the seven entities
acquired in fiscal 1997 subsequent to their acquisition. The information
presented under "Acquisitions Before Year End" presents the pre-acquisition
results of these seven acquisitions from July 1, 1996 through the date of such
acquisition. The information presented under "Acquisitions After Year End"
presents the results of the six acquisitions completed by the Company after June
30, 1997 as if those acquisitions had been completed on July 1, 1996. The pro
forma consolidated statement of operations for the period from July 1, 1997
through September 25, 1997 gives effect to the six acquisitions completed by the
Company since June 30, 1997. The information presented under "Acquisitions from
July 1, 1997 through September 26, 1997" gives effect to these six acquisitions
as if they had been completed on July 1, 1997. The pro forma consolidated
statements of operations and the related pro forma adjustments are presented to
comply with the rules and regulations of the Securities and Exchange Commission
and are not necessarily indicative of the historical results of operations of
the combined companies as if they were operated on a combined basis for the
period from July 1, 1996 through June 30, 1997. The pro forma adjustments do not
include certain additional cost savings which have been achieved or the Company
anticipates may be achieved in the future. The Company borrowed $52.5 million to
finance the Company's seven acquisitions during fiscal 1997. An additional $37.3
million was borrowed to finance the six acquisitions completed by the Company
after June 30, 1997.

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------
ACQUISITIONS ACQUISITIONS PRO FORMA
YEAR ENDED BEFORE AFTER OTHER YEAR ENDED
JUNE 30, 1997 YEAR END(A) YEAR END(B) ADJUSTMENTS(C) JUNE 30, 1997
------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $113,400 $22,097 $47,577 $183,074
Cost of sales................................ 64,026 14,102 28,446 $1,329(d) 107,903
------------- ------------ ------------ ------- -------------
Gross profit............................... 49,374 7,995 19,131 (1,329) 75,171
Operating expenses........................... 39,458 7,783 12,387 369(e) 59,997
------------- ------------ ------------ ------- -------------
Income (loss) from operations.............. 9,916 212 6,744 (1,698) 15,174
Interest expense............................. 4,179 751 1,398 4,050(f) 10,378
Other (income) expense, net.................. (148) (95) 44 (243)(g) (442)
------------- ------------ ------------ ------- -------------
Income (loss) before income tax provision
(benefit)................................ 5,885 (444) 5,302 (5,505) 5,238
Income tax provision (benefit)(h)............ 2,830 (200) 2,386 (2,659) 2,357
------------- ------------ ------------ ------- -------------
Net income (loss).......................... $3,055 $(244) $2,916 $(2,846) $2,881
------------- ------------ ------------ ------- -------------
------------- ------------ ------------ ------- -------------
Net income per share(i).................... $0.34
-------------
-------------
Shares used in pro forma share
calculation.............................. 8,594,730
-------------
-------------
OPERATING DATA:
Depreciation and amortization................ $3,441 $749 $1,292 $2,006 $7,488
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

13
<PAGE>

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------- PRO FORMA
7/1/97 ACQUISITIONS FROM 7/1/97
THROUGH 7/1/97 THROUGH OTHER THROUGH
9/25/97 9/25/97(J) ADJUSTMENTS(C) 9/25/97
---------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $25,482 $1,863 $27,345
Cost of sales.................................................... 18,018 1,500 $31(d) 19,549
---------- ------------------ -------------- -----------
Gross profit................................................... 7,464 363 (31) 7,796
Operating expenses............................................... 11,682 1,081 45(e) 12,808
---------- ------------------ -------------- -----------
Loss from operations........................................... (4,218) (718) (76) (5,012)
Interest expense................................................. 2,392 116 290(f) 2,798
Other expense (income), net...................................... 102 (38) 16(g) 80
---------- ------------------ -------------- -----------
Loss before income tax benefit................................. (6,712) (796) (382) (7,890)
Income tax benefit(h)............................................ (3,021) (358) (173) (3,552)
---------- ------------------ -------------- -----------
Net loss....................................................... $(3,691) $(438) $(209) $(4,338)
Net loss per share(i).......................................... $(0.67)
-----------
-----------
Shares used in pro forma share calculation..................... 6,444,565
-----------
-----------

OPERATING DATA:
Depreciation and amortization.................................... $1,320 $134 $134 $1,588
</TABLE>

- ------------------------

(a) The results of operations of the entities acquired prior to June 30, 1997
prior to their acquisition in 1997 are summarized as follows:

<TABLE>
<CAPTION>
NAB B&C SUNRISE SUNNYSIDE LONE STAR SIGNATURE HI-C
NURSERIES GROWERS GROWERS PLANTS GROWERS CO. TREES NURSERY TOTAL
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $300 $569 $640 $2,499 $8,617 $6,855 $2,617 $22,097
Cost of sales................... 218 336 356 1,835 4,681 4,542 2,134 14,102
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
Gross profit.................. 82 233 284 664 3,936 2,313 483 7,995
Operating expenses.............. 120 208 527 706 3,459 1,283 1,480 7,783
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
Income (loss) from
operations.................. (38) 25 (243) (42) 477 1,030 (997) 212
Interest expense................ 19 29 14 591 26 72 751
Other (income) expense, net..... (2) 19 (67) (38) (5) (2) (95)
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
Income (loss) before income
tax provision (benefit)..... (55) (23) (190) (42) (76) 1,009 (1,067) (444)
Income tax provision
(benefit)..................... (25) (11) (86) (19) (34) 454 (479) (200)
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
Net income (loss)............. $(30) $(12 ) $(104 ) $(23 ) $(42 ) $555 $(588 ) $(244)
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
</TABLE>

(b) The results of operations of the entities acquired after June 30, 1997 for
the year ended prior to their acquisition are summarized as follows:

<TABLE>
<CAPTION>
PETERS'
WHOLESALE WOLFE SUMMERSUN ODA
PLANTS, GREENHOUSES, GREENHOUSES, CRACON, GREENHOUSE NURSERY,
INC. INC. LLC INC. CO. INC. TOTAL
---------- ------------ ------------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $8,061 $6,800 $9,036 $3,419 $8,552 $11,709 $47,577
Cost of sales...................... 5,246 4,680 6,324 2,704 4,168 5,324 28,446
---------- ------------ ------------ ---------- ----------- ----------- --------
Gross profit..................... 2,815 2,120 2,712 715 4,384 6,385 19,131
Operating expenses................. 2,636 1,254 1,368 294 3,454 3,381 12,387
---------- ------------ ------------ ---------- ----------- ----------- --------
Income (loss) from operations.... 179 866 1,344 421 930 3,004 6,744
Interest expense................... 258 123 202 94 424 297 1,398
Other (income) expense, net (30) (121) (508) (14) (31) 748 44
---------- ------------ ------------ ---------- ----------- ----------- --------
Income (loss) before income tax
provision (benefit)............ (49) 864 1,650 341 537 1,959 5,302
Income tax provision (benefit)..... (22) 390 742 153 242 881 2,386
---------- ------------ ------------ ---------- ----------- ----------- --------
Net income (loss)................ $(27) $474 $908 $188 $295 $1,078 $2,916
---------- ------------ ------------ ---------- ----------- ----------- --------
---------- ------------ ------------ ---------- ----------- ----------- --------
</TABLE>

14
<PAGE>
(FOOTNOTES FROM PRECEDING PAGE)

(c) Adjustments are based on historical results of operations of the businesses,
the allocation of purchase price to the net assets acquired, interest on
borrowings to effect the acquisitions and other contractual arrangements.
Depreciation and amortization have been reflected in accordance with the
Company's accounting policy for the related item and the preliminary results
of fixed asset appraisals.

(d) Reflects a net increase in expense as a result of lease payments for certain
facilities that were owned by the acquired companies and not purchased by
the Company ($771,000 and $14,000 for June 30, 1997 and September 25, 1997,
respectively) and an increase in depreciation expense relating to the
write-up of production equipment ($608,000 and $17,000 for June 30, 1997 and
September 25, 1997, respectively), partially offset by the elimination of
nonrecurring overhead costs ($50,000 for June 30, 1997). Production
equipment acquired in connection with the acquisitions completed by June 30,
1997 and after June 30, 1997 is approximately $19,247,000 and $14,476,000,
respectively. The fair value of the production equipment was based upon the
result of appraisals performed by independent appraiser Arthur Andersen LLP,
who was engaged for financial reporting and income tax purposes. In total,
production equipment was increased by $7,200,000, over its historical cost
basis and is being depreciated over the remaining useful life of the assets
acquired, generally 5 to 20 years.

(e) Reflects additional amortization of intangible assets ($1,330,000 and
$113,000 for June 30, 1997 and September 25, 1997, respectively), increased
management fees ($304,000 and $3,000 for June 30, 1997 and September 25,
1997, respectively) and staff and consulting costs ($3,000 and $1,000 for
June 30, 1997 and September 25, 1997, respectively), partially offset by
reductions in operating expenses due to personnel reductions ($1,268,000 and
$72,000 for June 30, 1997 and September 25, 1997, respectively). Operating
costs eliminated are attributable to personnel reductions. These costs are
primarily accounting, finance, management and other administrative payroll
costs, at the actual amounts included in the historical results of
operations of certain acquired entities, that will not be incurred by the
Company on a prospective basis because the functions performed were
incorporated into the operations of the Company. The Company did not hire
the employees in the functions mentioned, and because of economics of scale,
will be able to absorb the additional workload within its current operating
structure without incurring additional cost. Goodwill on the acquisitions,
representing the excess of cost over the estimated fair value of the net
assets acquired, is approximately $50,426,000 and is being amortized over 40
years.

(f) Reflects additional interest on borrowings used to finance the acquisitions
at the current interest rate of 9%.

(g) Reflects the elimination of a write-down of land not acquired in an
acquisition ($748,000 for June 30, 1997) offset by the elimination of income
on a joint venture that was not acquired ($383,000 and $11,000 for June 30,
1997 and September 25, 1997, respectively) and rental income on assets not
acquired ($122,000 and $5,000 for June 30, 1997 and September 25, 1997,
respectively).

(h) Reflects the reduction in income tax provision associated with the decrease
in income before taxes. The income tax provisions for the acquisitions and
the Pro Forma Year Ended June 30, 1997 and the pro forma period ended
September 25, 1997 results have been calculated assuming a pro forma
effective tax rate of 45%. The Company did not pay cash income taxes in
fiscal 1997 or in the period ended September 25, 1997.

(i) Calculated pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins. In accordance with the Bulletins, certain common and
common equivalent shares issued at prices below the fair value of the Common
Stock at the time of the Offerings during the year ended June 30, 1997 and
the period from July 1, 1997 through September 25, 1997, have been included
in the calculation as if they were outstanding for the entire period (using
the treasury stock method and the estimated fair value of the Common Stock
at the time of the Offerings).

15
<PAGE>
(j) The results of operations of the entities acquired after June 30, 1997 for
the period prior to their acquisition are summarized as follows:

<TABLE>
<CAPTION>
Peters'
Wholesale Wolfe Summersun Oda
Plants, Greenhouses, Greenhouses, Cracon, Greenhouse, Nursery,
Inc. Inc. LLC Inc. Co. Inc. Total
--------- ----------- ----------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $184 $187 $422 -- $434 $636 $1,863
Cost of sales............................. 140 144 278 -- 216 722 1,500
--------- ----- ----- -------- ---------- ---------- ------
Gross profit............................ 44 43 144 -- 218 (86) 363
Operating expenses........................ 106 75 60 -- 389 451 1,081
--------- ----- ----- -------- ---------- ---------- ------
Income (loss) from operations........... (62) (32) 84 -- (171) (537) (718)
Interest expense.......................... 27 3 8 -- 40 38 116
Other income, net......................... (3) (7) (19) -- (8) (1) (38)
--------- ----- ----- -------- ---------- ---------- ------
Income (loss) before income tax
provision (benefit)................... (86) (28) 95 -- (203) (574) (796)
Income tax provision (benefit)............ (39) (13) 43 -- (91) (258) (358)
--------- ----- ----- -------- ---------- ---------- ------
Net income (loss)....................... $(47) $(15) $52 --$ $(112) $(316) $(438)
--------- ----- ----- -------- ---------- ---------- ------
--------- ----- ----- -------- ---------- ---------- ------
</TABLE>

-------------------

In addition, during the fiscal quarter in which the Offerings are completed,
the Company will incur a $4.4 million non-cash pre-tax extraordinary charge
related to the write-off of deferred financing fees, and in the fiscal quarter
following the fiscal quarter in which the Offerings are completed, the Company
will incur (i) a $2.0 million pre-tax charge related to the termination of an
annual management fee and (ii) a $0.4 million pre-tax charge related to the
payment of bonuses to certain members of management.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANY OF THE STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE FORWARD-LOOKING IN NATURE AND,
ACCORDINGLY, WHETHER THEY PROVE TO BE ACCURATE IS SUBJECT TO MANY RISKS AND
UNCERTAINTIES. THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER
MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS IN THIS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SEE "RISK
FACTORS."

OVERVIEW

The Company is the largest wholesale nursery in the United States, based on
revenue and greenhouse square footage. As a result of both acquisitions and
internal expansion, the Company has grown rapidly, generating net sales of
$113.4 million in fiscal 1997, as compared to its predecessor's net sales of
$39.4 million in calendar 1994. Bedding plants accounted for approximately 67%
of the Company's pro forma fiscal 1997 net sales, and shrubs, potted flowering
plants, ground cover and Christmas trees accounted for the remaining 33%.

The Company was originally founded as Color Spot America in 1983 by Michael
F. Vukelich, the Company's current Chief Executive Officer. The current
management of the Company operated Color Spot America until January 1991 when
PacifiCorp obtained control and installed a new management team that operated
Color Spot America and its successor, Color Spot Oregon, from January 1991
through September 8, 1995. Sales and profitability of Color Spot America and
Color Spot Oregon declined and the Company became unprofitable between 1992 and
September 1995. In September 1995, the assets of Color Spot Oregon were sold to
the Company which had been formed by Heller, Mr. Vukelich and Jerry L. Halamuda,
who had previously worked with Mr. Vukelich at Color Spot America. With Mr.
Vukelich as Chief Executive Officer and Mr. Halamuda as President, management of
the Company implemented a number of strategic and operational programs designed
to improve the Company's customer relationships and financial results. These
initiatives included revamping the Company's merchandising programs,
decentralizing its operations, revising its pricing strategies, renewing its
focus on operating efficiencies and restructuring its sales organization.

After these strategic initiatives began to positively impact the Company's
operating results, Color Spot embarked on an aggressive acquisition strategy.
Since June 30, 1996, the Company has completed 13 acquisitions, seven of which
occurred in fiscal 1997. These acquisitions resulted in the Company's expansion
into several states, including Texas, Washington, Oregon and Michigan. The
Company seeks to increase the sales and profitability of acquired companies by
implementing Color Spot's sales and marketing programs and by improving the
operating efficiencies of the acquired business. The Company has historically
financed acquisitions through a combination of cash, promissory notes and
Company stock.

The Company is highly dependent on the purchases of its top eight retail
customers, which together accounted for 75% and 82% of the Company's net sales
in fiscal 1997 and fiscal 1996, respectively. The Company's largest customer,
Home Depot, accounted for approximately 39% and 41% of the Company's net sales
in fiscal 1997 and fiscal 1996, respectively. The Company expects that a small
number of customers will continue to account for a substantial portion of its
net sales for the foreseeable future. See "Risk Factors--Customer Concentration;
Dependence on Home Depot."

Color Spot's designation as an agricultural company provides it with
favorable tax treatment. While the Company's financial statements include tax
expense, the Company has historically not paid cash income taxes. Agricultural
companies are permitted to calculate taxable income on a cash basis. As a result
of the Company's growth, this treatment has enabled the Company to generate
significant net operating losses since its inception and accumulate a large net
operating loss carryforward. The Company expects that it will continue to
benefit from these regulations in the future. In addition, the Company's
effective tax rate has been significantly higher than the U.S. statutory rate of
34%. For instance, the Company's effective tax rate for fiscal 1997 was 48.0%.
The difference between the Company's effective tax rate and

17
<PAGE>
the U.S. statutory rate was due to state tax provisions and other California tax
limitations on the use of net operating loss carryforwards. As of June 30, 1997,
the Company had a net operating loss carryforward of approximately $29.7 million
for federal income tax purposes and $14.1 million for state income tax purposes.

In addition, during the fiscal quarter in which the Offerings are completed,
the Company will incur a $4.4 million non-cash pre-tax extraordinary charge
related to the write-off of deferred financing fees, and in the fiscal quarter
following the fiscal quarter in which the Offerings are completed, the Company
will incur (i) a $2.0 million pre-tax charge related to the termination of an
annual management fee and (ii) a $0.4 million pre-tax charge related to the
payment of bonuses to certain members of Management.

The Company's business is highly seasonal and the Company has historically
reported operating losses in its first and second fiscal quarters, and the
Company believes it will continue to report operating losses during the first
half of its fiscal year. Inclement weather or production difficulties occurring
at a time of peak production or sales, particularly on weekends during the peak
gardening season, could cause declines in net sales and operating income that
could have a material adverse effect on the Company. The Company has recently
sought to reduce the effects of seasonality with sales that are counter-seasonal
to its historic products with the acquisition of Christmas tree operations.
There can be no assurance that the Company will be successful in its efforts to
reduce the effects of seasonality on its operating results. See "Risk
Factors--Seasonality; Variability of Quarterly Results and Certain Charges" and
"--Weather; General Agricultural Risks."

The Company commenced operations on September 8, 1995 through the purchase
of certain assets of Color Spot Oregon in a transaction accounted for under the
purchase method of accounting. Color Spot Oregon commenced operations on March
1, 1993 through the purchase of certain assets of Color Spot America in a
transaction accounted for under the purchase method of accounting. The Company's
predecessors had fiscal years which ended on December 31 of each year. On
December 31, 1996, KCSN acquired control of the Company through a series of
stock transactions accounted for as a recapitalization. In connection with the
recapitalization, the Company borrowed $37.3 million, purchased 6,164,034 shares
of its common stock for $37.1 million in cash and a $7.1 million, 8.0%
subordinated convertible note, sold 3,566,173 shares of stock to KCSN and
certain members of management for $22.3 million and repaid $14.1 million of its
prior indebtedness. In addition, transaction and financing fees of $3.9 million
were paid, a dividend of $1.5 million was declared and a prepayment penalty of
$415,000 was incurred in connection with the early extinguishment of debt. As a
result of these changes in ownership, the differing fiscal periods, and the
seasonality of the business, the results of operations presented herein are not
comparable in certain respects.

18
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain
consolidated income statement items as a percentage of net sales:

<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------------ --------------------------
1/1/95 9/8/95 PRO FORMA
YEAR ENDED THROUGH THROUGH FISCAL YEAR FISCAL YEAR
12/31/94 9/8/95 6/30/96 ENDED 6/30/97 ENDED 6/30/97
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................ 62.0 60.4 53.2 56.5 58.9
----- ----- ----- ----- -----
Gross profit....................................... 38.0 39.6 46.8 43.5 41.1
Sales, marketing and delivery expenses............... 34.2 36.2 29.8 27.5 23.1
General and administrative expenses.................. 10.1 12.6 5.6 6.4 8.3
Amortization of intangible assets.................... 1.1 1.0 0.2 0.9 1.3
----- ----- ----- ----- -----
Income (loss) from operations...................... (7.3) (10.2) 11.2 8.7 8.3
Interest expense..................................... 8.0 8.9 1.3 3.7 5.7
Other expense (income), net.......................... (0.2) (0.1) 0.2 (0.1) (0.1)
----- ----- ----- ----- -----
Income (loss) before income tax provision and
extraordinary loss............................... (15.1) (18.9) 9.7 5.2 2.8
Income tax provision................................. 0.0 0.0 4.4 2.5 1.2
----- ----- ----- ----- -----
Income (loss) before extraordinary loss............ (15.1) (18.9) 5.3 2.7 1.5
Extraordinary loss................................... 0.0 0.0 0.0 0.2 0.0
----- ----- ----- ----- -----
Net income (loss).................................. (15.1)% (18.9 )% 5.3% 2.5% 1.5%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
88 DAYS 87 DAYS 87 DAYS
ENDED ENDED ENDED
9/26/96 9/25/97 9/25/97
------------- ------------- -------------
<S> <C> <C> <C>
Net sales.................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................ 65.9 70.7 71.5
----- ----- -----
Gross profit............................................................... 34.1 29.3 28.5
Sales, marketing and delivery expenses....................................... 35.4 32.9 32.5
General and administrative expenses.......................................... 9.0 10.5 11.7
Amortization of intangible assets............................................ 0.6 2.4 2.7
----- ----- -----
Income (loss) from operations.............................................. (10.9) (16.6) (18.3)
Interest expense............................................................. 1.0 9.4 10.2
Other expense (income), net.................................................. (0.2) 0.4 0.3
----- ----- -----
Income (loss) before taxes................................................. (11.8) (26.3) (28.9)
Income tax provision......................................................... 5.7 11.9 13.0
----- ----- -----
Net income (loss).......................................................... (6.1)% (14.5)% (15.9)%
----- ----- -----
----- ----- -----
</TABLE>

FOR THE 87 DAYS ENDED SEPTEMBER 25, 1997 ("FIRST QUARTER FISCAL 1998") AS
COMPARED TO THE 88 DAYS ENDED SEPTEMBER 26, 1996 ("FIRST QUARTER FISCAL 1997")
AND THE PRO FORMA RESULTS OF OPERATIONS FOR THE 87 DAYS ENDED SEPTEMBER 25,
1997 ("PRO FORMA FIRST QUARTER FISCAL 1998") AS COMPARED TO THE FIRST QUARTER
FISCAL 1998

The financial information for Pro Forma First Quarter Fiscal 1998 gives
effect to the six acquisitions completed by the Company since June 30, 1997 as
if those acquisitions had been completed on July 1, 1997. Such acquisitions
account for a substantial portion of the pro forma increases in net sales, gross
profit, operating expenses and taxes.

19
<PAGE>
NET SALES. Net sales increased $12.0 million, or 89.6%, to $25.5 million
for the First Quarter Fiscal 1998 from $13.4 million in the First Quarter Fiscal
1997. This increase is primarily the result of the acquisition of seven
companies during the second through fourth quarters of fiscal 1997 and the
acquisition of six companies during the First Quarter Fiscal 1998. Net sales for
Pro Forma First Quarter Fiscal 1998 totaled $27.3 million, representing an
increase of $1.8 million or 7.3% over the First Quarter Fiscal 1998.

GROSS PROFIT. Gross profit increased $2.9 million, or 63.0%, to $7.5
million for the First Quarter Fiscal 1998 from $4.6 million in the First Quarter
Fiscal 1997. Gross profit as a percentage of net sales decreased to 29.3% for
the First Quarter Fiscal 1998 from 34.1% for the First Quarter Fiscal 1997. The
reduction in gross profit percentage was primarily the result of higher
production labor costs as a result of a statutory increase in the minimum wage
and higher shrinkage and return rates due to warmer weather in the Company's
Western division. Gross profit for Pro Forma First Quarter Fiscal 1998 totaled
$7.8 million representing an increase of $0.3 million, or 4.4%, over First
Quarter Fiscal 1998. Gross profit as a percentage of net sales decreased to
28.5% for Pro Forma First Quarter Fiscal 1998.

OPERATING EXPENSES. Operating expenses includes sales, marketing and
delivery expenses, general and administrative expenses and amortization of
intangible assets. Sales, marketing and delivery expenses increased $3.6
million, or 76.1%, to $8.4 million for the First Quarter Fiscal 1998 from $4.8
million in the First Quarter Fiscal 1997. As a percentage of net sales, sales,
marketing and delivery expenses decreased to 32.9% for the First Quarter Fiscal
1998 from 35.5% for the First Quarter Fiscal 1997. This decrease as a percentage
of net sales was the result of the expansion of the Company's Southwest division
which generally experiences lower delivery expenses as a percentage of net sales
because the mix of products sold by the Southwest division generally has a
higher per unit sales price. Sales, marketing and delivery expenses for Pro
Forma First Quarter Fiscal 1998 totaled $8.9 million, an increase of $0.5
million, or 6.0%, over First Quarter Fiscal 1998. As a percentage of net sales,
sales, marketing and delivery expenses decreased to 32.5%. General and
administrative expenses increased $1.5 million, or 122.8%, to $2.7 million for
the First Quarter Fiscal 1998 from $1.2 million in the First Quarter Fiscal
1997. As a percentage of net sales, general and administrative expenses
increased to 10.5% for the First Quarter Fiscal 1998 from 9.0% for the First
Quarter Fiscal 1997. This increase as a percentage of net sales is primarily the
result of the addition of operations of the Company's Southwest division which
incurred slightly higher general and administrative expenses as a percentage of
net sales resulting from the smaller proportion of the Southwest division's
sales occurring in the first fiscal quarter than the Company's Western division
and fewer economies of scale due to the relatively smaller size of the Southwest
division as compared to the Company's historic operations. General and
administrative expenses for Pro Forma First Quarter Fiscal 1998 totaled $3.2
million, an increase of $0.5 million, or 18.9%, over First Quarter Fiscal 1998.
As a percentage of net sales, general and administrative expenses increased to
11.7%. Amortization of intangible assets increased $0.5 million to $0.6 million
for the First Quarter Fiscal 1998 from $0.1 million in First Quarter Fiscal 1997
as a result of the acquisition of 13 companies after the First Quarter Fiscal
1997. Amortization of intangible assets for Pro Forma First Quarter Fiscal 1998
increased $0.1 million to $0.7 million.

INTEREST EXPENSE. Interest expense increased $2.3 million to $2.4 million
for the First Quarter Fiscal 1998 from $0.1 million in First Quarter Fiscal 1997
as a result of significantly higher levels of borrowings required to fund
acquisitions and the Company's growing working capital requirements. Interest
expense for Pro Forma First Quarter Fiscal 1998 increased $0.4 million to $2.8
million.

TAXES. The Company's effective tax rate decreased to 45.0% for the First
Quarter Fiscal 1998 and Pro Forma First Quarter Fiscal 1998 from 48.1% for the
First Quarter Fiscal 1997, primarily as a result of the Company conducting more
business outside of the State of California, where the Company has state tax
limitations on the use of its net operating loss carryforwards.

20
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1997 ("FISCAL 1997") AS COMPARED TO THE PERIOD FROM
SEPTEMBER 8, 1995 THROUGH JUNE 30, 1996 ("FISCAL 1996") AND THE PRO FORMA
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1997 ("PRO FORMA
FISCAL 1997") AS COMPARED TO FISCAL 1997

The financial information for Pro Forma Fiscal 1997 gives effect to the
seven acquisitions completed by the Company in fiscal 1997 and the six
acquisitions completed by the Company since June 30, 1997 as if those
acquisitions had been completed on July 1, 1996. Such acquisitions account for a
substantial portion of the pro forma increases in net sales, gross profit,
operating expenses and taxes.

NET SALES. Net sales increased $61.4 million, or 118.1%, to $113.4 million
in fiscal 1997 from $52.0 million in fiscal 1996. This increase was primarily
attributable to increased sales volume with existing customers, sales to new
retailers, new product introductions, the acquisition of seven companies in
fiscal 1997 and the fact that fiscal 1997 was 70 days longer than fiscal 1996.
Net sales increased $56.7 million, or 100.0%, in fiscal 1997 over net sales for
the 12 months ended June 30, 1996 for the Company and its predecessor. Net sales
for Pro Forma Fiscal 1997 totaled $183.1 million representing an increase of
$69.7 million, or 61.5%, over Fiscal 1997.

GROSS PROFIT. Gross profit increased $25.1 million, or 103.1%, to $49.4
million in fiscal 1997 from $24.3 million in fiscal 1996. Gross profit as a
percentage of net sales decreased to 43.5% in fiscal 1997 from 46.8% in fiscal
1996. This decrease reflects the fact that fiscal 1997 was 70 days longer than
fiscal 1996. The 70 days not included in fiscal 1996 include the months of July
and August in which the Company has historically generated lower net sales and
gross margins. The Company believes that gross margins for fiscal 1997 were
comparable to the gross margins for the 12 month period ended June 30, 1996.
Gross profit for Pro Forma Fiscal 1997 totaled $75.2 million representing an
increase of $25.8 million, or 52.2%, over fiscal 1997. Gross profit as a
percentage of net sales for Pro Forma Fiscal 1997 decreased to 41.1% from 43.5%
for fiscal 1997. This decrease is attributable to the results of operations for
all acquisitions included in Pro Forma Fiscal 1997 for the entire year rather
than the portion of the year which generates the highest gross profits.

OPERATING EXPENSES. Sales, marketing and delivery expenses increased $15.7
million, or 101.1%, to $31.2 million in fiscal 1997 from $15.5 million in fiscal
1996. As a percentage of net sales, sales, marketing and delivery expenses
decreased to 27.5% in fiscal 1997 from 29.8% in fiscal 1996. This decrease as a
percentage of net sales was primarily due to lower per unit distribution costs
associated with newly acquired product lines. Sales, marketing and delivery
expenses for Pro Forma Fiscal 1997 totaled $42.3 million, an increase of $11.3
million, or 36.2%, over fiscal 1997. As a percentage of net sales, marketing and
delivery expenses decreased to 23.2% for Pro Forma Fiscal 1997 due to the
expansion of the Company's Southwest division which generally sells products for
a higher per unit sales price. General and administrative expenses increased
$4.4 million, or 152.9%, to $7.3 million in fiscal 1997 from $2.9 million in
fiscal 1996. As a percentage of net sales, general and administrative expenses
increased to 6.4% in fiscal 1997 from 5.6% in fiscal 1996. This increase is
primarily attributable to the fact that fiscal 1997 was 70 days longer than
fiscal 1996 and to increased costs relating to supporting the Company's growth,
including an increase in corporate personnel. General and administrative
expenses for Pro Forma Fiscal 1997 totaled $15.2 million, an increase of $7.9
million over fiscal 1997. As a percentage of net sales, general and
administrative expenses for Pro Forma Fiscal 1997 increased to 8.3%. This
increase is attributable to including the results of operations for all
acquisitions for the entire year, including the periods prior to acquisition
which are characterized by higher general and administrative expenses as a
percentage of net sales due to the seasonality of the businesses acquired.
Amortization of intangible assets increased $0.9 million to $1.0 million in
fiscal 1997 from $0.1 million in fiscal 1996 primarily as a result of the
Company's acquisitions in fiscal 1997. Amortization of intangible assets for Pro
Forma Fiscal 1997 increased $1.3 million to $2.3 million.

INTEREST EXPENSE. Interest expense increased $3.5 million to $4.2 million
in fiscal 1997 from $0.7 million in fiscal 1996. This increase resulted
primarily from increased borrowings made to fund acquisitions

21
<PAGE>
and to effect the Recapitalization on December 31, 1996. Interest expense for
Pro Forma Fiscal 1997 increased $6.2 million to $10.4 million.

TAXES. The effective tax rate increased to 48.0% in fiscal 1997 from 44.8%
in fiscal 1996, primarily as a result of a greater impact of the state tax
limitations on the use of net operating loss carryforwards. The effective tax
rate for Pro Forma Fiscal 1997 decreased to 45.0% primarily as a result of the
Company conducting, on a pro forma basis, more business in the State of Texas,
which assesses minimal income tax on profits.

FISCAL 1996 AS COMPARED TO THE PERIOD FROM JANUARY 1, 1995 THROUGH SEPTEMBER 8,
1995 ("FISCAL 1995")

(All material effects resulting from the change in accounting basis are
separately identified.)

NET SALES. Net sales increased $23.0 million, or 79.3%, to $52.0 million in
fiscal 1996 from $29.0 million in fiscal 1995. This increase was primarily a
result of fiscal 1996 being 45 days longer than fiscal 1995, increased sales
from acquired operations and increased sales to the Company's existing
customers.

GROSS PROFIT. Gross profit increased $12.8 million, or 111.6%, to $24.3
million in fiscal 1996 from $11.5 million in fiscal 1995. As a percentage of net
sales, gross profit increased to 46.8% in fiscal 1996 from 39.6% in fiscal 1995.
This increase resulted primarily from the implementation of certain strategic
management initiatives by the Company's current management, including price
increases, production efficiencies, new product packaging and improved raw
material costs.

OPERATING EXPENSES. Sales, marketing and delivery expenses increased $5.0
million, or 47.7%, to $15.5 million in fiscal 1996 from $10.5 million in fiscal
1995. As a percentage of net sales, sales, marketing and delivery expenses
decreased to 29.8% in fiscal 1996 from 36.2% in fiscal 1995. This decrease
resulted primarily from a restructuring of the Company's sales organization,
including the elimination of certain management positions and a shift to an
incentive-based compensation structure. General and administrative expenses
decreased $0.8 million, or 21.1%, to $2.9 million in fiscal 1996 from $3.7
million in fiscal 1995. As a percentage of net sales, general and administrative
expenses declined to 5.6% in fiscal 1995 from 12.6% primarily due to leveraging
these expenses over higher sales and cost reduction initiatives, including
reductions in corporate personnel. Amortization of intangible assets decreased
$0.2 million to $0.1 million in fiscal 1996 from $0.3 million in fiscal 1995 as
a result of the effect of the elimination of certain intangible assets in
connection with the purchase of the assets of Color Spot Oregon offset by
amortization of goodwill relating to the acquisition of Color Spot Oregon.

INTEREST EXPENSE. Interest expense decreased $1.9 million to $0.7 million
in fiscal 1996 from $2.6 million in fiscal 1995. This decrease resulted from the
reduction in borrowings resulting from the issuance of Common Stock to finance
the purchase by the Company of the assets of its predecessor.

TAXES. The effective tax rate for fiscal 1996 was 44.8%. No tax benefit was
recognized in fiscal 1995 as a result of the uncertainty of the Company's
predecessor to achieve sufficient taxable income to realize deferred tax assets.

FISCAL 1995 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1994 ("FISCAL 1994")

NET SALES. Net sales decreased $10.4 million, or 26.4%, to $29.0 million in
fiscal 1995 from $39.4 million in fiscal 1994. This decrease is primarily due to
the fact that fiscal 1995 was 114 days shorter than fiscal 1994 and decreased
sales to the Company's existing customers.

GROSS PROFIT. Gross profit decreased $3.5 million, or 23.4%, to $11.5
million in fiscal 1995 from $15.0 million in fiscal 1994. As a percentage of net
sales, gross profit increased to 39.6% in fiscal 1995 from 38.0% in fiscal 1994.
This increase as a percentage of net sales is largely due to the seasonality of
the periods presented.

OPERATING EXPENSES. Sales, marketing and delivery expenses decreased 22.1%
to $10.5 million in fiscal 1995 from $13.5 million in fiscal 1994. As a
percentage of net sales, sales, marketing and delivery

22
<PAGE>
expenses increased to 36.2% in fiscal 1995 from 34.2% in fiscal 1994. This
increase resulted primarily from changes in packaging, decreased sales to the
Company's existing customers and less efficient use of the Company's
distribution fleet. General and administrative expenses decreased $0.3 million,
or 8.2%, to $3.7 million in fiscal 1995 from $4.0 million in fiscal 1994. As a
percentage of net sales, general and administrative expenses increased to 12.6%
in fiscal 1995 from 10.1% in fiscal 1994. This increase resulted primarily from
severance payments made in September 1995 in connection with the purchase by the
Company of the assets of its predecessor and an increase in the number of
corporate personnel. Amortization of intangible assets decreased $0.1 million,
or 31.4%, to $0.3 million in fiscal 1995 from $0.4 million in fiscal 1994.

INTEREST EXPENSE. Interest expense decreased $0.6 million to $2.6 million
in fiscal 1995 from $3.2 million in fiscal 1994. This decrease resulted
primarily from the fewer number of days in fiscal 1995.

TAXES. No tax benefit was recognized in fiscal 1995 or fiscal 1994 as a
result of the uncertainty of the Company's predecessor's ability to achieve
sufficient taxable income to realize deferred tax benefits.

SEASONALITY AND QUARTERLY RESULTS

Color Spot's business is highly seasonal, and the Company has historically
reported operating losses in its first and second fiscal quarters. The Company
believes that it will continue to report operating losses in the first half of
its fiscal year for the foreseeable future. In addition, during the fiscal
quarter in which the Offerings are completed, the Company will incur (i) a $4.4
million non-cash pre-tax extraordinary charge related to the write-off of
deferred financing fees and (ii) a $2.0 million pre-tax charge related to the
termination of an annual management fee. See "Risk Factors--Seasonality;
Variability of Quarterly Results and Certain Charges."

The following tables set forth the unaudited results for each of the four
fiscal quarters in fiscal 1997, the three full fiscal quarters of fiscal 1996,
the period from the inception of the Company to September 28, 1995, and the
period from July 1, 1995 to September 8, 1995 for the Company's predecessor. The
data for the Company's predecessor and the twelve-month period totals are
presented for informational purposes only and are not comparable in certain
respects. In the opinion of the Company's management, this information has been
prepared on the same basis as the audited consolidated financial statements
appearing elsewhere in this Prospectus, and include all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary to
fairly present such information. In addition to the seasonal nature of the
Company's business, the Company's quarterly results have historically been
subject to significant fluctuations stemming from changes in ownership and
business strategy and the effects of acquisitions.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
SEPTEMBER 26, DECEMBER 26, MARCH 27, JUNE 30,
1996 1996 1997 1997 TOTAL
------------- ------------ ----------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................................... $ 13,437 $ 13,165 $ 31,049 $ 55,749 $ 113,400
Gross profit............................................ 4,579 4,920 13,716 26,159 49,374
Income (loss) from operations........................... (1,469) (1,059) 3,871 8,573 9,916
Net income (loss)....................................... (820) (740) 932 3,468 2,840
</TABLE>

<TABLE>
<CAPTION>
THE
PREDECESSOR THE COMPANY
-------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
70 DAYS ENDED 21 DAYS ENDED ------------------------------------
SEPTEMBER 8, SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
1995 1995 1995 1996 1996 TOTAL
-------------- --------------- ------------ ----------- --------- ---------
(IN THOUSANDS)
Net sales................................. $4,716 $ 1,798 $6,852 $ 12,834 $ 30,511 $ 56,711
Gross profit.............................. 529 120 1,982 8,279 13,929 24,839
Income (loss) from operations............. (3,444) (767) (1,708) 3,272 5,038 2,391
Net income (loss)......................... (4,119) (485) (1,099) 1,789 2,583 (1,331)
</TABLE>

23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The Company's cash needs are primarily to fund seasonal working capital,
capital expenditures and acquisitions. Since September 8, 1995, the Company's
primary sources of capital have been a revolving line of credit, various term
and acquisition loans and the issuance of Company stock.

During fiscal 1997 and fiscal 1996, net cash used in operations was $4.1
million and $3.5 million, respectively. Net cash used in investing activities
during fiscal 1997 and fiscal 1996 was $58.2 million and $9.7 million,
respectively. These amounts related primarily to one acquisition in fiscal 1996
and seven acquisitions completed by the Company in fiscal 1997. The Company
spent $6.2 million and $1.5 million on capital expenditures in fiscal 1997 and
fiscal 1996, respectively. The Company anticipates it will spend $11.4 million
in fiscal 1998, of which approximately $8.0 million will be expansion capital
expenditures and $3.4 million will be maintenance capital expenditures.
Expansion capital expenditures typically include grading of new land, purchasing
and building new greenhouses and related improvements, such as the installation
of ventilation and irrigation systems.

In connection with the Recapitalization, the Company entered into a loan
agreement (the "Loan Agreement") with Credit Agricole Indosuez and a syndicate
of banks. Borrowings under the Loan Agreement are secured by substantially all
of the Company's assets. On September 25, 1997, the Company had an aggregate of
$103.8 million in term loans outstanding under the Loan Agreement and $13.3
million in revolving credit loans. At September 25, 1997, borrowings under the
Loan Agreement bore interest at rates ranging from 8.4% to 10.3% per annum. At
September 25, 1997, the Company had $13.6 million of additional revolving credit
availability under the Loan Agreement. Borrowings under the Company's revolving
credit facility are subject to certain borrowing base limitations generally
based on a percentage of eligible inventory and eligible accounts receivable.
Additionally, revolving credit borrowings must be reduced annually below $10.0
million for a 30-day period.

In connection with the Recapitalization, the Company borrowed $37.3 million
under the Loan Agreement and purchased approximately 6.1 million shares of
Common Stock for $37.1 million in cash and the Heller Note in the original
principal amount of $7.1 million. In addition, the Company sold approximately
3.6 million shares of newly issued Common Stock for an aggregate purchase price
of $22.3 million and repaid $14.1 million of indebtedness. The Company also
declared a dividend of approximately $1.5 million to its stockholders
immediately prior to the Recapitalization. Following the Recapitalization and
during fiscal 1997, the Company sold an additional 1.7 million shares of Common
Stock for an aggregate purchase price of $12.1 million. During fiscal 1996, the
Company sold 6.7 million shares of Common Stock for an aggregate purchase price
of $9.7 million.

Upon completion of the Offerings, the Company will enter into the New Loan
Agreement which will provide an acquisition term loan facility of $75.0 million,
a revolving credit facility of $40.0 million, and a supplemental line of $35.0
million which may be used either for acquisitions or working capital. See
"Description of Certain Indebtedness--New Loan Agreement."

The Company believes that the net proceeds from the Offerings, together with
available cash, cash generated from operations and available borrowings under
the New Loan Agreement, will be sufficient to finance working capital, capital
expenditures and acquisitions for at least the next 12 months. However, there
can be no assurance that such resources will be sufficient to meet the Company's
anticipated working capital, capital expenditure and acquisition financing
requirements or that the Company will not require additional financing within
this time frame. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary. See "Risk Factors--Future Capital Needs; Uncertainty of
Additional Financing."

24
<PAGE>
BUSINESS

OVERVIEW

Color Spot is the largest wholesale nursery in the United States, based on
revenue and greenhouse square footage. The Company provides a wide assortment of
high quality plants as well as extensive merchandising services primarily to
leading home centers and mass merchants, such as Home Depot, Home Base, Wal-Mart
and Kmart. The Company distributes products to over 850 retail and 400
commercial customers, representing over 8,000 locations, primarily in the
western and southwestern regions of the United States. Since June 30, 1996, the
Company has completed 13 acquisitions, making it a leading consolidator in the
wholesale nursery industry. On a pro forma basis, the Company generated
approximately $183.1 million in net sales and $22.7 million in EBITDA in fiscal
1997.

The Company believes it is one of the few wholesale nurseries that has the
scale and distribution capabilities necessary to provide large volumes of high
quality product to its retail customers on a multi-regional basis. The Company
produces over 2,000 varieties of live plants, including bedding plants, shrubs,
potted flowering plants, ground cover and fresh cut Christmas trees. Through its
200 person sales force, Color Spot also provides its retail customers with a
broad array of value-added services, such as in-store merchandising, product
display and maintenance, promotional planning and product reordering. The
Company believes that providing these services differentiates it from its
competitors and helps to establish Color Spot as a preferred supplier in the
industry. Color Spot operates 19 production facilities located in California,
Arizona, Texas, Oregon and Washington.

HISTORY

Color Spot America was founded in 1983 by Michael F. Vukelich, the Company's
current Chief Executive Officer, and it grew to become one of the largest
bedding plant producers in California. In January 1991, Mr. Vukelich left Color
Spot America, ceding operational control to PacifiCorp, which installed new
management. In 1993, Color Spot America sold substantially all of its assets and
liabilities to Color Spot Oregon, a corporation controlled by PacifiCorp. Net
sales and profitability of Color Spot America and Color Spot Oregon declined
between 1992 and 1995.

In September 1995, the Company was formed by Mr. Vukelich, Jerry L.
Halamuda, who had previously worked with Mr. Vukelich at Color Spot America, and
Heller to acquire the assets of Color Spot Oregon from PacifiCorp. With Mr.
Vukelich as Chief Executive Officer and Mr. Halamuda as President, management
implemented a number of strategic and operational programs designed to improve
the Company's customer relationships and financial results. These initiatives
included revamping the Company's merchandising programs, decentralizing its
operations, revising its pricing strategies, renewing its focus on operating
efficiencies and restructuring its sales organization. As a result of these
strategies, the Company has experienced significant improvements in net sales
and operating results. With the improvement of its financial results, Color Spot
embarked on an aggressive acquisition strategy and has completed 13 acquisitions
since June 30, 1996. Color Spot believes it is well positioned to continue its
growth and further consolidate the wholesale nursery industry.

In December 1996, an affiliate of Kohlberg acquired a majority interest in
the Company in the Recapitalization pursuant to which the Company repurchased
the shares of Common Stock held by Heller and a portion of the Common Stock held
by management. See "Certain Transactions."

INDUSTRY

Gardening is one of the most popular leisure activities in the United
States. According to the 1996-1997 National Gardening Survey conducted by the
Gallup Organization, Inc., 64% of the approximately 101 million U.S. households
participated in some form of gardening in 1996. The Company believes that the
popularity of gardening is likely to increase in coming years. According to the
National Gardening

25
<PAGE>
Survey, the demographic group that spends the most money per capita on gardening
is individuals age 50 and older. This group will be the fastest growing
demographic group through the year 2010, according to the U.S. Census.

Nationwide, retail sales of live plants totaled approximately $18 billion in
1996. In recent years, the live plant market has demonstrated consistent growth,
increasing at a compound annual growth rate of approximately 6.3% since 1993.
The Company also competes in the fresh cut Christmas tree market which generated
wholesale revenues nationwide of approximately $330 million in 1996. The
Company's sales have historically been derived largely from the sale of bedding
plants. The following table provides a breakdown of live plant retail sales in
1996:

<TABLE>
<CAPTION>
RETAIL % OF
CATEGORY TYPICAL PRODUCTS SALES(1) RETAIL SALES
- --------------------------- ---------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
(IN BILLIONS)
Evergreens and Shrubs Pines and junipers $7.1 39.9%

Trees Outdoor fruit and nut trees and shade trees 4.5 25.3

Bedding Plants Outdoor flowers and vegetables 2.9 16.3

Flowering Potted Plants Indoor flowering plants, such as chrysanthemums, 2.0 11.2
poinsettias and African violets

Foliage Indoor house plants 0.8 4.5

Bulbs Flower bulbs 0.5 2.8
----- -----
$ 17.8 100.0%
----- -----
----- -----
</TABLE>

- ------------------------------

(1) Source: February/March 1997 Nursery Retailer Magazine.

The live plant retail distribution channel has consolidated significantly
over the last ten years, with sales shifting from local independent nurseries to
large home centers and mass merchants, such as Home Depot, Home Base, Target,
Wal-Mart and Kmart. Live plants are attractive product offerings for these
retailers, as each dollar of live plant sales typically generates four dollars
of gardening equipment and other complementary product sales, according to the
National Gardening Survey. Moreover, the relatively low price point of most live
plants encourages impulse buying by consumers and makes these products
relatively resistant to economic downturns. Retail consolidation has altered the
nature of the wholesale demand for live plants. Given the sophistication, size
and geographic diversity of the national chains, retail customers prefer
suppliers that can meet demanding delivery schedules, fulfill large volume
requirements and provide a variety of value-added services.

Despite this retail consolidation, the wholesale nursery industry is still
highly fragmented, and is characterized by local, independent nurseries. In
1996, the ten largest and 100 largest of the over 10,000 wholesale nurseries in
the United States accounted for approximately 8% and 22%, respectively, of total
wholesale production, according to Nursery Business Magazine. Due to the
fragmented nature of the wholesale nursery industry, the Company believes that
there is a significant opportunity for a branded, well capitalized and
professionally managed company to lead the consolidation of this industry.

BUSINESS STRATEGY

The Company's goals are to enhance its leadership position in the wholesale
nursery industry in its established markets and to become the market share
leader in targeted new regions nationwide. The

26
<PAGE>
Company's business strategy is designed to meet the increasing demands of retail
customers and consumers, both of which are critical to the Company's success.
The Company's business strategy includes the following key elements:

OFFER BROAD SELECTION OF HIGH QUALITY PRODUCTS

Color Spot provides retail customers and consumers with a broad selection of
high quality live plants. Through frequent deliveries, careful pre-delivery
screening and regular plant maintenance, Color Spot is able to provide
consistently fresh and attractive products. The Company offers over 2,000
varieties of live plants, including bedding plants, shrubs, potted flowering
plants, ground cover and fresh cut Christmas trees. In addition, the Company
continually seeks to develop new products through exclusive flower color mixes,
proprietary retail product lines and creative, easy-to-use packaging. Color Spot
believes it is one of the few wholesale nurseries that can consistently provide
the large volumes of high quality products desired by home centers and mass
merchants.

PROVIDE SUPERIOR CUSTOMER SERVICE

The Company believes that its value-added services differentiate it from its
competitors and allows Color Spot to establish itself as a preferred supplier to
its retail customers. The Company services its retail customers through a
salesforce of over 200 sales merchandisers, which the Company believes is the
largest salesforce in the wholesale nursery industry. The Company's service
philosophy encourages each of its sales merchandisers to effectively function as
a garden center employee, working closely with retail store personnel to
anticipate changing customer demands and to react to local growing conditions.
Color Spot services include in-store merchandising, product display, plant
maintenance, promotional planning and product reordering. The Company believes
that due to the perishable nature of its products, these services are critical
to maintaining attractive and fresh product displays which help to drive retail
sales.

CAPITALIZE ON LARGE-SCALE AND MULTI-REGIONAL CAPABILITIES

Color Spot believes that home centers and mass merchants prefer to buy from
large wholesale nurseries that can consistently deliver high quality products to
a broad geographic area. Color Spot is the largest wholesale nursery in the
United States and one of the few nurseries that has the scale and distribution
capabilities to support home centers and mass merchants on a multi-regional
basis. The Company's production facilities are located in diverse geographic
regions to increase distribution efficiency, to better serve customers and to
minimize the effects of adverse weather conditions.

CONTINUE TO STRENGTHEN RELATIONSHIPS WITH LARGE RETAIL CUSTOMERS

The Company has long-standing relationships with many leading home centers
and mass merchants in the United States. The Company believes it is the largest
supplier of live plants for Home Depot, Home Base, Target, Wal-Mart and Kmart in
the western United States. The Company is involved in its retail customers'
sales and inventory planning processes, allowing Color Spot to plan its
production capacity more effectively to meet its retail customers' demands. In
addition, the Company works with a number of its retail customers to develop
proprietary products, new packaging and sales and promotional programs.

ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL

The Company believes that attracting and retaining highly qualified
personnel is critical to the success of its operations due to the constant
interaction among Color Spot employees, retail customer personnel and consumers.
The Company has instituted a number of sales and other performance-based
incentives which are designed to foster loyalty to the Company and reduce
employee turnover. As a result, the Company believes that it has the most
experienced salesforce in the wholesale nursery industry. The Company also
provides extensive training and promotion opportunities for its sales
merchandisers and management personnel. The Company's decentralized management
approach encourages employees at each of its production facilities to actively
participate in strategic planning for that facility. The Company believes that
these programs and opportunities make it an attractive employment opportunity
for the

27
<PAGE>
employees of companies which it acquires, and enables the Company to retain the
most qualified employees of acquired companies.

GROWTH STRATEGY

The Company's goal is to enhance its leadership position in the wholesale
nursery industry. Color Spot's growth strategy is to continue to enter new
geographic markets through acquisitions and to expand its presence in its
existing markets. An important aspect of the Company's growth strategy is to
increase its penetration in targeted markets thereby enabling the Company to
better serve its retail customers, enhancing its brand name recognition and
increasing operating efficiencies. The key elements of the Company's growth
strategy include:

EXISTING AND NEW CUSTOMER GROWTH

The Company plans to increase sales by growing with its existing retail
customers and seeking new relationships with other high volume retailers. The
Company strives to increase the number of stores it serves for its existing
retail customers both through serving (i) a larger percentage of its retail
customers' stores and (ii) its retail customers' new stores as those retailers
expand. For instance, since June 30, 1996, the Company has added 490 new stores
operated by its existing retail customers without giving effect to stores added
through acquisitions. The Company also seeks to increase same store sales by
gaining shelf space and improving sales productivity through merchandising
programs and improved product offerings. In addition, Color Spot actively seeks
relationships with new retail customers, and since June 30, 1996 has added three
new retail customers representing over 100 new stores.

ACQUISITIONS

The Company intends to pursue acquisitions in the future which either allow
the Company to establish a platform in a new geographic area or "fill-in" the
Company's product line and production capacity in the Company's existing
markets. Since June 30, 1996, Color Spot has completed 13 acquisitions, adding
13 production facilities, over 1,800 growing acres of production capacity and
over 8.4 million square feet of greenhouse space. The Company's acquisition
strategy is designed to (i) increase its penetration of its existing markets,
(ii) expand into targeted new geographical areas and (iii) add new product
lines. The Company's strategy in entering new geographic areas is to make a
strategic acquisition that can be used as a platform for future expansion in
these new areas. Recently, the Company has made platform acquisitions in the
Texas and Washington markets, and believes that it has significant opportunities
to further "fill-in" these markets. The Company seeks to increase the sales and
profitability of acquired companies by implementing Color Spot's sales and
merchandising programs and by improving the operating efficiencies of the
acquired business.

PRODUCT LINE EXPANSION

The Company actively seeks new product opportunities, through both
acquisitions and internal development. By offering a greater variety of
products, the Company believes its retail customers are able to reduce their
number of live plant suppliers. While the Company's sales have been derived
largely from the sales of bedding plants, the Company believes that there is
significant opportunity to expand into other areas of the wholesale nursery
industry. Since June 30, 1996, the Company has expanded its product line into
new areas of the wholesale nursery industry, including shrubs, potted flowering
plants and ground cover. The Company has also expanded into the fresh cut
Christmas tree business which enables it to utilize available sales and
distribution capacity during the winter months.

PRODUCTS

The Company is committed to providing its retail customers and consumers
with a broad selection of high quality live plant products. The Company's
products include over 2,000 varieties of plants, including a wide selection of
bedding plants, shrubs, potted flowering plants, ground cover and fresh cut
Christmas

28
<PAGE>
trees. The Company's products have retail prices generally ranging from $0.62 to
$17.95. Most of the Company's products are sold under the Color Spot brand name,
and include easy-to-read labels containing growing instructions and a color
picture of a mature plant. The Company's products are sold in various containers
and sizes, ranging from flats and paks containing numerous small plants to
single containers containing one plant. The following is a summary of the
Company's product lines:

<TABLE>
<CAPTION>
% OF PRO FORMA TYPICAL
PRODUCT FISCAL 1997 NET SALES GROWING TIME
- -------------------------------------------------------------- ------------------------ ------------------
<S> <C> <C>
Bedding Plants................................................ 67% 8 to 14 weeks
Shrubs........................................................ 13 10 to 16 months
Flowering Potted Plants....................................... 12 6 to 9 weeks
Ground Cover.................................................. 2 10 to 14 weeks
Christmas Trees............................................... 6 8 to 9 years
</TABLE>

Color Spot constantly strives for product innovations, such as exclusive
flower color mixes, new packaging and "premium" potted flowers. In addition,
Color Spot works closely with its large retail customers to develop proprietary
branded products.

CUSTOMERS

The Company sells its products to over 850 retail customers representing
more than 8,000 locations in the United States as well as to over 400 commercial
customers. The majority of the Company's products are sold to large national
retailers, and the Company has long-standing relationships with many of these
retail customers. Color Spot's retail customer base includes home centers, mass
merchants, drug and grocery stores and independent nursery chains. Sales to
national retail chains have increased significantly as these retail customers
continue to gain market share. The following table sets forth a selected list of
customers for each major category of retail customers:

<TABLE>
<CAPTION>
HOME CENTERS MASS MERCHANTS DRUG AND GROCERY CHAINS INDEPENDENT NURSERIES
- ----------------------------- --------------- ------------------------ ----------------------------
<S> <C> <C> <C>
Home Depot Fred Meyer Albertson's Cornelius Nurseries
Home Base Kmart H.E.B. Jenco Wholesale Nursery
Builders Square Target Kroger Navlets Nursery
Orchard Supply Hardware Wal-Mart Rite-Aid Drug Stores Star Nursery
Safeway
</TABLE>

The Company believes that its ability to consistently provide high quality
products and value-added services on a multi-regional basis provides significant
competitive advantages in serving the retail channel. Color Spot products
typically account for over half of the live plant sales in stores supplied by
the Company. In each region, the Company's goal is to serve every store operated
by each of its retail customers. In fiscal 1997, the Company's top eight retail
customers accounted for approximately 75% of its total net sales. See "Risk
Factors--Customer Concentration; Dependence on Home Depot."

The Company also serves commercial customers, such as landscapers, golf
courses, office parks and hotels. Approximately 4.9% of the Company's fiscal
1997 net sales were derived from sales to commercial customers.

SALES AND SERVICES

The Company offers a broad range of value-added services to help its retail
customers maximize live plant sales and profitability. Color Spot believes that
a well maintained product display increases sales volume and encourages impulse
buying by consumers. The average shelf life for most of the Company's products
is two to three weeks following delivery. Live plant products, like fresh
produce in a supermarket, are unlikely to sell if they are not fresh and
merchandised correctly. Due to the perishable nature of its products, the
Company believes that the services it provides to its retail customers are
critical to maintaining attractive and fresh product displays.

29
<PAGE>
The Company services its retail customers through a salesforce of over 200
merchandisers. Each sales merchandiser covers an average of ten to 12 stores,
although sales merchandisers covering large volume stores may be assigned as few
as one to three locations. Each sales merchandiser typically provides
merchandising services to each of his/her stores four to seven times per week,
which may include:

- design and layout of garden shop area

- design and construct display tables and end caps

- create and install point of purchase signage

- implement Color Spot promotional and marketing programs

- clean and maintain fresh product displays

- reorder, receive delivery of and restock merchandise

- secure and maintain prominent floor space

- assist consumers with product and planting information

The Company believes that its sales merchandisers can provide many of these
services more effectively than the retail customers themselves because these
sales merchandisers have extensive knowledge of, and focus exclusively on, live
plants. Furthermore, the Company's sales merchandisers receive ongoing training
and are compensated on a commission basis as a percentage of net sales.
Consumers often view Color Spot employees as employees of the retailer, and rely
on Color Spot sales merchandisers to answer questions and give advice about
selecting and planting live plants. Because Color Spot's sales merchandisers
spend most of their time in the retail stores, they can adjust inventory in
response to local weather conditions on a store-by-store basis, develop product
displays tailored to the local consumers' demands and cultivate a favorable
relationship with in-store personnel.

In addition to providing merchandising services at the store level, Color
Spot plays an important role in assisting retail customers with their sales and
inventory planning. Typically, a Color Spot senior sales executive will meet
periodically with its retail customer's senior representative to plan sales of
the Company's products based on that retail customer's anticipated store growth
and general product needs. In addition, Color Spot sales executives meet
frequently with retail customers' regional and corporate buyers to more
specifically plan seasonal product needs and sales forecasts and to incorporate
Color Spot's promotional events and pricing strategies into their plans. At the
store level, local Color Spot sales merchandisers work with in-store personnel
to execute sales plans and continually monitor sales and inventory.

OPERATIONS

The Company operates on a decentralized basis, with production, hiring and
purchasing decisions made on a facility-by-facility basis.

PRODUCTION. The first production step of the plant growing process is
propagation. Approximately 80% of Color Spot's plants are produced from seeds,
and the remaining 20% are produced from plant cuttings. Color Spot realizes a
yield from propagation greater than 70%, which the Company believes is
consistent with the industry average. The second production step is the transfer
of the resulting seedlings into plastic growing containers. The plants are then
moved from greenhouses to outdoor growing areas, as appropriate, to finish the
growing cycle.

The Company experiences a certain level of "shrink" in its production
process. Color Spot divides shrink into two main classifications: cultural
shrink, defined as plants that do not mature due to disease, insects, soil
problems or other factors; and sales shrink, defined as plants ready for sale to
retail customers but not sold because supply exceeds demand. A certain amount of
shrink is necessary to ensure adequate

30
<PAGE>
product supply. Color Spot experiences approximately 16% shrink, of which
one-third is cultural shrink and two-thirds is sales shrink. The Company
believes that this shrink rate is consistent with the industry average.

DISTRIBUTION. The Company distributes its products directly from its
production facilities to its retail customers. The Company operates a fleet of
472 tractor trailers, 372 of which are owned and the balance of which are
leased. During peak periods, Color Spot's fleet is supplemented with common
carriers. The Company believes that common carriers are readily available to
accommodate seasonal delivery peaks. Typically, each of the Company's facilities
delivers products to stores within a 175-mile radius, and deliveries are
generally made within 48 hours of the order being placed.

SUPPLIERS. The cost of raw materials accounts for approximately 27.1% of
net sales and is composed of three primary components: soil mix, seeds and plant
cuttings and plastic flats and growing containers. Color Spot's primary
suppliers include Rapid Industrial Plastic Company, Ball Seed Company, Premier
Peat Moss, Norcal Perlite Company, J.M. McConkey and Romeo Fertilizers. Due to
its large sales volume, the Company receives purchasing discounts from many of
its suppliers, and the Company believes that alternative sources of supply are
readily available.

ACQUISITION STRUCTURE AND INTEGRATION

The Company typically finances acquisitions through a combination of cash,
promissory notes and, in certain cases, Company stock. The Company normally
obtains noncompete and confidentiality agreements from selling owners and may
enter into employment or consulting agreements with key personnel of the seller.
The majority of the Company's recent acquisitions have been consummated in less
than 90 days from the date a letter of intent is executed. There can be no
assurance, however, that the Company will be able to identify and acquire
desirable nursery businesses on terms favorable to the Company or in a timely
manner in the future. See "Risk Factors--Dependence on Acquisitions for Future
Growth" and "--Ability to Manage Growth."

The Company seeks to increase the sales and profitability of acquired
companies by implementing Color Spot's sales and merchandising programs and by
improving operating efficiencies of the acquired business. Consistent with the
Company's decentralized management approach, integration of a platform
acquisition involves creating a new division to be managed by employees of the
acquired company. The Company centralizes many of the acquired Company's
functions, including purchasing, insurance and benefits, and sales and marketing
programs. Integration of a fill-in acquisition generally involves a fundamental
change in the operations of the acquired company. The Company may consolidate
distribution and production operations to maximize operating efficiencies. Where
market conditions dictate, an acquired company may use both its historical name
and the Company's name during a transition period in order to minimize customer
disruption.

Prior to consummating an acquisition, the Company conducts extensive due
diligence on the targeted company, including legal, environmental, business and
accounting reviews by senior management, the Company's independent auditors, and
outside legal counsel and consultants.

31
<PAGE>
COMPETITION

The wholesale nursery industry is highly competitive. Competition is based
principally on product quality, breadth of product offerings, customer service
and price. The Company believes it has differentiated itself from its
competitors through the breadth of its product offerings, multi-regional
capabilities and the value-added services it provides to retail customers. The
wholesale nursery industry is highly fragmented with over 10,000 small and
regional nurseries nationwide. In 1996, the ten largest and 100 largest
wholesale nurseries in the United States accounted for approximately 8% and 22%,
respectively, of total wholesale production. The Company currently competes
directly with a large number of western and southwestern producers. On a
multi-regional basis, the Company also competes with both Hines Nurseries
primarily in bedding plants and shrubs and Monrovia Nursery Company primarily in
shrubs. The fresh cut Christmas tree market is also highly fragmented and, on a
regional basis, the Company competes in this market with Holiday Tree Farms and
The Kirk Company.

PROPERTIES AND FACILITIES

Color Spot operates 19 production facilities in five states. Each production
facility consists primarily of growing fields, greenhouses, warehouse space and
distribution areas. Production facilities are operated on a decentralized basis,
with each facility responsible for producing, marketing and distributing the
Company's products to retail customers within a designated geographic region.
The Company leases the majority of its facilities and believes that most of its
leases can be extended on acceptable terms. The profile of the Company's
production facilities is as follows:

<TABLE>
<CAPTION>
TOTAL TOTAL GREENHOUSE
LOCATION ACREAGE SQUARE FOOTAGE OWNED/LEASED
- ----------------------------------------------------- ----------- ---------------- ---------------
<S> <C> <C> <C>
WESTERN:
Carson, CA........................................... 68 450,000 Leased
Chino, CA............................................ 41 395,000 Leased
El Cajon, CA(1)...................................... 43 410,000 Owned/Leased
Fallbrook, CA(2)..................................... 247 1,660,000 Owned/Leased
Lodi, CA(3).......................................... 102 1,073,000 Owned/Leased
Richmond, CA(4)...................................... 98 988,000 Leased
Salinas, CA.......................................... 160 1,600,000 Leased
San Juan Capistrano, CA.............................. 243 908,000 Leased
Sunol, CA............................................ 57 480,000 Leased
Watsonville, CA(5)................................... 53 392,000 Leased
Phoenix, AZ(6)....................................... 56 670,000 Owned/Leased
Mt. Vernon, WA....................................... 42 425,000 Leased
Aurora, OR........................................... 32 278,000 Leased
----- ----------------
Western Subtotal................................... 1,242 9,729,000
SOUTHWESTERN:
Harlingen, TX........................................ 172 210,000 Owned
Huntsville, TX....................................... 52 442,000 Leased
San Antonio, TX...................................... 587 1,771,000 Owned
Waco, TX............................................. 99 675,000 Owned
Waller, TX........................................... 60 160,000 Leased
Walnut Springs, TX................................... 195 693,000 Owned
----- ----------------
Southwestern Subtotal.............................. 1,165 3,951,000
----- ----------------
TOTAL................................................ 2,407 13,680,000
----- ----------------
----- ----------------
</TABLE>

- ------------------------------
(1) The El Cajon facility is comprised of four parcels, one of which is owned
and three of which are leased.
(2) The Fallbrook facility is comprised of five parcels, one of which is owned
and four of which are leased.
(3) The Lodi facility is comprised of three parcels, one of which is owned and
two of which are leased.
(4) The Richmond facility is comprised of five leased parcels.
(5) The Watsonville facility is comprised of three leased parcels.
(6) The Phoenix facility is comprised of two parcels, one of which is owned and
one of which is leased.

32
<PAGE>
In addition to its production facilities, the Company also leases 44 growing
fields for Christmas trees in Oregon (1,120 acres), Michigan (724 acres) and
North Carolina (47 acres).

The Company's executive offices are located in Pleasant Hill, California.

EMPLOYEES

As of September 25, 1997, the Company had approximately 2,911 full-time
employees. During the peak growing season, which runs from February through
June, Color Spot employs a substantial number of seasonal employees, and total
employment generally will grow to over 3,500 employees between February and
June. All of the Company's seasonal employees are paid on an hourly basis. None
of the Company's employees is covered by a collective bargaining agreement. The
Company believes its relationship with its employees is good.

GOVERNMENT REGULATION

Color Spot is subject to certain federal, state and local health, safety and
environmental laws and regulations regarding the production, storage and
transportation of certain of its products and the disposal of its waste. Certain
of the Company's operations and activities, such as water runoff from its
production facilities and the use of certain pesticides are subject to
regulation by the EPA and similar state and local agencies. These agencies may
regulate or prohibit the use of such products, procedures or operations, thereby
affecting the Company's operations and profitability. In addition, the Company
must comply with a broad range of environmental laws and regulations. Additional
or more stringent environmental laws and regulations may be enacted in the
future and such changes could have a material adverse effect on the Company. The
Company uses reclamation water as one of the sources of water supply for a few
of its production facilities. The use and pricing of reclamation water,
including availability of subsidized water rates, is governed by federal
reclamation laws and regulations. Changes in the law could have a material
adverse effect on the Company.

In addition, the Company is subject to the Fair Labor Standards Act as well
as various federal, state and local regulations which govern such matters as
minimum wage requirements, overtime and other working conditions. A large number
of the Company's personnel are paid at or just above the federal minimum wage
level and, accordingly, changes in such laws, regulations or ordinances may
adversely affect the Company. Federal legislation raising the minimum wage in
the future would increase the Company's employee costs and could also have a
material adverse effect on the Company.

TRADEMARKS AND TRADE NAMES

A majority of the Company's products are sold under the "Color Spot"
trademark. The Company does not have any other registered trademarks.

LITIGATION

The Company is from time to time involved in litigation arising in the
ordinary course of its business. None of the pending litigation, in the opinion
of the Company, is likely to have a material adverse effect on the Company.

33
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
Michael F. Vukelich...................... 47 Chairman of the Board and Chief Executive Officer
Jerry L. Halamuda........................ 47 President and Director
Robert F. Strange........................ 43 Executive Vice President and Chief Operating Officer
Paul D. Yeager........................... 59 Executive Vice President and Chief Financial Officer
Karla D. Vukelich........................ 35 Executive Vice President of Administration and Secretary
Ranjit S. Bhonsle(1)..................... 28 Director
George T. Brophy......................... 62 Director
Samuel P. Frieder(1)(2).................. 33 Director
Richard E. George(2)..................... 58 Director
James A. Kohlberg........................ 39 Director
Gary E. Mariani(1)....................... 53 Director
Geoffrey A. Thompson(2).................. 57 Director
</TABLE>

- ------------------------

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

MR. VUKELICH has been the Company's Chairman of the Board and Chief
Executive Officer since September 1995. From 1992 through August 1995, Mr.
Vukelich was President and Chief Executive Officer of M.F. Vukelich Co. He is
the founder of Color Spot America, a predecessor of the Company, and was
President and Chief Executive Officer of Color Spot America from its inception
in 1983 to 1991. Mr. Vukelich has 27 years of experience in the nursery
business.

MR. HALAMUDA has been the Company's President since September 1995. Prior to
that time, Mr. Halamuda was Vice President of Color King Nursery from 1992
through August 1995. Mr. Halamuda has 26 years experience in the nursery
industry, including six years as an executive of Color Spot America from 1984
through 1990.

MR. STRANGE was appointed Executive Vice President and Chief Operating
Officer in July 1997. From January 1997 through June 1997, Mr. Strange was
President of the Company's western division. From September 1995 through
December 1996, Mr. Strange was the Company's Vice President of Operations. Prior
to that time, Mr. Strange was Director of Operations of Color Spot Oregon. Mr.
Strange has 22 years experience in the nursery industry.

MR. YEAGER joined the Company in February 1997 as Executive Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Yeager was
Executive Vice President and Chief Financial Officer of the Scotts Company which
he joined in 1974. Mr. Yeager has 23 years experience in the lawn and garden
industry.

MS. VUKELICH was appointed Executive Vice President and Secretary of the
Company in May 1997. Prior to that time, Ms. Vukelich was Vice President of
Administration, a position which she held since September 1995. Prior to that
time, Ms. Vukelich was Secretary and Vice President of Administration of M.F.
Vukelich & Co.

MR. BHONSLE joined Kohlberg in 1993 as an Associate. From 1991 through 1993,
Mr. Bhonsle was a Financial Analyst at Kidder, Peabody & Company, Inc.

MR. BROPHY has been Chairman, President and Chief Executive Officer of ABT
Building Products Corporation ("ABTCo") since October 1992. From 1983 to 1988,
Mr. Brophy was President, Chief Executive Officer and a Director of Morgan
Products, Ltd., a building products company, and was a

34
<PAGE>
private business consultant from 1988 to 1992. Mr. Brophy is also a Director of
Banta Corporation, a printing company.

MR. FRIEDER joined Kohlberg in 1989 and was named a Principal in 1995. Mr.
Frieder is also a Director of ABTCo.

MR. GEORGE is the President of R.G. Trends, an independent consulting firm.
From 1995 through 1996. Mr. George was President and Chief Executive Officer of
Handy Andy Home Improvement Centers, Inc. From 1989 through 1995, Mr. George was
Chairman and Chief Executive Officer of Ulta(3) Cosmetics & Salon Inc., a
company which he founded.

MR. KOHLBERG has been a Principal of Kohlberg since 1987. Mr. Kohlberg is
also a Director of ABTCo and Northwestern Steel and Wire Company.

MR. MARIANI has been Chief Executive Officer of Winndevon Art Group, Inc.,
an art publisher, since 1994. From 1992 through 1993, Mr. Mariani was Chief
Executive Officer of The Garden Counsel, a national nursery association. Prior
to that time, Mr. Mariani was the President of the Nursery Product Division of
Weyerhaeuser Company.

MR. THOMPSON joined Kohlberg as a Principal in 1996. Prior to that time, Mr.
Thompson was Managing Partner of Norman Broadbent International, Inc. and
President of Nordeman Grimm, both executive recruiting firms. From 1981 to 1991,
Mr. Thompson served in various capacities at Marine Midland Bank, including
President and Chief Executive Officer.

Michael F. Vukelich and Karla D. Vukelich are married.

Upon completing the Offerings, the Company's Board of Directors will be
divided into three classes. Directors of each class will be elected at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting of
Stockholders") held in the year in which the term of such class expires and will
serve thereafter for a term of three years. Messrs. George, Mariani and Brophy
will serve as Class I Directors with their terms expiring at the 1998 Annual
Meeting of Stockholders; Messrs. Vukelich, Halamuda and Bhonsle will serve as
Class II Directors with their terms expiring at the 1999 Annual Meeting of
Stockholders; and Messrs. Kohlberg, Frieder and Thompson will serve as Class III
Directors with their terms expiring at the 2000 Annual Meeting of Stockholders.
See "Description of Capital Stock--Classified Board; Board Vacancies" and
"--Stockholders Agreement."

BOARD OF DIRECTORS COMMITTEES AND COMPENSATION

The Board of Directors has established an Audit Committee and a Compensation
Committee. The function of the Audit Committee is to recommend annually to the
Board of Directors the appointment of independent public accountants of the
Company, discuss and review the scope and the fees of the prospective annual
audit and review the results thereof with the independent public accountants,
review and approve non-audit services of the independent public accountants,
review compliance with existing major accounting and financial policies of the
Company, review the adequacy of the financial organization of the Company and
review management's procedures and policies relative to the adequacy of the
Company's internal accounting controls. Messrs. Bhonsle, Frieder and Mariani are
the current members of the Audit Committee.

The function of the Compensation Committee is to, among other things, review
and approve annual salaries and bonuses for all executive officers and review,
approve and recommend to the Board of Directors the terms and conditions of all
employee benefit plans or changes thereto and administer the Company's options
plans. Messrs. George, Frieder and Thompson are the current members of the
Compensation Committee.

Directors are reimbursed for certain reasonable expenses incurred in
connection with attending Board or committee meetings.

35
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In fiscal 1997, there was no Compensation Committee of the Board of
Directors. Michael F. Vukelich, the Chairman of the Board and Chief Executive
Officer, and Jerry L. Halamuda, the President, are Directors and participated in
deliberations of the Board of Directors concerning executive officer
compensation. Following completion of the Offerings, the Board of Directors will
have a Compensation Committee consisting of Messrs. Frieder, George and
Thompson.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that each person who is or was a director or officer of
the Company shall be indemnified and held harmless by the Company against all
expense, liability and loss to the fullest extent allowable under the Delaware
General Corporation Law (the "DGCL"). In addition, the Certificate provides, to
the fullest extent allowable under the DGCL, that no director shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under the DGCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Certificate is to
eliminate the rights of the Company and its stockholders, either directly or
through a stockholders' derivative suit brought on behalf of the Company, to
recover monetary damages from a director for breach of the fiduciary duty of
care as a director except in those instances described under the DGCL.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION. The following table sets forth a summary of certain
information regarding compensation paid or accrued by the Company during fiscal
1997 to the Company's Chief Executive Officer and each of the three other most
highly compensated executive officers whose total annual salary and bonus
exceeded $100,000 during such fiscal year (collectively, the "Named
Executives"). See "--Employment Agreements."

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------------ --------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Vukelich .......... $ 170,192 $ 181,250 $ 5,850(1) 602,609 $ 573,346(2)
Chairman of the Board and
Chief Executive Officer
Jerry L. Halamuda ............ 161,538 160,000 5,850(1) 413,382 299,104(2)
President
Robert F. Strange ............ 91,538 54,638 5,850(1) 53,361
Chief Operating Officer
Paul D. Yeager(3) ............ 51,923 69,000
Executive Vice President and
Chief Financial Officer
</TABLE>

- --------------------------
(1) Represents car allowance.

(2) Represents deferred compensation which will be paid upon the earlier to
occur of (i) the consummation of the Company's initial public offering of
Common Stock and (ii) the acquisition of a majority of the outstanding
Common Stock by any person or group of related persons (other than KCSN) at
a purchase price in excess of $1.45 per share.

(3) Mr. Yeager joined the Company in February 1997. His annual base salary was
$150,000 at June 30, 1997.

36
<PAGE>
OPTION GRANTS DURING FISCAL 1997. The following table summarizes the
options granted during fiscal 1997 to the Named Executives. Except as otherwise
indicated, all of these options were granted under the Company's 1997 Stock
Option Plan described below. No stock appreciation rights were granted to the
Named Executives during such fiscal year.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED 1997 PRICE(1) DATE 5% 10%
- ------------------------------------------------------- --------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Vukelich.................................... 395,609(3) 18.4% $1.45 9/7/05 $894,525 $1,366,679
207,000 9.6 7.17 1/1/07 2,417,589 3,849,607
Jerry L. Halamuda...................................... 395,609(3) 18.4 1.45 9/7/05 894,525 1,366,679
207,000 9.6 7.17 1/1/07 2,417,589 3,849,607
Robert F. Strange...................................... 39,561(4) 1.8 1.45 9/7/05 89,453 136,668
13,800 0.6 7.19 1/1/07 161,622 257,356
Paul D. Yeager......................................... 69,000 3.2 7.19 1/1/07 802,418 1,269,475
</TABLE>

- --------------------------
(1) The exercise price of each option was the estimated fair value of the Common
Stock on the date of grant.

(2) Based upon the estimated fair value of the Common Stock on the date of grant
and assumed appreciation over the term of the options at the respective
annual rates of stock appreciation shown. Potential gains are net of the
exercise price but before taxes and other expenses associated with the
exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future price of the Common Stock. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the Company,
the future performance of the Company's Common Stock and overall market
conditions. The actual value realized may be greater or less than the
potential realizable value set forth in the table.

(3) Represents options for Mr. Vukelich and Mr. Halamuda which have continued in
effect under their respective employment agreements. See "--Employment
Agreements."

(4) Issued under the Company's 1996 Stock Incentive Plan. See "--Stock Option
Plans."

AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION VALUES. The
following table sets forth certain information regarding options exercised and
the number and value of unexercised options held by the Named Executives at June
30, 1997.

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JUNE 30, 1997 JUNE 30, 1997(1)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Vukelich....... 395,609 207,000 $ 3,382,457 $ 585,810
Jerry L. Halamuda......... 189,227 $ 1,083,357 206,382 207,000 1,764,566 585,810
Robert F. Strange......... 39,561 226,494 13,800 39,054
Paul D. Yeager............ 69,000 195,270
</TABLE>

- --------------------------
(1) Represents the value of the shares of Common Stock subject to outstanding
options, based on a fair market value of $10.00 per share, less the
aggregate option exercise price.

EMPLOYMENT AGREEMENTS

As part of the Recapitalization, the Company entered into an employment
agreement with Michael F. Vukelich, the Company's Chief Executive Officer and
Chairman of the Board. The agreement has a term of three years and will be
automatically renewed for successive one-year periods unless Mr. Vukelich or the
Company gives 90 days notice of non-renewal. As of July 1, 1997, Mr. Vukelich is
paid an annual base salary of $200,000, which is increased annually based on
increases in the consumer price index, and is

37
<PAGE>
eligible to receive an annual bonus of up to 150% of his base salary based on
the achievement of certain performance targets. The employment agreement
continues in effect an option to purchase 395,609 shares of the Company's Common
Stock for $1.45 per share and provides that the Company grant Mr. Vukelich an
option to purchase 207,000 shares of the Company's Common Stock at $7.17 per
share. The agreement also entitles Mr. Vukelich to deferred compensation in the
amount of $573,346 upon the earlier to occur of (i) the consummation of the
Company's initial public offering of Common Stock and (ii) the acquisition of a
majority of the outstanding Common Stock by any person or group of related
persons (other than KCSN) at a purchase price in excess of $1.45 per share. The
agreement terminates upon the earlier to occur of (i) non-renewal by the Company
or Mr. Vukelich, (ii) death or disability, (iii) termination for Cause (as
defined in the agreement) or (iv) termination without Cause. In the event that
the employment agreement is not renewed by the Company, the Company is obligated
to continue to pay Mr. Vukelich his base salary through June 30, 2000. In the
event that the employment agreement is terminated without Cause, the Company is
obligated to pay Mr. Vukelich his base salary through the remaining term of the
employment agreement plus his pro rata portion of the bonus paid to Mr. Vukelich
in the year prior to termination. In the event of Mr. Vukelich's death or
disability, the Company is obligated to continue to pay to Mr. Vukelich or his
estate his base salary for one year following his termination. The employment
agreement entitles Mr. Vukelich to be nominated to a seat on the Company's board
of directors so long as he owns 10% of the Common Stock.

As part of the employment agreement, Mr. Vukelich has agreed not to compete
with the Company in certain specified counties and states for the longer of one
year following termination or one year following the receipt of any severance
from the Company; provided that Mr. Vukelich may elect to waive the payment of
severance, in which event the noncompetition covenant expires one year following
termination.

As part of the Recapitalization, the Company entered into an employment
agreement with Jerry L. Halamuda, the Company's President. The agreement has a
term of three years and will be automatically renewed for successive one-year
periods unless Mr. Halamuda or the Company gives 90 days notice of non-renewal.
As of July 1, 1997, Mr. Halamuda is paid an annual base salary of $200,000,
which is increased annually based on increases in the consumer price index, and
is eligible to receive an annual bonus of up to 150% of his base salary based on
the achievement of certain performance targets. The employment agreement
continues in effect an option to purchase 206,382 shares of the Company's Common
Stock at $1.45 per share and provides that the Company grant Mr. Halamuda an
option to purchase 207,000 shares of the Company's Common Stock at $7.17 per
share. The Agreement also entitles Mr. Halamuda to deferred compensation in the
amount of $299,104 upon the earlier to occur of (i) the consummation of the
Company's initial public offering of Common Stock and (ii) the acquisition of a
majority of the outstanding Common Stock by any person or group of related
persons (other than KCSN) at a purchase price in excess of $1.45 per share. The
agreement terminates upon the earlier to occur of (i) non-renewal by the Company
or Mr. Halamuda, (ii) death or disability, (iii) termination for Cause (as
defined in the agreement) or (iv) termination without Cause. In the event that
the employment agreement is not renewed by the Company, the Company is obligated
to continue to pay Mr. Halamuda his base salary through June 30, 2000. In the
event that the employment agreement is terminated without Cause, the Company is
obligated to pay Mr. Halamuda his base salary through the remaining term of the
employment agreement plus his pro rata portion of the bonus paid to Mr. Halamuda
in the year prior to termination. In the event of Mr. Halamuda's death or
disability, the Company is obligated to continue to pay to Mr. Halamuda or his
estate his base salary for one year following his termination.

As part of the employment agreement, Mr. Halamuda has agreed not to compete
with the Company in certain specified counties and states for the longer of one
year following termination or one year following the receipt of any severance
from the Company; provided that Mr. Halamuda may elect to waive the payment of
severance, in which event the noncompetition covenant expires one year following
termination.

38
<PAGE>
STOCK OPTION PLANS

1996 STOCK INCENTIVE PLAN. In July 1996, the Board of Directors authorized,
and the stockholders of the Company approved, a stock option plan, effective
September 7, 1995, for directors, officers, employees and consultants of the
Company and its subsidiaries (the "1996 Option Plan"). Options to purchase a
total of 1,171,419 shares of Common Stock at $1.45 per share were granted under
the 1996 Option Plan. As of September 25, 1997, options to purchase 569,417 of
these shares had been exercised, and 602,002 nonqualified stock options ("NQOs")
are outstanding under the 1996 Option Plan. No further options will be granted
under the 1996 Stock Option Plan.

1997 STOCK OPTION PLAN. The Company's 1997 Stock Option Plan (the "1997
Stock Option Plan") was adopted by the Board of Directors and approved by the
stockholders on December 31, 1996 to attract, retain and provide incentive to
executives and key employees of the Company. Options granted under the 1997
Stock Option Plan may be either incentive stock options ("ISOs") as defined in
Section 422 of the Internal Revenue Code of 1986, as amended, or NQOs. A total
of 1,242,000 shares of Common Stock have been reserved for issuance under the
1997 Stock Option Plan.

The 1997 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors which has the authority to determine the terms of the
options granted. Each option has a term specified in its option agreement;
provided, however, that no term can exceed ten years from the date of grant.
Each option is exercisable upon the fulfillment of certain conditions, including
agreement by the optionee to be bound by the Stockholders Agreement. In the case
of an ISO granted to an optionee who, at the time the option is granted, owns
stock representing more than 10% of the voting power of all outstanding classes
of stock of the Company (a "10% Optionee"), the term of the option cannot exceed
five years from the date of grant. No option granted under the 1997 Stock Option
Plan may be transferred by the optionee other than by will or the laws of
descent and distribution and each option may be exercised, during the lifetime
of the optionee, only by such optionee. In the event that an optionee's
employment terminates for any reason other than for cause, any options held
which have not yet vested will expire and become unexercisable. All of the
optionee's options which have vested shall expire and become unexercisable on
the earlier of the expiration date stated in the option agreement or the date 90
days after the termination of the optionee's employment. If an optionee is
terminated for cause prior to the later of January 1, 2000 or the third
anniversary of the date the optionee commences employment with the Company, all
options held by the optionee (whether or not vested) shall expire on the date of
termination. The number of shares under each option and the price of any shares
under such option may be adjusted in a manner consistent with any capital
adjustment resulting from a stock dividend, stock split, recapitalization,
reorganization or a combination or other change in the shares of Common Stock.

The exercise price for all ISOs granted under the 1997 Stock Option Plan
must be no less than 100% of the fair value per share on the date of grant. With
respect to a 10% Optionee, the exercise price of any option granted must be no
less than 110% of the fair market value on the date of grant. Each option is
designated in the written option agreement as either an ISO or NQO. However, to
the extent that the aggregate fair market value of shares subject to an
optionee's ISO, which become exercisable for the first time during any year,
exceeds $100,000, the excess options shall be treated as NQOs.

As of September 25, 1997, under the 1997 Stock Option Plan, there were
414,000 stock options outstanding with an exercise price of $7.17 per share and
428,493 stock options outstanding with an exercise price of $7.19 per share. The
1997 Stock Option Plan will expire in 2007 unless terminated at an earlier date
by the Board of Directors.

SPECIAL STOCK OPTION PLAN. In February 1997, the Board of Directors
authorized, and the stockholders of the Company approved, a stock option plan
for employees of Lone Star Growers, L.P., a wholly owned subsidiary of the
Company (the "Special Option Plan"). A total of 139,383 shares of Common Stock
have been reserved for issuance under the Special Option Plan. The purpose of
the Special Option Plan was to provide incentives to employees of Lone Star
Growers, L.P. in connection with the acquisition

39
<PAGE>
of Lone Star Growers Co., the predecessor to Lone Star Growers, L.P., by the
Company. Options for all of the available shares under the Special Option Plan
were granted to employees of Lone Star Growers, L.P. at the time of the
acquisition at an exercise price of $1.43 per share. No further awards will be
made under the Special Option Plan. The Special Option Plan is otherwise
identical to the 1997 Stock Option Plan.

CERTAIN TRANSACTIONS

RELATIONSHIP WITH KOHLBERG

CONTROL BY KCSN. KCSN, an affiliate of Kohlberg, owns 4,797,716 shares of
Common Stock or 69.2% of the outstanding Common Stock as of September 25, 1997
(approximately 61.8% assuming exercise in full of the Warrants).

Due to KCSN's stock ownership in the Company, KCSN is able to control the
Company, to elect its Board of Directors and to approve any action requiring
stockholder approval, including adopting amendments to the Company's certificate
of incorporation and approving or disapproving mergers or sales of all or
substantially all of the assets of the Company. As a result of such control,
KCSN is able to effectively control all of the Company's policy decisions. See
"Risk Factors--Control by Significant Stockholders and Management" and
"Description of Capital Stock--Stockholders Agreement." As long as the
Stockholders Agreement is in effect, third parties may not be able to obtain
control of the Company through purchases of Common Stock not owned by parties to
the Stockholders Agreement.

KOHLBERG FEE AGREEMENT. The Company pays Kohlberg an annual management fee
plus expenses pursuant to a fee agreement (the "Fee Agreement") for certain
management and advisory services. Under the Fee Agreement, the annual management
fee equals the greater of $300,000 or 3% of the Company's earnings before
interest, taxes, depreciation and amortization subject to a maximum annual
payment of $750,000. The management fee is payable quarterly in advance in
installments of $75,000, with the balance payable at the end of each fiscal
year. The Fee Agreement terminates on the earlier of December 31, 2006 or the
end of the fiscal year in which Kohlberg and its affiliates hold less then 20%
of the outstanding Common Stock. In addition, Kohlberg was paid a fee of $1.5
million for services provided in connection with the Recapitalization under the
Fee Agreement. For fiscal 1997, Kohlberg was paid an aggregate of $1.67 million
under the Fee Agreement. In connection with the Offerings, the Company will pay
to Kohlberg on January 2, 1998 a fee of $2.0 million to terminate its annual
management fee obligations under the Fee Agreement.

RECAPITALIZATION

As part of the Recapitalization on December 31, 1996, the Company
repurchased for cash 603,750 shares of the Company's Common Stock from M.F.
Vukelich Co., which is wholly owned by Michael F. Vukelich, at $7.17 per share
for an aggregate purchase price of approximately $4.3 million. In addition,
certain directors and employees of the Company, pursuant to a put/call option
agreement entered into at the time of the Recapitalization, have the right to
require the Company to purchase, and the Company has a corresponding right to
require the sale of, an aggregate of 786,688 shares of Common Stock at $7.17 at
varying times during 1997. As of September 25, 1997, the Company had repurchased
for cash 766,478 shares of Common Stock for an aggregate purchase price of
approximately $5.5 million from certain directors and employees as follows:

<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Steven Bookspan.................................................................... 19,413
Gary Crook......................................................................... 13,190
Richard E. George.................................................................. 36,194
Dave Grimshaw...................................................................... 13,190
Jerry L. Halamuda.................................................................. 292,727
Gene Malcolm....................................................................... 27,140
</TABLE>

40
<PAGE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Gary E. Mariani.................................................................... 67,161
Michael T. Neenan.................................................................. 20,211
John Negrete....................................................................... 9,060
Jim Tsurudome...................................................................... 13,939
Michael F. Vukelich................................................................ 254,253
</TABLE>

In addition, at the time of the Recapitalization, the Company entered into a
Stockholders Agreement and a Stockholder Repurchase Agreement granting to
certain employees and the Company rights to repurchase Common Stock upon the
occurrence of certain events. See "Description of Capital Stock-- Stockholders
Agreement" and "--Stockholder Repurchase Agreement."

MISCELLANEOUS

The Company leases a portion of its Richmond, California facility from M.F.
Vukelich Co., which is wholly owned by Michael F. Vukelich. The lease expires on
August 31, 2005. The aggregate annual rental payment under this lease for 1997
is $259,560. Under the term of the lease, rent is increased annually by 3%. The
Company believes that this rent is at fair market value for the property.

The Company also leases a building from the daughter of Michael F. Vukelich.
The aggregate annual rental payment on this lease is $14,400. The Company
believes that this rent is at fair market value for the building.

Jerry L. Halamuda is a 20% partner of Signature Trees, a California general
partnership. As part of the acquisition of the assets of Signature Trees by the
Company, Mr. Halamuda received $600,000.

In connection with the Offerings, the Company will pay to Michael F.
Vukelich, Jerry L. Halamuda, Paul D. Yeager and Karla D. Vukelich, $200,000,
$100,000, $50,000 and $50,000, respectively, on January 2, 1998 as a special
bonus.

All future transactions among the Company and its officers, directors and
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested directors.

41
<PAGE>
PRINCIPAL STOCKHOLDERS

The table below sets forth certain information regarding beneficial
ownership of Common Stock as of September 25, 1997 by (i) each person or entity
who owns of record or beneficially five percent or more of the Common Stock,
(ii) each executive officer and each director of the Company and (iii) all
executive officers and directors of the Company as a group. To the knowledge of
the Company, each of such stockholders has sole voting and investment power as
to the shares shown unless otherwise noted.

<TABLE>
<CAPTION>
SHARES PERCENT BENEFICIALLY OWNED
BENEFICIALLY ----------------------------------------
NAME OWNED(1) BEFORE OFFERING AFTER OFFERING(2)
- ------------------------------------------------------------ ----------------- ------------------- -------------------
<S> <C> <C> <C>
KCSN Acquisition Company, L.P.(3)........................... 4,817,926 69.3% 61.9%
Heller Equity Capital Corporation(4)........................ 545,984 7.5 6.7
Michael F. Vukelich(5)...................................... 1,332,554 17.8 16.0
Jerry L. Halamuda(6)........................................ 368,440 5.1 4.5
Robert F. Strange(7)........................................ 51,636 * *
Paul D. Yeager(8)........................................... 224,250 3.2 2.9
Karla D. Vukelich(9)........................................ 12,938 * *
Ranjit S. Bhonsle(10).......................................
Samuel P. Frieder(10).......................................
James A. Kohlberg(10).......................................
Geoffrey A. Thompson(10)....................................
George T. Brophy(11)........................................ 25,161 * *
Richard E. George(12)....................................... 74,955 1.1 1.0
Gary E. Mariani(12)......................................... 78,975 1.1 1.0
All directors and executive officers as a group (12
persons).................................................. 2,168,907 27.5 24.9
</TABLE>

- ------------------------------

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares, subject to applicable community
property laws. Shares of Common Stock subject to options or warrants
currently exercisable within 60 days of the date hereof are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.

(2) Assuming exercise in full of the Warrants.

(3) Includes 20,211 shares which were subject to an irrevocable proxy as of
September 25, 1997 granted to KCSN by certain members of management under a
Put/Call Option Agreement dated as of December 31, 1996. The address of KCSN
is 111 Radio Circle, Mt. Kisco, NY 10549. KCSN is an affiliate of Kohlberg.
The ultimate general partner of KCSN is a corporation owned 100% by James A.
Kohlberg. See "Certain Transactions--Recapitalization."

(4) Includes 367,602 shares issuable upon conversion of the Heller Note. The
address of Heller Equity Capital Corporation is 500 West Monroe Street,
Chicago, IL 60661.

(5) Includes 545,063 options to purchase Common Stock exercisable within 60 days
of the completion of the Offerings. Excludes shares held by Karla D.
Vukelich and Mark Vukelich. Mark Vukelich is Michael F. Vukelich's brother.
The address of Mr. Vukelich is 3478 Buskirk Avenue, Suite 260, Pleasant
Hill, CA 94523.

(6) Includes 355,836 stock options to purchase Common Stock exercisable within
60 days of the completion of the Offerings. Mr. Halamuda's address is 3478
Buskirk Avenue, Suite 260, Pleasant Hill, CA 94523.

(7) Includes 3,450 stock options to purchase Common Stock exercisable within 60
days of the completion of the Offerings.

(8) Includes 17,250 stock options to purchase Common Stock exercisable within 60
days of the completion of the Offerings.

(9) Includes 2,588 stock options to purchase Common Stock exercisable within 60
days of the completion of the Offerings. Excludes shares held by Michael F.
Vukelich and Mark Vukelich.

(10) Excludes 4,797,715 shares held by KCSN and 20,211 shares subject to an
irrevocable proxy in favor of KCSN. Such person disclaims beneficial
ownership of such shares.

(11) Includes 25,161 stock options to purchase Common Stock exercisable within
60 days of the completion of the Offerings.

(12) Includes 2,588 stock options to purchase Common Stock exercisable within 60
days of the completion of the Offerings.

42
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon completion of the Offerings, the Company will have authorized capital
of 50,000,000 shares of Common Stock, par value $.001 per share, and 5,000,000
shares of Preferred Stock, par value $.01 per share. As of September 25, 1997,
6,937,068 shares of Common Stock were outstanding, and, upon completion of the
Offerings, 40,000 shares of Series A Preferred Stock will be outstanding.

COMMON STOCK. All shares of Common Stock currently outstanding are fully
paid and nonassessable, not subject to redemption and without preemptive (except
as provided in the Stockholders Agreement), conversion or subscription rights.
Holders of Common Stock are entitled to one vote per share on all actions
submitted to a vote of stockholders. Cumulative voting is not permitted. Holders
of Common Stock are entitled to receive cash dividends equally on a per share
basis as and when such dividends are declared by the Board of Directors from
funds legally available therefor, subject to preferential rights with respect to
any outstanding Preferred Stock. See "Dividend Policy."

In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share with each other on a ratable basis
as a single class in the remaining assets of the Company available for
distribution after payment of liabilities and satisfaction of any preferential
rights of holders of Preferred Stock. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.

WARRANTS. Upon completion of the Offerings, 825,000 Warrants will be
outstanding. Each Warrant will entitle the holder thereof to receive one fully
paid and non-assessable share of Common Stock at an exercise price of $.01 per
share, subject to certain adjustments. The Warrants will entitle the holders
thereof to purchase in the aggregate 825,000 shares of Common Stock, or
approximately 8.5% of the Common Stock, on a fully-diluted basis, as of the
completion of the Offerings. The Warrants will be exercisable prior to 5:00
p.m., New York City time, on December 15, 2008. The exercise and transfer of the
Warrants will be subject to applicable federal and state securities laws.

PREFERRED STOCK. The authorized number of shares of Preferred Stock may be
increased or decreased by the affirmative vote of a majority of the capital
stock of the Company entitled to vote without the separate vote of holders of
Preferred Stock as a class. The Board of Directors has authority, without any
further vote or action by the stockholders, to provide for the issuance of the
shares of Preferred Stock in one or more series, to establish from time to time
the relative, participating, optional or other special rights, qualifications or
restrictions of the shares of each such series and to determine the voting
powers, if any, of such shares. The issuance of Preferred Stock could adversely
affect, among other things, the rights of current stockholders. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock. In addition, any such issuance could
have the effect of delaying, deferring or preventing a change in control of the
Company and could make the removal of the present management of the Company more
difficult. The Board of Directors has designated 100,000 shares of Preferred
Stock as Series A Preferred Stock. "See Description of Series A Preferred
Stock."

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS. The Certificate and
Bylaws contain a number of provisions relating to corporate governance and to
the rights of stockholders. Certain of these provisions may be deemed to have a
potential "anti-takeover" effect in that such provisions may delay, defer or
prevent a change of control of the Company. These provisions include the
following:

CLASSIFIED BOARD; BOARD VACANCIES. The Certificate provides that the
Company's Board of Directors will be divided into three classes, with each
class, after a transitional period, serving for three years and one class being
elected each year at the annual meeting of stockholders. The Certificate and the
Bylaws provide that members of the Board of Directors may be removed only for
cause by the affirmative vote of the holders of at least a majority of the
voting power of all outstanding shares of capital stock entitled to vote

43
<PAGE>
generally in the election of directors, voting together as a single class. A
majority of the remaining directors then in office, though less than a quorum,
or the sole remaining director, will be empowered to fill any vacancy on the
Board of Directors. A majority vote of the stockholders will be required to
alter, amend or repeal the foregoing provisions. The classification of the Board
of Directors may discourage a third party from making a tender offer or
otherwise attempting to gain control of the Company and may maintain the
incumbency of the Board of Directors. See "--Stockholders Agreement" and
"Management."

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before or to nominate directors at any meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 50 days nor more than 75 days prior to such meeting, or,
if less than 60 days' notice was given for the meeting, within 10 days following
the date on which such notice was given. The Bylaws also specify certain
requirements for the proper written form of a stockholder's notice. These
provisions may preclude some stockholders from bringing matters before the
stockholders or from making nominations for directors.

CERTIFICATE AND BYLAW AMENDMENTS. The Certificate may be altered, amended
or repealed in whole or in part in accordance with Delaware law, except that
provisions in the Certificate regarding (i) election of directors, (ii) a
classified Board of Directors, (iii) removal of directors and director vacancies
and (iv) bylaw amendments may only be altered, amended or repealed upon the
affirmative vote of at least 66 2/3% of the shares of capital stock of the
Company entitled to vote generally in an election of directors. The Certificate
provides that the Bylaws may be altered, amended or repealed by the Board of
Directors or by the stockholders, except that the Bylaw provisions concerning
advance notice requirements for stockholder proposals and director nominations
may not be altered, amended or repealed and no inconsistent provision may be
adopted without the affirmative vote of 66 2/3% of the shares of capital stock
of the Company entitled to vote generally in the election of directors.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. Upon the closing of
the Offerings, the Company will be subject to Section 203 of the DGCL which
imposes restrictions on business combinations (as defined therein) with
interested stockholders (being any person who acquired 15% or more of the
Company's outstanding voting stock). In general, the Company is prohibited from
engaging in business combinations with an interested stockholder, unless (i)
before such person became an interested stockholder, the Board of Directors of
the Company approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding for purposes of determining the number of shares outstanding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) on or subsequent to the date on which such person became an
interested stockholder, the business combination is approved by the Board of
Directors of the Company and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the Company not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the earlier of the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of the Company's Directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who are directors prior to any person
becoming an interested stockholder during the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors. By restricting the ability of the Company to engage in business
combinations with an interested person, the application of Section 203 to the
Company may provide a barrier to hostile or unwanted takeovers.

44
<PAGE>
STOCKHOLDERS AGREEMENT

KCSN, Heller and all of the management stockholders (the "Stockholders") are
parties to the Stockholders Agreement which includes certain transfer
restrictions, voting agreements and registration rights which survive the
completion of the Offerings until December 31, 2006. Assuming conversion of the
Heller Note and the exercise of outstanding options by management stockholders,
the number of shares of Common Stock subject to the terms of the Stockholders
Agreement as of September 25, 1997 was 8,172,341. See "Risk Factors--Control by
Significant Stockholders and Management."

REPURCHASE RIGHTS Under the Stockholders Agreement, the Company has the
right to repurchase Common Stock and vested stock options to purchase Common
Stock held by Stockholders who are members of the Company's management
("Management Stockholders") upon the termination of such Management
Stockholder's employment with the Company. The purchase price is equal to the
fair market value (as defined in the Stockholders Agreement) of the Common
Stock, less in the case of vested options the exercise price. Subject to the
terms of the Company's debt agreements (including the Indenture) and the
Certificate of Designation, in the event a Management Stockholder's employment
is terminated as a result of death or disability, the Management Stockholder (or
his estate) may require the Company to repurchase all of the Common Stock held
by such Management Stockholder at fair market value. In the case of such a
repurchase, the Company may pay the purchase price in four equal installments on
the date of such repurchase and on the three succeeding anniversaries of such
date.

FIRST REFUSAL; PARTICIPATION RIGHTS. Subject to certain specified
exceptions, KCSN and each other Management Stockholder has a right of first
refusal over the transfer of any Common Stock held by any Management
Stockholder. Each Management Stockholder also has the right to participate on a
pro rata basis in any sales of Common Stock by KCSN or its affiliates.

VOTING AGREEMENT. The Stockholders have agreed to (i) consent to any
merger, consolidation or sales of all or substantially all of the Company's
assets involving an independent third party and approved by a majority of the
shares of Common Stock held by KSCN and (ii) vote their shares of Common Stock
to elect two members of management (which shall be Michael F. Vukelich and Jerry
L. Halamuda so long as they are employed as executive officers of the Company),
five KCSN designees and two independent designees reasonably acceptable to KCSN
as directors of the Company. Consequently, the Stockholders (assuming the
conversion of the Heller Note) will continue to have significant influence over
the policies and affairs of the Company and will be in a position to determine
the outcome of corporate actions requiring stockholder approval, including
adopting amendments to the Certificate, electing directors and approving or
disapproving mergers or sales of all or substantially all of the Company's
assets.

In addition to the voting agreement under the Stockholders Agreement, KCSN
and certain members of management are parties to a put/call option agreement to
effect the repurchase by the Company of shares of Common Stock held by such
management stockholders. Under the put/call option agreement, KCSN retained an
irrevocable proxy to vote the shares of Common Stock not yet purchased by the
Company. As of September 25, 1997, KCSN had an irrevocable proxy to vote 20,211
shares of Common Stock held by the management stockholders. The Company believes
that no shares of Common Stock will be subject to the put/call option agreement
as of January 1, 1998, as any shares which have not been put to the Company will
be called by the Company as of such date.

REGISTRATION RIGHTS AGREEMENT. The Stockholders are entitled to certain
rights with respect to the registration of their shares under the Securities
Act. If the Company proposes to register any Common Stock in connection with a
public offering (other than a demand registration) (a "Company Registration"),
the Stockholders are entitled to notice of such registration and are entitled to
include shares of Common Stock in such registration. Any shares proposed to be
sold by the Company in a Company Registration have priority over the
Stockholders' shares if the managing underwriter advises the Company that the
number of shares requested for inclusion exceeds the number of shares that can
be sold in an offering. In

45
<PAGE>
addition to Company Registrations, KCSN and Heller (assuming conversion of the
Heller Note) are entitled to certain demand registration rights pursuant to
which they may require the Company to file a registration statement under the
Securities Act at the Company's expense with respect to their shares of Common
Stock (a "Demand Registration"). KCSN is entitled to up to four Demand
Registrations and Heller is entitled to one Demand Registration. Subject to
certain market limitations, the management stockholders are entitled to
participate in a Demand Registration, provided that shares being sold by KCSN
and Heller take priority over the shares requested for inclusion by the
management stockholders. Demand Registrations may be requested at any time. See
"Description of Warrants--Registration" for a description of registration rights
of holders of the Warrants.

TERMINATION. Other than the provisions described above under "Voting
Agreement" and "Registration Rights Agreement," the provisions of the
Stockholders Agreement automatically terminate upon the consummation of the
Company's initial registered public offering of Common Stock under the
Securities Act. The Stockholders Agreement terminates in its entirety on
December 31, 2006.

EMPLOYEE STOCKHOLDERS AGREEMENT

Certain stockholders that are employees of the Company are party to an
Employee Stockholders Agreement dated as of January 1, 1997 (the "Employee
Stockholders Agreement") which contains certain transfer restrictions and voting
agreements which survive the completion of the Offerings. As of September 25,
1997, 440,066 shares of Common Stock were subject to the Employee Stockholders
Agreement.

REPURCHASE RIGHTS. Under the Employee Stockholders Agreement, the Company
has the right to repurchase Common Stock and vested stock options to purchase
Common Stock held by stockholders who are employees of the Company ("Employee
Stockholders") upon the termination of such Employee Stockholder's employment
with the Company. The purchase price is equal the fair market value (as defined
in the Employee Stockholders Agreement) of the Common Stock, less in the case of
vested options the exercise price; provided that in the event of termination for
cause (as defined in the Employee Stockholders Agreement) or voluntary
termination, the purchase price is equal to the lesser of fair market value and
original cost.

FIRST REFUSAL. Subject to certain specified exceptions, the Company has a
right of first refusal over the transfer of any Common Stock held by any
Employee Stockholder.

VOTING AGREEMENT. The Employee Stockholders have agreed to consent to any
merger, consolidation or sale of all or substantially all of the Company's
assets involving an independent third party and approved by a majority of the
shares of Common Stock held by KCSN.

STOCKHOLDER REPURCHASE AGREEMENT

The Company, Michael F. Vukelich and Jerry Halamuda are parties to a
Stockholder Repurchase Agreement pursuant to which the Company is required to
repurchase the Common Stock, and in certain circumstances, options to purchase
Common Stock and Common Stock acquired upon the exercise of options, held by
either Mr. Vukelich or Mr. Halamuda. For each of Mr. Vukelich and Mr. Halamuda,
such a repurchase is required in the event Mr. Vukelich's or Mr. Halamuda's
employment with the Company is terminated without cause (as defined in their
respective employment agreements) or as a result of death or disability. The
purchase price to be paid by the Company is equal to the fair market value (as
defined in the agreement) and is payable 20% in cash and the remainder in the
form of a promissory note bearing interest at the then current rate payable on a
10 year United States Treasury Note, with interest payable quarterly in arrears
and principal payable on a 10 year amortization schedule payable quarterly
commencing on the six month anniversary of the issuance of such promissory note.
Accrued and unpaid interest and principal on such promissory note is payable in
full on the fifth anniversary of issuance. Subject to the terms of the Company's
debt agreements (including the Indenture) and the Certificate of Designation,
the

46
<PAGE>
maturity of such promissory note will accelerate upon the consummation of the
Company's initial public offering of Common Stock or the disposition by the
Company of all or substantially all of its assets. In the event that the Company
is prohibited by the terms of any of the Company's debt agreements or the
Certificate of Designation from repurchasing any Common Stock, the Company has
agreed to use its reasonable commercial efforts to remove any such restrictions,
and is obligated to repurchase the maximum amount of the Common Stock which is
permitted to be repurchased. This agreement terminates automatically upon the
consummation of the Company's initial registered public offering of Common Stock
under the Securities Act.

47
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS

NEW LOAN AGREEMENT

Simultaneously with the completion of the Offerings, the Company will enter
into the New Loan Agreement. The New Loan Agreement will provide for three
separate facilities: (i) an acquisition term loan facility entitling the Company
to borrow up to $75.0 million from time to time for acquisitions until two years
following the completion of the Offerings, (ii) a revolving credit facility
entitling the Company to borrow up to $40.0 million from time to time until five
years following the completion of the Offerings, and (iii) a supplemental line
of credit entitling the Company to borrow up to $35.0 million.

The acquisition term loan facility will begin to amortize five years
following the completion of the Offerings with a final maturity seven years
following completion of the Offerings. The revolving credit facility may be used
from time to time for working capital in an amount equal to the lesser of (i)
$40.0 million and (ii) an amount equal to 85% of eligible accounts receivable
and 55% of eligible inventory. During any consecutive 30 day period falling
within the 90 day period commencing on July 1 and ending on September 30 of each
year, the Company may not have borrowings in excess of $15.0 million outstanding
under the revolving credit facility. The revolving credit facility will
terminate five years following completion of the Offerings.

The supplemental line of credit may be used by the Company for working
capital or for acquisitions; however, it may only be used for working capital if
the Company is fully drawn on the revolving credit facility and for acquisitions
after the Company has fully utilized the acquisition term loan facility.

Interest on the loans under the New Loan Agreement will bear interest, at
the Company's option, at floating rates of interest based on the prime rate or
the London interbank offer rate ("LIBOR"), plus a margin which will range from
0% to 1.25% for prime rate loans and 1% to 2.75% for LIBOR loans depending on
certain financial performance targets.

The New Loan Agreement will contain various covenants, including covenants
prohibiting or limiting the incurrence of additional indebtedness, the granting
of liens, sales of assets, capital expenditures, as well as financial covenants
and information reporting covenants and certain restrictions on the ability to
use the acquisition term loan facility.

The New Loan Agreement will contain various events of default, the
occurrence and continuance of which would entitle the lenders under the New Loan
Agreement to accelerate the maturity of all loans under the New Loan Agreement
and terminate their acquisition term loan, revolving credit and supplemental
line of credit commitments, including (i) failure to pay any principal,
interest, fees or other amounts under the New Loan Agreement, (ii) breaches of
representations and warranties, (iii) violations of covenants, (iv) bankruptcy
or insolvency, (v) unsatisfied judgments in excess of certain thresholds, (vi)
certain events giving rise to liability under the Employee Retirement Income
Security Act, and (vii) failure of Credit Agricole Indosuez, as collateral
agent, to have a first perfected priority security interest in the collateral
for the loans.

Events of default will also give the lenders the right to possess and sell
the collateral security under the New Loan Agreement to obtain funds to satisfy
outstanding obligations to the lenders.

HELLER NOTE

In connection with the Recapitalization, the Company issued to Heller an
8.0% Subordinated Convertible Note with a principal amount of $7.1 million. The
Heller Note accrues interest daily at the rate of 8.0% per annum and is payable
on December 31, 2004. Interest is payable semi-annually in cash or, at the
option of the Company, interest may be capitalized and added to the principal
amount of the note. To date, the Company has elected to capitalize interest
accruing under the Heller Note. The Heller Note is subject to mandatory
redemption prior to December 31, 2004 upon (i) a sale or issuance of capital
stock of

48
<PAGE>
the Company which results in any person or group of affiliated persons (other
than KCSN and its affiliates) possessing the voting power to elect a majority of
the Board of Directors and (ii) a sale or transfer of more than 50% of the
Company's consolidated assets or a merger or consolidation in which the holders
of the capital stock of the Company prior to such merger or consolidation do not
have the power to elect a majority of the board of directors of the surviving
entity following such merger or consolidation. Amounts owing under the Heller
Note are also subject to acceleration in the event of (a) failure to pay
principal or interest, (b) certain unremedied covenant breaches, (c) bankruptcy
or insolvency of the Company, (d) an individual final judgment in excess of
$250,000 or in the aggregate, judgments in excess of $1.0 million, (e) the
acceleration of other indebtedness of $1.0 million individually or $2.5 million
in the aggregate prior to its stated maturity, or (f) failure by the Company to
make a mandatory redemption of the Heller Note.

The Heller Note is redeemable in whole or in part by the Company upon 45
days notice to Heller. Prior to any such redemption, Heller may convert the
Heller Note into that number of shares of Common Stock computed by dividing the
principal amount to be converted, plus capitalized interest accrued on such
principal amount, by the conversion price then in effect. Upon the completion of
the Offerings, the conversion price will be $20.09.

ODA NOTE

In connection with its acquisition of Oda Nursery, Inc., the Company issued
to the stockholders of Oda Nursery, Inc. a 9% Subordinated Promissory Note (the
"Oda Note") with a principal amount of $1,000,000. The Oda Note accrues interest
daily at the rate of 9% per annum and is payable on August 31, 2004. Interest is
payable monthly in arrears. The Oda Note is subject to mandatory redemption
prior to August 31, 2004 on the nine month anniversary of the date on which the
Company completes an initial registered public offering of any class of common
stock. The Oda Note is prepayable by the Company at any time without premium or
penalty.

DESCRIPTION OF NOTES

The Notes will be issued under an indenture (the "Indenture"), to be dated
as of December 24, 1997 by and between the Company and U.S. Trust Company of
California, N.A., as Trustee (the "Trustee"). The following is a summary of all
of the material provisions of the Indenture. This summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture (a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part), including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. The
definitions of certain capitalized terms used in the following summary are set
forth below under "Certain Definitions." For purposes of this section,
references to the "Company" include only the Company and not its Subsidiaries.

The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Debt of the Company.

The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for transfer at the offices of the Registrar, which initially will be the
Trustee's corporate trust office. The Company may change any Paying Agent and
Registrar without notice to holders of the Notes (the "Holders"). The Company
will pay principal (and premium, if any) on the Notes at the Trustee's corporate
office in New York, New York. At the Company's option, interest may be paid at
the Trustee's corporate trust office or by check mailed to the registered
address of Holders.

49
<PAGE>
PRINCIPAL, MATURITY AND INTEREST

The Notes are limited in aggregate principal amount to $100,000,000 and will
mature on December 15, 2007. Interest on the Notes will accrue at the rate of
10 1/2% per annum and will be payable semiannually in cash on each June 15 and
December 15 commencing on June 15, 1998, to the persons who are registered
Holders at the close of business on the June 1 and December 1 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance.

REDEMPTION

MANDATORY REDEMPTION. The Notes will not be entitled to the benefit of any
mandatory sinking fund.

OPTIONAL REDEMPTION. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after December 15,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on December 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 105.25%
2003.............................................................................. 103.50%
2004.............................................................................. 101.75%
2005 and thereafter............................................................... 100.00%
</TABLE>

OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to December 15, 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem the Notes at a redemption price equal to 110.5% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; PROVIDED that at least 65% of the principal amount originally issued
of Notes remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Public Equity Offering,
the Company shall make such redemption not more than 120 days after the
consummation of any such Public Equity Offering.

SELECTION AND NOTICE OF REDEMPTION

In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as
is practicable (subject to the Depositary's (as defined) procedures), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
had deposited with the Paying Agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture.

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SUBORDINATION

The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes for cash or property or
otherwise. If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt, no
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its or their behalf with respect to any Obligations on the
Notes or to acquire any of the Notes for cash or property or otherwise.

In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180 days from such
Default Notice and only one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Debt shall be, or be made, the basis for commencement of a second
Blockage Period by the Representative of such Designated Senior Debt whether or
not within a period of 360 consecutive days, unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days (it
being acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).

By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.

After giving effect to the Offerings and the application of the proceeds
therefrom, at September 25, 1997, the aggregate amount of Senior Debt would have
been approximately $3.4 million, the aggregate amount of PARI PASSU debt would
have been approximately $8.4 million and the Company's Subsidiaries would have
had total liabilities of approximately $12.5 million.

CHANGE OF CONTROL

The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the

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offer described below (the "Change of Control Offer"), at a purchase price equal
to 101% of the principal amount thereof plus accrued interest to the date of
purchase.

The Indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
all other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Agreement and all other Senior Debt to permit the repurchase of the Notes
as provided below. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below.

Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.

If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.

Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.

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CERTAIN COVENANTS

The Indenture will contain, among others, the following covenants:

LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness
(including, without limitation, Acquired Indebtedness) and Restricted
Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on
the date of the Incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1.0.

LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company (excluding net cash proceeds
received from the sale of Capital Stock to employees of the Company and any of
its Subsidiaries after the Issue Date to the extent such amounts have been
applied in accordance with clause (4) of the following paragraph); plus (y)
without duplication of any amounts included in clause (iii) (x) above, 100% of
the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock (excluding, in the case of
clauses (iii) (x) and (y), any net cash proceeds from a Public Equity Offering
to the extent used to redeem the Notes); plus (z) aggregate net cash proceeds
received by the Company or any of its Subsidiaries as a distribution or
repayment with respect to, or from the sale of, Investments (other than
Permitted Investments) made after the Issue Date up to the original amount of
such Investments.

Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the

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application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes either (i) solely in
exchange for shares of Qualified Capital Stock of the Company, or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; and (4) so long as no
Default or Event of Default shall have occurred and be continuing, repurchases
by the Company of Capital Stock of the Company from employees of the Company or
any of its Subsidiaries or their authorized representatives upon the death,
disability or termination of employment of such employees or pursuant to a
written contract or plan or pursuant to a put/call arrangement covering 20,211
shares of Common Stock in existence on the Issue Date, in an aggregate amount
not to exceed $1,000,000 in any calendar year plus an aggregate amount of net
cash proceeds received by the Company subsequent to the Issue Date from the sale
of Capital Stock to employees of the Company and any of its Subsidiaries to the
extent such proceeds have not been included in making the calculation in clause
(iii) of the immediately preceding paragraph; (5) so long as no Default or Event
of Default shall have occurred and be continuing, the payment of cash dividends
on the Series A Preferred Stock commencing with the first payment due after
December 15, 2002; and (6) so long as no Default or Event of Default shall have
occurred and be continuing, the repurchase of Series A Preferred Stock after a
Change of Control; PROVIDED that the Company has completed the Change of Control
Offer. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2), (4) and (5)
shall be included in such calculation.

Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.

LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 70% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Senior Debt and, in the case of any Senior Debt under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in a similar
business or properties or assets that replace the business, properties or assets
that were the subject of such Asset Sale or in properties and assets that will
be used in the business of the Company and its Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after
an Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
PRO RATA basis, that amount of Notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the

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date of purchase; PROVIDED, HOWEVER, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this covenant. The Company may defer
the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $5,000,000 resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $5,000,000, shall be applied as required pursuant
to this paragraph).

In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.

Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 70% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED, that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.

Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a PRO RATA basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.

LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person

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or the properties or assets of the Person so acquired; (5) agreements existing
on the Issue Date to the extent and in the manner such agreements are in effect
on the Issue Date; (6) an agreement governing Indebtedness incurred to Refinance
the Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clause (2), (4) or (5) above; PROVIDED, HOWEVER, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in their reasonable and good faith
judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5); (7)
Indebtedness or other contractual requirements of a Receivables Subsidiary in
connection with a Qualified Receivables Transaction, provided that such
restrictions apply only to such Receivables Subsidiary; or (8) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (c) above on the property so
acquired.

LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.

LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (B) Liens securing Senior
Debt; (C) Liens securing the Notes; (D) Liens of the Company or a Wholly Owned
Restricted Subsidiary of the Company on assets of any Subsidiary of the Company;
(E) Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
PROVIDED, HOWEVER, that such Liens (A) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (B) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens.

PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will not
incur or suffer to exist Indebtedness that is senior in right of payment to the
Notes and subordinate in right of payment to any other Indebtedness of the
Company.

MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall

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expressly assume, by supplemental indenture (in form and substance satisfactory
to the Trustee), executed and delivered to the Trustee, the due and punctual
payment of the principal of, and premium, if any, and interest on all of the
Notes and the performance of every covenant of the Notes and the Indenture on
the part of the Company to be performed or observed; (ii) immediately after
giving effect to such transaction and the assumption contemplated by clause
(i)(2)(y) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (1) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(2) shall be able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "--Limitation on Incurrence of
Additional Indebtedness" covenant; (iii) immediately before and immediately
after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
and any Lien granted in connection with or in respect of the transaction), no
Default or Event of Default shall have occurred or be continuing; and (iv) the
Company or the Surviving Entity shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.

For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.

The Indenture will provide that upon any consolidation or merger or any
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing, in which the Company is not the continuing corporation, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under the Indenture and the Notes with the same effect as if such surviving
entity had been named as such.

LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1,000,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5,000,000, the Company or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.

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(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company (including customary provisions contained in
employment agreements with executive officers of the Company) as determined in
good faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise prohibited
by the Indenture; (iii) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the Issue Date;
(iv) Restricted Payments permitted by the Indenture; (v) the payments by the
Company under that certain lease of its Richmond, California facility between
the Company and M. F. Vukelich Co. dated as of December 1, 1995, as amended on
December 13, 1995; and (vi) the payments by the Company under that certain
residential lease rental agreement and deposit receipt between the Company and
Michael F. Vukelich, as guardian of Trisha Vukelich, dated as of December 13,
1995.

LIMITATION OF GUARANTEES BY RESTRICTED SUBSIDIARIES. The Company will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of the
pledge of any intercompany note or otherwise, to assume, guarantee or in any
other manner become liable with respect to any Indebtedness of the Company or
any other Restricted Subsidiary of the Company (other than (A) Indebtedness and
other obligations under the Credit Agreement, (B) Permitted Indebtedness of a
Restricted Subsidiary of the Company, (C) Indebtedness under Currency Agreements
in reliance on clause (v) of the definition of Permitted Indebtedness, or (D)
Interest Swap Obligations incurred in reliance on clause (iv) of the definition
of Permitted Indebtedness), unless, in any such case (a) such Restricted
Subsidiary executes and delivers a supplemental indenture to the Indenture,
providing a guarantee of payment of the Notes by such Restricted Subsidiary (the
"Guarantee") and (b) (x) if any such assumption, guarantee or other liability of
such Restricted Subsidiary is provided in respect of Senior Debt, the guarantee
or other instrument provided by such Restricted Subsidiary in respect of such
Senior Debt may be superior to the Guarantee pursuant to subordination
provisions that are no less favorable to the Holders of the Notes than those
contained in the Indenture and (y) if such assumption, guarantee or other
liability of such Restricted Subsidiary is provided in respect of Indebtedness
that is expressly subordinated to the Notes, the guarantee or other instrument
provided by such Restricted Subsidiary in respect of such subordinated
Indebtedness shall be subordinated to the Guarantee pursuant to subordination
provisions no less favorable to the Holders of the Notes than those contained in
the Indenture.

Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon: (i) the unconditional release of
such Restricted Subsidiary from its liability in respect of the Indebtedness in
connection with which such Guarantee was executed and delivered pursuant to the
preceding paragraph; or (ii) any sale or other disposition (by merger or
otherwise) to any Person which is not a Restricted Subsidiary of the Company of
all of the Company's Capital Stock in, or all or substantially all of the assets
of, such Restricted Subsidiary; PROVIDED that (a) such sale or disposition of
such Capital Stock or assets is otherwise in compliance with the terms of the
Indenture and (b) such assumption, guarantee or other liability of such
Restricted Subsidiary has been released by the holders of the other Indebtedness
so guaranteed.

CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.

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REPORTS TO HOLDERS. The Indenture will provide that the Company will
deliver to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA Section
314(a).

EVENTS OF DEFAULT

The following events are defined in the Indenture as "Events of Default":

(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);

(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer) (whether or not such
payment shall be prohibited by the subordination provisions of the
Indenture);

(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);

(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary of the Company,
or the acceleration of the final stated maturity of any such Indebtedness if
the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$5,000,000 or more at any time;

(v) one or more judgments in an aggregate amount in excess of $5,000,000
(excluding any amounts covered by insurance as to which the insurer has
acknowledged coverage) shall have been rendered against the Company or any
of its Restricted Subsidiaries and such judgments remain undischarged,
unpaid or unstayed for a period of 60 days after such judgment or judgments
become final and non-appealable; or

(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.

If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become immediately due and payable upon the first to occur of an
acceleration under the Credit Agreement or 5 business days after receipt by the
Company and the Representative under the Credit Agreement of such Acceleration
Notice. If an Event of Default specified in clause (vi) above with respect to
the Company occurs and is continuing, then all unpaid principal of, and premium,
if any, and accrued

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and unpaid interest on all of the outstanding Notes shall IPSO FACTO become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder.

The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an Officers' Certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.

The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.

Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.

Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee, incorporator or stockholder of the Company
or its Subsidiaries, as such, shall have any liability for any obligations of
the Company under the Notes, the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance

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provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the Note.

In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that, after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the

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Trustee for cancellation, for principal of, premium, if any, and interest on the
Notes to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company has paid all other
sums payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.

MODIFICATION OF THE INDENTURE

From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including to
cure ambiguities, defects or inconsistencies or to comply with requirements of
the Commission in order to maintain the qualification of the Indenture under the
TIA, so long as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In formulating
its opinion on such matters, the Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on an
opinion of counsel. Other modifications and amendments of the Indenture may be
made with the consent of the Holders of a majority in principal amount of the
then outstanding Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may (with respect to any
Notes held by a non-consenting Holder): (i) reduce the amount of Notes whose
Holders must consent to an amendment; (ii) reduce the rate of or change or have
the effect of changing the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change or have the
effect of changing the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes (other than a payment required by the "Change of
Control" or "Limitation on Asset Sales" covenants); (v) make any change in
provisions of the Indenture protecting the right of each Holder to receive
payment of principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of Notes to waive Defaults or Events of Default; or
(vi) modify or change any provision of the Indenture or the related definitions
affecting the subordination or ranking of the Notes in a manner which adversely
affects the Holders.

GOVERNING LAW

The Indenture will provide that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be regulated thereby.

THE TRUSTEE

The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.

The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; PROVIDED that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.

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BOOK-ENTRY; DELIVERY AND FORM

The Notes will be issued in the form of one or more fully registered global
certificates (the "Global Certificates"). The Global Certificates will be
deposited with, or with the Trustee on behalf of, The Depository Trust Company,
New York, New York (the "Depositary") and registered in the name of the
Depositary's nominee. The Depositary will maintain the Notes in denominations of
$1,000 and integral multiples thereof through its book-entry facilities.

Except as set forth below, the Global Certificates may be transferred, in
whole and not in part, only to the Depositary, another nominee of the Depositary
or to a successor of the Depositary or its nominee.

The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities for its participating
organizations (the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depositary. Access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own securities
held by the Depositary only through Participants or indirect participants.

The Depositary has also advised that, pursuant to procedures established by
it, (i) upon the issuance by the Company of the Notes, the Depositary will
credit the accounts of Participants designated by the Underwriters with the
principal amount of the Notes purchased by the Underwriters and (ii) ownership
of beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. A beneficial owner is the person who has the right to
sell, transfer or otherwise dispose of an interest in the Notes and the right to
receive the proceeds therefrom, as well as principal, premium (if any) and
interest payable in respect to the Notes. The beneficial owner must rely on the
foregoing arrangements to evidence its interest in the Notes. Beneficial
ownership of the Notes may be transferred only by complying with the procedures
of a beneficial owner's Participant (e.g., a brokerage firm) and the Depositary.
The laws of some states require that certain persons take physical delivery in
definitive form of securities which they own. Consequently, the ability to
transfer beneficial interests in the Global Certificates is limited to such
extent.

So long as a nominee of the Depositary or its nominee is the registered
owner of the Global Certificates, the Depositary or such nominee will be
considered the absolute owner or holder of the Notes for all purposes under the
Indenture and any applicable laws. Except as provided below, owners of
beneficial interests in the Global Certificates will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or holders thereof under the Indenture.

All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by the
Company or the Trustee will be given only to the Depositary. It is expected that
the Depositary will forward notices to the Participants who will in turn forward
notices to the beneficial owners. Neither the Company, the Trustee, the paying
agents nor the Notes registrars will have any responsibility or obligation to
assure that any notices are forwarded by the Depositary to any Participant or by
any Participant to the beneficial owners. Nether the Company, the Trustee, the
paying agents nor the Notes registrars will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global

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Certificates, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.

Principal and interest payments on the Global Certificates registered in the
name of the Depositary's nominee will be made by the Company, either directly or
through a paying agent, to the Depositary's nominee as the registered owner of
the Global Certificates. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes are registered as the
owners of such Notes for the purpose of receiving payments of principal and
interest on such Notes and for all other purposes whatsoever. Therefore, neither
the Company, the Trustee or any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Notes to owners of
beneficial interests in the Global Certificates. The Depositary has advised the
Company and the Trustee that its present practice upon receipt of any payment of
principal or interest is to credit immediately the accounts of the Participants
with payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Global Certificates as shown on the
records of the Depositary. Payments by Participants and indirect participants to
owners of beneficial interests in the Global Certificates will be governed by
standing instructions and customary practices as is now the case with securities
held for the accounts of customers in bearer form or registered in "street name"
and will be the responsibility of such Participants or indirect participants.

As long as the Notes are represented by the Global Certificates, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "--Change of Control" and "--Certain Covenants--Limitation on Asset Sales."

Notice by Participants or indirect participants or by owners of beneficial
interests in the Global Certificates held through such Participants or indirect
participants of the exercise of the option to elect repayment of beneficial
interest in the Notes represented by the Global Certificates must be transmitted
to the Depositary in accordance with its procedures on a form required by the
Depositary and provided to Participants. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Notes must instruct the broker or
other Participant or indirect participant through which it holds an interest in
such Note to notify the Depositary of its desire to exercise a right to
repayment. Different firms have different deadlines for accepting instructions
from their customers and, accordingly, each beneficial owner should consult the
broker or other Participant or indirect participant through which it holds an
interest in a Note in order to ascertain the deadline by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.

The Company will issue Notes in definitive form in exchange for the Global
Certificates if, and only if, either (i) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, (ii) the Company executes or delivers to the
Trustee and the Notes registrar an Officers' Certificate stating that such
Global Certificate shall be so exchangeable or (iii) an Event of Default has
occurred and is continuing and the applicable Notes registrar has received a
request from the Depositary to issue Notes in definitive form in lieu of all or
a portion of the Global Certificates. In either instance, an owner of a
beneficial interest in the Global Certificate will be entitled to have the
applicable Notes equal in principal amount or principal amount at maturity, as
the case may be, to such beneficial interest registered in its name and will be
entitled to physical delivery of such Notes in definitive form. Notes so issued
in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.

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DESCRIPTION OF UNITS

Each Unit being offered will consist of one share of Series A Preferred
Stock and Warrants to purchase 20.625 shares of Common Stock. The Series A
Preferred Stock and Warrants will be separately transferable. As used in this
Description of Units, the "Description of Series A Preferred Stock" and
"Description of Warrants," the term "Company" refers to Color Spot Nurseries,
Inc., excluding its Subsidiaries.

DESCRIPTION OF SERIES A PREFERRED STOCK

GENERAL

The following is a summary of all of the material terms of the Series A
Preferred Stock. The terms of the Series A Preferred Stock will be set forth in
the Certificate of Designation, a copy of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. This summary is
not intended to be complete and is subject to, and qualified in its entirety by
reference to, the Certificate of Incorporation and the Certificate of
Designation, including the definitions of certain terms therein. The definitions
of certain terms used in the following summary are set forth below under
"Certain Definitions."

Pursuant to the Certificate of Designation, 100,000 shares of Series A
Preferred Stock with a liquidation preference of $1,000 per share (the
"Liquidation Preference") will be authorized for issuance. The Series A
Preferred Stock will, when issued, be fully paid and nonassessable, and holders
thereof will have no preemptive rights in connection therewith.

The Liquidation Preference of the Series A Preferred Stock is not
necessarily indicative of the price at which shares of the Series A Preferred
Stock will actually trade at or after the time of their issuance, and the Series
A Preferred Stock may trade at prices below its Liquidation Preference. The
market price of the Series A Preferred Stock can be expected to fluctuate with
changes in the financial markets and economic conditions, the financial
condition and prospects of the Company and other factors that generally
influence the market prices of securities.

The transfer agent for the Series A Preferred Stock will be American Stock
Transfer and Trust Company unless and until a successor is selected by the
Company (the "Transfer Agent").

RANKING

The Series A Preferred Stock will rank senior in right of payment to all
other classes or series of Capital Stock of the Company as to dividends and upon
liquidation, dissolution or winding up of the Company. The Certificate of
Designation will provide that the Company may not, without the consent of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock, authorize, create (by way of reclassification or otherwise) or issue any
class or series of Capital Stock of the Company ranking on a parity with the
Series A Preferred Stock ("Parity Securities") or any obligation or security
convertible or exchangeable into or evidencing a right to purchase, shares of
any class or series of Parity Securities. The Certificate of Designation will
provide that the Company may not, without the consent of the holders of at least
two-thirds of the then outstanding shares of Series A Preferred Stock,
authorize, create (by way of reclassification or otherwise) or issue any class
or series of Capital Stock of the Company ranking senior to the Series A
Preferred Stock ("Senior Securities") or any obligation or security convertible
or exchangeable into or evidencing a right to purchase, shares of any class or
series of Senior Securities.

DIVIDENDS

The holders of shares of the Series A Preferred Stock will be entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative preferential
dividends from the issue date of the Series A Preferred Stock accruing at the
rate of 13% of the Liquidation Preference per share per annum (subject to
increase as set forth below under

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"--Increased Dividend Rights"), payable quarterly in arrears on each March 15,
June 15, September 15 and December 15 or, if any such date is not a Business
Day, on the next succeeding Business Day (each, a "Dividend Payment Date"), to
the holders of record as of the next preceding March 1, June 1, September 1 and
December 1 (each, a "Record Date"). On each Dividend Payment Date occurring on
or prior to December 15, 2002, dividends may be paid, at the Company's option,
in cash or by the issuance of additional shares of Series A Preferred Stock
(including fractional shares) having an aggregate Liquidation Preference equal
to the amount of such dividends. The issuance of such additional shares of
Series A Preferred Stock will constitute "payment" of the related dividend for
all purposes of the Certificate of Designation. The first dividend on the Series
A Preferred Stock will be payable on March 15, 1998. Dividends payable on the
Series A Preferred Stock will be computed on the basis of a 360-day year
consisting of twelve 30-day months and will be deemed to accrue on a daily
basis. For a discussion of certain federal income tax considerations relevant to
the payment of dividends on the Series A Preferred Stock, see "Certain Federal
Income Tax Considerations--Distributions on Series A Preferred Stock."

INCREASED DIVIDEND RIGHTS. The Certificate of Designation will provide that
upon (a) the failure of the Company to satisfy any mandatory redemption or
repurchase obligation with respect to the Series A Preferred Stock; (b) the
failure of the Company to make a Series A Change of Control Offer on the terms
and in accordance with the provisions described below under the caption
"--Change of Control;" (c) the failure of the Company to comply with any of the
other covenants or agreements (other than those covenants and agreements
described under "--Voting Rights") set forth in the Certificate of Designation
and the continuance of such failure for 30 consecutive days or more; or (d)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the Issue Date, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
at maturity or prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5,000,000 or more (each of the events described in clauses (a), (b), (c) and
(d) being referred to herein as an "Increased Dividend Triggering Event"), then
cumulative preferential dividends of the Series A Preferred Stock will accrue at
a rate of 18% of the Liquidation Preference per share per annum from the date of
such Increased Dividend Triggering Event until such Increased Dividend
Triggering Event is cured.

Dividends on the Series A Preferred Stock will accrue whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Certificate of
Designation will provide that the Company will take all actions required or
permitted under the Delaware General Corporation Law (the "DGCL") to permit the
payment of dividends on the Series A Preferred Stock, including, without
limitation, through the revaluation of its assets in accordance with the DGCL
and to make or keep funds legally available for the payment of dividends.

No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Series A
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Series A Preferred Stock. Unless full cumulative dividends on all
outstanding shares of Series A Preferred Stock have been declared and paid in
cash for the current dividend period and the two most recent dividend periods in
which the Series A Preferred Stock were outstanding, or declared and a
sufficient sum for the payment thereof set apart, then: (i) no dividend (other
than a dividend payable solely in shares of any class of stock ranking junior to
the Series A Preferred Stock as to the payment of dividends and as to rights in

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liquidation, dissolution or winding up of the affairs of the Company ("Junior
Securities")) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Securities; (ii) no other
distribution shall be declared or made upon, or any sum set apart for the
payment of any distribution upon, any shares of Junior Securities, other than a
distribution consisting solely of Junior Securities; (iii) no shares of Junior
Securities shall be purchased, redeemed or otherwise acquired or retired for
value (excluding an exchange for shares of other Junior Securities) by the
Company or any of its Restricted Subsidiaries, except as provided in clause (3)
of the notwithstanding paragraph of Section 6(a); and (iv) no monies shall be
paid into or set apart or made available for a sinking or other like fund for
the purchase, redemption or other acquisition or retirement for value of any
shares of Junior Securities by the Company or any of its Restricted
Subsidiaries. Holders of the Series A Preferred Stock will not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the full
cumulative dividends as herein described.

The Indenture and the Credit Agreement contain, and any future credit
agreements or other agreements relating to Indebtedness to which the Company
becomes a party may contain, restrictions on the ability of the Company to pay
dividends on the Series A Preferred Stock.

VOTING RIGHTS

Holders of record of shares of the Series A Preferred Stock will have no
voting rights, except as required by law and as provided in the Certificate of
Designation. The Certificate of Designation will provide that upon the
accumulation of accrued and unpaid dividends on the outstanding Series A
Preferred Stock in an amount equal to six full quarterly dividends (whether or
not consecutive) (the events described above being referred to herein as a
"Voting Rights Triggering Event"), then the number of members of the Company's
Board of Directors will be immediately and automatically increased by one unless
there is a vacancy on the Company's Board of Directors, and the holders of a
majority of the outstanding shares of Series A Preferred Stock, voting as a
separate class, will be entitled to elect one member to the Board of Directors
of the Company. Voting rights arising as a result of a Voting Rights Triggering
Event will continue until such time as all dividends in arrears on the Series A
Preferred Stock are paid in full, at which time the term of office of any such
directors so elected shall terminate and such director shall be deemed to have
resigned.

In addition, as provided above under "--Ranking," the Company may not
authorize, create (by way of reclassification or otherwise) or issue (i) any
Parity Securities, or any obligation or security convertible into or evidencing
the right to purchase any Parity Securities, without the affirmative vote or
consent of the holders of a majority of the then outstanding shares of Series A
Preferred Stock and (ii) any Senior Securities, or any obligation or security
convertible into or evidencing the right to purchase Senior Securities, without
the affirmative vote or consent of the holders of at least two-thirds of the
then outstanding shares of Series A Preferred Stock, in each case voting as one
class.

REDEMPTION

MANDATORY REDEMPTION. On December 15, 2008 (the "Mandatory Redemption
Date"), the Company will be required to redeem (subject to the legal
availability of funds therefor) all outstanding shares of Series A Preferred
Stock at a price in cash equal to the Liquidation Preference thereof, plus
accrued and unpaid dividends, if any, to the date of redemption. The Company
will not be required to make sinking fund payments with respect to the Series A
Preferred Stock. The Certificate of Designation will provide that the Company
will take all actions required or permitted under Delaware law to permit such
redemption.

OPTIONAL REDEMPTION. The Series A Preferred Stock may not be redeemed at
the option of the Company prior to December 15, 2002, except as set forth below.
The Series A Preferred Stock may be redeemed, in whole or in part, at the option
of the Company on or after December 15, 2002, at the redemption prices specified
below (expressed as percentages of the Liquidation Preference thereof), in

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each case, together with accrued and unpaid dividends, if any, to the date of
redemption, upon not less than 30 nor more than 60 days' prior written notice,
if redeemed during the 12-month period commencing on December 15 of each of the
years set forth below:

<TABLE>
<CAPTION>
REDEMPTION
YEAR RATE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 106.500%
2003............................................................................. 104.875%
2004............................................................................. 103.250%
2005............................................................................. 101.625%
2006 and thereafter.............................................................. 100.000%
</TABLE>

OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to December 15, 2002, the Company may, at its option, use
the net cash proceeds of any Public Equity Offering to redeem the Series A
Preferred Stock at a redemption price equal to 113% of the Liquidation
Preference together with accrued and unpaid dividends, if any, to the date of
redemption. In order to effect the foregoing redemption with the proceeds of
such Public Equity Offering, the Company shall make such redemption not more
than 120 days after the consummation of such Public Equity Offering.

LIQUIDATION RIGHTS

Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company or reduction or decrease in its Capital Stock
resulting in a distribution of assets to the holders of any class or series of
the Company's Capital Stock (a "reduction or decrease in Capital Stock"), each
holder of shares of the Series A Preferred Stock will be entitled to payment out
of the assets of the Company available for distribution of an amount equal to
the Liquidation Preference per share of Series A Preferred Stock held by such
holder, plus accrued and unpaid dividends, if any, to the date fixed for
liquidation, dissolution, winding up or reduction or decrease in Capital Stock,
before any distribution is made on any Junior Securities, including, without
limitation, Common Stock. After payment in full of the Liquidation Preference
and all accrued dividends, if any, to which holders of Series A Preferred Stock
are entitled, such holders will not be entitled to any further participation in
any distribution of assets of the Company. However, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
corporations will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Company or reduction or decrease in Capital
Stock, unless such sale, conveyance, exchange or transfer shall be in connection
with a liquidation, dissolution or winding up of the business of the Company or
reduction or decrease in Capital Stock.

The Certificate of Designation will not contain any provision requiring
funds to be set aside to protect the Liquidation Preference of the Series A
Preferred Stock, although such Liquidation Preference will be substantially in
excess of the par value of the shares of the Series A Preferred Stock.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each holder of shares of Series
A Preferred Stock will have the right to require the Company to repurchase all
or any part (but not, in the case of any holder requiring the Company to
purchase less than all of the shares of Series A Preferred Stock held by such
holder, any fractional shares) of such holder's Series A Preferred Stock
pursuant to the offer described below (the "Series A Change of Control Offer")
at an offer price in cash equal to 101% of the aggregate Liquidation Preference
thereof plus accrued and unpaid dividends, if any, thereon to the date of
purchase (the "Series A Change of Control Payment").

The Certificate of Designation will provide that within 90 days following
any Change of Control, the Company will send, by first class mail, a notice to
each holder describing the transaction or transactions

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that constitute the Change of Control and offering to repurchase all outstanding
shares of Series A Preferred Stock pursuant to the procedures required by the
Certificate of Designation and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Series A
Preferred Stock as a result of a Change of Control.

On the Series A Change of Control Payment Date, the Company will, to the
extent lawful, (1) accept for payment all shares of Series A Preferred Stock or
portions thereof properly tendered pursuant to the Series A Change of Control
Offer, (2) deposit with the Paying Agent an amount equal to the Series A Change
of Control Payment in respect of all shares of Series A Preferred Stock or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Transfer Agent the shares of Series A Preferred Stock so accepted together with
an Officers' Certificate stating the aggregate Liquidation Preference of the
shares of Series A Preferred Stock or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each holder of Series A
Preferred Stock so tendered the Series A Change of Control Payment for such
Series A Preferred Stock, and the Transfer Agent will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a new certificate
representing the shares of Series A Preferred Stock equal in Liquidation
Preference amount to any unpurchased portion of the shares of Series A Preferred
Stock surrendered, if any. The Company will publicly announce the results of the
Series A Change of Control Offer on or as soon as practicable after the Series A
Change of Control Payment Date.

The Indenture and the Credit Agreement prohibit, and any future credit
agreements or other agreements relating to Indebtedness to which the Company
becomes a party may prohibit, the Company from purchasing any Series A Preferred
Stock prior to its maturity. Any future credit agreements or other agreements
relating to Indebtedness to which the Company becomes a party may provide that
certain change of control events with respect to the Company would constitute a
default thereunder. In the event a Change of Control occurs at a time when the
Company is prohibited from purchasing Series A Preferred Stock, the Company
could seek the consent of its lenders to the purchase of Series A Preferred
Stock or could attempt to refinance the borrowings that contain such
prohibition. The Certificate of Designation will provide that, prior to
complying with the provisions of this covenant, but in any event within 90 days
following a Change of Control, the Company will either repay all outstanding
Indebtedness or obtain the requisite consents, if any, under all agreements
governing outstanding Indebtedness to permit the repurchase of Series A
Preferred Stock required by this covenant. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing Series A Preferred Stock. In such case, an Increased Dividend
Triggering Event will occur. The Company will not repurchase or redeem any
Series A Preferred Stock pursuant to the Change of Control provisions prior to
the Company's offer to repurchase the Notes pursuant to the Change of Control
covenants in the Indenture. See "Description of Notes--Change of Control."

The Company will not be required to make a Series A Change of Control Offer
to the holders of Series A Preferred Stock upon a Change of Control if a third
party makes the Series A Change of Control Offer described above in the manner,
at the times and otherwise in compliance with the requirements set forth in the
Certificate of Designation and purchases all shares of Series A Preferred Stock
validly tendered and not withdrawn under such Series A Change of Control Offer.

AMENDMENT

The Certificate of Designation shall not be amended, either directly or
indirectly, or through merger or consolidation with another entity, in any
manner that would alter or change the powers, preferences or special rights of
the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding Series A
Preferred Stock.

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CERTAIN COVENANTS

RESTRICTED PAYMENTS. The Certificate of Designation provides that the
Company and its Restricted Subsidiaries may not, directly or indirectly:

(i) declare or pay any dividend or make any distribution in respect of
any Equity Interests of the Company that are Junior Securities or of any of
its Subsidiaries other than dividends or distributions payable (A) in Junior
Securities of the Company that are not Disqualified Capital Stock or (B) to
the Company or any Subsidiary;

(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company that are Junior Securities or of any of its
Subsidiaries or other Affiliates of the Company (other than any such Equity
Interests owned by the Company or any Subsidiary);

(iii) make any Investment (other than Permitted Investments);

each of the foregoing actions set forth in clauses (i), (ii) and (iii) above
being referred to as a "Stock Restricted Payment," unless, at the time of such
Stock Restricted Payment:

(A) no Increased Dividend Triggering Event or Voting Rights
Triggering Event has occurred and is continuing or would occur as a
consequence thereof;

(B) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "--Incurrence
of Indebtedness and Issuance of Disqualified Capital Stock" covenant; and

(C) such Stock Restricted Payment, together with the aggregate of all
other Stock Restricted Payments made by the Company and its Subsidiaries
after the Issue Date (the amount expended for such purposes if other than
in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company),
is less than the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company earned subsequent to the Issue Date and
on or prior to the date the Stock Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period);
plus (x) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company (excluding net
cash proceeds received from the sale of Capital Stock to employees of the
Company and any of its Subsidiaries after the Issue Date to the extent
such amounts have been applied in accordance with clause (3) of the
following paragraph); plus (y) without duplication of any amounts
included in clause (C) (x) above, 100% of the aggregate net cash proceeds
of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (C) (x) and
(y), any net cash proceeds from a Public Equity Offering to the extent
used to redeem the Notes or the Series A Preferred Stock); plus (z)
aggregate net cash proceeds received by the Company or any of its
Subsidiaries as a distribution or repayment with respect to, or from the
sale of, Investments (other than Permitted Investments) made after the
Issue Date up to the original amount of such Investments.

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Notwithstanding the foregoing, the provisions set forth above in the
immediately preceding paragraph will not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would have complied with the provisions of the
Certificate of Designation; (2) so long as no Increased Dividend Triggering
Event or Voting Rights Triggering Event shall have occurred and be continuing,
the acquisition of any Junior Securities of the Company either (i) solely in
exchange for shares of Qualified Capital Stock of the Company, or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital Stock
of the Company; and (3) so long as no Increased Dividend Triggering Event or
Voting Rights Triggering Event shall have occurred and be continuing,
repurchases by the Company of Capital Stock of the Company from employees of the
Company or any of its Subsidiaries or their authorized representatives upon the
death, disability or termination of employment of such employees or pursuant to
a written contract or plan, in an aggregate amount not to exceed $1,000,000 in
any calendar year plus an aggregate amount of net cash proceeds received by the
Company subsequent to the Issue Date from the sale of Capital Stock to employees
of the Company and any of its Subsidiaries to the extent such proceeds have not
been included in making the calculation in clause (C) of the immediately
preceding paragraph; (4) the payment of cash dividends on the Series A Preferred
Stock; and (5) the repurchase of Series A Preferred Stock after a Change of
Control. In determining the aggregate amount of Stock Restricted Payments made
subsequent to the Issue Date in accordance with clause (C) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2), (3) and (4)
shall be included in such calculation.

The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause an Increased Dividend Triggering
Event. For purposes of making such determination, all outstanding Investments by
the Company and its Subsidiaries (except to the extent repaid in cash) in such
Subsidiary so designated will be deemed to be Stock Restricted Payments at the
time of such designation and will reduce the amount available for Stock
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Stock Restricted Payment would be permitted at such time.

INCURRENCE OF ADDITIONAL INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL
STOCK. The Certificate of Designation will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur"), any Indebtedness (other than Permitted
Indebtedness) or issue any Disqualified Capital Stock; PROVIDED, HOWEVER, that
if no Increased Dividend Triggering Event or Voting Rights Triggering Event
shall have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness or the issuance of Disqualified Capital
Stock, the Company may incur Indebtedness (including, without limitation,
Acquired Indebtedness) or issue Disqualified Capital Stock and Restricted
Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on
the date of the Incurrence of such Indebtedness, or the issuance of Disqualified
Capital Stock, after giving effect to the incurrence or issuance thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0.

MERGER, CONSOLIDATION OR SALE OF ASSETS. The Certificate of Designation
will provide that the Company may not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) if the Company is not the Surviving Corporation, the

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Series A Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor, transferee or resulting Person, having in
respect of such successor, transferee or resulting Person the same powers,
preferences and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon, that the Series A Preferred
Stock had immediately prior to such transaction; (iii) immediately after such
transaction no Increased Dividend Triggering Event or Voting Rights Triggering
Event exists; and (iv) the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio
set forth in the covenant described under the caption "--Certain
Covenants--Incurrence of Additional Indebtedness and Issuance of Disqualified
Capital Stock."

TRANSACTIONS WITH AFFILIATES. The Certificate of Designation will provide
that (a) the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $1,000,000 shall be approved by the Board of Directors of the Company
or such Restricted Subsidiary, as the case may be, such approval to be evidenced
by a Board Resolution stating that such Board of Directors has determined that
such transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $5,000,000, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Board of Directors.

(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company (including customary provisions contained in
employment agreements with executive officers of the Company) as determined in
good faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise prohibited
by the Certificate of Designation; (iii) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the holders of Series A Preferred Stock in any material
respect than the original agreement as in effect on the Issue Date; (iv) Stock
Restricted Payments permitted by the Certificate of Designation; (v) the
payments by the Company under that certain lease of its Richmond, California
facility between the Company and M. F. Vukelich Co. dated as of December 1,
1995, as amended on December 13, 1995; and (vi) the payments by the Company
under that certain residential lease rental agreement and deposit receipt
between the Company and Michael F. Vukelich, as guardian of Trisha Vukelich,
dated as of December 13, 1995.

DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Certificate of Designation will provide that the Company will not, and will not
cause or permit any of its Restricted Subsidiaries to,

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directly or indirectly, create or otherwise cause or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of the Company to (a) pay dividends or make any other distributions
on or in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Restricted
Subsidiary of the Company; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Certificate of Designation; (3) customary non-assignment provisions of
any contract or any lease governing a leasehold interest of any Restricted
Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the properties or
assets of the Person so acquired; (5) agreements existing on the Issue Date to
the extent and in the manner such agreements are in effect on the Issue Date;
(6) an agreement governing Indebtedness incurred to Refinance the Indebtedness
issued, assumed or incurred pursuant to an agreement referred to in clause (4)
or (5) above; PROVIDED, HOWEVER, that the provisions relating to such
encumbrance or restriction contained in any such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (4) or (5); (7) Indebtedness or other contractual
requirements of a Receivables Subsidiary in connection with a Qualified
Receivables Transaction, provided that such restrictions apply only to such
Receivables Subsidiary; or (8) purchase money obligations for property acquired
in the ordinary course of business that impose restrictions of the nature
described in clause (c) above on the property so acquired.

REPORTS. The Certificate of Designation provides that the Company will mail
to holders of Series A Preferred Stock within 15 days after it files them with
the Commission copies of the annual and quarterly reports and the information,
documents, and other reports that the Company is required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event the Company is not required or shall cease to be
required to file SEC Reports, pursuant to the Exchange Act, the Company will
nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing). In the event the Company is not
required or shall cease to be required to file SEC Reports and the Commission
will not accept the filing of SEC Reports, so long as any Series A Preferred
Stock are outstanding, the Company will furnish copies of such SEC Reports to
the holders of Series A Preferred Stock at the time the Company is required to
make such information available to investors who request it in writing.

BOOK-ENTRY, DELIVERY AND FORM; CERTIFICATED SECURITIES

The Series A Preferred Stock will be issued in the form of one or more fully
registered global certificates (the "Global Certificates"). The Global
Certificates will be deposited with the Depositary and registered in the name of
the Depositary's nominee.

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facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("indirect participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or indirect
participants.

The Depositary has also advised that, pursuant to procedures established by
it, (i) upon the issuance by the Company of the Series A Preferred Stock, the
Depositary will credit the accounts of Participants designated by the
Underwriters with the amount of the Series A Preferred Stock purchased by the
Underwriters and (ii) ownership of beneficial interests in the Global
Certificates will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary (with respect to
Participants' interests), the Participants and the indirect participants. A
beneficial owner is the person who has the right to sell, transfer or otherwise
dispose of an interest in the Series A Preferred Stock and the right to receive
the proceeds therefrom, as well as dividends and redemption payments in respect
to the Series A Preferred Stock. The beneficial owner must rely on the foregoing
arrangements to evidence its interest in the Series A Preferred Stock.
Beneficial ownership of the Series A Preferred Stock may be transferred only by
complying with the procedures of a beneficial owner's Participant (e.g., a
brokerage firm) and the Depositary. The laws of some states require that certain
persons take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificates is limited to such extent.

So long as a nominee of the Depositary or its nominee is the registered
owner of the Global Certificates, the Depositary or such nominee will be
considered the absolute owner or holder of the Series A Preferred Stock for all
purposes under the Certificate of Designation. Except as provided below, owners
of beneficial interests in the Global Certificates will not be entitled to have
Series A Preferred Stock registered in their names, will not receive or be
entitled to receive physical delivery of Series A Preferred Stock in definitive
form and will not be considered the owners or holders thereof.

All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by the
Company or the Transfer Agent will be given only to the Depositary. It is
expected that the Depositary will forward notices to the Participants who will
in turn forward notices to the beneficial owners. Neither the Company, the
Transfer Agent, the paying agents nor the Series A Preferred Stock registrars
will have any responsibility or obligation to assure that any notices are
forwarded by the Depositary to any Participant or by any Participant to the
beneficial owners. Nether the Company, the Transfer Agent, the paying agents nor
the Series A Preferred Stock registrars will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Certificates, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.

Dividend and redemption payments on the Global Certificates registered in
the name of the Depositary's nominee will be made by the Company, either
directly or through a paying agent, to the Depositary's nominee as the
registered owner of the Global Certificates. The Company and the Transfer Agent
will treat the persons in whose names the Series A Preferred Stock are
registered as the owners of such Series A Preferred Stock for the purpose of
receiving payments of dividends and redemption payments on such Series A
Preferred Stock and for all other purposes whatsoever. Therefore, neither the
Company, the Transfer Agent or any paying agent has any direct responsibility or
liability for the payment of dividends or redemption payments on the Series A
Preferred Stock to owners of beneficial interests in the Global Certificates.
The Depositary has advised the Company and the Transfer Agent that its present
practice upon receipt of any payment of such amounts is to credit immediately
the accounts of the Participants with payment in amounts proportionate to their
respective holdings of beneficial interests in the Global Certificates as shown
on the records of the Depositary. Payments by Participants and indirect

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participants to owners of beneficial interests in the Global Certificates will
be governed by standing instructions and customary practices as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name" and will be the responsibility of such Participants or indirect
participants.

As long as the Series A Preferred Stock is represented by the Global
Certificates, the Depositary's nominee will be the holder of the Series A
Preferred Stock and therefore will be the only entity that can exercise a right
to repayment or repurchase of the Notes. See "--Change of Control."

Notice by Participants or indirect participants or by owners of beneficial
interests in the Global Certificates held through such Participants or indirect
participants of the exercise of the option to elect repayment of beneficial
interest in the Series A Preferred Stock represented by the Global Certificates
must be transmitted to the Depositary in accordance with its procedures on a
form required by the Depositary and provided to Participants. In order to ensure
that the Depositary's nominee will timely exercise a right to repayment with
respect to particular shares of Series A Preferred Stock, the beneficial owner
of such Series A Preferred Stock must instruct the broker or other Participant
or indirect participant through which it holds an interest in such Series A
Preferred Stock to notify the Depositary of its desire to exercise a right to
repayment. Different firms have different deadlines for accepting instructions
from their customers and, accordingly, each beneficial owner should consult the
broker or other Participant or indirect participant through which it holds an
interest in shares of Series A Preferred Stock in order to ascertain the
deadline by which such an instruction must be given in order for timely notice
to be delivered to the Depositary. The Company will not be liable for any delay
in delivery of notices of the exercise of the option to elect repayment.

CERTIFICATED SECURITIES. Subject to certain conditions, any person having a
beneficial interest in the Global Securities may, upon request to the Transfer
Agent, exchange such beneficial interest for Series A Preferred Stock in the
form of Certificated Securities. Upon any such issuance, the Transfer Agent is
required to register such Certificated Securities in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any thereof).
In addition, if (i) the Company notifies the Transfer Agent in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Transfer Agent in writing that it elects to cause the
issuance of Series A Preferred Stock in the form of Certificated Securities
under the Certificate of Designation, then, upon surrender by the Global
Security Holder of its Global Securities, Series A Preferred Stock in such form
will be issued to each person that the Global Security Holder and the Depositary
identify as being the Beneficial Owner of the related Series A Preferred Stock.
If the Company elects to pay dividends on the Series A Preferred Stock by
issuing additional Series A Preferred Stock, fractional shares, if any, issued
in connection with any such dividend payment may be issued to holders of Series
A Preferred Stock as Certificated Securities.

DESCRIPTION OF WARRANTS

GENERAL

The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement") between the Company and American Stock Transfer and Trust Company,
as Warrant Agent (the "Warrant Agent"). The following summary of all of the
material provisions of the Warrant Agreement, including the definitions therein
of certain terms used below, does not purport to be complete and is qualified in
its entirety by reference to the Warrant Agreement and the warrant certificate
attached thereto, the forms of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.

Each Warrant, when exercised, will entitle the holder thereof to receive one
fully paid and non-assessable share of Common Stock at an exercise price of $.01
per share, subject to adjustment (the "Exercise Price"). The Exercise Price and
the number of Warrant Shares are both subject to adjustment in certain cases
referred to below. The Warrants will entitle the holders thereof to purchase in
the aggregate 825,000 shares of Common Stock, or approximately 8.5% of the
outstanding Common Stock, on a fully

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diluted basis as of the closing of the Offerings. Shares of Common Stock
issuable upon exercise of the Warrants are sometimes referred to as "Warrant
Shares."

The Warrants will be exercisable prior to 5:00 p.m., New York City time, on
December 15, 2008 (the "Expiration Date"). In the absence of an exercise, the
Warrants will be automatically deemed to have been exercised immediately before
5:00 p.m. on the Expiration Date with payment of the Exercise Price on a
cash-less basis. The exercise and transfer of the Warrants will be subject to
applicable federal and state securities laws.

The Warrants may be exercised by surrendering to the Company the warrant
certificates evidencing the Warrants to be exercised with the accompanying form
of election to purchase properly completed and executed, together with payment
of the Exercise Price. Payment of the Exercise Price may be made (A) by
tendering Warrants having a fair market value (as defined in the Warrant
Agreement) equal to the Exercise Price, (B) in the form of cash or by certified
or official bank check payable to the order of the Company or (C) by any
combination of Warrants and cash. Upon surrender of the Warrant certificate and
payment of the Exercise Price, the Company will deliver or cause to be
delivered, to or upon the written order of such holder, stock certificates
representing the number of whole shares of Common Stock to which such holder is
entitled. If less than all of the Warrants evidenced by a warrant certificate
are to be exercised, a new warrant certificate will be used for the remaining
number of Warrants.

No fractional shares of Common Stock will be issued upon the exercise of the
Warrants. The Company will pay to the holder of the Warrant at the time of
exercise an amount in cash equal to the current market value of any such
fractional share of Common Stock less a corresponding fraction of the Exercise
Price.

The holders of the Warrants will have no right to vote on matters submitted
to the stockholders of the Company and will have no right to receive dividends.
The holders of the Warrants will not be entitled to share in the assets of the
Company in the event of liquidation, dissolution or winding up of the Company.
In the event a bankruptcy or reorganization is commenced by or against the
Company, a bankruptcy court may hold that unexercised Warrants are executory
contracts which may be subject to rejection by the Company with approval of the
bankruptcy court, and the holders of the Warrants may, even if sufficient funds
are available, receive nothing or a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had exercised their
Warrants prior to the commencement of any such case.

In the event of a taxable distribution to holders of Common Stock that
results in an adjustment to the number of shares of Common Stock or other
consideration for which a Warrant may be exercised, the holders of the Warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. See "Certain United States
Federal Income Tax Considerations."

ADJUSTMENTS

The number of shares of Common Stock purchasable upon exercise of Warrants
and the Exercise Price will be subject to adjustment in certain events,
including: (i) the issuance by the Company of dividends (and other
distributions) on its Common Stock payable in Common Stock, (ii) subdivisions,
combinations and reclassifications of Common Stock, (iii) certain issuances of
Common Stock or securities convertible into, or exchangeable or exercisable for,
Common Stock at an offering price (or with an initial conversion, exchange or
exercise price plus such offering price) which is less than the current market
price per share (as defined in the Warrant Agreement) of Common Stock, (iv) the
issuance to all holders of Common Stock of rights, options or warrants entitling
them to subscribe for Common Stock or securities convertible into, or
exchangeable or exercisable for, Common Stock within sixty (60) days after the
record date for such issuance of rights, options or warrants at an offering
price (or with an initial conversion, exchange or exercise price plus such
offering price) which is less than the current market price per share (as
defined in the Warrant Agreement) of Common Stock, (v) the distribution to all
holders of Common Stock of any of the Company's assets (including cash), debt
securities, Preferred Stock or any rights or

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warrants to purchase any such securities (excluding those rights and warrants
referred to in clause (iv) above) and (vi) certain other events that could have
the effect of depriving holders of the Warrants of the benefit of all or a
portion of the purchase rights evidenced by the Warrants.

No adjustment in the number of shares of Common Stock purchasable upon
exercise of Warrants or in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the number of shares of Common Stock purchasable upon exercise of Warrants or
the Exercise Price; PROVIDED, HOWEVER, that any adjustment that is not made will
be carried forward and taken into account in any subsequent adjustment.

In the case of certain consolidations or mergers of the Company, or the sale
of all or substantially all of the assets of the Company to another corporation,
each Warrant will thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrants been exercised immediately prior thereto.

AMENDMENT

From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants will require the written
consent of the holders of a majority of the then outstanding Warrants (excluding
Warrants held by the Company or any of its Affiliates). The consent of each
holder of the Warrants affected will be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
would be decreased (other than pursuant to adjustments provided in the Warrant
Agreement).

REGISTRATION

The Warrant Agreement will contain certain registration rights relating to
the Warrant Shares. In connection with any public offering of Common Stock, the
holders of Warrants who desire to exercise their Warrants shall be permitted to
include their Warrant Shares in such offering pro rata among the holders of the
Warrant Shares and any other shares of Common Stock to be offered by existing
shareholders who did not exercise demand registration rights with respect to
such offering to the degree such participation can be accommodated in the
discretion of the underwriters of the offering. Subject to certain specified
exceptions, after the initial underwritten public offering of the Company's
Common Stock, the holders of a majority of the outstanding Warrant Shares may
demand two registrations of the Warrant Shares with such registration statement
to be filed within three months of such demand. In connection with any
underwritten public offering of the Company's Common Stock, the holders of
Warrants agree not to sell any of their Warrant Shares until 90 days after the
completion of such offering.

MISCELLANEOUS

The Warrant Agreement will contain certain provisions relating to the rights
of the Warrant Shares in the event of certain sales of the Common Stock. Until
the Company's initial public offering of its Common Stock, holders of Warrant
Shares, subject to certain terms and conditions, will be able to participate in
sales of Common Stock by KCSN and shall be required to approve sales of the
Company (including, in the event such sale is structured as a sale of stock, the
exercise of all Warrants and sale of all Warrant Shares).

ADDITIONAL INFORMATION

Anyone who receives a copy of this Prospectus may obtain a copy of the
Company's Certificate of Incorporation, the Certificate of Designation and the
Warrant Agreement without charge by writing to

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Color Spot Nurseries, Inc., 3478 Buskirk Avenue, Suite 260, Pleasant Hill,
California 94523, Attention: Secretary.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture and the Certificate of Designation. Reference is made to the Indenture
or the Certificate of Designation for the full definition of all such terms, as
well as any other terms used herein for which no definition is provided.

"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.

"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.

"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprises any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.

"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; PROVIDED, HOWEVER,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $500,000; (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under "Merger, Consolidation and Sale of Assets;" (iii)
sales of accounts receivable and related assets of the type specified in the
definition of "Qualified Receivables Transaction" to a Receivables Subsidiary in
connection with a Qualified Receivables Transaction; and (iv) sales of Permitted
Investments.

"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.

"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.

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"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.

"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.

"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia of
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.

"CERTIFICATE OF DESIGNATION" means the Certificate of Designation,
Preferences, and Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions for the Series
A Preferred Stock of the Company.

"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holder(s)) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.

"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been

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reduced thereby, (A) all income taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (B) Consolidated Interest Expense, (C) Consolidated
Non-cash Charges LESS any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP, (D) any expenses or charges
related to the termination of the Fee Agreement and (E) any write-off of
deferred financing costs in connection with the refinancing of the Company's
credit agreement in existence prior to the Credit Agreement and any refinancings
of the Credit Agreement.

"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (provided that such Consolidated EBITDA shall be included
only to the extent includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect (without duplication) to the incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such Person had
directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of the operation of such agreements.

"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum (without duplication) of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend

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payments on any series of Preferred Stock of such Person (other than dividends
paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or
accrued during such period times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.

"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of (without duplication): (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries of such period determined
on a consolidated basis in accordance with GAAP, including without limitation,
(a) any amortization of debt discount and amortization or write-off of deferred
financing costs (excluding any write-off of deferred financing costs in
connection with the refinancing of the Company's credit agreement in existence
prior to the Credit Agreement or any refinancing of the Credit Agreement), (b)
the net costs under Interest Swap Obligations, (c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and (ii) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP.

"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a Wholly
Owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.

"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.

"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).

"CREDIT AGREEMENT" means the Second Amended and Restated Credit Agreement
dated as of December 24, 1997, between the Company, the lenders party thereto in
their capacities as lenders thereunder and Credit Agricole Indosuez, as agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (PROVIDED that such
increase in borrowings is Permitted Indebtedness or is permitted by the
"Limitation on Incurrence of

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Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of
the Company as additional guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.

"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.

"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.

"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.

"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable other than in connection with a change of control,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole
option of the holder thereof on or prior to the final maturity date of the Notes
or the date of the mandatory redemption for the Series A Preferred Stock, as the
case may be.

"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.

"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.

"FEE AGREEMENT" means that certain fee agreement between the Company and
Kohlberg & Company, LLC dated as of December 31, 1996, as amended.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.

"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and excluding long-term, deferred purchase
price obligations for trees, PROVIDED that such obligations for trees are not
recorded as liabilities on such Person's balance sheet in accordance with GAAP),
(v) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction, (vi) guarantees and
other contingent obligations in respect of Indebtedness referred to in clauses
(i) through (v) above and clause (viii) below, (vii) all Obligations of any
other Person of the type

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referred to in clauses (i) through (vi) which are secured by any lien on any
property or asset of such Person, the amount of such Obligation being deemed to
be the lesser of the fair market value of such property or asset or the amount
of the Obligation so secured, (viii) all Obligations under Currency Agreements
and Interest Swap Obligations of such Person and (ix) all Disqualified Capital
Stock issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock.

"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company (other than an interest in less than
5% of the Company's Common Stock after such time as the Company's Common Stock
is publicly traded) and (ii) which, in the judgment of the Board of Directors of
the Company, is otherwise independent and qualified to perform the task for
which it is to be engaged.

"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.

"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated as an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated as a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; PROVIDED that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.

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"ISSUE DATE" means the date of original issuance of the Notes and the Series
A Preferred Stock.

"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).

"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any of its Restricted Subsidiaries, as
the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.

"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.

"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company
by two officers of the Company, one of whom must be the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company that meets the requirements set forth in the Indenture.

"PERMITTED HOLDER(S)" means KCSN Acquisition Company, L.P. and its
Affiliates, Kohlberg & Company, LLC and its Affiliates, and Michael F. Vukelich
and his Affiliates.

"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:

(i) Indebtedness under the Notes and the Indenture;

(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $150.0
million, less the amount of all mandatory principal payments actually made
by the Company in respect of the Term Loan Facility (excluding any such
payments to the extent refinanced at the time of payment under a replaced
Credit Agreement), provided that (1) not more than $110.0 million of
borrowings under the Credit Agreement are used to make Asset Acquisitions
and (2) not more than $90.0 million of borrowings under the Credit Agreement
are used for any other purpose;

(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;

(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;

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(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;

(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
to the Company or to a Wholly Owned Restricted Subsidiary of the Company for
so long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company (other than the Lien of the Credit Agent under the Credit
Agreement); PROVIDED that if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds
any such Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;

(vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien;
PROVIDED that (a) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary of the Company is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations under the Indenture and
the Notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;

(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is
extinguished within two business days of incurrence;

(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;

(x) Refinancing Indebtedness;

(xi) Indebtedness incurred in a Qualified Receivables Transaction that
is without recourse to the Company or to any Restricted Subsidiary of the
Company or their assets (other than a Receivables Subsidiary and its
assets); and

(xii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25,000,000 at
any one time outstanding.

"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company; (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and the Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $2,000,000
at any one time outstanding; (v) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments in securities of

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trade creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (vii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant; (viii) Investment by
the Company or a Wholly Owned Restricted Subsidiary of the Company in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in any
other Person in connection with a Qualified Receivables Transaction; (ix) notes
received from management as payment for purchases of Capital Stock; and (x)
additional Investments by the Company or any Restricted Subsidiary of the
Company in an aggregate amount, based on original cost, not to exceed $1,000,000
at any one time outstanding.

"PERMITTED LIENS" means the following types of Liens:

(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;

(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;

(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);

(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;

(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;

(vi) any interest (including UCC filings) or title of a lessor under any
Capitalized Lease Obligation; PROVIDED that such Liens do not extend to any
property or assets which is not leased property subject to such Capitalized
Lease Obligation;

(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; PROVIDED, HOWEVER, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired and
(B) the Lien securing such Indebtedness shall be created within 90 days of
such acquisition.

(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptance issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;

(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;

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(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements or the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;

(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;

(xii) Liens securing Indebtedness under Currency Agreements;

(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do
not extend to or cover any property or assets of the Company or of any of
its Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary of the Company;

(xiv) Liens on accounts receivable and related assets of the type
described in the definition of "Qualified Receivables Transaction" or on
assets of a Receivables Subsidiary, in either case, incurred in connection
with a Qualified Receivables Transaction; and

(xv) Liens securing Indebtedness in an aggregate amount not to exceed
$5,000,000 at any one time outstanding.

"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.

"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.

"PUBLIC EQUITY OFFERING" means an underwritten public offering of Qualified
Capital Stock of the Company sold by the Company after the Issue Date pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.

"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.

"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (i) a Receivables Subsidiary (in the
case of a transfer by the Company or any of its Restricted Subsidiaries) and
(ii) any other Person (in the case of a transfer by a Receivables Subsidiary),
or may grant a security interest in, any accounts receivable (whether now
existing or arising in the future) of the Company or any of its Restricted
Subsidiaries, and any assets related thereto including, without limitation, all
collateral securing such accounts receivable, all contracts and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.

"RECEIVABLES SUBSIDIARY" means a Wholly Owned Restricted Subsidiary of the
Company that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by the Board of
Directors of the Company (as provided below) as a Receivables Subsidiary (a)
which has no Indebtedness or any other Obligations (contingent or otherwise)
which (i) is guaranteed by the Company

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or any other Restricted Subsidiary of the Company (excluding guarantees of
Obligations (other than the principal of, and interest on, Indebtedness)
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction), (ii) is recourse to or obligates the Company or any other
Restricted Subsidiary of the Company in any way other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction or (iii) subjects any property or asset of the Company or any other
Restricted Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction, (b) with which
neither the Company nor any other Restricted Subsidiary of the Company has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable and (c) with which neither the
Company nor any other Restricted Subsidiary of the Company has any obligation to
maintain or preserve such Restricted Subsidiary's financial condition or cause
such Restricted Subsidiary to achieve certain levels of operating results. Any
such designation by the Board of Directors of the Company shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.

"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, pre-pay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.

"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (xi) or (xii) of
the definition of Permitted Indebtedness), in each case that does not (1) result
in an increase in the aggregate principal amount of Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; PROVIDED that (x)
if such Indebtedness being Refinanced is solely Indebtedness of the Company,
then such Refinancing Indebtedness shall be Indebtedness solely of the Company
and (y) if such Indebtedness being Refinanced is subordinate or junior to the
Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at
least to the same extent and in the same manner as the Indebtedness being
Refinanced.

"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.

"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which is not an Unrestricted Subsidiary.

"REVOLVING CREDIT FACILITY" means one or more revolving credit facilities
under the Credit Agreement.

"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of

88
<PAGE>
any property, whether owned by the Company or any Restricted Subsidiary at the
Issue Date or later acquired, which has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such Person or to any other Person
from whom funds have been or are to be advanced by such Person on the security
of such Property.

"SENIOR DEBT" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Restricted Subsidiary of the
Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of the Company or any Restricted Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness (other than Permitted
Indebtedness) incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of the Company, including, without limitation, the
Company's $7.1 million 8% Subordinated Convertible Note due December 31, 2004
held by Heller Equity Capital Corporation or any transferee and the $1 million
9% Subordinated Promissory Note held by the former stockholders of Oda Nursery,
Inc. or any transferee.

"SERIES A PREFERRED STOCK" means the Series A Preferred Stock of the Company
issued pursuant to the Certificate of Designation.

"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(v) of
Regulation S-X under the Securities Act.

"SUBSIDIARY," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.

"TERM LOAN FACILITY" means one or more term loan facilities under the Credit
Agreement.

"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds

89
<PAGE>
any Lien on any property of, the Company or any other Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED that
(x) the Company certifies to the Trustee that the Company's investment in such
Unrestricted Subsidiary is a Permitted Investment or that such designation
complies with the "Limitation on Restricted Payments" covenant and (y) each
Subsidiary to be so designated and each of its Subsidiaries has not at the time
of designation, and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of its Restricted Subsidiaries. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x)
immediately after giving effect to such designation, the Company is able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant and (y) immediately before and immediately after giving
effect to such designation, no Default or Event of Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.

"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.

"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.

90
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among BT Alex. Brown Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation (together, the "Underwriters") and the Company,
the Underwriters have severally agreed to purchase from the Company the entire
principal amount of the Notes offered hereby.

The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Notes is subject to the approval of
certain legal matters by counsel and to various other conditions. The nature of
each Underwriter's obligation is such that each is severally committed to
purchase the aggregate principal amount of Notes set forth opposite its name, if
any are purchased.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BT Alex. Brown Incorporated................................................. $ 60,000,000
Donaldson, Lufkin & Jenrette Securities Corporation......................... 40,000,000
----------------
Total..................................................................... $ 100,000,000
----------------
----------------
</TABLE>

The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page hereof, and to certain dealers
at such price, less a concession not in excess of 0.25% of the principal amount
of the Notes. The Underwriters may allow, and such dealers may reallow, a
concession to certain other dealers not in excess of 0.25% of the principal
amount of the Notes. After the initial public offering of the Notes, the public
offering price, concession and reallowance and other selling terms may be
changed by the Underwriters.

The Underwriters have informed the Company that they will not confirm sales
to any accounts over which they exercise discretionary authority without prior
written approval of such transactions by the customer.

The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by each of the Underwriters that it
presently intends to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes, and any such market making may be discontinued at any time by one
or all of the Underwriters at the sole discretion of such Underwriters. There
can be no assurance that an active public market for the Notes will develop. See
"Risk Factors--Lack of Prior Market for the Notes."

In connection with the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot the Notes, creating a short
position. The Underwriters may bid for and purchase Notes in the open market to
cover short positions or in stabilizing transactions. These activities may
stabilize or maintain the market price of the Notes above independent market
levels. The Underwriters are not required to engage in these activities, and may
end these activities at any time.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

91
<PAGE>
LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Brownstein
Hyatt Farber & Strickland, P.C., Denver, Colorado. Certain legal matters will be
passed upon for the Underwriters by Latham & Watkins, Los Angeles, California.

EXPERTS

The audited consolidated financial statements and schedule of Color Spot
Nurseries, Inc. and Subsidiaries and Color Spot, Inc., an Oregon corporation,
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The audited financial statements of Oda Nursery, Inc., Cracon, Inc.,
Signature Trees, Peters' Wholesale Greenhouses, Inc., Lone Star Growers Co. and
The Wholesale Division of Sunnyside Plants, Inc., included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

The audited financial statements of The Wholesale Bedding Plant Division of
Summersun Greenhouse Co., included in this Prospectus, have been audited by Moss
Adams LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

The audited financial statements of Wolfe Greenhouses, L.L.C., included in
this Prospectus have been audited by Jaynes, Reitmeier, Boyd & Therrell, P.C.,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The valuation of the fair market value per share of Common Stock has been
made by Valuation Research Corporation, an independent appraisal firm, and has
been used herein in reliance upon the authority of said firm as experts in
making such valuations.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Notes. This Prospectus, which is part of the Registration Statement, does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any agreement or other document filed as an
exhibit or schedule to the Registration Statement and each such statement shall
be deemed qualified in its entirety by such reference. For further information
with respect to the Company and the Notes, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, and at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10007 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the Registration Statement may be obtained from the Public Reference
Section of the Commission upon payment of prescribed fees. The Commission also
maintains a web site that contains reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This web site can be accessed at
http:// www.sec.gov.

92
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................... F-4
Consolidated Balance Sheets as of June 30, 1997 and 1996............... F-5
Consolidated Statements of Operations for the Year Ended June 30, 1997,
for the Period September 8, 1995 through June 30, 1996, for the
Period January 1, 1995 through September 8, 1995, and for the Year
Ended December 31, 1994.............................................. F-6
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the Year Ended June 30, 1997, for the Period September 8, 1995
through June 30, 1996, for the Period January 1, 1995 through
September 8, 1995, and for the Year Ended December 31, 1994.......... F-7
Consolidated Statements of Cash Flows for the Year Ended June 30, 1997,
for the Period September 8, 1995 through June 30, 1996, for the
Period January 1, 1995 through September 8, 1995, and for the Year
Ended December 31, 1994.............................................. F-8
Notes to Consolidated Financial Statements............................. F-9
ODA NURSERY, INC.
Report of Independent Public Accountants............................... F-31
Balance Sheets as of December 31, 1996 and 1995........................ F-32
Statements of Operations for the Years Ended December 31, 1996 and
1995................................................................. F-33
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1996 and 1995........................................... F-34
Statements of Cash Flows for the Years Ended December 31, 1996 and
1995................................................................. F-35
Notes to Financial Statements.......................................... F-36
THE WHOLESALE BEDDING PLANT DIVISION OF
SUMMERSUN GREENHOUSE CO.
Independent Auditors' Report........................................... F-41
Balance Sheets as of May 31, 1997 and 1996............................. F-42
Statements of Operations and Divisional Equity for the Years Ended May
31, 1997 and 1996.................................................... F-43
Statements of Cash Flows for the Years Ended May 31, 1997 and 1996..... F-44
Notes to Financial Statements.......................................... F-45
CRACON, INC.
Report of Independent Public Accountants............................... F-52
Balance Sheet as of December 31, 1996.................................. F-53
Statement of Operations and Retained Earnings for the Year Ended
December 31, 1996.................................................... F-54
Statement of Cash Flows for the Year Ended December 31, 1996........... F-55
Notes to Financial Statements.......................................... F-56
WOLFE GREENHOUSES, L.L.C.
Independent Auditors' Report........................................... F-60
Balance Sheet as of December 27, 1996.................................. F-61
Statement of Operations and Members' Equity for the Year Ended December
27, 1996............................................................. F-62
Statement of Cash Flows for the Year Ended December 27, 1996........... F-63
Notes to Financial Statements.......................................... F-64
SIGNATURE TREES
Report of Independent Public Accountants............................... F-68
Balance Sheet as of December 31, 1996.................................. F-69
Statement of Operations and Partners' Capital for the Year Ended
December 31, 1996.................................................... F-70
Statement of Cash Flows for the Year Ended December 31, 1996........... F-71
Notes to Financial Statements.......................................... F-72
</TABLE>

F-1
<PAGE>
<TABLE>
<S> <C>
PETERS' WHOLESALE GREENHOUSES, INC.
Report of Independent Public Accountants............................... F-76
Balance Sheet as of December 31, 1996.................................. F-77
Statement of Operations for the Year Ended December 31, 1996........... F-78
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1996.................................................... F-79
Statement of Cash Flows................................................ F-80
Notes to Financial Statements.......................................... F-81
LONE STAR GROWERS CO.
Report of Independent Public Accountants............................... F-87
Balance Sheets as of June 30, 1996 and 1995............................ F-88
Statements of Operations for the Years Ended June 30, 1996 and 1995.... F-89
Statements of Partnership Capital for the Years Ended June 30, 1996 and
1995................................................................. F-90
Statements of Cash Flows for the Years Ended June 30, 1996 and 1995.... F-91
Notes to Financial Statements.......................................... F-92
THE WHOLESALE DIVISION OF SUNNYSIDE PLANTS, INC.
Report of Independent Public Accountants............................... F-98
Statement of Assets and Liabilities and Divisional Equity as of March
31, 1996............................................................. F-99
Statement of Revenues and Expenses and Divisional Equity for the Year
Ended March 31, 1996................................................. F-100
Statement of Cash Flows for the Year Ended March 31, 1996.............. F-101
Notes to Financial Statements.......................................... F-102
</TABLE>

F-2
<PAGE>
INDEX TO UNAUDITED INTERIM FINANCIAL STATEMENTS

<TABLE>
<S> <C>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets as of September 25, 1997 and June 30,
1997................................................................. F-106
Consolidated Statements of Operations for the Three Months Ended
September 25, 1997 and September 26, 1996............................ F-107
Consolidated Statement of Changes in Stockholders' Equity as of
September 25, 1997................................................... F-108
Consolidated Statements of Cash Flows for the Three Months Ended
September 25, 1997 and September 26, 1996............................ F-109
Notes to Consolidated Financial Statements............................. F-110
ODA NURSERY, INC.
Balance Sheet as of June 30, 1997...................................... F-115
Statements of Operations for the Six Months Ended June 30, 1997 and
1996................................................................. F-116
Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996................................................................. F-117
Notes to Financial Statements.......................................... F-118
CRACON, INC.
Balance Sheet as of June 30, 1997...................................... F-122
Statements of Operations and Retained Earnings for the Six Months Ended
June 30, 1997 and 1996............................................... F-123
Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996................................................................. F-124
Notes to Financial Statements.......................................... F-125
WOLFE GREENHOUSES, L.L.C.
Balance Sheet as of July 11, 1997...................................... F-129
Statements of Operations and Members' Equity for the Seven Four-Week
Reporting Periods Ended July 11, 1997 and July 12, 1996.............. F-130
Statements of Cash Flows for the Seven Four-Week Reporting Periods
Ended July 11, 1997 and July 12, 1996................................ F-131
Selected Notes to Financial Statements................................. F-132
PETERS' WHOLESALE GREENHOUSES, INC.
Balance Sheet as of June 30, 1997...................................... F-135
Statements of Operations for the Six Months Ended June 30, 1997 and
1996................................................................. F-136
Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996................................................................. F-137
Notes to Financial Statements.......................................... F-138
LONE STAR GROWERS CO.
Balance Sheet as of December 31, 1996.................................. F-144
Statements of Operations for the Six Months Ended December 31, 1996 and
1995................................................................. F-145
Statements of Cash Flows for the Six Months Ended December 31, 1996 and
1995................................................................. F-146
Notes to Financial Statements.......................................... F-147
THE WHOLESALE DIVISION OF SUNNYSIDE PLANTS, INC.
Statement of Assets and Liabilities and Divisional Equity as of
December 31, 1996.................................................... F-152
Statements of Revenues and Expenses and Divisional Equity for the Nine
Months Ended December 31, 1996 and 1995.............................. F-153
Statements of Cash Flows for the Nine Months Ended December 31, 1996
and 1995............................................................. F-154
Notes to Unaudited Financial Statements................................ F-155
</TABLE>

F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Color Spot Nurseries, Inc.:

We have audited the accompanying consolidated balance sheets of Color Spot
Nurseries, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
June 30, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1997, and for
the period from inception, September 8, 1995, through June 30, 1996. We have
also audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of the Predecessor (businesses
identified in Note 1) from January 1, 1995, through September 8, 1995, and for
the year ended December 31, 1994. 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 audit 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
Color Spot Nurseries, Inc. and Subsidiaries as of June 30, 1997 and 1996, and
the results of their operations and their cash flows for the year ended June 30,
1997, and for the period from inception, September 8, 1995, through June 30,
1996, and the results of operations of the Predecessor and its cash flows from
January 1, 1995, through September 8, 1995, and for the year ended December 31,
1994, in conformity with generally accepted accounting principles.

San Francisco, California
August 15, 1997

F-4
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................................................ $ 2,762 $ 701
Accounts receivable, net of allowances of $1,661 and $417, respectively.................. 25,524 11,259
Inventories.............................................................................. 28,854 7,637
Prepaid expenses and other............................................................... 893 438
---------- ---------
Total current assets................................................................... 58,033 20,035

TREE INVENTORIES........................................................................... 541 --

PROPERTY, PLANT AND EQUIPMENT, net......................................................... 31,774 9,165

INTANGIBLE ASSETS, net..................................................................... 31,383 1,732

DEFERRED INCOME TAXES...................................................................... 10,120 2,287

NOTES RECEIVABLE AND OTHER ASSETS.......................................................... 1,566 --
---------- ---------
Total assets........................................................................... $ 133,417 $ 33,219
---------- ---------
---------- ---------

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt..................................................... $ 4,595 $ 1,430
Revolving line of credit................................................................. 2,105 --
Accounts payable......................................................................... 9,815 3,934
Accrued liabilities...................................................................... 12,395 3,980
Dividends payable to stockholders........................................................ 906 --
Deferred income taxes.................................................................... 14,056 4,555
---------- ---------
Total current liabilities.............................................................. 43,872 13,899

LONG-TERM DEBT............................................................................. 83,408 6,785
---------- ---------
Total liabilities...................................................................... 127,280 20,684
---------- ---------
REDEEMABLE COMMON STOCK: 1,199,744 shares at June 30, 1997................................. 2,062 --

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and
outstanding............................................................................ -- --
Common stock, $0.01 par value, 20,000,000 shares authorized, 5,021,118 and 6,725,350
issued and outstanding, respectively................................................... 162 97
Additional paid-in capital............................................................... 45,033 9,650
Treasury stock, 6,164,034 shares at June 30, 1997........................................ (45,228) --
Retained earnings........................................................................ 4,108 2,788
---------- ---------
Total stockholders' equity............................................................. 4,075 12,535
---------- ---------
Total liabilities, redeemable common stock and stockholders' equity.................... $ 133,417 $ 33,219
---------- ---------
---------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)

The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
---------------------------- ----------------------------
SEPTEMBER 8, JANUARY 1, 1995
YEAR ENDED 1995 THROUGH YEAR ENDED
JUNE 30, THROUGH SEPTEMBER 8, DECEMBER
1997 JUNE 30, 1996 1995 31, 1994
----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
NET SALES............................ $ 113,400 $ 51,995 $ 28,991 $ 39,411
COST OF SALES........................ 64,026 27,685 17,500 24,416
----------- ------- ------- -----------
Gross profit..................... 49,374 24,310 11,491 14,995
SALES, MARKETING AND DELIVERY
EXPENSES........................... 31,168 15,495 10,488 13,459
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 7,300 2,886 3,659 3,986
AMORTIZATION OF INTANGIBLE ASSETS.... 990 94 291 424
----------- ------- ------- -----------
Income (loss) from operations.... 9,916 5,835 (2,947) (2,874)
INTEREST EXPENSE..................... 4,179 687 2,576 3,170
OTHER (INCOME) EXPENSE, net.......... (148) 91 (38) (97)
----------- ------- ------- -----------
Income (loss) before income tax
provision and extraordinary
loss........................... 5,885 5,057 (5,485) (5,947)
INCOME TAX PROVISION................. 2,830 2,269 -- --
----------- ------- ------- -----------
Income (loss) before
extraordinary loss............. 3,055 2,788 (5,485) (5,947)
EXTRAORDINARY LOSS,
net of tax benefit................. 215 -- -- --
----------- ------- ------- -----------
Net income (loss)................ $ 2,840 $ 2,788 $ (5,485) $ (5,947)
----------- ------- ------- -----------
----------- ------- ------- -----------
INCOME PER SHARE:
Primary
Income before extraordinary
loss........................... $ 0.44 $ 0.48
Extraordinary loss............... (0.03)
----------- ------- ------- -----------
Net income....................... $ 0.41 $ 0.48
----------- ------- ------- -----------
----------- ------- ------- -----------
Fully Diluted
Income before extraordinary
loss........................... $ 0.42 $ 0.48
Extraordinary loss............... (0.03)
----------- ------- ------- -----------
Net income....................... $ 0.39 $ 0.48
----------- ------- ------- -----------
----------- ------- ------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT COMMON SHARES)

The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON COMMON PAID-IN TREASURY (ACCUMULATED EQUITY
SHARES STOCK CAPITAL STOCK DEFICIT) (DEFICIT)
----------- ----------- -------------- ---------- ------------ ------------
THE PREDECESSOR
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993................ 1,000 $ -- $ 250 $ -- $ (4,908) $ (4,658)
Net loss.................................. -- -- -- -- (5,947) (5,947)
----------- ----- ------- ---------- ------------ ------------
Balance, December 31, 1994................ 1,000 -- 250 -- (10,855) (10,605)
Net loss.................................. -- -- -- -- (5,485) (5,485)
----------- ----- ------- ---------- ------------ ------------
Balance, September 8, 1995................ 1,000 $ -- $ 250 $ -- $ (16,340) $ (16,090)
----------- ----- ------- ---------- ------------ ------------
----------- ----- ------- ---------- ------------ ------------

THE COMPANY
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Elimination of Predecessor................ (1,000) $ -- $ (250) $ -- $ 16,340 $ 16,090
Issuance of common stock.................. 6,725,350 97 9,650 -- -- 9,747
Net income................................ -- -- -- -- 2,788 2,788
----------- ----- ------- ---------- ------------ ------------
Balance, June 30, 1996.................... 6,725,350 $ 97 9,650 -- 2,788 12,535
----------- ----- ------- ---------- ------------ ------------
Recapitalization:
Issuance of common stock................ 3,566,173 52 22,273 -- -- 22,325
Repurchase of common stock.............. (6,164,034) -- -- (45,228) -- (45,228)
Dividends............................... -- -- -- -- (1,520) (1,520)
Transfer to redeemable common stock..... (1,199,744) (17) (2,045) -- -- (2,062)
Issuance of common stock:
Existing shareholders and management.... 1,741,602 25 12,075 -- -- 12,100
Acquisition of businesses............... 351,771 5 2,519 -- -- 2,524
Tax benefit from exercise of stock
options................................. -- -- 561 -- -- 561
Net income................................ -- -- -- -- 2,840 2,840
----------- ----- ------- ---------- ------------ ------------
Balance, June 30, 1997.................... 5,021,118 $ 162 $ 45,033 $ (45,228) $ 4,108 $ 4,075
----------- ----- ------- ---------- ------------ ------------
----------- ----- ------- ---------- ------------ ------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
---------------------------------- ----------------------------------
SEPTEMBER 8, 1995 JANUARY 1, 1995 YEAR ENDED
YEAR ENDED THROUGH JUNE 30, THROUGH SEPTEMBER DECEMBER 31,
JUNE 30, 1997 1996 8, 1995 1994
------------- ------------------- ------------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 2,840 $ 2,788 $ (5,485) $ (5,947)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization....................... 3,441 598 925 1,255
Deferred income taxes............................... 2,631 2,268 -- --
Changes in operating assets and liabilities, net of
effect of acquired businesses:
Decrease (increase) in accounts receivable........ (9,435) (8,568) 116 161
Decrease (increase) in inventories................ (4,273) 1,920 866 (82)
Decrease (increase) in prepaid expenses and other
current assets.................................. (260) (407) 350 981
(Increase) in tree inventories.................... (372) -- -- --
(Increase) in other long-term assets.............. (396) -- -- --
Increase (decrease) in accounts payable........... 596 (556) (1,660) 1,852
Increase (decrease) in accrued liabilities........ 1,954 (1,207) 502 (1,499)
Increase (decrease) in other liabilities.......... (819) (321) (834) 559
------------- ------- ------- -------------
Net cash used in operating activities........... (4,093) (3,485) (5,220) (2,720)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in business acquisitions, less cash
acquired............................................ (52,069) (8,966) -- --
Purchases of fixed assets............................. (6,181) (1,529) (260) (668)
Proceeds from sale of fixed assets.................... 16 835 -- 59
------------- ------- ------- -------------
Net cash used in investing activities........... (58,234) (9,660) (260) (609)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft........................................ 3,520 -- -- --
Issuance of common stock.............................. 34,439 9,746 -- --
Purchase of treasury stock............................ (37,124) -- -- --
Financing and organizational costs.................... (5,584) -- -- --
Dividend paid......................................... (614) -- -- --
Proceeds from borrowings.............................. 98,035 1,936 -- --
Net borrowings under revolving line of credit......... 3,598 3,791 -- --
Repayments of long-term debt.......................... (31,882) (1,627) (1,526) (13,095)
Proceeds from note payable to parent.................. -- -- 7,113 16,810
------------- ------- ------- -------------
Net cash provided by financing activities....... 64,388 13,846 5,587 3,715
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 2,061 701 107 386
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 701 -- 405 19
------------- ------- ------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 2,762 $ 701 $ 512 $ 405
------------- ------- ------- -------------
------------- ------- ------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................ $ 3,876 $ 936 $ 2,447 $ 2,455
------------- ------- ------- -------------
------------- ------- ------- -------------
Income taxes........................................ $ -- $ 2 $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for acquisitions......................... $ 2,524 $ -- $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
Issuance of notes receivable in connection with asset
sale................................................ $ 1,170 $ -- $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
Issuance of notes payable in connection with treasury
stock purchase...................................... $ 7,100 $ -- $ -- $ --
------------- ------- ------- -------------
------------- ------- ------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The consolidated balance sheets as of June 30, 1997 and 1996, and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 1997, and the period from inception, September 8, 1995
("Inception Date"), through June 30, 1996, include the accounts of Color Spot
Nurseries, Inc., a Delaware corporation ("Color Spot"), and its wholly owned
subsidiaries (collectively referred to as the "Company") reflecting the merger
of CSN, Inc. ("CSN," the parent company of Color Spot Nurseries, Inc.) which
will occur simultaneously with the consummation of the Company's senior
subordinated note, Series A Preferred Stock and warrant offerings into Color
Spot Nurseries, Inc. The merger was accounted for as a reorganization of
entities under common control; therefore no purchase accounting adjustments were
recorded. On September 8, 1995, certain net assets owned by Color Spot, Inc.
(the "Predecessor") were acquired by CSN for approximately $12 million. CSN was
formed by Heller Equity Capital Corporation ("Heller") and certain members of
CSN senior management on September 8, 1995. This transaction was accounted for
using the purchase method of accounting. At June 30, 1996, the allocation of the
purchase price was based upon preliminary estimates of fair value and was
finalized during 1997 upon resolution of a dispute, resulting in an adjustment
to the purchase price of approximately $400,000. On December 31, 1996, KCSN
Acquisition Corporation, L.P. ("KCSN"), a partnership controlled by Kohlberg &
Company, LLC ("Kohlberg") and unrelated to the Company, acquired control of the
Company through a series of stock transactions accounted for as a
recapitalization. In connection with the recapitalization, CSN borrowed $37.3
million, purchased 6,164,034 shares of its common stock at $7.17 per share,
including all shares owned by Heller, which controlled the Company at the time,
and certain shares owned by management ($37.1 million in cash and a $7.1
million, 8.0% subordinated convertible note), sold 3,566,173 shares of stock to
KCSN and certain members of management for $7.17 per share ($22.3 million) and
repaid $14.1 million of its prior indebtedness. In addition, transaction fees of
$2.9 million were paid and recorded as a reduction of capital, $1 million of
financing fees were paid and recorded as loan fees on the balance sheet, an
aggregate dividend to stockholders of record prior to the recapitalization of
$1.5 million was declared to the existing stockholders immediately prior to the
recapitalization and a prepayment penalty of $415,000 was incurred in connection
with the early extinguishment of debt.

Prior to the Inception Date, the Company was known as Color Spot, Inc., an
Oregon corporation (the "Predecessor"). The consolidated statements of
operations from January 1, 1995, through September 8, 1995, and for the year
ended December 31, 1994, include the accounts of the Predecessor when the
Predecessor was owned by PacifiCorp, a utility company. The acquisition of the
Predecessor by PacifiCorp in 1993 was accounted for using the purchase method of
accounting. The purchase price is reflected in the accounts of the Predecessor.

The Company is a producer and distributor of packaged bedding plants and
flowers, groundcover, and commencing in 1997, Christmas trees. Color Spot's
Christmas tree business is conducted through its wholly owned subsidiary, Color
Spot Christmas Trees, Inc., and its ornamental plants and shrubs business is
conducted through its wholly owned subsidiary, Lone Star Growers L.P. ("Lone
Star"). As of June 30, 1997, the Company has 13 facilities located in
California, Texas, Arizona and Oregon. The Company sells primarily to general
merchandise stores, home improvement stores, retail garden stores and commercial
landscapers, located predominantly in California, Texas and other western
states.

F-9
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Color Spot and
its wholly owned subsidiaries. All material intercompany amounts and
transactions have been eliminated in consolidation.

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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash includes cash and cash equivalents that consist of highly liquid
investments having maturities of three months or less when acquired. Cash and
cash equivalents includes restricted cash of $323,000 which is being held to
satisfy an obligation to purchase common stock from certain stockholders through
December 1997. This repurchase obligation is included in redeemable common stock
on the accompanying consolidated balance sheet.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method. Tree inventories are stated at average cost and
are classified as long-term assets until they are harvested. Inventory costs
include material and labor and production costs directly associated with the
growing process. Shrink is charged to cost of sales as a period expense.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment purchased in acquisitions are recorded at fair
value as prescribed by the purchase method of accounting. Subsequent purchases
of property, plant and equipment are recorded at cost.

Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The following useful lives are used for recognizing
depreciation expense:

<TABLE>
<S> <C>
Land improvements............................................ 40 years
15 to 20
Buildings.................................................... years
Machinery and equipment...................................... 5 to 10 years
Computer equipment........................................... 3 to 5 years
Furniture and fixtures....................................... 5 to 10 years
Leasehold improvements....................................... 5 years
</TABLE>

Major renewals and improvements that extend the useful life of an asset are
capitalized; routine maintenance and repairs are expensed as incurred. Upon sale
or retirement of assets, the asset cost and related depreciation are removed
from the accounts and any related gain or loss is reflected in the company's
operating results.

F-10
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE

Purchases of software, including internal and external development costs,
are capitalized and amortized over three years using the straight-line method.

INTANGIBLE ASSETS

Amortization is computed on a straight-line basis over the shorter of
estimated useful lives or contract periods. The following useful lives are used
for recognizing amortization expense:

<TABLE>
<S> <C>
Goodwill..................................................... 40 years
Trademarks and patents....................................... 15 years
Organization costs........................................... 5 years
Noncompete agreements........................................ 5 years
Loan fees.................................................... Term of debt
</TABLE>

Goodwill represents the excess of cost over the estimated fair value of the
net assets of acquired businesses. Should events or circumstances occur
subsequent to any business acquisition which bring into question the realizable
value or impairment of any component of goodwill, the Company will evaluate the
remaining useful life and balance of goodwill and make appropriate adjustments.
The Company's principal considerations in determining impairment include the
strategic benefit to the Company of the particular business related to the
questioned component of goodwill as measured by undiscounted current and
expected future operating income levels of that particular business and expected
undiscounted future cash flows.

REDEEMABLE COMMON STOCK

The Company is required to repurchase shares of Common Stock from certain
management stockholders in the event of their termination due to their death or
permanent disability. Such repurchases are at fair market value as determined by
the Board of Directors. The Board of Directors will retain an independent
appraisal firm to assist them in determining the fair market value of the Common
Stock on a periodic basis. The difference between the carrying amount of the
redeemable Common Stock and its fair value is accreted over the life expectancy
of the management stockholders by charging "retained earnings." As a result of
the redemption feature, redeemable Common Stock is classified outside of
stockholders' equity (irrespective of voting rights of the stock).

FINANCIAL INSTRUMENTS

The carrying amounts for cash, receivables and accounts payable approximate
fair value due to the short-term nature of these instruments. Other fair value
disclosures are in the respective notes.

In order to decrease its exposure to unfavorable interest rate movements,
the Company may from time to time, purchase interest rate protection agreements
to cap the interest rates on its floating rate obligations. The purchase price
of the interest rate protection agreements is capitalized and amortized over the
life of the agreement. Amortization of the purchase price is charged to interest
expense. Subsequent to purchase, the Company does not have any cash requirements
related to its interest rate cap agreements. If interest rates exceed the
interest rate on the interest rate protection agreement, the

F-11
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's counterparty will pay the Company the differential between the
interest due on a floating basis and the interest due on the fixed basis.
Payments made by the Company's counterparties are recorded in interest expense
in the period earned.

REVENUE RECOGNITION

Revenue is recognized when products are shipped to the customer. Sales
returns and allowances are recorded as a charge against revenue in the period in
which the related sales are recognized.

INCOME TAXES

Income taxes are recognized in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 utilizes the asset and liability method under which deferred income taxes
are recognized for the consequences of temporary differences by applying
currently enacted statutory rates to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.

ASSET IMPAIRMENT

On July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that
long-lived assets, certain identifiable intangible assets and goodwill be
reviewed for impairment when expected future undiscounted cash flows are less
than the carrying value of the asset. No charges were recorded pursuant to this
statement in fiscal 1997.

LEVERAGE AND FINANCING

The Company is substantially leveraged. Due to its leveraged nature, the
Company may be more vulnerable to extended economic downturns and its
flexibility in responding to changing economic and industry conditions may be
limited. The degree to which the Company is leveraged could have important
consequences to the Company, including the impairment of the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions and general corporate purposes. The Company's ability to make
principal and interest payments on its obligations at maturity will be dependent
on a number of factors, many of which are beyond the Company's control, and may
be dependent on the Company's future operating performance, which is itself
dependent on the availability of new borrowings on terms acceptable to the
Company. While management believes that additional financing to meet its
anticipated working capital, capital expenditure and acquisition financing
requirements will be available on acceptable terms (including the filing of an
initial public stock offering which will deleverage the Company), if the Company
is unable to obtain such financing, the Company may not be able to take
advantage of unanticipated opportunities or otherwise respond to unanticipated
competitive pressures. Such inability could have a material adverse effect on
the Company.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This new standard defines a fair value based method
of accounting for employee stock options and gives companies

F-12
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a choice of recognizing related compensation expense by adopting the new fair
value method or continuing to measure compensation under Accounting Principles
Board Opinion No. 25 ("APB 25"). If APB 25 is elected, SFAS 123 requires
supplemental disclosure to show the effects of using the SFAS 123 measurement
criteria (see Footnote 14). The Company elected to continue using the approach
prescribed by APB 25, and accordingly, SFAS 123 will not affect the Company's
financial position or results of operations.

COMPREHENSIVE INCOME AND SEGMENTS

In 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards to measure all
changes in equity that result from transactions and other economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other nonowner changes in equity. SFAS 131 introduces a new model for
segment reporting, called the "management approach." The management approach is
based on the manner in which management organizes segments within a company for
making operating decisions and assessing performance. The management approach
replaces the notion of industry and geographic segments. The Company will adopt
SFAS 130 and SFAS 131 in fiscal year 1999. The Company believes adoption of SFAS
130 and SFAS 131 will not significantly affect the Company's financial position,
results of operations or financial statement presentation.

3. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company sells
primarily on 30-day terms, performs credit evaluation procedures on its
customers and generally does not require collateral on its accounts receivable
because the majority of its customers are large, established retail customers
with operations throughout the United States. Most of the Company's sales are in
California and Texas. The Company maintains an allowance for potential credit
losses. For the year ended June 30, 1997, the periods ended June 30, 1996, and
September 8, 1995, and the year ended December 31, 1994, sales to the eight
largest customers constituted 75%, 82%, 96% and 80% of net sales, respectively.
Sales to the Company's largest customer constituted 39%, 41%, 37% and 31% of net
sales in these respective periods. Accounts receivable balances generally
correspond with the net sales percentages for the Company's largest customers.
The Company's credit risk if the Company's largest customers failed to pay their
outstanding receivables would approximate 75% and 82% of the accounts receivable
balances as of June 30, 1997 and June 30, 1996, respectively. Because of the
credit worthiness of its largest customers, the Company believes its credit risk
is mitigated. The loss of, or reduction in orders from, any major retail
customer could have a material adverse effect on the Company.

F-13
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVENTORIES

Inventories at June 30, 1997 and 1996, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current:
Outdoor flowers and vegetable plants................................... $ 24,385 $ 6,291
Raw materials and supplies............................................. 3,374 1,346
Tree inventories....................................................... 1,095 --
--------- ---------
Total current inventories............................................ 28,854 7,637

Noncurrent:
Tree inventories....................................................... 541 --
--------- ---------
Total inventories.................................................... $ 29,395 $ 7,637
--------- ---------
--------- ---------
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 1997 and 1996, consisted of the
following (in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land and land improvements............................................... $ 8,621 $ 1,656
Greenhouses and buildings................................................ 9,029 3,534
Furniture and fixtures................................................... 2,108 225
Machinery and equipment.................................................. 10,929 3,135
Leasehold improvements................................................... 2,587 582
Assets under capital leases.............................................. 752 539
Construction in progress................................................. 550 --
--------- ---------
34,576 9,671
Less: Accumulated depreciation........................................... (2,802) (506)
--------- ---------
Total property, plant and equipment.................................. $ 31,774 $ 9,165
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the year ended June 30, 1997, the periods ended
June 30, 1996, and September 8, 1995, and the year ended December 31, 1994, was
$2,296,000, $504,000, $634,000 and $832,000 respectively. Greenhouses with an
original cost of $4,961,000 are in service on property leased by the Company
under operating lease agreements.

6. NOTES RECEIVABLE

Notes receivable represent amounts due from third parties relating to land
and investment assets acquired and later sold in connection with the acquisition
of B&C Growers and Sunrise Growers, Inc. The assets were sold at their carrying
values of $1,170,000 and $250,000, respectively; therefore no gain or loss was
recognized on the dispositions. The assets which were sold did not contribute to
the Company's results of operations. The notes require monthly principal and
interest payments ranging from $1,000 to $13,000 with interest rates ranging
from 7.5% to 9.0%. Unpaid principal and interest are due between December 2001
and March 2007 and are secured by the underlying assets sold. The carrying
amount of the notes receivable approximate fair value.

F-14
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INTANGIBLE ASSETS

Intangible assets as of June 30, 1997 and 1996, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Goodwill................................................................. $ 23,971 $ 637
Organization costs....................................................... 1,670 295
Financing costs.......................................................... 4,352 --
Noncompete agreements.................................................... 1,731 894
Other.................................................................... 856 --
--------- ---------
32,580 1,826
Less: Accumulated amortization........................................... (1,197) (94)
--------- ---------
Total intangible assets................................................ $ 31,383 $ 1,732
--------- ---------
--------- ---------
</TABLE>

8. ACQUISITIONS

During the year ended June 30, 1997, and the period from the Inception Date
through June 30, 1996, the Company effected the following acquisitions:

<TABLE>
<CAPTION>
ENTITY DATE OF ACQUISITION
- ---------------------------------------------------------------------- ----------------------
<S> <C>
Barcelo's Plant Growers, Inc.......................................... March 1, 1996
NAB Nursery, Inc...................................................... October 1, 1996
B&C Growers........................................................... October 28, 1996
Sunrise Growers, Inc.................................................. November 18, 1996
Sunnyside Plants, Inc................................................. January 21, 1997
Lone Star Growers Co.................................................. February 20, 1997
Signature Trees....................................................... March 14, 1997
Hi-C Nursery.......................................................... April 4, 1997
</TABLE>

The entities acquired are growers and distributors of live plants, except
for Signature Trees, which grows and distributes Christmas trees. Financial
results of the entities acquired have been included in the results of operations
of the Company subsequent to the date of acquisition.

F-15
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACQUISITIONS (CONTINUED)
The purchase price, certain costs related to the acquisitions and the
allocation of the purchase price to the underlying net assets acquired in the
acquisitions of Lone Star Growers Co., Signature Trees and the other
acquisitions as a group as of June 30, 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
SUNRISE SUNNYSIDE
NAB GROWERS, PLANTS, LONE STAR SIGNATURE HI-C
NURSERY, INC. B&C GROWERS INC. INC. GROWERS CO. TREES CO. NURSERY TOTAL
------------- ----------- ----------- ----------- ------------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase
price........ $ 1,782 $ 935 $ 2,416 $ 3,270 $ 37,305 $ 3,175 $ 3,536 $ 52,419
Organization
and financing
costs........ 120 210 565 123 1,328 108 159 2,613
------ ----------- ----------- ----------- ------------- ----------- ------ ---------
Total
purchase
price...... 1,902 1,145 2,981 3,393 38,633 3,283 3,695 55,032
------ ----------- ----------- ----------- ------------- ----------- ------ ---------
Less: Value
assigned to
assets and
liabilities
Current
assets..... 1,018 569 963 2,611 14,322 747 1,975 22,205
Long-term
assets..... 785 693 2,212 932 15,616 288 2,028 22,554
Current
liabilities... (783) (146) (194) (761) (4,656) (230) (1,581) (8,351)
Debt......... -- (181) -- -- (5,000) (137) -- (5,318)
------ ----------- ----------- ----------- ------------- ----------- ------ ---------
1,020 935 2,981 2,782 20,282 668 2,422 31,090
------ ----------- ----------- ----------- ------------- ----------- ------ ---------
Goodwill... $ 882 $ 210 $ -- $ 611 $ 18,351 $ 2,615 $ 1,273 $ 23,942
------ ----------- ----------- ----------- ------------- ----------- ------ ---------
------ ----------- ----------- ----------- ------------- ----------- ------ ---------

<CAPTION>
SEPTEMBER 8,
1995 THROUGH
JUNE 30, 1996
-------------------
<S> <C>
Purchase
price........ $ 3,029
Organization
and financing
costs........ 250
-------
Total
purchase
price...... 3,279
-------
Less: Value
assigned to
assets and
liabilities
Current
assets..... 4,048
Long-term
assets..... 4,937
Current
liabilities... (5,286)
Debt......... (420)
-------
3,279
-------
Goodwill... $ --
-------
-------
</TABLE>

The Company accounted for all of these acquisitions under the purchase
method of accounting. The allocation of the purchase price to the underlying net
assets acquired is based upon preliminary estimates of the fair value of the net
assets, which may be revised at a later date. It is anticipated that any
purchase price allocation adjustments will be made within one year from the date
of acquisition. Management does not believe that the final allocations of the
purchase prices will have a material effect on the Company's financial position
or results of operations. In connection with the acquisition of Lone Star
Growers Co., Signature Trees and the other acquisitions, the Company issued
278,940, 55,788 and 17,434 shares of common stock, respectively, which were
valued at $7.17 per share, a price negotiated between the parties. The president
of the Company is a 20% partner of Signature Trees. In connection with the
acquisition of Signature Trees, the president received $600,000.

F-16
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACQUISITIONS (CONTINUED)
Results of operations of the acquired entities subsequent to the purchase
date are included in the consolidated financial statements. Pro forma operating
results of the Company, assuming the acquisitions, occurred on September 8,
1995, are presented below (in thousands, except share data).

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 8, 1995
JUNE 30, 1997 THROUGH
------------- JUNE 30, 1996
(UNAUDITED) -----------------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $135,497 $101,374
Income before extraordinary loss............................ 1,072 2,796
Income per share before extraordinary loss
Primary................................................... 0.13 0.36
Fully diluted............................................. 0.12 0.36
Shares used in per share calculation
Primary................................................... 8,367,547 7,858,279
Fully diluted............................................. 8,594,730 7,858,279
</TABLE>

Shares issued in connection with the Company's acquisitions have been
included in the calculations as if they were outstanding for all periods
presented.

9. ACCRUED LIABILITIES

Accrued liabilities as of June 30, 1997 and 1996, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Compensation and benefits................................................ $ 4,750 $ 2,722
Cash overdraft........................................................... 3,520 --
Payable due to related party............................................. 164 --
Other.................................................................... 3,961 1,258
--------- ---------
Total accrued liabilities............................................ $ 12,395 $ 3,980
--------- ---------
--------- ---------
</TABLE>

10. DEBT

Debt as of June 30, 1997 and 1996, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revolving line of credit in the amount of $27,500. Advances under the line accrue interest,
at the Company's option, at the prime rate plus 1.25% (9.75% at June 30, 1997), or LIBOR
plus 2.75% (8.47% at June 30, 1997). The line is secured by substantially all of the
Company's assets and expires on June 30, 2002. As of June 30, the line had a provision
whereby the principal balance must be reduced below $5,000 for 30 consecutive days
annually. This requirement was subsequently increased to $10,000 in July 1997 and has been
reflected accordingly in the consolidated balance sheet as of June 30, 1997................ $ 12,105 $ --

Revolving line of credit in the amount of $15,000 at June 30, 1996. Advances under the line
accrue interest at the prime rate plus 2% (10.25% at June 30, 1996). The line was secured
by substantially all of the Company's assets and was terminated on December 31, 1996....... -- 3,791
</TABLE>

F-17
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. DEBT (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Term loan in the amount of $25,000 obtained in conjunction with the recapitalization at
December 31, 1996 (as amended on February 20, 1997). The loan requires quarterly principal
payments ranging from $450 to $1,400 with all unpaid principal and interest due on June 30,
2002. The loan bears interest, at the Company's option, at the prime rate plus 1.25% (9.75%
at June 30, 1997), or LIBOR plus 2.75% (8.47% at June 30, 1997). The loan is secured by
substantially all of the Company's assets.................................................. 23,925 --

Term loan in the amount of $35,000 obtained in conjunction with the recapitalization at
December 31, 1996 (as amended on February 20, 1997). The loan requires quarterly principal
payments ranging from $88 to $5,512 with all unpaid principal and interest due on December
31, 2003. The loan bears interest at the Company's option, at the prime rate plus 1.75%
(10.25% at June 30, 1997), or LIBOR plus 3.25% (8.97% at June 30, 1997). The loan is
secured by substantially all of the Company's assets....................................... 34,825 --

Acquisition loans under a revolving line of $15,000 obtained on February 20, 1997 in
conjunction with the financing of certain acquisitions. The loan requires quarterly
principal payments beginning January 1, 1998 in an amount equal to a percentage, ranging
from 0.25% to 15.91%, of the principal balance on the last day of the calendar quarter,
with all unpaid principal and interest due on December 31, 2003. Advances under the
acquisition loans accrue interest at the Company's option, at the prime rate plus 1.75%
(10.25% at June 30, 1997), or LIBOR plus 3.25% (8.97% at June 30, 1997). The loans are
secured by substantially all of the Company's assets....................................... $ 8,227 $ --

Convertible note payable to the former majority owner of the Company in conjunction with the
recapitalization at December 31, 1996. The holder of the note may convert all or any
portion of the principal and accrued interest into non-voting common stock, provided that
if converted in connection with a public offering, the shares will be converted to voting
common stock. The conversion price is $20.09 per share and is subject to adjustments. If
not converted, the note requires full payment of principal and all accrued and unpaid
interest on December 31, 2004. The note bears interest at 8%. At June 30, 1997, the unpaid
accrued interest amount of $284 was capitalized into the original principal balance of
$7,100..................................................................................... 7,384 --

Amounts due pursuant to noncompete agreements resulting from various acquisitions by the
Company. The individual agreements require monthly payments ranging from $0.1 to $10 with
all unpaid principal due on dates ranging from January 1, 2000 through April 4, 2002....... 1,395 829
</TABLE>

F-18
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. DEBT (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Other debt consists of equipment notes, bank loans and real estate notes. These debts have
varying payment terms (monthly or at maturity). Monthly principal payments range from $0.5
to $8. Two notes are due in full in July 1997 and December 2001, in the amounts of $99 and
$500, respectively. Interest rates on these debts range from 7.9% to 10.75%, with maturity
dates ranging from July 1997 through February 2002......................................... 1,620 3,158

Various capital lease obligations were incurred in conjunction with the rental of equipment.
The leases require monthly principal payments ranging from $0.2 to $13. Interest rates on
the leases range from 6% to 17.9%. Maturity dates range from January 1998 through September
2001....................................................................................... 627 437
--------- ---------

Total debt................................................................................... 90,108 8,215

Less: Current maturities..................................................................... (6,700) (1,430)
--------- ---------

Long-term portion............................................................................ $ 83,408 $ 6,785
--------- ---------
--------- ---------
</TABLE>

The Company has entered into interest rate protection agreements to cap the
interest rate on its term and acquisition loans. The principal protected at June
30, 1997 is $36,875,000, at interest rates ranging from 8.5% to 9.8%. The
carrying amount of the interest rate protection agreement is $125,000. The
interest rate protection agreements were purchased by the Company in order to
decrease its exposure to unfavorable interest rate movements. The Company is
exposed to credit losses in the event of counterparty nonperformance, but does
not currently anticipate any such losses because the counterparties are
established, reputable financial institutions. The agreements expire on March
31, 2000. As of June 30, 1997, the agreements were not in-the-money. The
revolving line of credit and term loan agreements require that the Company meet
certain covenants which, among other things, require maintenance of ratios
related to leverage and cash flow, and limit the level of capital expenditures
and payment of dividends.

Maturities of debt and capital leases are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL
DEBT LEASES TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
1998........................................................... $ 6,436 $ 264 $ 6,700
1999........................................................... 5,367 203 5,570
2000........................................................... 5,644 158 5,802
2001........................................................... 6,013 2 6,015
2002........................................................... 18,997 -- 18,997
Thereafter..................................................... 47,024 -- 47,024
--------- ----- ---------
$ 89,481 $ 627 $ 90,108
--------- ----- ---------
--------- ----- ---------
</TABLE>

The net book value of the assets held under capital lease obligations was
$649,000 and $500,000 at June 30, 1997 and 1996, respectively.

F-19
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. DEBT (CONTINUED)
The fair value of long-term debt, including the current portion,
approximates fair value because all significant amounts outstanding at June 30,
1997, were issued in the current year and are representative of the terms and
interest rates that would be available to the Company at June 30, 1997.

11. INCOME TAXES

The provision for income taxes from continuing operations consists of the
following (in thousands):

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------------ --------------------------------
SEPTEMBER 8, JANUARY 1, 1995
1995 THROUGH YEAR ENDED
YEAR ENDED THROUGH SEPTEMBER 8, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1995 1994
------------- --------------- --------------- ---------------
Current:
<S> <C> <C> <C> <C>
Federal........................ $ -- $ -- $ -- $ --
State and local................ -- 2 -- --
------ ------ ------ ------
-- 2 -- --
Deferred:
Federal........................ 1,611 1,500 (931) (2,236)
State and local................ 1,219 767 (249) (215)
Valuation allowance............ -- -- 1,180 2,451
------ ------ ------ ------
2,830 2,267 -- --
------ ------ ------ ------
$ 2,830 $ 2,269 $ -- $ --
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

F-20
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)

The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:

<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
---------------------------------- ------------------------------------
SEPTEMBER 8, 1995 JANUARY 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996 SEPTEMBER 8, 1995 DECEMBER 31, 1994
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Federal statutory income tax
rate........................... 34.0% 34.0% (34.0)% (34.0)%
State income tax rate, net of
federal taxes.................. 4.9% 6.1% (5.0)% (5.0)%
Permanent items:
Limitation on state net
operating losses............. 8.2% 4.5% 2.5% 1.4%
Other.......................... 0.9% 0.2% 0.5% 0.6%
Valuation allowance.............. -- -- 36.0% 37.0%
--- --- ----- -----
48.0% 44.8% 0.0% 0.0%
--- --- ----- -----
--- --- ----- -----
</TABLE>

In accordance with current tax regulations, the Company files its tax
returns on a cash basis in most jurisdictions. As a result, the Company has
accumulated significant net operating losses since inception. In the state of
California, utilization of net operating losses is limited to fifty percent of
the loss generated; hence the effective tax rate associated with the earnings
attributable to California are provided at a rate significantly above the
statutory rate. There are no valuation allowances provided on the net operating
losses. The benefit is recorded after the effect of the limitation on the use of
net operating losses. As a result, the future use of the net operating loss
carryforwards will not impact the Company's effective tax rate.

Deferred tax assets and liabilities are composed of the following at June
30, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Accounts payable....................................................... $ 3,700 $ 1,579
Accrued liabilities.................................................... 3,797 1,585
--------- ---------
Total current deferred tax assets.................................... 7,497 3,164

Noncurrent deferred tax assets:
Net operating loss carryforward........................................ 10,779 2,317
Depreciation and amortization.......................................... 171 51
--------- ---------
Total noncurrent deferred tax assets................................. 10,950 2,368
--------- ---------
Total deferred tax assets............................................ $ 18,447 $ 5,532
--------- ---------
--------- ---------
</TABLE>

F-21
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current deferred tax liabilities:
Receivables............................................................ $ 10,007 $ 4,519
Inventory.............................................................. 11,272 3,086
Prepaids............................................................... 274 114
--------- ---------
Total current deferred tax liability................................. 21,553 7,719
Total noncurrent deferred tax liability: depreciation................ 830 81
--------- ---------
Total deferred tax liabilities....................................... $ 22,383 $ 7,800
--------- ---------
--------- ---------
</TABLE>

At June 30, 1997, the Company has available federal and state net operating
loss carryforwards of $29,684,000 and $14,084,000, respectively. The federal net
operating losses expire beginning on June 30, 2011.

12. STOCKHOLDERS' EQUITY

COMMON STOCK AND REDEEMABLE COMMON STOCK

The Company has three classes of $0.01 par value common stock with
20,000,000 authorized shares of which 15,000,000 shares are designated as Common
Stock (6,073,062 shares outstanding at June 30, 1997), 2,500,000 shares are
designated as Non-Voting Common Stock (147,772 shares outstanding at June 30,
1997) and 2,500,000 shares are designated as Class C Common Stock (no shares
outstanding at June 30, 1997). Each class of stock is identical but for voting
rights and ability to convert into voting stock. The Non-Voting Common Stock and
Class C Common Stock have no voting rights.

The Company is required to repurchase shares of Common Stock from certain
management stockholders in the event of their termination due to their death or
permanent disability. Such repurchases are at fair market value as determined by
the Board of Directors. The Board of Directors will retain an independent
appraisal firm to assist them in determining the fair market value of the Common
Stock on a periodic basis. The difference between the carrying amount of the
redeemable Common Stock and its fair value is accreted over the life expectancy
of the management stockholders (on average 30 years) by charging "retained
earnings." The current fair market value of the redeemable Common Stock is
$11,997,000. In the event of an initial public offering of the Common Stock, the
requirement to repurchase shares automatically terminates. As a result of the
redemption feature, redeemable Common Stock is classified outside of
stockholders' equity (irrespective of voting rights of the stock).

In addition to the shares issued in connection with the recapitalization
(Note 1), and the shares issued to effect the acquisitions (Note 8), the Company
issued 1,741,602 shares of common stock to existing stockholders in February
1997 in order to raise capital to complete the acquisition of Lone Star Growers
Co. The shares were sold at $7.17 per share, management's estimate of the fair
value of the shares on the date of issuance. In September 1995, 4,803,838 shares
were issued at $1.45 per share in connection with the formation of the Company.
Subsequently, in March 1996, 1,921,512 shares were issued in order to raise
capital to complete the acquisition of Barcelo's Plant Growers and in June 1996,
541,572 shares were issued to raise capital for general corporate purposes. The
March and June 1996 issuances were at $1.45 per share, management's estimate of
the fair value of the shares on the issue dates. All shares were issued for
cash.

F-22
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STOCKHOLDERS' EQUITY (CONTINUED)
KCSN, Heller and all of the management stockholders (the "Stockholders") are
parties to the Stockholders Agreement which includes certain transfer
restrictions, voting agreements and registration rights which survive until
December 31, 2006.

The Stockholders have agreed to (i) consent to any merger, consolidation or
sales of all or substantially all of the Company's assets involving an
independent third party and approved by a majority of the shares of Common Stock
held by KCSN and (ii) vote their shares of Common Stock to elect two members of
management (which shall be Michael F. Vukelich and Jerry L. Halamuda so long as
they are employed as executive officers of the Company), five KCSN designees and
two independent designees reasonably acceptable to KCSN as directors of the
Company. Consequently, the Stockholders (assuming the conversion of the Heller
Note) will continue to have significant influence over the policies and affairs
of the Company and may be in a position to determine the outcome of corporate
actions requiring stockholder approval, including adopting amendments to the
Certificate, electing directors and approving or disapproving mergers or sales
of all or substantially all of the Company's assets.

In addition to the voting agreement under the Stockholders Agreement, KCSN
and certain members of management are parties to a put/call option agreement
dated December 31, 1996 to effect the repurchase by the Company of shares of
Common Stock held by such management stockholders at $7.17, the fair value of
the shares on the date of the agreement. Under the put/call option agreement,
KCSN retained an irrevocable proxy to vote the shares of Common Stock not yet
purchased by the Company. As of September 25, 1997, KCSN had an irrevocable
proxy to vote 20,211 shares of Common Stock held by the management stockholders.
The Company believes that no shares of Common Stock will be subject to the
put/call option agreement as of January 1, 1998, as any shares which have not
been put to the Company will be called by the Company as of such date.

With the consummation of the Company's senior subordinated note, Series A
Preferred Stock and warrant offerings, the Company will effect a 0.69-for-one
reverse stock split. This reverse stock split has been given retroactive effect
in the Company's financial statements.

PREFERRED STOCK

The Company has an authorized class of $0.01 par value undesignated
preferred stock consisting of 1,000,000 shares. The board of directors has
authority, without any further vote or action by stockholders, to provide for
the issuance of preferred stock shares in series, to establish the relative,
participating, optional or other special rights, qualifications or restrictions
of the shares of each such series and to determine the voting powers, if any, of
such shares. No shares are outstanding at June 30, 1997 and June 30, 1996.

13. EARNINGS PER SHARE

Primary earnings per share is computed by dividing net income by the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of stock options
granted. Fully diluted earnings per share reflects the maximum dilution that
would have resulted from the exercise of stock options.

Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, certain common and common equivalent shares issued at prices below
the fair value of the Company's Common Stock at the time of the Offerings have
been included in the calculation as if they were outstanding for all periods

F-23
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. EARNINGS PER SHARE (CONTINUED)
presented (using the treasury stock method and the estimated fair value of the
Company's Common Stock at the time of the Offerings) and disclosed on the
consolidated statements of operations.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaces primary
earnings per share with basic earnings per share. Basic earnings per share
excludes the effect of any potentially dilutive common equivalent shares. Fully
diluted earnings per share, now called diluted earnings per share, is still
required. The Company will adopt SFAS 128 in its interim financial statements
ending December 31, 1997.

Historical SFAS 128 pro forma and supplemental pro forma earnings (loss) per
share is as follows:

<TABLE>
<CAPTION>
THE COMPANY
--------------------------------
SEPTEMBER 8, 1995
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
------------- -----------------
<S> <C> <C>
Historical earnings per share:
Primary..................................................... 0.41 0.48
Fully diluted............................................... 0.39 0.48

Shares used in per share calculation:
Primary..................................................... 7,019,587 5,794,702
Fully diluted............................................... 7,246,770 5,794,702

SFAS 128 pro forma earnings per share:
Basic....................................................... 0.45 0.48
Diluted..................................................... 0.41 0.48

Shares used in per share calculation:
Basic....................................................... 6,410,291 5,794,702
Diluted..................................................... 7,019,587 5,794,702

Supplemental pro forma loss per share:
Primary..................................................... (0.66)
Fully diluted............................................... (0.66)
Shares used in per share calculation:
Primary..................................................... 6,399,357
Fully diluted............................................... 6,399,357
</TABLE>

Supplemental earnings per share have been presented to show the effect of
the Company's proposed Units Offering as if the Offerings, the recapitalization
of the Company, and the issuances of shares in connection with acquisitions,
occurred on July 1, 1996. The impact of these transactions is to decrease the
number of shares outstanding by 847,413 on a historical, fully diluted basis, to
increase interest expense by 1,626,000, to include dividends to holders of
Series A Preferred Stock of $5,200,000 and accretion of Series A Preferred Stock
and Common Stock to liquidation values of $1,000,000. As a result, net loss to
holders of Common Stock would have been $(4,213,000).

14. STOCK OPTIONS

In July 1996, the Company adopted the 1996 Stock Incentive Plan (the "1996
Plan") under which eligible employees, directors and consultants of the Company
received options to purchase shares of the Company's common stock at a price
generally not less than the fair value of the common stock on the date of the
grant. Under the 1996 Plan, 1,171,419 options were granted at $1.45 per share
(fair value of the stock on the date of grant was $1.45 as determined by the
Board of Directors, such grants occurring coincident with independent third
party transactions). All options under the 1996 Plan fully vested as a

F-24
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTIONS (CONTINUED)
result of the recapitalization of the Company on December 31, 1996, and 569,417
options were simultaneously exercised. Approximately 602,002 options remain
outstanding under the 1996 Plan. On January 1, 1997, the Company adopted the
1997 Stock Option Plan (the "1997 Plan"), under which eligible executives and
key employees of the Company received options to purchase shares of the
Company's common stock at a price generally not less than the fair value of the
common stock on the date of grant. Under the 1997 Plan, 842,493 options were
granted at $7.17 or $7.19 per share (the fair value of the stock on the date of
grant as determined by the Board of Directors, such grants occurring coincident
with independent third party transactions). Options granted under the 1997 Plan
are exercisable over a maximum term of ten years from the date of grant and vest
in equal annual installments over a four-year period. The options immediately
vest upon a change in control of the Company or an initial public offering. No
options have been exercised under the 1997 Plan.

In February 1997, the Company adopted the Special Stock Option Plan (the
"Special Plan"), under which eligible employees of the Company received options
to purchase shares of the Company's common stock at a price below the fair
market value of the common stock on the date of grant. Under the Special Plan,
139,383 options were granted at $1.43 per share. Options granted under the
Special Plan are exercisable over a maximum term of ten years from the date of
grant and vest in equal annual installments over a four-year period. The options
immediately vest upon a change in control of the Company or an initial public
offering. As these options are compensatory, compensation expense is being
recognized ratably over the vesting period of the options for the difference
between the fair market value at the date of grant and the exercise price. In
1997, the Company recognized compensation expense of $67,000 and will recognize
annual compensation expense of $200,000 over the vesting period.

Activity under the three plans is summarized below:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at July 1, 1996....................................... --
Granted......................................................... 2,153,295 3.70
Exercised....................................................... (569,417) 1.45
---------- -----
Outstanding at June 30, 1997...................................... 1,583,878 $ 4.49
---------- -----
---------- -----
Options exercisable at year-end................................... 602,002 $ 1.45
---------- -----
---------- -----
</TABLE>

There were no forfeitures or expirations during the year ended June 30,
1997.

The following summarizes information about stock options outstanding at June
30, 1997:

<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE AT JUNE 30, REMAINING FAIR VALUE OF
PRICE 1997 CONTRACTUAL LIFE OPTIONS GRANTED
- --------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
$ 7.17 or 7.19 842,493 9.5 years $ 2.19
1.45 602,002 9.1 years 0.25
1.43 139,383 9.7 years 6.17
- --------------- -----
$ 4.49 $ 1.39
- --------------- -----
- --------------- -----
</TABLE>

F-25
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTIONS (CONTINUED)
The fair value of each option granted since June 30, 1996, was estimated on
the date of the grant using the Black-Scholes option-pricing model assuming an
expected life of six years, a risk-free interest rate of 6.08%, and no expected
dividends.

Had compensation cost for the Company's stock-based compensation plans been
determined based upon the fair value at grant dates for awards under those plans
consistent with the method prescribed by SFAS 123, the Company's net income
would have been reduced to the pro forma amounts indicated below (in thousands,
except share data):

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C> <C>
Net income.................................................. As reported $ 2,840
Pro forma 1,925
</TABLE>

15. RELATED-PARTY TRANSACTIONS

During the year ended June 30, 1997, and the period from the Inception Date
through June 30, 1996, the Company paid management fees to Heller Investments,
Inc. of $279,000 and $135,000, respectively.

The Company pays Kohlberg a quarterly fee pursuant to a Fee Agreement for
certain management services. Under the Fee Agreement, Kohlberg was paid
$1,520,000 for services rendered in connection with the December 31, 1996
recapitalization (the "Transaction Fee") and is paid an annual management fee
equal to the greater of $300,000 or 3% of the Company's earnings before
interest, taxes, depreciation and amortization, subject to a maximum annual
payment of $750,000. The total fees expensed for the period from December 31,
1996 to June 30, 1997 was $440,000. For fiscal year 1997, Kohlberg was paid an
aggregate of $1,670,000 under the Fee Agreement, including the Transaction Fee.

The Company's revolving lines of credit, term loans and acquisition line of
credit were provided by Credit Agricole Indosuez (Indosuez), a partner in KCSN.
Indosuez was paid $3,200,000 in loan fees in fiscal 1997 and the Company
incurred interest of $3,882,000 in connection with the amounts outstanding with
Indosuez.

The Company leases certain property that is owned directly or indirectly by
certain members of management. Payments pursuant to these operating leases for
the year ended June 30, 1997, the periods ended June 30, 1996, and September 8,
1995, and the year ended December 31, 1994 were $276,000, $266,000, $266,000,
and $266,000, respectively.

As part of the recapitalization transaction (see note 1), the Company
acquired 603,750 shares of common stock from M.F. Vukelich Co., an entity
controlled by the Company's Chairman of the Board and Chief Executive Officer,
for a purchase price of $4.3 million.

In connection with the recapitalization, the Company purchased 730,284
shares from employees during the year at $7.17 per share.

Included in dividends payable on the accompanying consolidated balance
sheets is $872,000 payable to the Chairman of the Board and Chief Executive
Officer and to the President of the Company. The dividend will be paid upon
consummation of the Company's initial public offering of common stock or the
acquisition of the majority of the Company's common stock at a purchase price in
excess of $1.45 per share.

F-26
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. EMPLOYEE BENEFIT PLAN

The Company adopted a 401(k) plan (the Plan) for employees in September
1995. All employees who meet certain service requirements are eligible to
participate. Matching contributions are at the discretion of the Company. The
Company made no contributions to the Plan during the year ended June 30, 1997,
and the period ended June 30, 1996. The Predecessor had a similar 401(k) plan.
All funds under the Predecessor's 401(k) plan were transferred into the Plan.

17. EXTRAORDINARY LOSS

In connection with the recapitalization of the Company on December 31, 1996,
prepayment penalties of $414,000 were paid in connection with the early
extinguishment of debt. The prepayment penalty, net of income taxes of $199,000,
was recorded in the accompanying statements of operations as an extraordinary
loss.

18. COMMITMENTS AND CONTINGENT LIABILITIES

OPERATING LEASES

The Company leases certain nursery facilities consisting of land and
improvements under noncancellable operating leases expiring at various dates
through 2012. The Company also leases transportation equipment under operating
leases expiring in various years through 2002. Some of the leases have five-year
renewal options and some are subject to rental increases based on a change in
the Consumer Price Index.

Total rent expense for the year ended June 30, 1997, the periods ended June
30, 1996, and September 8, 1995, and the year ended December 31, 1994, was
approximately $3,493,000, $2,065,000, $1,161,000 and $1,397,000, respectively.

At June 30, 1997, future minimum rental payments on non-cancellable
operating leases are as follows (in thousands):

<TABLE>
<S> <C>
1998............................................................... $ 3,481
1999............................................................... 3,525
2000............................................................... 3,366
2001............................................................... 2,650
2002............................................................... 1,825
Thereafter......................................................... 5,617
---------
Total minimum lease payments................................... $ 20,464
---------
---------
</TABLE>

F-27
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
PURCHASE COMMITMENTS

The Company has contracts to purchase Christmas trees from third-party
growers. Certain of these contracts require the Company to maintain the trees
until they are harvested. At June 30, 1997, future minimum purchase commitments
under the contracts are as follows (in thousands):

<TABLE>
<S> <C>
1998................................................................ $ 3,142
1999................................................................ 232
2000................................................................ 193
2001................................................................ 162
2002................................................................ 52
Thereafter.......................................................... --
---------
Total minimum purchase commitments................................ $ 3,781
---------
---------
</TABLE>

The Company has additional contracts to purchase Christmas trees whereby the
amounts payable are dependent upon the number of trees harvested and the year in
which they are harvested.

CONTINGENCIES

The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Based upon information
presently available and in light of legal and other defenses and insurance
coverage, management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a material adverse impact
on the Company's consolidated financial position or operations.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain of its
executive officers, with remaining service periods ranging from 1.5 to three
years. The agreements provide for certain payments to each officer upon
termination of employment, other than as a result of death, disability in most
cases or justified cause, as defined. The aggregate estimated commitment under
these agreements was $1,549,000 at June 30, 1997.

19. SUBSEQUENT EVENTS

ACQUISITIONS

Subsequent to June 30, 1997, the Company effected the following
acquisitions:

<TABLE>
<CAPTION>
ENTITY DATE OF ACQUISITION
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Plants, Inc............................................................ July 31, 1997
Peters' Wholesale Greenhouses, Inc..................................... July 31, 1997
Wolfe Greenhouses, LLC................................................. July 31, 1997
Cracon, Inc............................................................ August 5, 1997
Summersun Greenhouse Co................................................ August 11, 1997
Oda Nursery, Inc....................................................... September 3, 1997
</TABLE>

F-28
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SUBSEQUENT EVENTS (CONTINUED)
The entities acquired are growers and distributors of live plants, except
for Cracon, Inc. which grows and distributes Christmas trees. Financial results
of the entities will be included in the results of operations of the Company
subsequent to the date of acquisition.

The purchase price, certain costs related to the acquisitions and the
allocation of the purchase price to the underlying net assets acquired in these
acquisitions were as follows (in thousands):

<TABLE>
<CAPTION>
PETERS WHOLESALE SUMMERSUN
PLANTS, GREENHOUSES, WOLFE GREENHOUSES CRACON, GREENHOUSE ODA
INC. INC. LLC INC. COMPANY NURSERIES TOTAL
----------- ---------------- ----------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchase price........... $ 4,088 $ 5,698 $ 6,161 $ 1,954 $ 7,546 $ 16,052 $ 41,499
Organization and
financing costs........ 223 394 413 91 286 479 1,886
----------- ------- ------ ----------- ----------- ----------- ---------
Total purchase
price.............. 4,311 6,092 6,574 2,045 7,832 16,531 43,385

Less: Value assigned to
assets and liabilities
Current assets......... 994 1,434 1,355 -- 1,693 7,339 12,815
Long-term assets....... 3,623 3,226 4,242 276 1,520 3,566 16,453
Current liabilities.... (1,390) (1,155) (644) (240) (1,035) (2,875) (7,339)
Debt................... (307) -- -- -- -- -- (307)
Long-term liabilities.. -- (1,241) -- -- -- (3,480) (4,721)
----------- ------- ------ ----------- ----------- ----------- ---------
2,920 2,264 4,953 36 2,178 4,550 16,901
----------- ------- ------ ----------- ----------- ----------- ---------
Goodwill............. $ 1,391 $ 3,828 $ 1,621 $ 2,009 $ 5,654 $ 11,981 $ 26,484
----------- ------- ------ ----------- ----------- ----------- ---------
----------- ------- ------ ----------- ----------- ----------- ---------
</TABLE>

FINANCING

To effect the acquisitions subsequent to June 30, 1997, the Company borrowed
$37,300,000. In connection with the borrowings, the Company increased its limit
under the revolving line of credit to $37,500,000, increased its $25,000,000
term loan to a $35,000,000 term loan and increased its $35,000,000 term loan to
a $55,000,000 term loan. In addition, in connection with its acquisition of Oda
Nursery, Inc., the Company issued to the stockholders of Oda Nursery, Inc. a 9%
Subordinated Promissory Note (the "Oda Note") with a principal amount of
$1,000,000. The Oda Note accrues interest daily at the rate of 9% per annum and
is payable on August 31, 2004. Interest is payable monthly in arrears. The Oda
Note is subject to mandatory redemption prior to August 31, 2004 on the nine
month anniversary of the date on

F-29
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SUBSEQUENT EVENTS (CONTINUED)
which the Company completes an initial registered public offering of any class
of common stock. The Oda Note is prepayable by the Company at any time without
premium or penalty.

EQUITY

In July 1997, the Company issued 713,127 shares of its common stock for a
total cash consideration of $5,120,000. In addition, 39,204 shares were issued
in connection with certain acquisitions.

20. QUARTERLY FINANCIAL DATA--(UNAUDITED)

Summarized quarterly financial information for the year ended June 30, 1997
and the period from the Inception Date through June 30, 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 26, MARCH 27, JUNE 30,
1996 1996 1997 1997
------------- ------------ ----------- ---------
1997 Q1 Q2 Q3 Q4
- ----------------------------------------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $ 13,437 $ 13,165 $ 31,049 $ 55,749
Gross profit............................. 4,579 4,920 13,716 26,159
Operating income......................... (1,469) (1,059) 3,871 8,573
Extraordinary loss, net of tax........... -- -- 215 --
Net income............................... (820) (740) 932 3,468
Earnings (loss) per common share before
extraordinary loss
Primary................................ (0.12) (0.12) 0.20 0.50
Fully diluted.......................... (0.12) (0.12) 0.19 0.49
</TABLE>

The extraordinary loss has the effect of reducing primary and fully diluted
earnings per share by 0.03 in the quarter ended March 27, 1997.

<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
1995 1995 1996 1996
------------- ------------ ----------- ---------
1996 Q1 (21 DAYS) Q2 Q3 Q4
- ----------------------------------------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $ 1,798 $ 6,852 $ 12,834 $ 30,511
Gross profit............................. 120 1,982 8,279 13,929
Operating income......................... (767) (1,708) 3,272 5,038
Net income............................... (485) (1,099) 1,789 2,583
Earnings (loss) per common share
Primary................................ (0.08) (0.20) 0.36 0.40
Fully diluted.......................... (0.08) (0.20) 0.36 0.40
</TABLE>

F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying balance sheets of Oda Nursery, Inc. (a
California corporation) as of December 31, 1996 and 1995, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oda Nursery, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Francisco, California

August 14, 1997

F-31
<PAGE>
ODA NURSERY, INC.

BALANCE SHEETS--DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash............................................................................. $ 265,597 $ 933,061
Accounts receivable, less allowance for doubtful accounts of $150,000............ 164,279 288,506
Inventories...................................................................... 8,684,547 9,541,209
Prepaid expenses................................................................. 37,437 14,286
Investment in stock.............................................................. 90,140 150,190
Notes receivable from stockholders............................................... 450,000 676,650
------------- -------------
Total current assets........................................................... 9,692,000 11,603,902
PROPERTY, PLANT AND EQUIPMENT, net................................................. 665,928 3,571,833
NET ASSETS HELD FOR DISTRIBUTION................................................... 1,976,588 --
------------- -------------
Total assets................................................................... $ 12,334,516 $ 15,175,735
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities......................................... $ 113,624 $ 277,142
Long-term debt, net of current maturities........................................ 212,175 615,302
Loan from stockholder............................................................ 1,400,000 1,400,000
Advances under revolving line of credit.......................................... 750,100 405,350
------------- -------------
Total current liabilities...................................................... 2,475,899 2,697,794
LONG-TERM DEBT, net of current maturities.......................................... 777,567 1,771,835
------------- -------------
Total liabilities.............................................................. 3,253,466 4,469,629
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 5,000 shares authorized, 2,000 shares issued and
outstanding.................................................................... 200,000 200,000
Retained Earnings................................................................ 8,881,050 10,506,106
------------- -------------
Total stockholders' equity..................................................... 9,081,050 10,706,106
------------- -------------
Total liabilities and stockholders' equity..................................... $ 12,334,516 $ 15,175,735
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-32
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
SALES................................................................................ $ 10,613,252 $ 9,841,072
COST OF SALES........................................................................ 5,999,810 5,246,839
------------- ------------
Gross profit..................................................................... 4,613,442 4,594,233

OPERATING EXPENSES:
Delivery........................................................................... 2,023,041 1,460,423
Sales and marketing................................................................ 501,160 627,761
General and administrative......................................................... 478,737 398,592
Depreciation....................................................................... 102,410 160,380
Write down of property, plant and equipment........................................ 770,412 --
Other expenses..................................................................... 61,892 53,692
------------- ------------
Income from operations........................................................... 675,790 1,893,385

INTEREST EXPENSE..................................................................... 337,002 318,182

OTHER INCOME (EXPENSES), net......................................................... 236,156 (1,575)
------------- ------------
Net income....................................................................... $ 574,944 $ 1,573,628
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-33
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
COMMON STOCK
----------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.................................... 2,000 $ 200,000 $ 8,932,478 $ 9,132,478
Net income.................................................. -- -- 1,573,628 1,573,628
----- ---------- ------------- -------------
BALANCE, December 31, 1995.................................... 2,000 $ 200,000 $ 10,506,106 $ 10,706,106
Net income.................................................. -- -- 574,944 574,944
Distributions............................................... -- -- (2,200,000) (2,200,000)
----- ---------- ------------- -------------
BALANCE, December 31, 1996.................................... 2,000 $ 200,000 $ 8,881,050 $ 9,081,050
</TABLE>

The accompanying notes are an integral part of these statements.

F-34
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES AND OTHER NONRECURRING EXPENSES:
Net income........................................................................ $ 574,944 $ 1,573,628
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of property, plant and equipment................................... -- 69,051
Depreciation.................................................................... 179,000 170,000
Write down of land to net realizable value...................................... 770,412 --
Changes in certain assets and liabilities:
(Decrease) increase in receivables............................................ 124,227 (178,725)
(Decrease) increase in inventories............................................ 856,662 (745,650)
(Increase) decrease in prepaid expenses....................................... (23,151) 24,829
Decrease in notes receivable from stockholder................................. 226,650 1,531
Decrease in accounts payable and accrued expenses............................. (163,518) (607,585)
------------- -------------
Net cash provided by operating activities................................... 2,545,226 307,079
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................................... (98,095) (146,000)
------------- -------------
Net cash used in investing activities....................................... (98,095) (146,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit...................................................... 750,100 405,000
Payments on line of credit........................................................ (405,350) (2,000,000)
Proceeds from issuance of long-term obligations................................... -- 1,152,805
Principal payments on long-term obligations....................................... (1,259,345) (1,500,339)
Principal payments on loan from stockholder....................................... -- (100,000)
Distributions to stockholders..................................................... (2,200,000) --
------------- -------------
Net cash used in financing activities....................................... (3,114,595) (2,042,534)
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS............................................... (667,464) (1,881,455)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 933,061 2,814,516
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 265,597 $ 933,061
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................................................... $ 337,002 $ 355,640
Income taxes...................................................................... 55,000 8,918
</TABLE>

The accompanying notes are an integral part of these statements.

F-35
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

1. NATURE OF OPERATIONS:

ORGANIZATION

Oda Nursery, Inc., a California corporation (the "Company"), was formed on
December 10, 1973, by Harunori Oda, Mitsuka Oda and Richard Tanaka. The Company
was formed to acquire, own, operate and manage a nursery business, as well as to
acquire, own, sell, mortgage or lease real and personal property.

DESCRIPTION OF THE BUSINESS

The Company is an agricultural enterprise specializing in the growth and
wholesale of high-quality ornamental plants and shrubs to numerous retailers.
The majority of the plants are grown on the Company's 200 acre complex in San
Juan Capistrano, California.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principles:

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVENTORIES

Inventories are carried at the lower of cost or market. Plant inventory cost
includes direct production costs and overhead. Raw material inventory cost is
determined using the most recent purchase price, which approximates average
cost. A portion of the Company's inventory has an average growing period of
approximately 18 months. This inventory is classified as a current asset based
on the Company's normal operating cycle.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 10 - 24 years
Machinery and equipment..................................... 5 - 10 years
Software, furniture and fixtures............................ 3 - 5 years
</TABLE>

F-36
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Total depreciation expense for the years ended December 31, 1996 and 1995
was $179,000 and $170,000, respectively. All repairs and maintenance costs are
expensed as incurred.

REVENUE RECOGNITION

The Company recognizes revenues when products are shipped. Where
appropriate, the Company establishes a reserve for returns and allowances.

OTHER INCOME (EXPENSES), NET

Other income (expenses), net is primarily interest income.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Company elected in 1973, under Federal and state tax laws, to be treated
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, income taxes are the obligation of the individual stockholder,
except that the Company is taxed on income for state tax purposes at reduced
rates. The Company has recorded a provision for income taxes of $33,063 and $822
for the years ended December 31, 1996 and December 31, 1995, respectively, which
is included in other expenses. If the Company had been taxed as a C Corporation,
the income tax provision and net income would have been $243,203 and $364,804 in
1996 and $629,780 and $944,670 in 1995, assuming an effective tax rate of 40%.

ASSET IMPAIRMENT

During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121").
SFAS 121 requires that long-lived assets be reviewed for impairment and written
down to fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Subsequent to the adoption of SFAS No.
121, the Company wrote down certain land that the Company owned to its fair
market value in connection with contemplation of selling the land, located in
Beaumont and Lancaster, California. The $770,412 write-down of land is recorded
in operating expenses. These sites were appraised by an independent third-party.
As discussed in Note 11, these properties do not form part of the purchase
agreement.

3. CONCENTRATION OF CREDIT RISK:

The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral, as the majority of its
customers well-established companies. Two customers accounted for approximately
70 percent and 50 percent of accounts receivable at December 31, 1996 and 1995,
respectively. These same two customers accounted for approximately 38 percent
and 41 percent of sales for the years ended December 31, 1996 and 1995,
respectively.

F-37
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

4. INVENTORIES:

Inventories consisted of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies........................................ $ 655,000 $ 707,000
Plant inventory................................................... $ 8,029,547 $ 8,834,209
------------ ------------
Total inventory............................................... $ 8,684,547 $ 9,541,209
------------ ------------
------------ ------------
</TABLE>

5. INVESTMENT IN STOCK:

As further discussed in Note 7 the Company is required under the terms of
its credit agreement to maintain an investment in stock of the bank amounting to
6.83 percent of its outstanding indebtedness.

6. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1996 and 1995, consisted of
the following:

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land............................................................ $ -- $ 2,825,000
Machinery and equipment......................................... 1,722,000 1,685,000
Buildings and improvements...................................... 466,000 453,000
Software, furniture and fixtures................................ 216,000 184,000
------------- -------------
2,404,000 5,147,000
Less: Accumulated depreciation.................................. (1,738,072) (1,575,167)
------------- -------------
Total property, plant and equipment......................... $ 665,928 $ 3,571,833
------------- -------------
------------- -------------
</TABLE>

As further discussed in Note 10, all of the land held by the Company will be
distributed to the Company's stockholders subsequent to the sale of the Company.
These assets are classified as net assets held for distribution.

7. LINE OF CREDIT

The Company has a $2,000,000 revolving line of credit with a financial
institution under which there was $750,100 and $405,350 outstanding at December
31, 1996 and December 31, 1995, respectively. Advances under the line accrue
interest at the bank's reference rate (9.75% and 8.75% at December 31, 1996 and
December 31, 1995, respectively). Substantially all of the Company's assets are
held as collateral. Borrowings are limited to 75 percent of eligible accounts
receivable and 55 percent of the Company's eligible inventory balance, less
certain borrowings. Availability at December 31, 1996, was approximately
$1,955,000. The line of credit expires on October 6, 1997.

F-38
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

8. LONG-TERM DEBT

Long-term debt at December 31, 1996 and 1995, consisted of the following:

<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Note payable to bank, with monthly interest payments, interest at
the bank's reference rate (9.25 and 9.75 percent at December 31,
1996 and December 31, 1995, respectively); secured by
substantially all of the Company's assets; unpaid principal and
interest due on October 6, 1998.................................. $ 100 $ 1,152,806

Note payable to bank, with monthly principal and interest payments
of $13,084, interest at the bank's reference rate (9.25 and 9.75
percent as of December 31, 1996 and December 31, 1995,
respectively); secured by substantially all of the Company's
assets; unpaid principal and interest due on May 1, 2002......... 648,819 733,686

Mortgage payable to an individual, with monthly principal and
interest payments of $2,400, interest at an annual rate of 6.5
percent as of December 31, 1996; secured by land; unpaid
principal and interest due July 13, 2006......................... 206,090 290,000

Stock obligation to bank, with monthly interest payments made at
9.0 percent at December 31, 1996 and December 31, 1995,
respectively; unpaid interest due May 1, 2002.................... 90,140 150,190

Note Payable under Small Business Loan, with monthly principle and
interest payments of $1,960, interest at 6.0 and 3.0 percent at
December 31, 1996 and December 31, 1995, respectively; unpaid
principle and interest due February 27, 1997..................... 44,593 60,455
----------- ------------
989,742 2,387,137

Less: Current maturities........................................... (212,175) (615,302)
----------- ------------
$ 777,567 $ 1,771,835
----------- ------------
----------- ------------
</TABLE>

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, incurrence of additional
indebtedness and maintenance of specified amounts of tangible net worth and
working capital. In addition, the bank requires the Company to maintain 6.38
percent of outstanding borrowings as an investment in the bank's stock. The
investment in stock is reduced as the Company makes principal payments on its
other obligations to the bank.

F-39
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

8. LONG-TERM DEBT (CONTINUED)
The annual amount of principle maturities of long-term debt outstanding at
December 31, 1996, is as follows:

<TABLE>
<S> <C>
1997.............................................................. $ 212,175
1998.............................................................. 130,424
1999.............................................................. 143,244
2000.............................................................. 157,342
2001.............................................................. 172,870
Thereafter........................................................ 173,687
---------
$ 989,742
---------
---------
</TABLE>

9. STOCKHOLDERS' NOTES:

The following table summarizes the Company's notes with stockholders
presented in the balance sheet as of December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Note receivable from stockholder.................................. $ 450,000 $ 676,650
Loan from stockholder............................................. 1,400,000 1,400,000
</TABLE>

The Company advanced cash to a stockholder and one of his related entities
under common ownership in 1992 and 1996 of $675,000 and $450,000, respectively.
The note issued in 1992 was repaid during 1996. The note issued in 1996 was
repaid during 1997 and accrued interest at 10 percent. Interest received on
these notes was $236,000 and $14,000 for the years ended December 31, 1996 and
1995, respectively.

The Company received cash from one of its stockholders in 1993. This loan is
due at the notice of the stockholder and is therefore considered short-term in
nature. Interest is payable monthly, at an annual rate of 8 percent. Interest
paid on this loan was $112,000 and $112,000 for the years ended December 31,
1996 and 1995, respectively.

10. SUBSEQUENT EVENT AND NET ASSETS HELD FOR DISTRIBUTION:

In September 1997, the Company's stockholders sold the Company to Color Spot
Nurseries, Inc. The land held by the Company was not part of the sale
transaction. It is the Company's intention to sell the land or distribute this
land to the stockholders in connection with the sale. This land was written down
during the year ended December 31, 1996, by $770,412 based on independent
appraisals. The land was not utilized in operations in 1996 and 1995.

F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders
Summersun Greenhouse Co.

We have audited the accompanying balance sheet of the Wholesale Bedding
Plant Division of Summersun Greenhouse Co. as of May 31, 1997 and 1996, and the
related statements of operations and division equity and cash flows for the
years then ended. 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 audit 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Wholesale Bedding Plant
Division of Summersun Greenhouse Co. as of May 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the accompanying
divisional financial statements include allocations of assets, liabilities,
revenues and expenses between the divisions comprising the Company. The
financial statements include certain allocations of the Company's accounts, as
described below, because it was not practical in all cases to specifically
identify individual results and balances of the Division. In management's
opinion, the method of allocation is reasonable and is representative of the
results of operations that would have been realized by the Division on a
stand-alone basis, in all material respects. However, because of the assumptions
underlying the numerous allocations, the financial statements may not be
indicative of future operations, and the Division may have been financed and
operated differently as a separate entity.

MOSS ADAMS LLP

Seattle, Washington
June 20, 1997

F-41
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.
BALANCE SHEETS
MAY 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS

CURRENT ASSETS
Accounts receivable trade, less allowance for doubtful accounts of $5,000 in 1997
and 1996....................................................................... $ 2,934,100 $ 1,350,500
Inventories...................................................................... 3,091,200 2,093,700
Prepaid expenses................................................................. 20,000 --
------------- -------------
Total current assets........................................................... 6,045,300 3,444,200
PROPERTY AND EQUIPMENT, net........................................................ 4,813,800 3,983,300
------------- -------------
$ 10,859,100 $ 7,427,500
------------- -------------
------------- -------------

LIABILITIES AND DIVISIONAL EQUITY

CURRENT LIABILITIES
Notes payable.................................................................... $ 2,934,100 $ 1,350,500
Accounts payable................................................................. 1,493,500 1,187,300
Accrued payroll and payroll taxes................................................ 164,600 69,500
Current portion of long-term debt................................................ 482,100 276,500
------------- -------------
Total current liabilities...................................................... 5,074,300 2,883,800
LONG-TERM DEBT, net of current portion............................................. 3,290,100 2,987,300
DIVISIONAL EQUITY.................................................................. 2,494,700 1,556,400
------------- -------------
$ 10,859,100 $ 7,427,500
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-42
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY

YEARS ENDED MAY 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES......................................................... $ 8,677,300 100.8 % $ 8,030,700 102.1 %
Less sales discounts and allowances......................... 77,300 0.8 163,900 2.1
------------ ----- ------------ -----

NET SALES..................................................... 8,600,000 100.0 7,866,800 100.0

COST OF GOODS SOLD............................................ 4,174,700 48.5 4,187,600 53.2
------------ ----- ------------ -----
Gross profit................................................ 4,425,300 51.5 3,679,200 46.8

OPERATING EXPENSES............................................ 3,827,100 44.5 3,820,700 48.6
------------ ----- ------------ -----
Income from operations...................................... 598,200 7.0 (141,500) (1.8)
------------ ----- ------------ -----
OTHER INCOME (EXPENSE)
Interdivisional rental income............................... 325,000 3.8 111,000 1.4
Interest expense............................................ (428,100) (5.0) (392,100) (5.0)
Other....................................................... 26,200 0.3 (3,400) (0.0)
------------ ----- ------------ -----
(76,900) (0.9) (284,500) (3.6)
------------ ----- ------------ -----
NET INCOME (LOSS)............................................. 521,300 6.1 % (426,000) (5.4)%
----- -----
----- -----
DIVISIONAL EQUITY
Beginning of year........................................... 1,556,400 2,154,700

Interdivisional transfers................................... 417,000 (172,300)
------------ ------------
End of year................................................. $ 2,494,700 $ 1,556,400
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-43
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

STATEMENTS OF CASH FLOWS

YEARS ENDED MAY 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................................. $ 521,300 $ (426,000)
Adjustments to reconcile net income (loss) to cash flows from operating
activities.......................................................................
Depreciation..................................................................... 372,200 348,400
Changes in assets and liabilities
Trade accounts receivable...................................................... (1,583,600) 1,293,100
Inventories.................................................................... (997,500) (26,800)
Prepaid expenses............................................................... (20,000) --
Accounts payable............................................................... 306,200 39,300
Accrued liabilities............................................................ 95,100 (45,400)
------------- ------------
(1,306,300) 1,182,600
------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment.............................................. (1,202,700) (187,900)
------------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable........................................................ 1,583,600 (578,400)
Long-term borrowing................................................................ 798,900 --
Principal payments on long-term debt............................................... (290,500) (244,000)
Net transfer of cash from other divisions.......................................... 417,000 (172,300)
------------- ------------
2,509,000 (994,700)
------------- ------------

CHANGE IN CASH....................................................................... -- --

CASH BALANCE,
Beginning of year.................................................................. -- --
------------- ------------
End of year........................................................................ $ -- $ --
------------- ------------
------------- ------------

SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest............................................................. $ 415,600 $ 398,200
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-44
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS

MAY 31, 1997 AND 1996

NOTE 1--OPERATIONS AND BASIS OF PRESENTATION

OPERATIONS--The Wholesale Bedding Plant Division (the "Division") is a
division of Summersun Greenhouse Co. (the "Company"). The Company was
incorporated in the State of Washington in 1978. It operates as a horticultural
producer and wholesaler in the Pacific Northwest. The Division's sales,
including interdivisional sales, accounted for approximately 80% of the
Company's overall sales in 1997 and 1996. Other operations of the Company
include the Terra Plug Division ("Terra Plug") which produces a proprietary
product using a patented growing process, a retail nursery operation and a day
care facility for Company employees.

BASIS OF PRESENTATION--The accompanying divisional financial statements are
intended to present the assets, liabilities, revenues, expenses and cash flows
attributable to the Division and do not represent a complete presentation of the
Company's financial position, results of operations and cash flows. The
financial statements include certain allocations of the Company's accounts, as
described below, because it was not practical in all cases to specifically
identify individual results and balances of the Division. In management's
opinion, the method of allocation is reasonable and the results are
representative of the results of operations that would have been realized by the
Division on a stand-alone basis, in all material respects. However, because the
statements reflect numerous allocations, they may not be indicative of future
operations, and the Division may have been financed and operated differently as
a separate entity. The amounts presented in the divisional statements were
determined as described below.

- Accounts Receivable and Accounts Payable--Accounts receivable and accounts
payable consist of amounts specifically identifiable with the sales and
purchasing activity of the Division.

- Inventories--Inventories consist of those items specifically identifiable
with the operations of the Division.

- Prepaid Expenses--Prepaid expenses represent approximately 85% of the
Company's prepaid insurance.

- Property and Equipment--Property and equipment consist of those assets
specifically identifiable with the operations of the Division.

- Notes Payable--Short-term notes payable are recorded at an amount equal to
the balance of trade accounts receivable net of the allowance for doubtful
accounts.

- Long-Term Debt--Long-term debt is allocated based on the relationship of
the cost of the Division's property and equipment to the cost of
Company-wide property and equipment.

- Interdivisional Transfers--No cash is reflected in the accompanying
financial statements. The Company transfers cash as needed in order to
allow the Division to meet its operational cash flow needs. All transfers
of cash or other assets are recorded as changes to divisional equity.

- Sales--Sales include amounts for the sale of wholesale bedding plants.
Included in total sales in 1997 and 1996, respectively, is $217,800 and
$161,600 of sales to the Company's retail operation.

- Cost of Goods Sold--Cost of goods sold consists of the cost of wholesale
bedding plants sold. Included in the determination of cost of goods sold
in 1997 and 1996, respectively, is $48,300 and $286,900 of net purchases
from the Company's Terra Plug Division.

F-45
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 1--OPERATIONS AND BASIS OF PRESENTATION (CONTINUED)
- Operating Expenses--Administrative salaries are allocated based on
personnel's estimated time devoted to the Division. All other operating
expenses were charged to the Division based on specific identification of
costs incurred.

- Interdivisional Rent--The Division charges Terra Plug rent for the use of
its greenhouses to grow Terra Plug plants prior to their being
transplanted to the Company's fields. During 1997, the Division charged
Terra Plug rent of $325,000. This amount was based on management's
computation of estimated profits the Division would have realized had the
greenhouse space been used in the production of wholesale bedding plants.
During 1996, the Division charged Terra Plug rent of $111,000. This amount
was based on management's computation of estimated operating costs per
square foot for the space rented.

- Interest Expense--Interest expense is allocated based on the balances of
the notes payable and long-term debt allocated to the Division.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

At May 31, 1997, the Division had significantly greater quantities of living
plants than in prior years. Due to unusually cool and wet weather conditions in
the Pacific Northwest, sales in June 1997 were not significantly greater than in
June 1996. There is a possibility that some loss may occur on disposition of the
aggregate living plant inventory. However, no accurate estimate of the amount of
loss, if any, can be made and thus no provision for such loss has been included
in the accompanying financial statements.

INVENTORIES--Inventories are stated at the lower of cost or market. Cost of
living plant inventory is estimated based on the relationship of direct growing
costs to wholesale sales during the months of March, April and May. Crops on
hand at May 31 are primarily short-term in nature as this time frame is the
fastest growing period of the Company's production cycle. The direct growing
costs during the months of March, April and May are therefore those costs which
directly relate to the crops included in inventories at May 31. As there is a
broad mix of crops on hand at May 31, the Company applies the average cost of
sales percentage to the lowest wholesale value of all crops on hand as of May 31
to derive cost of living plant inventory. The cost of raw materials and supplies
is determined using the first-in, first out (FIFO) method.

PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets, ranging from 5 to 25 years.

ADVERTISING COSTS--The Division expenses advertising costs as they are
incurred. Advertising expense was $101,900 and $67,100 in 1997 and 1996,
respectively.

INCOME TAXES--The Company, with consent of its stockholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of corporate
income taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Accordingly, the
accompanying

F-46
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements include no provision for federal income taxes. If the
Division were taxed as a C Corporation, the provision for income taxes would
have been $208,500 in 1997 and the income tax benefit would have been $170,400,
(assuming an effective income tax rate of 40%). As a result, "Net income (loss)"
would have been $312,800 and $(255,600) in 1997 and 1996, respectively.

NOTE 3--CONDENSED COMPANY FINANCIAL INFORMATION

The following is a condensed balance sheet of the Company as of May 31, 1997
and 1996 showing the Wholesale Bedding Plant Division as it relates to the
Company:

BALANCE SHEET
MAY 31, 1997

<TABLE>
<CAPTION>
WHOLESALE
BEDDING
PLANT OTHER
DIVISION DIVISIONS TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Current assets................................... $ 6,045,300 $ 1,082,200 $ 7,127,500
Property and equipment, net...................... 4,813,800 820,900 5,634,700
Other assets..................................... -- 919,000 919,000
------------- ------------ -------------
$ 10,859,100 $ 2,822,100 $ 13,681,200
------------- ------------ -------------
------------- ------------ -------------
Current liabilities.............................. $ 5,074,300 $ 1,265,500 $ 6,339,800
Long-term debt................................... 3,290,100 580,600 3,870,700
Stockholders' equity............................. 2,494,700 976,000 3,470,700
------------- ------------ -------------
$ 10,859,100 $ 2,822,100 $ 13,681,200
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

MAY 31, 1996

<TABLE>
<S> <C> <C> <C>
Current assets.......................... $ 3,444,200 $ 1,291,600 $ 4,735,800
Property and equipment, net............. 3,983,300 1,077,100 5,060,400
Other assets............................ -- 753,400 753,400
-------------- ------------- --------------
$ 7,427,500 $ 3,122,100 $ 10,549,600
-------------- ------------- --------------
-------------- ------------- --------------
Current liabilities..................... $ 2,883,800 $ 712,100 $ 3,595,900
Long-term debt.......................... 2,987,300 527,200 3,514,500
Stockholders' equity.................... 1,556,400 1,882,800 3,439,200
-------------- ------------- --------------
$ 7,427,500 $ 3,122,100 $ 10,549,600
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>

F-47
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 3--CONDENSED COMPANY FINANCIAL INFORMATION (CONTINUED)
The Company has recorded certain payments to stockholders as notes
receivable, which are included in other assets in the balance sheets above.
Subsequent to May 31, 1997, the notes receivable were repaid out of proceeds
from the sale of the Wholesale Bedding Plant Division.

The following is a condensed statement of operations of the Company for the
years ended May 31, 1997 and 1996 showing the Wholesale Bedding Plant Division
as it relates to the Company:

STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997

<TABLE>
<CAPTION>
WHOLESALE INTERDIVISIONAL
BEDDING PLANT OTHER SALES AND
DIVISION DIVISIONS PURCHASES TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales, net....................... $ 8,600,000 $ 3,096,900 $ (714,300) $ 10,982,600
Cost of goods sold............... 4,174,700 1,852,800 (714,300) 5,313,200
------------- ------------- ------------- -------------
Gross profit................... 4,425,300 1,244,100 -- 5,669,400
Operating expenses............... 3,827,100 1,230,800 -- 5,057,900
------------- ------------- ------------- -------------
Operating income............... 598,200 13,300 -- 611,500
Other expense.................... (76,900) (503,100) -- (580,000)
------------- ------------- ------------- -------------
Net income (loss)................ $ 521,300 $ (489,800) $ -- $ 31,500
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

YEAR ENDED MAY 31, 1996

<TABLE>
<S> <C> <C> <C> <C>
Sales, net................ $7,866,800 $2,445,200 $(523,400) $9,788,600
Cost of goods sold........ 4,187,600 1,063,500 (523,400) 4,727,700
---------- ---------- ----------- ----------
Gross profit............ 3,679,200 1,381,700 -- 5,060,900
Operating expenses........ 3,820,700 1,110,600 -- 4,931,300
---------- ---------- ----------- ----------
Operating income
(loss)................ (141,500) 271,100 -- 129,600
Other expense............. (284,500) (247,500) -- (532,000)
---------- ---------- ----------- ----------
Net loss.................. $ (426,000) $ 23,600 $ -- $ (402,400)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>

NOTE 4--INVENTORIES

At May 31, inventories consisted of the following:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Living plants..................................................... $ 2,414,500 $ 1,388,300
Raw materials and supplies........................................ 676,700 705,400
------------ ------------
$ 3,091,200 $ 2,093,700
------------ ------------
------------ ------------
</TABLE>

F-48
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 5--PROPERTY AND EQUIPMENT

At May 31, property and equipment consisted of the following:
<TABLE>
<CAPTION>
1997
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Greenhouses......................................... $ 4,387,300 $ 1,197,900 $ 3,189,400
Operating equipment................................. 2,597,500 1,604,100 993,400
Land, buildings and improvements.................... 691,300 60,300 631,000
------------ ------------ ------------
$ 7,676,100 $ 2,862,300 $ 4,813,800
------------ ------------ ------------
------------ ------------ ------------

1996
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Greenhouses......................................... $ 3,562,400 $ 1,042,600 $ 2,519,800
Operating equipment................................. 2,407,400 1,422,100 985,300
Land, buildings and improvements.................... 519,100 40,900 478,200
------------ ------------ ------------
$ 6,488,900 $ 2,505,600 $ 3,983,300
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

During 1997 and 1996, depreciation expense totaled $372,200 and $348,400,
respectively.

NOTE 6--NOTES PAYABLE

The Company has a line of credit agreement with a bank providing for
borrowing up to $3,000,000, as limited by accounts receivable and inventories.
The line bears interest at prime plus .375% and is collateralized by accounts
receivable and inventories. The line of credit agreement matures August 31,
1997, and is subject to certain financial covenants.

The Company has a line of credit agreement with another bank providing for
borrowing up to $457,500. The line bears interest at prime plus 2% and is
secured by a mortgage on real property. The line of credit agreement matures
June 15, 1997.

F-49
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 7--LONG-TERM DEBT

At May 31, long-term debt consisted of the following:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Notes payable to a cooperative agricultural lender in monthly
installments attributable to the Division totaling $46,500
including interest at variable rates up to 260 basis points over
the lender's discount note rates with future rate change options
available, collateralized by substantially all assets and
guaranteed by stockholders, maturing at various times from
December 1997 to October 2009................................... $ 3,573,400 $ 3,016,500
Note payable to Small Business Administration in monthly
installments attributable to the Division of $4,300 including
interest at 4%, collateralized by deeds of trust on real estate
and guaranteed by stockholders, maturing May 2001............... 191,600 236,500
Note payable to bank in monthly installments attributable to the
Division of $300 including interest at 9%, collateralized by
vehicles, maturing July 15, 1999................................ 7,200 10,800
------------ ------------
3,772,200 3,263,800
Less current portion.............................................. 482,100 276,500
------------ ------------
$ 3,290,100 $ 2,987,300
------------ ------------
------------ ------------
</TABLE>

Future principal payments on long-term debt for years ending May 31 are
summarized as follows:

<TABLE>
<S> <C>
1998........................................................ $ 482,100
1999........................................................ 328,200
2000........................................................ 300,900
2001........................................................ 281,800
2002........................................................ 254,300
Thereafter.................................................. 2,124,900
-------------
$ 3,772,200
-------------
-------------
</TABLE>

Under the terms of its loan agreements with the cooperative agricultural
lender and the bank, the Company is subject to various covenants, including
requirements to maintain certain financial ratios and minimum levels of tangible
net worth.

F-50
<PAGE>
THE WHOLESALE BEDDING PLANT DIVISION
OF
SUMMERSUN GREENHOUSE CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997 AND 1996

NOTE 8--RETIREMENT PLAN

The Company sponsors a salary deferral and profit sharing plan meeting the
requirements of Internal Revenue Code 401(k) for qualified plans. The plan
covers substantially all employees with one year of service who have attained
the age of 21 years and work 1,000 hours or more per year. Employees may defer
up to 10% of their annual compensation, not to exceed certain limitations
established by the Internal Revenue Code.

Company contributions to the plan are discretionary and may not exceed 25%
of an employee's compensation or $30,000. During 1997, Company contributions
attributable to the Division totaled $12,000. No contributions were made to the
Plan in 1996.

NOTE 9--MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

MAJOR CUSTOMERS--During 1997, approximately 41% of the Division's sales were
derived from four customers. At May 31, 1997, $1,618,300 was due from these
customers. During 1996, approximately 37% of the Division's sales were derived
from a single customer. At May 31, 1996, $63,000 was due from this customer.

CONCENTRATIONS OF CREDIT RISK--Financial instruments that potentially
subject the Division to concentrations of credit risk consist principally of
accounts receivable. The Division grants credit to customers and generally does
not require collateral or other security. Customers are concentrated in the
agricultural nursery and retail industry throughout the United States and are
concentrated in the States of Washington, Oregon, and Idaho. The Division has
not experienced a history of significant credit-related losses.

NOTE 10--PURCHASE COMMITMENT

During fiscal year 1997, the Company entered into an agreement to purchase
agricultural land for $1,000,000. The purchase is to take place in three phases
over the next three years. As of May 31, 1997, the Company has paid earnest
money of approximately $27,000 in connection with the purchase.

NOTE 11--SUBSEQUENT EVENT

Subsequent to May 31, 1997, management signed a letter of intent to sell
certain assets of the Wholesale Bedding Plant Division. Consummation of the
transaction is dependent upon final agreement of the terms of sale.

F-51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and

Stockholders of CSN, Inc.:

We have audited the accompanying balance sheet of Cracon, Inc. (a Florida
corporation) as of December 31, 1996, and the related statements of operations
and retained earnings and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cracon, Inc. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois

July 31, 1997

F-52
<PAGE>
CRACON, INC.

BALANCE SHEET

DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 13,993
Accounts receivable:
Trade, net of allowances of
$50,000........................... 2,386,873
Related party....................... 392,271
Prepaid expenses...................... 2,145
-----------
Total current assets.............. 2,795,282
TREE INVENTORIES........................ 1,371,226
PROPERTY AND EQUIPMENT, net............. 262,181
-----------
Total assets...................... $ 4,428,689
-----------
-----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable:
Other............................... $ 1,335,076
Related parties..................... 475,000
Accounts payable...................... 1,179,820
Accrued liabilities................... 156,938
Current portion of long-term debt..... 9,811
-----------
Total current liabilities......... 3,156,645

LONG-TERM DEBT, net of current
portion................................ 40,192
-----------
Total liabilities................. 3,196,837
-----------
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 50 shares
authorized, issued and
outstanding......................... 500
Retained earnings..................... 1,231,352
-----------
Total stockholders' equity........ 1,231,852
-----------
Total liabilities and
stockholders' equity............ $ 4,428,689
-----------
-----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-53
<PAGE>
CRACON, INC.

STATEMENT OF OPERATIONS AND RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
NET SALES............................... $ 3,419,358

COST OF SALES........................... 2,094,801
-----------
Gross profit........................ 1,324,557

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 873,066
-----------
Income from operations.............. 451,491

INTEREST EXPENSE, net................... 143,159
-----------
Net income.......................... 308,332

RETAINED EARNINGS, DECEMBER 31, 1995.... 993,020

DIVIDENDS............................... (70,000)
-----------
RETAINED EARNINGS, DECEMBER 31, 1996.... $ 1,231,352
-----------
-----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-54
<PAGE>
CRACON, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 308,332
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 17,249
Changes in certain assets and liabilities:
Increase in receivables................................................... (107,921)
Decrease in tree inventories.............................................. 73,107
Decrease in other assets.................................................. 20,000
Decrease in trade payables................................................ (533,513)
Increase in accrued liabilities........................................... 29,671
---------
Net cash used in operating activities................................... (193,075)
---------
CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets.................. (13,001)
---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable....................................... 775,409
Repayments of notes payable................................................... (435,000)
Dividends paid................................................................ (91,000)
Repayment of other long-term debt............................................. (38,635)
---------
Net cash provided by financing activities............................... 210,774
---------
Net increase in cash.................................................... 4,698

CASH AT BEGINNING OF YEAR....................................................... 9,295
---------
CASH AT END OF YEAR............................................................. $ 13,993
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest........................................ $ 141,192
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-55
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION

Cracon, Inc. (the "Company"), an S corporation, is a grower, broker and
distributor of Christmas trees. The Company sells primarily to general
merchandise chain stores, home improvement chain stores and retail garden
stores.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers cash held in banks and deposits with maturities of
three months or less to be cash and cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

Inventories consist primarily of Christmas trees and are carried at the
lower of cost or market. Cost is determined using the average cost incurred to
purchase or plant and maintain the inventory. Tree inventories are classified as
long-term until the trees are cut and ready for sale. The Company is dependent
on several vendors for a large portion of its inventory.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost and are depreciated over their
estimated useful lives using accelerated methods as follows:

<TABLE>
<S> <C>
Machinery and equipment............. 7 years
Vehicles............................ 5 years
Leasehold improvements.............. lease term
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenues are recognized when products are shipped and all significant
obligations of the Company have been completed.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

F-56
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code of 1986, as amended, by consent of its stockholders.
Therefore, the Company generally does not pay federal income taxes on its
income. Instead, the stockholders are liable for individual federal income taxes
on their respective share of the Company's taxable income. If the Company had
been taxed as a C Corporation, the provision for income taxes would have been
$123,000 and net income would have been $185,332 assuming an effective tax rate
of 40%.

ASSET IMPAIRMENT

On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). SFAS 121 requires that long-lived assets, certain identifiable
intangibles and goodwill be reviewed for impairment when expected future
undiscounted cash flows are less than the carrying value of the asset. No
charges were recorded pursuant to this statement in fiscal 1996.

2. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company sells
primarily on net 30-day terms, performs credit evaluation procedures, and
generally does not require collateral. The Company maintains allowances for
potential credit losses and does not currently foresee a credit risk associated
with these receivables. Four customers accounted for approximately 76 percent of
accounts receivable as of December 31, 1996. These same four customers accounted
for approximately 72 percent of sales for the year ended December 31, 1996.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1996:

<TABLE>
<S> <C>
Land.............................................................. $ 209,279
Machinery and equipment........................................... 93,634
Vehicles.......................................................... 49,766
Leasehold improvements............................................ 26,350
---------
Total property and equipment.................................. 379,029
Less: Accumulated depreciation.................................... (116,848)
---------
Property and equipment, net....................................... $ 262,181
---------
---------
</TABLE>

Depreciation expense for the year ended December 31, 1996, was $17,249.

4. NOTES PAYABLE:

Notes payable are due at various dates through December 31, 1997. Interest
is payable annually or quarterly at various rates. At December 31, 1996, the
weighted average interest rate was 10.9 percent.

F-57
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

4. NOTES PAYABLE: (CONTINUED)
Certain of the note holders are employees or relatives of the current
shareholders of the Company. Amounts due to these note holders have been
classified as notes payable--related parties in the accompanying balance sheet.
During 1996, the Company incurred $51,200 in interest on these related party
notes payable.

5. LONG-TERM DEBT:

Long-term debt as of December 31, 1996 consists of the following:

<TABLE>
<S> <C>
Mortgage note payable to individuals; annual principal payments of
$4,633 through February 2003; interest payable annually at 9.5
percent; secured by the underlying property...................... $ 32,434

Mortgage note payable to a bank; monthly principal and interest
payments of $591 through November 1999; interest at 9.5 percent;
secured by the underlying property............................... 17,569
---------
50,003
Less: Current portion.............................................. (9,811)
---------
$ 40,192
---------
---------
</TABLE>

Future maturities of long-term debt as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................................... $ 14,811
1998............................................................... 14,361
1999............................................................... 12,749
2000............................................................... 6,393
2001............................................................... 5,953
Thereafter......................................................... 10,588
---------
64,855
Less: Amount representing interest................................. 14,582
---------
$ 50,003
---------
---------
</TABLE>

6. COMMITMENTS AND CONTINGENT LIABILITIES:

LEASES

The Company leases certain growing facilities under noncancellable operating
leases expiring at various dates through 2005. Total rent expense for the year
ended December 31, 1996, was $12,115.

F-58
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

6. COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
As of December 31, 1996, future minimum rental payments required under
noncancellable operating leases are as follows:

<TABLE>
<S> <C>
1997............................................................... $ 7,945
1998............................................................... 7,045
1999............................................................... 6,045
2000............................................................... 6,045
2001............................................................... 2,790
Thereafter......................................................... 1,750
---------
$ 31,520
---------
---------
</TABLE>

PURCHASE COMMITMENTS

The Company has contracts to purchase Christmas trees from third-party
growers. Certain of these contracts require the Company to maintain the trees
until they are harvested. The Company will pay for any trees it harvests at a
price per tree. As of December 31, 1996, the Company has $207,550 in purchase
contracts.

7. RELATED PARTY TRANSACTIONS:

In the normal course of business, the Company sells Christmas trees to an
entity under common ownership. In 1996, sales to this related party were
approximately $713,000 and gross profit was approximately $250,000. Accounts
receivable related to these sales totaled $363,000 at December 31, 1996.

In 1996, the Company repaid a loan on behalf of an entity under common
control. The advance of $29,271 has been included in accounts
receivable--related parties.

8. SUBSEQUENT EVENTS:

In August 1997, substantially all of the Company's assets were purchased by
Color Spot Christmas Trees, Inc., a wholly owned subsidiary of Color Spot
Nurseries, Inc., for cash and stock.

F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Members
Wolfe Greenhouses, L.L.C.:

We have audited the accompanying balance sheet of Wolfe Greenhouses, L.L.C.
as of December 27, 1996, and the related statements of operations and members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based upon our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
a 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wolfe Greenhouses, L.L.C. at
December 27, 1996 and the results of its operations and its cash flows for the
year ended December 27, 1996 in conformity with generally accepted accounting
principles.

JAYNES, REITMEIER, BOYD & THERRELL,
P.C.

Waco, Texas
June 11, 1997

F-60
<PAGE>
WOLFE GREENHOUSES, L.L.C.

BALANCE SHEET

DECEMBER 27, 1996

<TABLE>
<CAPTION>
ASSETS

<S> <C>
Current assets:
Cash...................................................... $ 790,964
Accounts receivable:
Trade, less allowance for doubtful accounts of $30,592
(Note 5).............................................. 981,703
Other................................................... 130,246
Inventories (Notes 2 and 5)............................... 1,204,758
Prepaid expenses.......................................... 18,736
-------------
Total current assets.................................. 3,126,407
-------------
Investment in joint venture (Note 3)........................ 25,826
-------------
Property, plant and equipment (Notes 4 and 5)............... 1,647,384
Less accumulated depreciation............................. (113,773)
-------------
1,533,611
-------------
$ 4,685,844
-------------
-------------

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:
Current installments of long-term debt (Note 5)........... $ 103,665
Trade accounts payable.................................... 1,283,408
Accrued expenses.......................................... 238,857
Deferred income taxes (Note 8)............................ 59,159
-------------
Total current liabilities............................. 1,685,089
-------------
Long-term debt, excluding current installments (Note 5)..... 1,552,977
-------------
Commitments (Note 11)....................................... --
Members' equity............................................. 1,447,778
-------------
$ 4,685,844
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

F-61
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENT OF OPERATIONS AND MEMBERS' EQUITY

FOR THE YEAR ENDED DECEMBER 27, 1996

<TABLE>
<S> <C>
Net sales............................... $ 8,634,378
Cost of sales........................... 5,918,568
------------
Gross profit........................ 2,715,810
Selling, general and administrative
expenses.............................. 1,415,939
------------
Income from operations.............. 1,299,871
------------
Other income (deductions):
Interest expense (Note 5)............. (198,506)
Equity in loss of joint venture (Note
3).................................. (10,153)
Gain on warranty settlement (Note
7).................................. 184,694
Other, net............................ 27,186
------------
3,221
------------
Income before income taxes.......... 1,303,092
Income taxes (Note 8)................... 51,625
------------
Net income.......................... 1,251,467

Members' equity, beginning of period.... 418,638
Members' contributions.................. 7,600
Members' withdrawals.................... (229,927)
------------
Members' equity, end of period.......... $ 1,447,778
------------
------------
</TABLE>

See accompanying notes to financial statements.

F-62
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 27, 1996

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income............................ $ 1,251,467
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 118,379
Deferred income taxes............... 47,680
Equity in loss of joint venture..... 10,153
Gain on warranty settlement......... (184,694)
Decrease (increase) in assets:
Accounts receivable............... (97,197)
Inventories....................... (42,387)
Prepaid expenses.................. 12,296
Other assets...................... 12,488
Increase (decrease) in liabilities:
Trade accounts payable............ (251,840)
Accrued expenses.................. 111,448
------------
Net cash provided by operating
activities.................... 987,793
------------
Cash flows from investing activities
(Note 10):
Contributions to joint venture........ (18,702)
Proceeds from repayment of other
receivables......................... 7,077
Proceeds from warranty settlement..... 391,184
Capital expenditures.................. (203,408)
------------
Net cash provided by investing
activities.................... 176,151
------------
Cash flows from financing activities
(Note 10):
Principal payments on long-term
debt................................ (106,987)
Members' contributions................ 7,600
Members' withdrawals.................. (229,927)
------------
Net cash used in financing
activities.................... (329,314)
------------
Net increase in cash and cash
overdraft............................. 834,630
Cash overdraft at beginning of period... (43,666)
------------
Cash at end of period................... $ 790,964
------------
------------
</TABLE>

See accompanying notes to financial statements.

F-63
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 27, 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) NATURE OF BUSINESS

Wolfe Greenhouses, L.L.C. (the "Company"), organized as a limited liability
company, is an association formed in accordance with the laws of the State of
Texas. Under the terms of its current articles of incorporation, the Company
will cease to exist on July 1, 2025. The Company operates a wholesale greenhouse
facility located in Waco, Texas whose principal customers are grocery chain
stores located in Texas.

(b) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by
first-in, first-out method.

Investment in joint venture is accounted for by the equity method.

(d) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets.

(e) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

(2) INVENTORIES

Inventories at December 27, 1996 consisted of the following:

<TABLE>
<S> <C>
Growing crops........................... $ 986,354
Supplies................................ 199,927
Landscape plants and supplies........... 18,477
------------
$ 1,204,758
------------
------------
</TABLE>

(3) INVESTMENT IN JOINT VENTURE

Investment in joint venture consists of a fifty percent interest in a joint
venture. Summary financial information of the Company's fifty percent interest
as of December 27, 1996 follows:

<TABLE>
<S> <C>
Real estate....................................................... $ 100,112
Other assets...................................................... 6,839
Long-term debt.................................................... (74,029)
Other liabilities................................................. (7,096)
---------
Venturers' equity............................................... $ 25,826
---------
---------
</TABLE>

F-64
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 27, 1996

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 27, 1996 consisted of the
following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
AMOUNT LIVES
------------ -----------
<S> <C> <C>
Land.............................................................. $ 77,066 --
Buildings and improvements........................................ 1,238,774 3-25 years
Equipment......................................................... 265,411 5-20 years
Construction in progress.......................................... 66,133 --
------------
$ 1,647,384
------------
------------
</TABLE>

(5) DEBT

Long-term debt at December 27, 1996 consists of the following:

<TABLE>
<S> <C>
Mortgage note payable to a financial
institution with interest at 2.5%
above the base rate (10.75% at
December 27, 1996), secured by
property and buildings, payable in
monthly principal and interest
payments of $22,878 through December,
2006.................................. $ 1,632,365
Installment note payable, interest rate
at 12.59%, secured by equipment, due
November, 1999........................ 24,277
------------
1,656,642
Less current installments............... 103,665
------------
$ 1,552,977
------------
------------
</TABLE>

The Company also has a line of credit agreement with a bank. Under the
agreement, the line of credit agreement allows the Company to borrow up to a
maximum of $800,000. The agreement is secured by trade accounts receivable and
inventory. There were no outstanding borrowings under this agreement at December
27, 1996.

The Company's debt agreements relating to the above notes contain
restrictive financial covenants. The Company was in compliance with such
covenants under the terms of the agreements.

The aggregate maturities of long-term debt for each of the five years
subsequent to December 27, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................................ $ 103,665
1998............................................................ 116,057
1999............................................................ 129,102
2000............................................................ 134,774
2001............................................................ 147,497
Thereafter...................................................... 1,025,547
---------
Total........................................................... 1,656,642
</TABLE>

F-65
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 27, 1996

(6) LEASES

The Company has several noncancellable operating leases for transportation
equipment that expire over the next six years. These leases require the Company
to pay certain executory costs, such as insurance, and purchase fuel from the
lessor. Rental payments include minimum rentals plus contingent rentals based on
mileage and inflation rates. Lease expense for operating leases during 1996
consisted of the following:

<TABLE>
<S> <C>
Minimum rentals.................................................... $ 53,568
Contingent rentals................................................. 31,632
---------
Total............................................................ $ 85,200
---------
---------
</TABLE>

Future minimum lease payments under noncancellable operating leases as of
December 27, 1996 are $53,568 annually for 1997 through 2001.

(7) GAIN FROM WARRANTY SETTLEMENT

During 1996, fiberglass roofs on certain greenhouses were determined to be
defective. After settlement with the manufacturer, the Company retired roofs on
the greenhouses which had a carrying value of $206,490 and recognized a gain
from the warranty settlement of $184,694.

(8) INCOME TAXES

The Company is classified as a partnership for federal income tax purposes.
For federal purposes, partnership income is taxed directly to its members;
consequently, no provision is made in the accompanying financial statements for
federal income taxes. L.L.C.'s, however, are subject to the State of Texas
franchise tax--essentially a tax based on income.

Income taxes for year ended December 27, 1996 consisted of $3,945 of current
state income tax and $47,680 of deferred state income tax.

Amounts for deferred tax assets and liabilities at December 27, 1996 are as
follows:

<TABLE>
<S> <C>
Deferred tax liabilities........................................... $ 61,211
Deferred tax assets................................................ (2,052)
---------
$ 59,159
---------
---------
</TABLE>

Management has determined, based on the reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies, that
the Company will more likely than not be able to fully recognize the deferred
tax assets at December 27, 1996.

Temporary differences giving rise to deferred tax liabilities consist
primarily of differences between fixed asset basis and depreciation for income
tax purposes and financial statement reporting purposes, accrued vacation not
deductible for income tax purposes, growing crop inventory which is expensed as
incurred for income tax, and allowances for doubtful accounts which are not
deductible for income tax purposes.

F-66
<PAGE>
WOLFE GREENHOUSES, L.L.C.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 27, 1996

(8) INCOME TAXES (CONTINUED)
If the Company had been taxed as a C Corporation, the provision for income
tax and net income would have been $521,237 and $781,855, respectively, assuming
an effective tax rate of 40%.

(9) BUSINESS CONCENTRATIONS

Approximately $5,000,000 of revenue representing 60% of net sales were
derived from four customers during the year ended December 27, 1996. These four
customers accounted for $601,553 (or 59%) of trade accounts receivable at
December 27, 1996.

(10) SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid $184,434 for interest and $3,945 for state income tax
during 1996.

(11) COMMITMENTS

The Company has entered into an agreement to construct a new greenhouse at
an estimated cost of $363,364. At December 27, 1996, the Company was committed
for $297,231 of estimated unpaid construction costs.

(12) EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution 401(k) plan that covers
employees who have completed one year of service and are 21 years old. Company
contributions to the plan are discretionary by the members as determined each
year. For 1996, no company contributions were made.

(13) SUBSEQUENT EVENTS

Subsequent to year-end, the joint venture discussed in Note 3 settled
certain contingent assets and liabilities, and sold certain real estate. The
Company realized approximately $333,900 of income in 1997 related to these
subsequent transactions of the joint venture.

On May 28, 1997, the Members of the Company signed a letter of intent for a
proposed sale of all their existing interest in the Company.

F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying balance sheet of Signature Trees (a
California general partnership) as of December 31, 1996, and the related
statements of operations and partners' capital, and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Trees as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
July 7, 1997

F-68
<PAGE>
SIGNATURE TREES
BALANCE SHEET
DECEMBER 31, 1996

ASSETS

<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash.............................................................................................. $ 154,281
Accounts receivable, net of allowance for doubtful accounts of $100,000........................... 4,826,696
Notes receivable.................................................................................. 6,000
------------
Total current assets.......................................................................... 4,986,977

TREE INVENTORY AND DEPOSITS......................................................................... 831,072

PROPERTY AND EQUIPMENT, net......................................................................... 421,158
------------
Total assets.................................................................................. $ 6,239,207
------------
------------

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 3,245,566
Current portion of long-term debt................................................................. 823,319
------------
Total current liabilities..................................................................... 4,068,885
LONG-TERM DEBT...................................................................................... 551,331
PARTNERS' CAPITAL................................................................................... 1,618,991
------------
Total liabilities and partners' capital....................................................... $ 6,239,207
------------
------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-69
<PAGE>
SIGNATURE TREES

STATEMENT OF OPERATIONS AND PARTNERS' CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
NET SALES............................... $ 6,855,117

COST OF SALES........................... 4,564,925
------------
Gross profit........................ 2,290,192

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,352,046
------------
Income from operations.............. 938,146

INTEREST EXPENSE, net................... 37,452
------------
Net income.......................... 900,694

PARTNERS' CAPITAL, beginning of year.... 718,297
------------
PARTNERS' CAPITAL, end of year.......... $ 1,618,991
------------
------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-70
<PAGE>
SIGNATURE TREES

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 900,694
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 2,504
Changes in certain assets and liabilities:
Increase in receivables.................................................... (611,312)
Increase in tree inventories and deposits.................................. (740,974)
Increase in other assets................................................... 0
Increase in accounts payable............................................... 808,637
---------
Net cash provided by operating activities................................ 359,549
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................. (221,730)
---------
Net cash used in investing activities.................................... (221,730)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................................................... 700,000
Repayments of long-term debt................................................... (928,000)
Net borrowings under revolving line of credit.................................. 219,000
---------
Net cash used in financing activities.................................... (9,000)
---------
Net increase in cash..................................................... 128,819

CASH AT BEGINNING OF YEAR........................................................ 25,462
---------
CASH AT END OF YEAR.............................................................. $ 154,281
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest..................................................................... $ 42,884
---------
---------
Income taxes................................................................. $ 0
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-71
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES:

PARTNERSHIP BACKGROUND AND ORGANIZATION

Signature Trees (the "Partnership"), a California general partnership, is a
grower, broker and distributor of Christmas trees. The Partnership sells
primarily to general merchandise chain stores, home improvement chain stores and
retail garden stores.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Partnership considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

Inventories consist primarily of Christmas trees and are carried at the
lower of cost or market. Cost is determined using the average cost incurred to
purchase or plant and maintain the inventory. Tree inventories are classified as
long-term until the trees are cut and ready for sale. The Partnership is
dependent on several vendors for a large portion of its inventory.

PROPERTY AND EQUIPMENT

Property and equipment are carried at historical cost and are depreciated
over their estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
Machines and equipment.......................................... 7 years
Leasehold improvements.......................................... lease term
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenues are recognized when products are shipped and all significant
obligations of the Partnership have been met.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, debt and accounts payable, approximates fair value.

F-72
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

The Partnership is not subject to federal income taxes; rather, income from
operations is passed directly through to the partners. If the Partnership had
been taxed as a C Corporation, the income tax provision and net income would
have been $360,278 and $540,416, assuming an effective tax rate of 40%.

ASSET IMPAIRMENT

On January 1, 1996, the Partnership adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). SFAS 121 requires that long-lived assets, certain identifiable
intangibles and goodwill be reviewed for impairment when expected future
undiscounted cash flows are less than the carrying value of the asset. No
charges were recorded pursuant to this statement in fiscal 1996.

2. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Partnership to
concentration of credit risk consist primarily of trade accounts receivable. The
Partnership sells primarily on net 30-day terms, performs credit evaluation
procedures, and generally does not require collateral. The Partnership maintains
allowances for potential credit losses and does not currently foresee a credit
risk associated with these receivables. Sales to the Partnership's ten largest
customers represented approximately 82 percent of sales. Accounts receivable
balances generally correspond with the net sales percentages for the Company's
ten largest customers. The Company's credit risk if the Company's largest
customers failed to pay their outstanding receivables would approximate 82% of
the accounts receivable balances as of December 31, 1996.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1996:

<TABLE>
<CAPTION>
<S> <C>
Land.......................................................... $ 317,786
Machines and equipment........................................ 49,416
Leasehold improvements........................................ 56,864
----------
Total property and equipment................................ 424,066
Less: Accumulated depreciation................................ 2,908
----------
Property and equipment, net................................... $ 421,158
----------
----------
</TABLE>

Depreciation expense for the year ended December 31, 1996, was $2,504.

F-73
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

4. DEBT:

Debt consists of the following at December 31, 1996:

<TABLE>
<CAPTION>
<S> <C>
Revolving line of credit (1)................................ $ 719,000
Note payable (2)............................................ 240,000
Note payable (3)............................................ 190,000
Note payable (4)............................................ 137,000
Note payable (5)............................................ 88,650
------------
1,374,650
Less: Current portion....................................... (823,319)
------------
$ 551,331
------------
------------
</TABLE>

- ------------------------

(1) $750,000 revolving line of credit with Key Bank. Advances under the line
accrue interest at the bank's base rate plus 1.5 percent (9.75 percent at
December 31, 1996). The line is secured by the Partnership's accounts
receivable, inventory and certain real property. The line expires on May 10,
1997.

(2) Note payable incurred in conjunction with the purchase of certain real
property. The noninterest-bearing note requires $60,000 annual payments and
matures on May 30, 2001.

(3) Note payable bearing interest at 9 percent. The note requires annual
payments of $20,646 with unpaid principal and interest due on March 10,
2006.

(4) Note payable incurred in conjunction with the purchase of certain real
property bearing interest at 3 percent. The note requires payments of
$73,333 in 1997 and a final payment of $63,667 on November 1, 1998. The note
is secured by certain real property.

(5) Note payable bearing interest at 9.75 percent. The note requires $10,340
annual payments with unpaid principal and interest due on May 10, 2005.

Maturities of debt are as follows:

<TABLE>
<CAPTION>
<S> <C>
1997........................................................ $ 823,319
1998........................................................ 154,653
1999........................................................ 90,986
2000........................................................ 90,986
2001........................................................ 90,986
Thereafter.................................................. 123,720
------------
$ 1,374,650
------------
------------
</TABLE>

5. COMMITMENTS AND CONTINGENT LIABILITIES:

LEASES

The Partnership leases certain growing facilities under noncancellable
operating leases expiring at various dates through 2012. Total rent expense for
the year ended December 31, 1996, was $10,758. As of

F-74
<PAGE>
SIGNATURE TREES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

5. COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
December 31, 1996, aggregate annual future minimum rental payments required by
all noncancellable operating leases are as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1997.......................................................... $ 16,460
1998.......................................................... 14,960
1999.......................................................... 14,960
2000.......................................................... 14,960
2001.......................................................... 14,960
Thereafter.................................................... 75,120
----------
$ 151,420
----------
----------
</TABLE>

PURCHASE COMMITMENTS

The Partnership has contracts to purchase Christmas trees from third-party
growers. Certain of these contracts require the Partnership to maintain the
trees until they are harvested. Future minimum purchase commitments under the
contracts are as follows:

6. SUBSEQUENT EVENTS:

In March 1997, certain assets (inventory, prepaid assets and equipment with
a net book value of approximately $997,000) of the Partnership were sold to
Color Spot Christmas Trees, Inc., a wholly owned subsidiary of Color Spot
Nurseries, Inc. ("Color Spot") for cash and stock. In addition, Color Spot
Christmas Trees, Inc. ("Trees") assumed the Partnership's $137,000 note payable.
The president of Color Spot has a 20 percent partnership interest in the
Partnership. Certain partners of the Partnership will lease certain of its real
property to Trees to grow trees.

F-75
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying balance sheet of Peters' Wholesale
Greenhouses, Inc. (a Texas corporation), as of December 31, 1996, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year then ended. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Peters' Wholesale
Greenhouses, Inc., as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
August 12, 1997

F-76
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

BALANCE SHEET AS OF DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 291
Accounts receivable, less allowance for doubtful accounts of $25.................. 574
Inventories....................................................................... 1,042
Income taxes receivable........................................................... 77
---------
Total current assets............................................................ 1,984

PROPERTY AND EQUIPMENT, net......................................................... 1,642
---------
Total assets.................................................................... $ 3,626
---------
---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of debt........................................................ $ 354
Current maturities of stockholder loan............................................ 101
Accounts payable.................................................................. 809
Accrued expenses.................................................................. 121
Deferred income taxes............................................................. 312
---------
Total current liabilities....................................................... 1,697

LONG-TERM DEBT...................................................................... 102

DEFERRED INCOME TAXES............................................................... 38

STOCKHOLDER LOAN.................................................................... 527
---------
Total liabilities............................................................... 2,364

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 250,000 shares authorized and 10,000 shares issued
and outstanding................................................................. 1
Retained earnings................................................................. 1,261
---------
Total stockholders' equity...................................................... 1,262
---------
Total liabilities and stockholders' equity...................................... $ 3,626
---------
---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-77
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<S> <C>
NET SALES........................................................................... $ 5,059
COST OF SALES....................................................................... 3,693
---------
Gross profit.................................................................... 1,366
OPERATING EXPENSES:
Selling, general and administrative............................................. 1,264
---------
Income from operations.......................................................... 102
INTEREST EXPENSE, net............................................................... (62)
OTHER INCOME........................................................................ 116
---------
Income before income taxes...................................................... 156
PROVISION FOR INCOME TAXES.......................................................... 53
---------
Net income...................................................................... $ 103
---------
---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-78
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ----------- -------- -------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995.............. 10,000 $ 1 $1,158 $ 1,159
Net income............................ -- -- 103 103
--
--------- -------- -------
BALANCE, December 31, 1996.............. 10,000 $ 1 $1,261 $ 1,262
--
--
--------- -------- -------
--------- -------- -------
</TABLE>

The accompanying notes are an integral part of these financial statements

F-79
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 103
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation..................................................................... 150
Changes in certain assets and liabilities:
Decrease in accounts receivable................................................ 331
Increase in inventories........................................................ (161)
Increase in income taxes receivable............................................ (64)
Increase in accounts payable................................................... 102
Decrease in accrued expenses................................................... (14)
Increase in deferred income taxes.............................................. 53
---------
Net cash provided by operating activities.................................... 500
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................ (909)
Proceeds from sale of fixed assets................................................. 10
---------
Net cash used in investing activities........................................ (899)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........................................................... 641
Repayments of long-term debt....................................................... (223)
Net borrowing under revolving lines of credit...................................... 155
---------
Net cash provided by financing activities.................................... 573
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................................ 174
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................................... 117
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................. $ 291
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest......................................................................... $ 30
---------
---------
Income taxes..................................................................... $ 77
---------
---------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1996, the Company exchanged property and equipment and a related note
payable with book values of $207 and $157, respectively, to the Stockholders. In
return, the Company received property and equipment and a related note payable of
$144 and $94, respectively.
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-80
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(IN THOUSANDS)

1. NATURE OF OPERATIONS AND DESCRIPTION OF BUSINESS:

The financial statements presented herein include the accounts of Peters'
Wholesale Greenhouses, Inc. (the "Company"). The Company is located in Walnut
Springs, Texas, and is a producer of bedding plants. The Company sells primarily
to general merchandise stores and retail garden stores in Central and East
Texas. The Company's sole stockholders are Tom and Ramona Peters (the
"Stockholders").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principles.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories consist primarily of plant inventory and are stated at the lower
of cost or market. Cost is determined using the average cost method and includes
direct production costs and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over their
estimated useful lives on an accelerated basis as follows:

<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements................................................... 5 to 30 years
Fixtures and equipment....................................................... 3 to 7 years
</TABLE>

Repair and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

The Company recognizes revenues when products are received by the customer
and all significant obligations of the Company have been completed. Where
appropriate, the Company also establishes a concurrent reserve for returns and
allowances.

F-81
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable, accounts
payable and notes payable, the Company's carrying amount approximates fair
value.

INCOME TAXES

Income taxes are recognized in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
utilizes the asset and liability method under which deferred income taxes are
recognized for the consequences of temporary differences by applying currently
enacted statutory rates to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.

ASSET IMPAIRMENT

3. CONCENTRATIONS OF RISK:

The Company does not perform credit evaluations of its customers' financial
condition and generally does not require collateral, as the majority of its
customers are large, well established companies. The Company maintains an
allowance for potential credit losses.

For the year ended December 31, 1996, five customers accounted for
approximately 81 percent of the Company's accounts receivable balance and 88
percent of net sales. The Company's two largest customers accounted for
approximately 56 percent and 14 percent of net sales, respectively.

During 1996, one of Peters' top five customers of 1995, H. S. Floral
Distributors, no longer conducted business with the Company due to pricing
conflicts. This business was replaced with Lowe's Corporation, a new customer
obtained in 1996.

The Company purchases inventories and greenhouse building materials from
primarily two vendors. Purchases from these two vendors represent 85 percent of
the accounts payable balance at year-end;
56 percent from B.W.I.-Schulenburg and 29 percent from Ball Seed. Management
believes alternative suppliers could be obtained, if needed.

4. INVENTORIES:

Inventories at December 31, 1996, consist of raw materials, supplies and
plants of approximately $1,042.

F-82
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

5. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, 1996, consist of the following:

<TABLE>
<CAPTION>
<S> <C>
Land................................................................................ $ 196
Buildings and improvements.......................................................... 2,211
Fixtures and equipment.............................................................. 694
---------
3,101
Less: Accumulated depreciation...................................................... (1,459)
---------
Net property and equipment.......................................................... $ 1,642
---------
---------
</TABLE>

Depreciation expense for the year ended December 31, 1996, was $150.

During 1996, the Company exchanged certain property held in the Company
which was not used in the Company's bedding plant business for certain assets of
the Stockholders which were used in the Company's bedding plant business.

6. ACCRUED EXPENSES:

Accrued expenses as of December 31, 1996, consist of the following:

<TABLE>
<CAPTION>
<S> <C>
Royalties............................................................................. $ 32
Interest and finance charges.......................................................... 47
Utilities............................................................................. 27
Payroll and payroll taxes............................................................. 11
Other................................................................................. 4
---------
Total accrued expenses................................................................ $ 121
---------
---------
</TABLE>

7. DEBT:

Lines of credit and long-term debt at December 31, 1996, consisted of the
following:

<TABLE>
<CAPTION>
<S> <C>
Revolving line of credit (1).......................................................... $ 150
Revolving line of credit (2).......................................................... 200
Note payable (3)...................................................................... 94
Note payable (4)...................................................................... 12
---------
$ 456
---------
---------
</TABLE>

- ------------------------

(1) $350 revolving line of credit with a financial institution under which $150
was outstanding at December 31, 1996. Advances under the line of credit
accrue interest at 9.25 percent per annum. The line is secured by all
accounts the Company holds with the bank, inventory and accounts receivable.
The line expires on May 31, 1997. Subsequent to year-end, this line of
credit was renewed and the new expiration date is May 31, 1998.

F-83
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

7. DEBT: (CONTINUED)
(2) $300 revolving line of credit with a financial institution under which $200
was outstanding at December 31, 1996. Advances under the line of credit
accrue interest at the prime rate plus 1 percent per annum (9.25 percent at
December 31, 1996). The line is secured by all accounts the Company holds
with the bank and equipment. The line expires on November 20, 1997.

(3) Note payable was incurred in conjunction with the purchase of land. The note
accrues interest at a variable interest rate per annum (9.75 percent at
December 31, 1996) with interest and an installment of principal due
annually and any unpaid principal due in entirety on April 1, 2016. The note
is collateralized by the acquired land.

(4) Note payable was incurred in conjunction with the purchase of equipment. The
note accrues interest at 7.75 percent per annum with monthly principal and
interest payments of $.4. Unpaid principal and interest is due November 1,
1999. The note is collateralized by the acquired equipment.

The annual amount of principal maturities of lines of credit and long-term
debt outstanding at December 31, 1996, is as follows:

<TABLE>
<CAPTION>
<S> <C>
1997.................................................................................. $ 354
1998.................................................................................. 4
1999.................................................................................. 4
2000.................................................................................. --
2001.................................................................................. --
Thereafter............................................................................ 94
---------
$ 456
---------
---------
</TABLE>

As a result of borrowing rates presently available to the Company, the
carrying value of the Company's line of credit and debt approximate fair value.

8. INCOME TAXES:

The provision for income taxes consists of:

<TABLE>
<CAPTION>
<S> <C>
Current--
Federal............................................................................. $ --
State and local..................................................................... --
Deferred--
Federal............................................................................. 53
State and local..................................................................... --
---------
Provision for income taxes............................................................ $ 53
---------
---------
</TABLE>

F-84
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

8. INCOME TAXES: (CONTINUED)
A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate of 34 percent to
income before income taxes is as follows:

<TABLE>
<CAPTION>
<S> <C>
Income before income taxes............................................................ $ 156
---------
---------
Amount of federal income tax based upon the statutory rate............................ $ 53
---------
Provision for income taxes............................................................ $ 53
---------
---------
</TABLE>

The effective tax rate for the Company is equal to the applicable federal
statutory rate.

Deferred tax assets (liabilities) are composed of the following at December
31, 1996:

<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets--
Allowance for doubtful accounts..................................................... $ 8
Net operating loss carryforward..................................................... 34
---------
Total deferred tax assets........................................................... 42
---------
Deferred tax liabilities--
Inventories......................................................................... (354)
Property and equipment.............................................................. (38)
---------
Total deferred tax liabilities.................................................... (392)
---------
Net deferred tax liability............................................................ $ (350)
---------
---------
</TABLE>

Income taxes receivable relates to tax payments made in 1996 which are
refundable due to the net operating losses experienced by the Company. The
Company has available federal net operating loss carryforwards of $101 which
were generated during the year ended December 31, 1996. The federal net
operating loss will expire in 15 years if not used.

9. RELATED-PARTY TRANSACTIONS:

On May 7, 1996, the Company received a stockholder loan from the
Stockholders. The loan accrues interest at a rate of 8.0 percent per annum and
provides the Company with available credit of $1,500. The note requires payments
of $75 on January 7 and July 7 each year until all outstanding principal and
interest has been repaid. At December 31, 1996, the outstanding balance on the
loan was $628.

From time to time, the Stockholders will finance certain inventory purchases
on their personal credit card. The Company will reimburse them within 30 days or
when the credit card invoice is due, whichever is sooner.

The Company's corporate offices are owned by the Stockholders. On January 1,
1997, the Stockholders began charging the Company rent of $2.5 per month. Prior
to this date, no rent was being charged for these facilities.

F-85
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(IN THOUSANDS)

9. RELATED-PARTY TRANSACTIONS: (CONTINUED)
During the year ended December 31, 1996, the Company paid management fees to
the Stockholders of approximately $135.

10. OTHER INCOME AND EXPENSE:

Other income primarily relates to rental income earned by the Company,
whereby the Company provides trailer houses for employees to rent on a per week
basis. Total rental income earned in 1996 was $113.

11. COMMITMENTS AND CONTINGENCIES:

In the ordinary course of business, the Company has various cases pending
involving contractual, employee-related and other matters. In light of the
Company's legal position, insurance coverage and reserves, management does not
believe that these cases will have a material adverse impact on the financial
position or results of operations of the Company.

The Company has no operating leases with original maturities greater than
one year. From time to time, the Company will enter into weekly leases for
transportation equipment. Total rent expense under these leases for the year
ended December 31, 1996, was approximately $77.

The Company is the primary guarantor of debt owed by a related-party
investment company owned by the Shareholders. At December 31, 1996, the
outstanding balance of the guaranteed debt is approximately $125.

The Company pays royalties related to the cutting of certain plants
(primarily poinsettias) to the original licensor. These amounts totaled
approximately $32 for the year ended December 31, 1996.

12. SUBSEQUENT EVENTS:

On July 31, 1997, 100 percent of the outstanding stock of the Company was
purchased by Color Spot Nurseries, Inc., for cash.

F-86
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and

Stockholders of CSN, Inc.:

We have audited the accompanying balance sheets of Lone Star Growers Co. (a
Texas general partnership) as of June 30, 1996 and 1995, and the related
statements of operations, partnership capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lone Star Growers Co. as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois

July 31, 1997

F-87
<PAGE>
LONE STAR GROWERS CO.

BALANCE SHEETS--JUNE 30, 1996 AND 1995

ASSETS

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 369,514 $ 332,977
Receivables:
Trade, less allowance for doubtful accounts of $114,865 and $117,374,
respectively................................................................. 3,213,753 2,696,649
Related-party receivables...................................................... 161,903 240,162
Other receivables.............................................................. 3,212,010 0
------------- -------------
Total receivables............................................................ 6,587,666 2,936,811
Inventories...................................................................... 6,980,393 6,579,021
Prepaid expenses................................................................. 42,751 58,987
Notes receivable................................................................. 27,213 18,033
------------- -------------
Total current assets......................................................... 14,007,537 9,925,829
Property and equipment, net...................................................... 5,861,589 5,352,776
------------- -------------
Total assets................................................................. $ 19,869,126 $ 15,278,605
------------- -------------
------------- -------------

LIABILITIES AND PARTNERSHIP CAPITAL

CURRENT LIABILITIES:
Cash overdraft................................................................... $ 334,478 $ 255,554
Payables
Trade.......................................................................... 1,016,567 1,091,813
Related parties................................................................ 438,683 281,917
------------- -------------
Total payables............................................................... 1,455,250 1,373,730
Accrued expenses................................................................. 1,023,018 698,048
Current portion of revolving line of credit...................................... 200,000 2,400,000
Current portion of long-term debt................................................ 916,794 1,000,000
Advances from partner under revolving line of credit............................. 3,000,000 4,800,000
------------- -------------
Total current liabilities.................................................... 6,929,540 10,527,332
LONG-TERM DEBT, net of current portion............................................. 5,278,928 2,900,000
------------- -------------
Total liabilities............................................................ 12,208,468 13,427,332
------------- -------------
PARTNERSHIP CAPITAL:
Partnership capital.............................................................. 2,805,989 2,805,989
Undistributed profits............................................................ 4,854,669 (954,716)
------------- -------------
Total partnership capital.................................................... 7,660,658 1,851,273
------------- -------------
Total liabilities and partnership capital.................................... $ 19,869,126 $ 15,278,605
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-88
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
SALES.............................................................................. $ 23,509,596 $ 18,429,903

COST OF SALES...................................................................... 11,687,536 9,484,727
------------- -------------
Gross profit................................................................... 11,822,060 8,945,176

OPERATING EXPENSES:
Delivery......................................................................... 3,258,402 2,703,379
Sales and marketing.............................................................. 2,167,244 1,832,400
General and administrative....................................................... 1,586,383 1,235,824
Other expenses................................................................... 556,345 318,131
Depreciation..................................................................... 126,992 109,992
------------- -------------
Income from operations......................................................... 4,126,694 2,745,450

INTEREST EXPENSE................................................................... 1,122,984 1,036,059

OTHER INCOME, net.................................................................. 3,230,675 13,172
------------- -------------
Net income..................................................................... $ 6,234,385 $ 1,722,563
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-89
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF PARTNERSHIP CAPITAL

FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<S> <C>
BALANCE, June 30, 1994.................. $ 128,710

Net income............................ 1,722,563
Distributions......................... 0
------------

BALANCE, June 30, 1995.................. 1,851,273

Net income............................ 6,234,385
Distributions......................... (425,000)
------------

BALANCE, June 30, 1996.................. $ 7,660,658
------------
------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-90
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 6,234,385 $ 1,722,563
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sale of fixed assets............................................. 2,661 (38,865)
Depreciation and amortization................................................... 827,924 697,202
Changes in certain assets and liabilities:
Increase in receivables....................................................... (3,650,855) (661,018)
Increase in inventories....................................................... (401,372) (1,164,834)
Decrease (increase) in prepaids and other assets.............................. 16,236 (58,987)
Increase in notes receivable.................................................. (9,180) (18,033)
Increase (decrease) in cash overdrafts........................................ 78,924 (278,724)
Increase in payables.......................................................... 81,520 196,047
Increase in accrued expenses.................................................. 324,970 200,214
------------- -------------
Net cash provided by operating activities................................... 3,505,213 595,565
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets......................................................... (1,345,399) (2,465,281)
Proceeds from sale of fixed assets................................................ 6,001 48,863
------------- -------------
Net cash used in investing activities....................................... (1,339,398) (2,416,418)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt........................................ 3,320,000 2,050,000
Repayments of long-term debt...................................................... (1,024,278) (1,000,000)
Net borrowings (repayments) under revolving line of credit........................ (2,200,000) 1,500,000
Net repayments to partners........................................................ (1,800,000) (1,000,000)
Distributions to partners......................................................... (425,000) 0
------------- -------------
Net cash provided by (used in) financing activities......................... (2,129,278) 1,550,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 36,537 (270,853)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 332,977 603,830
------------- -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 369,514 $ 332,977
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............................................ $ 1,044,861 $ 1,003,439
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-91
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1996 AND 1995

1. NATURE OF OPERATIONS:

ORGANIZATION

Lone Star Growers Co., a Texas partnership (the "Partnership"), was formed
on January 1, 1985, by Lone Star Growers, Inc. and Joseph Bradberry. The
Partnership was formed to acquire, own, operate and manage a nursery business
located near San Antonio, Texas.

On formation, Lone Star Growers, Inc. (100% owned by TETCO, Inc.) received a
90 percent partnership interest for assets contributed to the Partnership and
Joseph Bradberry received a 10 percent partnership interest. Over the ensuing
three-year period, Mr. Bradberry obtained an additional 30 percent interest of
the Partnership.

DESCRIPTION OF THE BUSINESS

The Partnership is an agricultural enterprise specializing in the growth and
wholesale of ornamental plants and shrubs to numerous retailers. The majority of
the plants are grown on the Partnership's 400-acre complex in southwest Bexar
County, Texas, a 150-acre facility near Atascosa, Texas, and a 170-acre facility
near Harlingen, Texas.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Partnership in preparing its financial statements in accordance with
generally accepted accounting principles:

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

INVENTORIES

Inventories are carried at the lower of cost or market. Cost is determined
using the average cost method and includes direct production costs and overhead.
A portion of the Partnership's nursery stock has an average growing period of
approximately 18 months. The nursery stock is classified as a current asset
based on the Partnership's normal operating cycle.

F-92
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated over their
estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
Buildings and improvements.............. 10 - 40 years
Machinery and equipment................. 5 - 10 years
Furniture and fixtures.................. 5 - 10 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

The Partnership recognizes revenues when products are shipped and all
significant obligations of the Partnership have been completed. Where
appropriate, the Partnership also establishes a concurrent reserve for returns
and allowances.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Partnership is not subject to federal income taxes; rather, its income
from operations is passed directly through to its partners. If the Partnership
had been taxed as a C Corporation, the income tax provision and net income would
have been $2,493,754 and $3,740,631 in 1996 and $689,025 and $1,033,538 in 1995,
assuming an effective tax rate of 40%.

ASSET IMPAIRMENT

On July 1, 1995, the Partnership adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). SFAS 121 requires that long-lived assets, certain identifiable
intangibles and goodwill be reviewed for impairment when expected future
undiscounted cash flows are less than the carrying value of the asset. No
charges were recorded pursuant to this statement in fiscal 1996.

3. CONCENTRATION OF CREDIT RISK:

The Partnership performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral, as the majority
of its customers are large, well-established companies. Five customers accounted
for approximately 64 percent and 48 percent of accounts receivable at June 30,
1996 and 1995, respectively. These same five customers accounted for
approximately 47 percent and 50 percent of sales for the years ended June 30,
1996 and 1995, respectively.

F-93
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

4. INVENTORIES:

Inventories consisted of the following at June 30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies........................................ $ 373,365 $ 503,545
Plant inventory................................................... 6,607,028 6,075,476
------------ ------------
Total inventory............................................... $ 6,980,393 $ 6,579,021
------------ ------------
------------ ------------
</TABLE>

5. PROPERTY AND EQUIPMENT:

Property and equipment at June 30, 1996 and 1995, consisted of the
following:

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land........................................................... $ 892,567 $ 561,002
Machinery and equipment........................................ 7,155,633 6,266,030
Buildings and improvements..................................... 4,645,182 4,593,289
Furniture and fixtures......................................... 721,901 631,443
Construction in progress....................................... 64,549 128,507
------------- -------------
13,479,832 12,180,271
Less: Accumulated depreciation................................. (7,618,243) (6,827,495)
------------- -------------
Total property, plant and equipment........................ $ 5,861,589 $ 5,352,776
------------- -------------
------------- -------------
</TABLE>

6. NOTES PAYABLE:

LINE OF CREDIT

As of June 30, 1996 and 1995, the Partnership had a $5,000,000 revolving
line of credit with a financial institution under which there was $200,000 and
$2,400,000 outstanding, respectively. Advances under the line accrue interest at
Frost National Bank's prime rate of interest and are collateralized by
substantially all of the Partnership's assets. Borrowings are limited to 80
percent of adjusted accounts receivable balances and 50 percent of the
Partnership's total inventory balance as defined in the agreement, less certain
borrowings. The borrowing limit at June 30, 1996, was approximately $2,875,000.
The line of credit expires on October 29, 1997.

F-94
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

6. NOTES PAYABLE: (CONTINUED)
LONG-TERM DEBT

Long-term debt at June 30, 1996 and 1995, consisted of the following:

<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Note payable to bank, with quarterly principal and interest payments of $173,814,
interest at prime plus 0.5 percent (8.75 percent at June 30, 1996); secured by
substantially all of the Partnership's assets and guaranteed by the partners
individually; unpaid principal and interest due on April 29, 2002.................. $ 3,000,000 $ 0

Note payable to bank, with quarterly principal and interest payments of $78,217,
interest at prime plus 0.5 percent (8.75 percent at June 30, 1996); secured by
substantially all of the Partnership's assets and guaranteed by the partners
individually; unpaid principal and interest due on April 29, 2002.................. 1,630,000 2,050,000

Note payable to bank, with quarterly principal and interest payments of $60,835,
interest at prime plus 0.5 percent (8.75 percent at June 30, 1996); secured by
substantially all of the Partnership's assets and guaranteed by the partners
individually; unpaid principal and interest due on April 29, 2002.................. 1,270,000 1,850,000

Note payable to seller, with annual principal and interest payments of $43,478,
interest at 6.0 percent; secured by land; unpaid principal and interest due June
15, 2005........................................................................... 295,722 0
------------ -------------

6,195,722 3,900,000

Less: Current portion................................................................ (916,794) (1,000,000)
------------ -------------

$ 5,278,928 $ 2,900,000
------------ -------------
------------ -------------
</TABLE>

As a result of borrowing rates presently available to the Partnership, the
carrying value of debt approximates the fair value. Subsequent to June 30, 1996,
the Partnership renegotiated its bank obligations to restructure and extend the
maturities of its long-term debt. The descriptions above reflect the effects of
the renegotiation.

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, cash flows, investments, capital
expenditures, incurrence of additional indebtedness, payment of dividends and
maintenance of specified amounts of tangible net worth and working capital.

F-95
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

6. NOTES PAYABLE: (CONTINUED)
The annual amount of principal maturities of long-term debt outstanding at
June 30, 1996, is as follows:

<TABLE>
<S> <C>
1997.................................... $ 916,794
1998.................................... 861,509
1999.................................... 939,654
2000.................................... 1,024,298
2001.................................... 1,117,879
Thereafter.............................. 1,335,588
------------
$ 6,195,722
------------
------------
</TABLE>

7. RELATED-PARTY TRANSACTIONS:

In the normal course of business, the Partnership has transactions with its
partners and other entities under common ownership. These transactions include
purchasing insurance on a group basis, participating in a group profit-sharing
plan and renting equipment. The following table summarizes the Partnership's
related-party transactions presented in the balance sheet as of June 30, 1996
and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Related-party receivables......................................... $ 161,903 $ 240,162
Related-party payables............................................ 438,683 281,917
Advances from partners under revolving line of credit............. 3,000,000 4,800,000
</TABLE>

Advances from partners of $438,683 and $281,917 at June 30, 1996 and 1995,
respectively, represent amounts payable for participation in TETCO, Inc.'s group
insurance plan and the Partnership's contribution payable to the TETCO, Inc.
Employees' Profit-Sharing Plan and Trust, a defined contribution plan. Advances
from partners under the revolving line of credit represent amounts advanced to
the Partnership. Interest accrues under the line of credit at 8.75 percent.
Interest paid to the partners was $398,522 and $548,615 during 1996 and 1995,
respectively.

The Partnership made advances to entities under common ownership of $556,345
and $318,131 during the years ended June 30, 1996 and 1995, respectively,
relating to investments in a mushroom project, a furniture shop and a Mexican
turf grass project. The Partnership determined that these advances were not
recoverable and therefore expensed the advances (as other expenses) in the
related statements of income and expense in the year in which they were made. In
addition, the Partnership had sales to an affiliated company of approximately
$400,000 in 1996 and 1995. These sales generated gross profits of approximately
$200,000 in 1996 and 1995, and outstanding receivables on those sales were
$161,903 and $240,162 at June 30, 1996 and 1995, respectively.

8. SETTLEMENT OF A CLAIM:

In June 1996, the Partnership settled a claim with a vendor relating to the
purchase of defective supplies that caused damage to plant inventory and
negatively impacted the growing process in 1992 and 1993. The settlement
agreement states that the Partnership receive an aggregate payment of
$3,212,010,

F-96
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1996 AND 1995

8. SETTLEMENT OF A CLAIM: (CONTINUED)
net of related legal fees and other expenses. The Partnership recorded the
settlement as other income in 1996. The Partnership received payment under the
settlement agreement on August 27, 1996.

9. CONTINGENCIES:

In the ordinary course of business, the Partnership has various cases
pending involving contractual, employee-related and other matters. In light of
the Partnership's legal position, insurance coverage and reserves, management
does not believe that these cases will have a material adverse impact on the
Partnership.

10. SUBSEQUENT EVENT:

On February 20, 1997, 100 percent of the outstanding partnership interests
of the Partnership were purchased through a merger by Lone Star Growers, L.P. (a
Delaware limited partnership and indirect subsidiary of Color Spot Nurseries,
Inc.) for cash and stock.

F-97
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of CSN, Inc.:

We have audited the accompanying statement of assets and liabilities and
divisional equity of The Wholesale Division of Sunnyside Plants, as of March 31,
1996 and the related statements of revenues and expenses and cash flows for the
year then ended. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities and divisional equity of
the Wholesale Division of Sunnyside Plants, Inc. as of March 31, 1996 and the
related revenues, expenses and cash flows for the year then ended in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
July 15, 1997

F-98
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.
STATEMENT OF ASSETS AND LIABILITIES
AND DIVISIONAL EQUITY
MARCH 31, 1996

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance
for doubtful accounts of $75,000.... $ 856,993
Inventories........................... 1,854,342
Deferred income taxes................. 104,000
Due from Parent....................... 355,000
------------
Total current assets................ 3,170,335
PROPERTY AND EQUIPMENT, net............. 428,671
------------
Total Assets........................ $ 3,599,006
------------
------------

LIABILITIES AND DIVISIONAL EQUITY

CURRENT LIABILITIES:
Accounts payable...................... $ 707,596
Accrued liabilities................... 70,475
Current portion of capital lease
obligation.......................... 9,150
------------
Total current liabilities........... 787,221
------------
CAPITAL LEASE OBLIGATION, net of current
portion............................... 34,676
Total liabilities................... 821,897
------------
Divisional Equity....................... 2,777,109
------------
Total Liabilities and Divisional
Equity............................ $ 3,599,006
------------
------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-99
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.
STATEMENT OF REVENUES AND EXPENSES
AND DIVISIONAL EQUITY
FOR THE YEAR ENDED MARCH 31, 1996

<TABLE>
<S> <C>
NET SALES............................... $ 6,555,212
COSTS OF SALES.......................... 5,579,664
------------
Gross profit.......................... 975,548
------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................... 1,662,675
------------
Loss from operations.................. (687,127)
INCOME TAX BENEFIT...................... (275,000)
------------
Net loss.............................. $ (412,127)
DIVISIONAL EQUITY, MARCH 31 1995........ 3,189,236
------------
DIVISIONAL EQUITY, MARCH 31, 1996....... $ 2,777,109
------------
------------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-100
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $(412,127)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 80,375
Changes in assets and liabilities--
Increase in accounts receivable............................................ (408,570)
Decrease in inventories.................................................... 499,383
Decrease in deferred income tax asset...................................... 80,000
Increase in receivable from Parent......................................... 355,000
Increase in accounts payable............................................... 66,173
Increase in accrued liabilities............................................ 36,098
---------
Net cash provided by operating activities................................ 296,332
---------
CASH FLOWS FROM INVESTING ACTIVITIES, purchases of property and equipment........ (3,019)
CASH FLOWS FROM FINANCING ACTIVITIES, transfer to Parent......................... (293,313)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................... --
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ --
---------
---------
</TABLE>

The accompanying notes are an integral part of this financial statement

F-101
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1996

1. OPERATIONS AND BASIS OF PRESENTATION:

Sunnyside Plants, Inc. (the Company, a California corporation) was
incorporated in 1995 as a wholly owned subsidiary of Sakata Seed America, Inc.
(the Parent, a California corporation). The Company produces and distributes
potted flowering plants.

Since the Company did not maintain separate accounting records for the
Division, certain estimates were required to segregate the Division's account
balances as of March 31, 1996.

- Identification basis--Account balances relating to assets, liabilities,
revenues and expenses ("account balances") specifically pertaining to the
Division were identified and segregated. Account balances related to
general and administrative expenses incurred by the Company for general
purposes have been included in total as the Division was the significant
portion of the Company's operations for the year.

- Transfer basis--Account balances pertaining to the Company's retail
division or account balances which were not able to be specifically
allocated to either division were identified and excluded from the
Division.

- Allocation basis--The account balance related to cost of sales for the
Division has been estimated based on the estimated purchases of the
Division.

In management's opinion, the method of allocation is reasonable and the
results are representative of the results of operations that would have been
attained by the Division on a stand-alone basis.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Division in preparing its financial statements in accordance with generally
accepted accounting principles.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Division considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

Inventories are stated at the lower of cost or market. At March 31, 1996,
inventories consisted only of finished goods. Cost is determined using the
average cost method and includes production costs and overhead.

F-102
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1996

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over their
estimated useful lives on a straight line basis as follows:

<TABLE>
<S> <C>
Office equipment........................ 5 years
Machinery and equipment................. 5 - 7 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenue is recognized upon transfer of title and risk of ownership to the
customer, which generally occurs upon product shipment. In 1996, no single
customer accounted for 10% or more of net sales.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable and payable
and capital lease obligations, the Division's carrying amount approximates fair
value.

INCOME TAXES

Income taxes are recognized in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS
109 utilizes the asset and liability method under which deferred income taxes
are recognized for the consequences of temporary differences by applying
currently enacted statutory rates to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.

ASSET IMPAIRMENT

On April 1, 1996, the Division adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to
Be Disposed Of." SFAS No. 121 requires that long-lived assets, certain
identifiable intangible assets and goodwill be reviewed for impairment when
expected future undiscounted cash flows are less than the carrying value of the
asset. No charges were recorded pursuant to this statement in 1996.

3. CONCENTRATIONS OF CREDIT RISK:

Financial instruments that potentially subject the Division to concentration
of credit risk consist of trade accounts receivable. The division sells
primarily on 30-day terms, performs credit evaluation procedures on its
customers and generally does not require collateral. The division maintains an
allowance for potential credit losses ($75,000 as of March 31, 1996).

F-103
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1996

4. PROPERTY AND EQUIPMENT:

Property and equipment of the Division at March 31, 1996 consisted of the
following:

<TABLE>
<S> <C>
Office equipment................................................. $ 202,183
Machinery and equipment.......................................... 373,448
---------
Total property and equipment................................. 575,631

Less: Accumulated depreciation................................... (146,960)
---------
Net property and equipment................................... $ 428,671
---------
---------
</TABLE>

Depreciation expense for the year ended March 31, 1996, was $80,375.

5. CAPITAL LEASE:

The Division leases certain equipment under a capital lease agreement.
Future minimum lease payments to be made are as follows for the years ending
March 31:

<TABLE>
<S> <C>
1997............................................................... $ 12,029
1998............................................................... 12,029
1999............................................................... 12,029
2000............................................................... 12,029
2001............................................................... 3,007
---------
Total minimum lease payments....................................... 51,123

Less: interest.................................................... (7,297)
---------
$ 43,826
---------
---------
</TABLE>

6. INCOME TAXES:

The Company files consolidated Federal and state income tax returns with the
Parent. The Company calculates the provision for income taxes on a separate
company basis.

Receivable from Parent in the accompanying statement of assets and
liabilities represents a tax benefit for the Parent resulting from the
Division's taxable loss in the year ended March 31, 1996.

Deferred income tax assets result from differences in the timing of
recognition of certain expense items for financial statement purposes and income
tax purposes. The principal temporary differences giving rise to deferred income
tax assets are certain inventory reserves, bad debt reserves and accrued
expenses.

F-104
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1996

6. INCOME TAXES: (CONTINUED)
The tax effects of the significant components of the Division's deferred
income tax asset at March 31, 1996 are as follows:

<TABLE>
<S> <C>
Reserves not deductible for tax purposes.......................... $ 93,760
Accrued expenses.................................................. 10,240
---------
$ 104,000
---------
---------
</TABLE>

The effective income tax rate for the year ended March 31, 1996 differs from
the Federal statutory rate of 34% as follows:

<TABLE>
<S> <C>
Federal statutory tax rate........................................... (34.0)%
State taxes, net..................................................... (6.0)%
---------
(40.0)%
---------
---------
</TABLE>

The Company has been reviewed by the tax authority for the tax year ended
March 31, 1995. The outcome of this review is not certain at this time, but in
the opinion of management the Division does not believe that this review will
materially affect the Division's financial position.

7. EMPLOYEE BENEFIT PLAN:

The Company has an employee profit-sharing and savings plan in which
employees may defer up to 10.5 percent of their salary for retirement purposes.
The Company matches 100 percent of employee contributions up to the first 5
percent of such employees' annual compensation and 50 percent of the next 3
percent of such employee's annual compensation. The Division's contribution
under the plan totaled approximately $65,000 in the year.

8. SUBSEQUENT EVENT:

In January 1997, the Company sold a significant portion of the net assets of
the Wholesale Division to CSN, Inc., the parent company of Color Spot Nurseries,
Inc.

F-105
<PAGE>
COLOR SPOT NURSERIES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30,
1997
SEPTEMBER 25, ----------
1997
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents............................................................ $ 1,681 $ 2,762
Accounts receivable, net of allowances of $1,980 and $1,661, respectively............ 16,248 25,524
Inventories.......................................................................... 46,498 28,854
Prepaid expenses and other........................................................... 643 893
------------- ----------
Total current assets............................................................... 65,070 58,033
TREE INVENTORIES....................................................................... 661 541
PROPERTY, PLANT AND EQUIPMENT, net..................................................... 47,835 31,774
INTANGIBLE ASSETS, net................................................................. 60,401 31,383
DEFERRED INCOME TAXES.................................................................. 7,890 10,120
NOTES RECEIVABLE AND OTHER ASSETS...................................................... 1,886 1,566
------------- ----------
Total assets....................................................................... $ 183,743 $ 133,417
------------- ----------
------------- ----------

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt................................................. $ 4,563 $ 4,595
Revolving line of credit............................................................. 13,347 2,105
Accounts payable..................................................................... 18,136 9,815
Accrued liabilities.................................................................. 10,770 12,395
Dividends payable to stockholders.................................................... 882 906
Deferred income taxes................................................................ 16,787 14,056
------------- ----------
Total current liabilities.......................................................... 64,485 43,872
LONG-TERM DEBT......................................................................... 111,335 83,408
------------- ----------
Total liabilities.................................................................. 175,820 127,280
------------- ----------
REDEEMABLE COMMON STOCK 1,163,550 and 1,199,744 shares, respectively................... 2,026 2,062
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and
outstanding........................................................................ -- --
Common stock, $0.01 par value, 20,000,000 shares authorized, 5,773,518 and 5,021,118
issued and outstanding, respectively............................................... 170 162
Additional paid-in capital........................................................... 50,798 45,033
Treasury stock, 6,200,228 and 6,164,034 shares, respectively......................... (45,488) (45,228)
Retained earnings.................................................................... 417 4,108
------------- ----------
Total stockholders' equity......................................................... 5,897 4,075
------------- ----------
Total liabilities, redeemable common stock and stockholders' equity................ $ 183,743 $ 133,417
------------- ----------
------------- ----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-106
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JULY 1, 1997 JULY 1, 1996
THROUGH THROUGH
SEPTEMBER 25, 1997 SEPTEMBER 26, 1996
------------------- -------------------
<S> <C> <C>
NET SALES.............................................................. $ 25,482 $ 13,437
COST OF SALES.......................................................... 18,018 8,858
------- -------
Gross profit......................................................... 7,464 4,579
SALES, MARKETING AND DELIVERY EXPENSES................................. 8,388 4,763
GENERAL AND ADMINISTRATIVE EXPENSES.................................... 2,682 1,204
AMORTIZATION OF INTANGIBLE ASSETS...................................... 612 81
------- -------
Loss from operations................................................. (4,218) (1,469)
INTEREST EXPENSE....................................................... 2,392 133
OTHER (INCOME) EXPENSE, net............................................ 102 (22)
------- -------
Loss before income tax benefit....................................... (6,712) (1,580)
INCOME TAX BENEFIT..................................................... 3,021 760
------- -------
Net loss............................................................. $ (3,691) $ (820)
------- -------
------- -------
NET LOSS PER SHARE..................................................... $ (0.57) $ (0.12)
------- -------
------- -------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-107
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT COMMON SHARES)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES STOCK CAPITAL STOCK EARNINGS EQUITY
---------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997............................. 5,021,118 $ 162 $ 45,033 $ (45,228) $ 4,308 $ 4,275
---------- ----- ----------- --------- ----------- -------------
Issuance of common stock:
Existing shareholders and management............. 713,196 7 5,104 -- -- 5,111
Acquisition of businesses........................ 39,204 1 625 -- -- 626
Purchase of redeemable common stock................ -- -- 36 (260) (224)
Net income......................................... -- -- -- -- (3,691) (3,691)
---------- ----- ----------- --------- ----------- -------------
Balance, September 25, 1997 (unaudited)............ 5,773,518 $ 170 $ 50,798 $ (45,488) $ 617 $ 6,097
---------- ----- ----------- --------- ----------- -------------
---------- ----- ----------- --------- ----------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-108
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
JULY 1, 1997 JULY 1, 1996
THROUGH THROUGH
SEPTEMBER 25, 1997 SEPTEMBER 26, 1996
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................ $ (3,691) $ (820)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization......................................... 1,320 299
Deferred income taxes................................................. (2,619) (406)
Changes in operating assets and liabilities, net of effect of acquired
businesses:
Decrease in accounts receivable..................................... 11,306 5,319
(Increase) in inventories........................................... (8,137) (2,072)
Decrease (increase) in prepaid expenses and other current assets.... 341 (141)
(Increase) in tree inventories...................................... (120) (188)
(Increase) in other long-term assets................................ (320) --
Increase in accounts payable........................................ 3,429 10
(Decrease) in accrued liabilities................................... (510) (2,290)
Increase in other liabilities....................................... 1,044 1,136
-------- -------
Net cash provided by operating activities......................... 2,043 847

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in business acquisitions, less cash acquired.................. (40,539) --
Purchase of fixed assets................................................ (3,030) (1,263)
Proceeds from sale of fixed assets...................................... -- 79
-------- -------
Net cash used in investing activities............................. (43,569) (1,184)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft.......................................................... (1,798) --
Issuance of common stock................................................ 5,111 100
Purchase of treasury stock.............................................. (260) --
Financing and organizational costs...................................... (472) (75)
Dividend paid........................................................... (24) --
Proceeds from borrowings................................................ 36,829 72
Net borrowings under revolving line of credit........................... 1,241 832
Repayments of long-term debt............................................ (182) (372)
-------- -------
Net cash provided by financing activities......................... 40,445 557

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... (1,081) 220

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 2,762 701
-------- -------

CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 1,681 $ 921
-------- -------
-------- -------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.............................................................. $ 442 $ 93
-------- -------
-------- -------
Income taxes.......................................................... $ -- $ --
-------- -------
-------- -------

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for acquisitions........................................... $ 625 $ --
-------- -------
-------- -------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-109
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements and related notes for the fiscal year ended June 30, 1997.
Any capitalized terms used but not defined in these Condensed Notes to
Consolidated Financial Statements have the same meaning given to them in the
June 30, 1997 financial statements referred to above. All references to the
"Company" include Color Spot Nurseries, Inc. and subsidiaries unless otherwise
noted or the context indicates otherwise. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year-end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

The consolidated financial statements as of September 25, 1997, the period
from July 1, 1997 to September 25, 1997 and the period from July 1, 1996 to
September 26, 1996 included herein are unaudited. However, they include all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated financial position of the
Company as of September 25, 1997, the consolidated results of operations for the
period from July 1, 1997 to September 25, 1997 and for the period from July 1,
1996 to September 26, 1996, the consolidated statement of changes in
stockholders' equity from July 1, 1997 to September 25, 1997 and the
consolidated cash flows for the period from July 1, 1997 to September 25, 1997
and for the period from July 1, 1996 to September 26, 1996.

These financial statements have been prepared assuming the merger of CSN,
Inc. into Color Spot Nurseries, Inc. and a reverse 0.69-for-one reverse stock
split, which will occur simultaneously with the consummation of the Company's
senior subordinated note, Series A Preferred Stock and warrant offerings.

2. INVENTORIES

Inventories at September 25, 1997 and June 30, 1997, consisted of the
following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
1997
SEPTEMBER 25, ---------
1997
-------------
(UNAUDITED)
<S> <C> <C>
Current:
Outdoor flowers and vegetable plants.............................. $ 39,049 $ 24,385
Raw materials and supplies........................................ 5,749 3,374
Tree inventories.................................................. 1,700 1,095
------------- ---------
Total current inventories....................................... 46,498 28,854
Noncurrent:
Tree inventories.................................................. 661 541
------------- ---------
Total inventories............................................... $ 47,159 $ 29,395
------------- ---------
------------- ---------
</TABLE>

F-110
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of September 25, 1997 and June 30, 1997,
consisted of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
1997
SEPTEMBER 25, ---------
1997
-------------
(UNAUDITED)
<S> <C> <C>
Land................................................................ $ 9,177 $ 8,621
Greenhouses and growing structures.................................. 13,954 8,091
Building............................................................ 2,105 938
Furniture and fixtures.............................................. 3,212 2,108
Machinery and equipment............................................. 16,433 10,929
Leasehold improvements.............................................. 3,392 2,587
Assets under capital leases......................................... 1,108 752
Construction in progress............................................ 2,077 550
------------- ---------
51,503 34,576
Less: Accumulated depreciation...................................... (3,668) (2,802)
------------- ---------
Total property, plant and equipment............................... $ 47,835 $ 31,774
------------- ---------
------------- ---------
</TABLE>

4. INTANGIBLE ASSETS

Intangible assets as of September 25, 1997 and June 30, 1997, consisted of
the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
1997
SEPTEMBER 25, ---------
1997
-------------
(UNAUDITED)
<S> <C> <C>
Goodwill............................................................ $ 51,063 $ 23,971
Organization costs.................................................. 3,374 1,670
Financing costs..................................................... 5,057 4,352
Noncomplete agreements.............................................. 1,731 1,731
Other............................................................... 911 856
------------- ---------
62,136 32,580
Less: Accumulated amortization...................................... (1,735) (1,197)
------------- ---------
Total intangible assets........................................... $ 60,401 $ 31,383
------------- ---------
------------- ---------
</TABLE>

F-111
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACQUISITIONS

Between July 1, 1997 and September 25, 1997 the Company effected the
following acquisitions:

<TABLE>
<CAPTION>
ENTITY DATE OF ACQUISITION
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Plants, Inc............................................................ July 31, 1997
Peters Wholesale Greenhouses, Inc...................................... July 31, 1997
Wolfe Greenhouses, LLC................................................. July 31, 1997
Cracon, Inc............................................................ August 5, 1997
Summersun Greenhouse Co................................................ August 11, 1997
Oda Nursery, Inc....................................................... September 3, 1997
</TABLE>

The purchase price, certain costs related to the acquisitions and the
allocation of the purchase price to the underlying net assets acquired in these
acquisitions were as follows (in thousands):
<TABLE>
<CAPTION>
PETERS
WHOLESALE WOLFE SUMMERSUN
PLANTS, GREENHOUSES, GREENHOUSES GREENHOUSE
INC. INC. LLC CRACON, INC. COMPANY
--------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Purchase price....................................... $ 4,088 $ 5,698 $ 6,161 $ 1,954 $ 7,546
Organization and financing costs..................... 223 394 413 91 286
--------- ------------- ------ ------ -----------
Total purchase price............................. 4,311 6,092 6,574 2,045 7,832

Less: Value assigned to assets and liabilities
Current assets..................................... 994 1,434 1,355 -- 1,693
Long-term assets................................... 3,623 3,226 4,242 276 1,520
Current liabilities................................ (1,390) (1,155) (644) (240) (1,035)
Debt............................................... (307) -- -- -- --
Long-term liabilities.............................. -- (1,241) -- -- --
--------- ------------- ------ ------ -----------
2,920 2,264 4,953 36 2,178
--------- ------------- ------ ------ -----------
Goodwill......................................... $ 1,391 $ 3,828 $ 1,621 $ 2,009 $ 5,654
--------- ------------- ------ ------ -----------
--------- ------------- ------ ------ -----------

ODA
NURSERIES TOTAL
----------- ---------
<S> <C> <C>
Purchase price....................................... $ 16,052 $ 41,499
Organization and financing costs..................... 479 1,886
----------- ---------
Total purchase price............................. 16,531 43,385
Less: Value assigned to assets and liabilities
Current assets..................................... 7,339 12,815
Long-term assets................................... 3,566 16,453
Current liabilities................................ (2,875) (7,339)
Debt............................................... -- (307)
Long-term liabilities.............................. (3,480) (4,721)
----------- ---------
4,550 16,901
----------- ---------
Goodwill......................................... $ 11,981 $ 26,484
----------- ---------
----------- ---------
</TABLE>

The Company accounted for all of these acquisitions using the purchase
method of accounting. The allocation of the purchase price to the underlying net
assets acquired is based upon preliminary estimates of the fair value of the net
assets, which may be revised at a later date. It is anticipated that any
purchase price allocation adjustments will be made within one year from the date
of acquisition. Management does not believe that the final allocations of the
purchase prices will have a material effect on the Company's financial position
or results of operations. In connection with certain acquisitions, the Company
issued 39,204 shares of common stock which were valued at $15.94 per share.

Results of operations of the acquired entities subsequent to the purchase
date are included in the consolidated financial statements. Pro forma operating
results of the Company, assuming the above

F-112
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACQUISITIONS (CONTINUED)
acquisitions, including those acquisitions consummated prior to June 30, 1997
occurred on July 1, 1997 and July 1, 1996 are presented below (in thousands,
except earnings per share).

<TABLE>
<CAPTION>
JULY 1, 1996
THROUGH SEPTEMBER
26, 1996
JULY 1, 1997 ------------------
THROUGH SEPTEMBER
25, 1997 (UNAUDITED)
------------------
(UNAUDITED)
<S> <C> <C>
Net sales............................................. $ 27,345 $ 25,292
Net loss.............................................. (4,338) (3,166)
Net loss per share.................................... (0.67) (0.35)
Shares used in calculation............................ 6,444,565 9,036,233
</TABLE>

6. DEBT

Debt as of September 25, 1997 and June 30, 1997, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
JUNE 30,
1997
SEPTEMBER 25, ---------
1997
-------------
(UNAUDITED)
<S> <C> <C>
Revolving line of credit............................................ $ 13,346 $ 12,105
Term loans.......................................................... 88,750 58,730
Acquisition loan.................................................... 15,000 8,227
Convertible note and interest accrual............................... 7,384 7,384
Non-compete agreements.............................................. 1,362 1,395
Other............................................................... 3,403 2,247
------------- ---------
Total debt.......................................................... 129,245 90,108

Less: Current maturities............................................ (17,910) (6,700)
------------- ---------
Long-term portion................................................... $ 111,335 $ 83,408
------------- ---------
------------- ---------
</TABLE>

During the period from July 1, 1997 through September 25, 1997, the Company
increased its term loans and acquisition loan by $30,000,000 and $6,773,000,
respectively to fund acquisitions. Additionally, the Company issued a long-term
note in the amount of $1,000,000 in conjunction with the Oda Nursery, Inc.
acquisition.

7. EARNINGS PER SHARE

Primary loss per share is computed by dividing net income by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares consist of stock options granted.
Fully diluted loss per share reflects the maximum dilution that would have
resulted from the exercise of stock options.

Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued at prices below the fair
value of the Company's common stock at the time of the Offerings have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method and the estimated fair value of the
Company's Common Stock at the time of the Offerings) and disclosed on the
consolidated statements of operations.

F-113
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. EARNINGS PER SHARE (CONTINUED)
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaces primary
loss per share with basic loss per share. Basic loss per share excludes the
effect of any potentially dilutive common equivalent shares. Fully diluted loss
per share, now called diluted loss per share, is still required.

Historical, SFAS 128 pro forma and supplemental pro forma loss per share is
as follows (unaudited):

<TABLE>
<CAPTION>
JULY 1, 1997 JULY 1, 1996
THROUGH SEPTEMBER THROUGH SEPTEMBER
25, 1997 26, 1996
------------------ ------------------
<S> <C> <C>
Historical loss per share................................................. $ (0.57) $ (0.12)
Shares used in per share calculation.................................... 6,429,605 6,972,656
SFAS 128 pro forma loss per share:
Basic................................................................... $ (0.57) $ (0.12)
Diluted................................................................. (0.57) (0.12)
Shares used in per share calculation:
Basic................................................................. 6,429,605 6,972,656
Diluted............................................................... 6,429,605 6,972,656
Supplemental pro forma loss per share..................................... $ (0.93)
Shares used in per share calculation.................................... 6,405,218
</TABLE>

There was no difference between primary loss per share and fully diluted
loss per share for the periods from July 1, 1997 through September 25, 1997 or
the period from July 1, 1996 through September 26, 1996.

Supplemental earnings per share have been presented to show the effect of
the Company's proposed Offerings as if the Offerings and the issuances and sales
of stock occurring from July 1, 1997 through September 25, 1997, occurred on
July 1, 1997. The impact of these transactions is to increase the number of
shares outstanding by 24,387 on a historical, fully diluted basis, to increase
interest expense by $73,000, to include dividends to holders of Series A
Preferred Stock of $1,300,000 and accretion of Series A Preferred Stock and
Common Stock to liquidation values of $250,000. As a result, net loss to holders
of Common Stock would have been $5,928,000.

F-114
<PAGE>
ODA NURSERY, INC.

BALANCE SHEET--JUNE 30, 1997

(UNAUDITED)

<TABLE>
<CAPTION>
1997
-------------
<S> <C>
ASSETS

CURRENT ASSETS:
Cash............................................................................................. $ 3,207,719
Receivables (less allowance for doubtful accounts of $150,000)................................... 1,720,443
Inventories...................................................................................... 5,457,455
Prepaid expenses................................................................................. 2,448
Investment in stock.............................................................................. 41,397
Notes receivable from stockholders............................................................... 1,200,273
-------------
Total current assets........................................................................... 11,629,735
PROPERTY, PLANT AND EQUIPMENT, net................................................................. 582,918
NET ASSETS HELD FOR DISTRIBUTION................................................................... 1,976,588
-------------
Total assets................................................................................... $ 14,189,241
-------------
-------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities......................................................... $ 44,440
Long-term debt, net of current maturities........................................................ 160,397
Loan from stockholder............................................................................ 1,200,000
-------------
Total current liabilities...................................................................... 1,404,837
LONG-TERM DEBT, net of current maturities.......................................................... 723,459
-------------
Total liabilities.............................................................................. 2,128,296
-------------
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 5,000 shares authorized, 2,000 shares issued and outstanding....... 200,000
Retained Earnings................................................................................ 11,860,945
-------------
Total stockholders' equity..................................................................... 12,060,945
-------------
Total liabilities and stockholders' equity..................................................... $ 14,189,241
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-115
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
SALES................................................................................ $ 10,581,692 $ 9,485,889
COST OF SALES........................................................................ 4,953,039 5,287,126
------------- ------------
Gross profit..................................................................... 5,628,653 4,198,763

OPERATING EXPENSES:
Delivery........................................................................... 1,565,332 1,102,622
Sales and marketing................................................................ 668,430 886,466
General and administrative......................................................... 149,665 92,699
Depreciation....................................................................... 49,875 48,450
Other expenses..................................................................... 77,048 109,014
------------- ------------
Income from operations........................................................... 3,118,303 1,959,512

INTEREST EXPENSE..................................................................... 129,200 170,178

OTHER INCOME (EXPENSES), net......................................................... (9,208) 206,104
------------- ------------
Net income....................................................................... $ 2,979,895 $ 1,995,438
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-116
<PAGE>
ODA NURSERY, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES AND OTHER NONRECURRING EXPENSES:
Net income........................................................................ $ 2,979,895 $ 1,995,438
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of property, plant and equipment................................... (4,490) --
Depreciation.................................................................... 87,500 85,000
Changes in certain assets and liabilities:
Increase in receivables....................................................... (1,556,164) (1,479,520)
Decrease in inventories....................................................... 3,227,092 3,151,273
Decrease in prepaid expenses.................................................. 34,989 10,415
(Increase) decrease in notes receivable from stockholder...................... (750,273) 223,172
Decrease in accounts payable and accrued expenses............................. (69,184) (249,900)
------------- -------------
Net cash provided by operating activities................................... 3,949,365 3,735,878
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................................... -- (13,205)
------------- -------------
Net cash used in investing activities....................................... -- (13,205)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit...................................................... -- --
Payments on line of credit........................................................ (750,100) (405,350)
Proceeds from issuance of long-term obligations................................... -- --
Principal payments on long-term obligations....................................... (57,143) (1,249,476)
Principal payments on loan from stockholder....................................... (200,000) --
Distributions to stockholders..................................................... -- (2,200,000)
------------- -------------
Net cash used in financing activities....................................... (1,007,243) (3,854,826)
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 2,942,122 (132,153)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................... 265,597 933,061
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................ $ 3,207,719 $ 800,908
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-117
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997

(UNAUDITED)

The financial statements presented herein include the accounts of Oda
Nursery, Inc. (the Company) and have been prepared by the Company, without
audit. The Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
results of operations, financial position and cash flows. The financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual financial statements for the year
ended December 31, 1996.

1. NATURE OF OPERATIONS:

ORGANIZATION

Oda Nursery, Inc., a California corporation (the Company), was formed on
December 10, 1973, by Harunori Oda, Mitsuka Oda and Richard Tanaka. The Company
was formed to acquire, own, operate and manage a nursery business, as well as to
acquire, own, sell, mortgage or lease real and personal property.

DESCRIPTION OF THE BUSINESS

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principals:

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 reported amounts of assets and liabilities (and
disclosure of contingent assets and liabilities) at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVENTORIES

F-118
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method as follows:

Total depreciation expense for the six months ended June 30, 1997 and 1996
was approximately $175,000 and $170,000, respectively. All repairs and
maintenance costs are expensed as incurred.

INCOME TAXES

The Company elected in 1973, under Federal and state tax laws, to be treated
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, income taxes are the obligation of the individual stockholder,
except that the Company is taxed on income for state tax purposes at reduced
rates. The provision for income taxes was $60,000 and $33,000 for the six month
periods ending June 30, 1996 and 1995, respectively, and was recorded in other
expenses. If the Company had been taxed as a C Corporation, the income tax
provision and net income would have been $1,215,958 and $1,823,937 in 1997 and
$811,375 and $1,217,062 in 1996, assuming an effective tax rate of 40%.

REVENUE RECOGNITION

The Company recognizes revenues when products are shipped. Where
appropriate, the Company establishes a reserve for returns and allowances.

3. INVESTMENT IN STOCK:

As further discussed in Note 6 the Company is required under the terms of
its credit agreement to maintain an investment in stock of the bank amounting to
6.83 percent of its outstanding indebtedness.

F-119
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

4. LONG-TERM DEBT

Long-term debt at June 30, 1997 and 1996, consisted of the following:

<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Note payable to bank, with monthly principal and interest payments of $13,084,
interest at the bank's reference rate (9.25 percent as of June 30, 1997);
secured by substantially all of the Company's assets; unpaid principal and
interest due on May 1, 2002.................................................... 611,977

Mortgage payable to seller, with monthly principal and interest payments of
$2,400, interest at 6.5 percent as of June 30, 1997; secured by land; unpaid
principal and interest due July 13, 2006....................................... 197,842

Stock obligation to bank, with monthly interest payments made at stated rate of
9.75 percent at June 30, 1997; unpaid interest due May 1, 2002................. 90,140

Note Payable under Small Business Loan, with monthly principle and interest
payments of $1,960; principal and interest paid February 27, 1997.............. 32,833
-----------

Less: Current maturities......................................................... (209,333)
-----------

$ 723,459
-----------
-----------
</TABLE>

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, incurrence of additional
indebtedness and maintenance of specified amounts of tangible net worth and
working capital. In addition, the bank requires the Company maintain 6.38
percent of outstanding borrowings as an investment in the bank's stock. The
Company incurs monthly interest on the outstanding stock balance, but will not
repay the stock obligation, nor recover the stock investment balance. Both the
stock obligation and the investment in stock are reduced as the Company makes
principle payments on its other obligations to the bank.

5. STOCKHOLDERS' NOTES:

The following table summarizes the Company's notes with stockholders
presented in the balance sheet as of June 30, 1997:

<TABLE>
<CAPTION>
1997
------------
<S> <C>
Note receivable from stockholder................................................ $ 450,000
Loan from stockholder........................................................... 1,200,000
</TABLE>

The Company received cash from one of its stockholders in 1993. This loan is
due at the notice of the stockholder and is therefore considered short-term in
nature. $200,000 was repaid during the six month period from December 31, 1996
to June 30, 1997. Interest is payable monthly, at an annual rate of 8 percent.
Interest paid related to this loan was $54,500 for the six month period ended
June 30, 1997.

F-120
<PAGE>
ODA NURSERY, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

5. STOCKHOLDERS' NOTES: (CONTINUED)
The Company issued notes receivable to a stockholder and one of his related
entities under common ownership in 1997 and 1996 of $675,000 and $450,000,
respectively. The note issued in 1992 was repaid during 1996. The note for
$450,000 was repaid in 1997. The note accrues interest at 10 percent.

6. SUBSEQUENT EVENT AND NET ASSETS HELD FOR DISTRIBUTION:

In September 1997, the Company's stockholders sold the Company to Color Spot
Nurseries, Inc. The land held by the Company was not part of the sale
transaction. It is the Company's intention to distribute this land to the
stockholders in connection with the sale. This land was written down during the
year ended December 31, 1996 by $770,412 based on independent appraisals.

F-121
<PAGE>
CRACON, INC.

BALANCE SHEET

JUNE 30, 1997

(UNAUDITED)

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 212,862
Accounts receivable:
Trade, net of allowances of
$50,000........................... 55,182
Related party....................... 126,319
Prepaid expenses...................... 2,145
------------
Total current assets.............. 396,508
NOTES RECEIVABLE:
Related............................... 200,000
Other................................. 40,000
TREE INVENTORIES........................ 1,521,065
PROPERTY AND EQUIPMENT, net............. 262,426
------------
Total assets...................... $ 2,420,499
------------
------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable:
Other............................... $ 915,265
Related parties..................... 390,000
Accounts payable...................... 76,988
Accrued interest payable.............. 30,570
Other accrued liabilities............. 2,980
Current portion of long-term debt..... 9,811
------------
Total current liabilities......... 1,425,614
LONG-TERM DEBT, net of current
portion............................... 33,262
------------
Total liabilities................. 1,458,876
------------
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 50 shares
authorized, issued and
outstanding......................... 500
Retained earnings..................... 961,123
------------
Total stockholders' equity........ 961,623
------------
Total liabilities and
stockholders' equity............ $ 2,420,499
------------
------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-122
<PAGE>
CRACON, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
NET SALES.............................................................................. $ -- $ --
COST OF SALES.......................................................................... -- --
------------ -----------
Gross profit......................................................................... -- --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................................... 165,992 156,962
------------ -----------
Loss from operations................................................................. (165,992) (156,962)
INTEREST EXPENSE, net.................................................................. 62,237 85,600
------------ -----------
Net loss............................................................................. (228,229) (242,562)
RETAINED EARNINGS, BEGINNING........................................................... 1,231,352 993,020
Distributions.......................................................................... (42,000) (49,000)
------------ -----------
Retained Earnings, Ending............................................................ $ 961,123 $ 701,458
------------ -----------
------------ -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-123
<PAGE>
CRACON, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................... $ (228,229) $ (242,562)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 9,810 8,239
Changes in certain assets and liabilities:
Decrease in receivables........................................................ 2,597,643 2,548,217
Increase in tree inventories................................................... (149,839) (129,392)
Decrease in other assets....................................................... -- 20,000
Decrease in trade payables..................................................... (1,102,832) (1,681,493)
Decrease in other accrued liabilities.......................................... (63,226) (18,637)
Decrease in accrued interest................................................... (60,342) (38,990)
------------ -------------
Net cash provided by operating activities.................................... 1,231,214 707,944
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................................................... (10,375) (954)
Increase in notes receivable....................................................... (240,000) (187,099)
------------ -------------
Net cash used in investing activities........................................ (250,375) (188,053)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable........................................................ (504,811) (435,000)
Proceeds from issuance of notes payable............................................ -- 283,980
Dividends paid..................................................................... (42,000) (49,000)
Repayment of other long-term debt.................................................. (6,930) (38,152)
------------ -------------
Net cash used in financing activities........................................ (553,741) (238,172)
------------ -------------
Net increase in cash......................................................... 198,869 39,157
CASH AT BEGINNING OF YEAR............................................................ 13,993 9,295
------------ -------------
CASH AT END OF YEAR.................................................................. $ 212,862 $ 48,452
------------ -------------
------------ -------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............................................. $ 128,855 $ 127,422
------------ -------------
------------ -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-124
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997

(UNAUDITED)

The financial statements presented herein include the accounts of Cracon,
Inc. (the "Company") and have been prepared by the Company, without audit. The
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the Company's results of operations,
financial statements and the notes thereto included in the Company's annual
financial statements for the year ended December 31, 1996.

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers cash held in banks and deposits with maturities of
three months or less to be cash and cash equivalents. All overdraft balances
have been reclassified to current liabilities.

INVENTORIES

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost and are depreciated over their
estimated useful lives using accelerated methods as follows:

<TABLE>
<S> <C>
Machinery and equipment......................................... 7 years
Vehicles........................................................ 5 years
Leasehold improvements.......................................... lease term
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

F-125
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION

Revenues are recognized when products are shipped and all significant
obligations of the Company have been completed, which occurs in the months of
November and December.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code of 1986, as amended, by consent of its stockholders.
Therefore, the Company generally does not pay federal income taxes on its
income. Instead, the stockholders are liable for individual federal income taxes
on their respective share of the Company's taxable income. If the Company had
been taxed as a C Corporation, the income tax benefit and net loss would have
been $91,292 and $136,937 in 1997 and $97,025 and $145,537 in 1996, assuming an
effective tax rate of 40%.

ASSET IMPAIRMENT

2. NOTES RECEIVABLE

RELATED PARTIES

In 1997, the Company extended a note receivable of $200,000 to an entity
under common ownership. The note bears an interest rate of 9 percent.

THIRD PARTY

In 1997, the Company extended a note receivable of $40,000 to a third party.
The note bears an interest rate of 9 percent.

The Company has earned $6,674 of interest income in 1997.

F-126
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at June 30, 1997:

<TABLE>
<S> <C>
Land.............................................................. $ 209,279
Machinery and equipment........................................... 74,757
Vehicles.......................................................... 30,028
Leasehold improvements............................................ 26,350
---------
Total property and equipment.................................. 340,414
Less: Accumulated depreciation.................................... (77,488)
---------
Property and equipment, net....................................... $ 262,926
---------
---------
</TABLE>

4. NOTES PAYABLE:

Notes payable are due at various dates through December 31, 1997. Interest
is payable annually and quarterly at various rates. At June 30, 1997, the
weighted average interest rate was 10.7 percent.

Certain of the note holders are employees or relatives of the current
shareholders of the Company. Amounts due to these note holders have been
classified as notes payable--related parties in the accompanying balance sheet.
During 1997, the Company incurred $31,969 in interest on these related party
notes payable.

5. LONG-TERM DEBT:

Long-term debt as of June 30, 1997 consists of the following:

<TABLE>
<S> <C>
Mortgage notes payable to individuals; annual principal payments
of $4,633 through February 2003; interest payable annually at
9.5 percent; secured by the underlying property................. $ 27,801
Mortgage note payable to a bank; monthly principal and interest
payments of $591 through November 1999; interest at 9.5 percent;
secured by the underlying property.............................. 15,272
---------
43,073
Less: Current portion............................................. (9,811)
---------
$ 33,262
---------
---------
</TABLE>

6. COMMITMENTS AND CONTINGENT LIABILITIES:

F-127
<PAGE>
CRACON, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

7. RELATED PARTY TRANSACTIONS:

In the normal course of business, the Company sells Christmas trees to an
entity under common ownership. Accounts receivable related to these sales
totaled $97,048 at June 30, 1997.

In 1996, the Company repaid a loan on behalf of an entity under common
control. The advance of $29,271 has been included in accounts
receivable--related parties.

8. SUBSEQUENT EVENTS:

In August 1997, substantially all of the Company's assets were purchased by
Color Spot Christmas Trees, Inc., a wholly owned subsidiary of Color Spot
Nurseries, Inc. for cash and stock.

F-128
<PAGE>
WOLFE GREENHOUSES, L.L.C.

BALANCE SHEET
JULY 11, 1997

(UNAUDITED)

<TABLE>
<S> <C>
ASSETS

Current assets:
Cash.................................. $ 970,672
Accounts receivable:
Trade, less allowance for doubtful
accounts of $26,581............... 424,148
Other............................... 3,445
Inventories........................... 1,004,696
Prepaid expenses...................... 36,640
------------
Total current assets............ 2,439,601
------------
Investment in joint venture............. 1,501
------------
Property, plant and equipment........... 2,029,114
Less accumulated depreciation......... 187,851
------------
Net property and equipment...... 1,841,263
------------
$ 4,282,365
------------
------------

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:
Current installments of long-term
debt................................ $ 106,564
Trade accounts payable................ 546,389
Accrued expenses...................... 134,253
Deferred income taxes................. 62,669
------------
Total current liabilities....... 849,875
------------
Long-term debt, excluding current
installments.......................... 1,468,385
------------
Members' equity......................... 1,964,105
------------
$ 4,282,365
------------
------------
</TABLE>

See accompanying selected notes to financial statements.

F-129
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY

SEVEN FOUR-WEEK REPORTING PERIODS ENDED

JULY 11, 1997 AND JULY 12, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales......................................... $ 5,199,437 $ 4,907,175
Cost of sales..................................... 3,390,857 3,320,075
------------ ------------
Gross profit.................................. 1,808,580 1,587,100
Selling, general and administrative expenses...... 771,037 754,090
------------ ------------
1,037,543 833,010
------------ ------------
Other income (expense):
Interest expense................................ (96,683) (109,019)
Equity in income (loss) of joint venture........ 323,454 (4,903)
Gain on warranty settlement..................... -- 143,624
Other, net...................................... 35,863 4,611
------------ ------------
262,634 34,313
------------ ------------
Income before income taxes.................... 1,300,177 867,323
Income taxes...................................... 5,600 27,100
------------ ------------
Net income.................................... 1,294,577 840,223
Members' equity, beginning of period.............. 1,447,778 418,638
Members' contributions............................ -- 7,600
Members' withdrawals.............................. (778,250) (100,017)
------------ ------------
Members' equity, end of period.................... $ 1,964,105 $ 1,166,444
------------ ------------
------------ ------------
</TABLE>

See accompanying selected notes to financial statements.

F-130
<PAGE>
WOLFE GREENHOUSES, L.L.C.

STATEMENTS OF CASH FLOWS

SEVEN FOUR-WEEK REPORTING PERIODS ENDED

JULY 11, 1997 AND JULY 12, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 1,294,577 $ 840,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation....................................................................... 74,078 63,602
Deferred income taxes.............................................................. 5,600 27,100
Equity in loss (income) of joint venture........................................... (323,454) 4,903
Gain on warranty settlement........................................................ -- (143,624)
Decrease (increase) in assets:
Accounts receivable.............................................................. 557,555 448,841
Inventories...................................................................... 200,062 378,127
Prepaid expenses................................................................. (17,904) (10,523)
Other assets..................................................................... -- 12,488
Increase (decrease) in liabilities:
Trade accounts payable........................................................... (737,109) (914,870)
Accrued expenses................................................................. (106,694) 72,430
------------ -----------
Net cash provided by operating activities...................................... 946,801 778,697
------------ -----------
Cash flows from investing activities:
Distributions from (contributions to) joint venture.................................. 347,779 (17,875)
Proceeds from repayment of other receivables......................................... 126,801 7,522
Proceeds from warranty settlement.................................................... -- 309,897
Capital expenditures................................................................. (381,730) --
------------ -----------
Net cash provided by (used for) investing activities........................... 92,850 299,544
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt................................................. (81,693) (57,803)
Repayment of cash overdraft.......................................................... -- (43,666)
Members' contributions............................................................... -- 7,600
Members' withdrawals................................................................. (778,250) (100,017)
------------ -----------
Net cash used for financing activities......................................... (859,943) (193,886)
------------ -----------
Net increase in cash................................................................... 179,708 884,355
Cash at beginning of period............................................................ 790,964 --
------------ -----------
Cash at end of period.................................................................. $ 970,672 $ 884,355
------------ -----------
------------ -----------
</TABLE>

See accompanying selected notes to financial statements.

F-131
<PAGE>
WOLFE GREENHOUSES, L.L.C.

SELECTED NOTES TO FINANCIAL STATEMENTS

JULY 11, 1997

(UNAUDITED)

The financial statements presented herein include the accounts of Wolfe
Greenhouses, L.L.C. (the Company) and have been prepared by the Company, without
audit. The Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position, results of operations and cash flows. The financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual financial statements for the year
ended December 27, 1996.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) ORGANIZATION AND NATURE OF BUSINESS

Wolfe Greenhouses, L.L.C., organized as a limited liability company, is an
association formed in accordance with the laws of the State of Texas. Under the
terms of its current articles of incorporation, the Company will cease to exist
on July 1, 2025. The Company operates a wholesale greenhouse facility located in
Waco, Texas whose principal customers are grocery chain stores located in Texas.

(b) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by
first-in, first-out method.

Investment in joint venture is accounted for by the equity method.

(d) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets.

(e) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

(2) INVENTORIES

Inventories at July 11, 1997, consisted of the following:

<TABLE>
<S> <C>
Growing crops........................... $ 689,800
Supplies................................ 288,469
Landscape plants and supplies........... 26,427
------------
$ 1,004,696
------------
------------
</TABLE>

F-132
<PAGE>
WOLFE GREENHOUSES, L.L.C.

SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 11, 1997

(UNAUDITED)

(3) INVESTMENT IN JOINT VENTURE

Investment in joint venture consists of a fifty percent interest in a joint
venture. During 1997, the joint venture settled certain contingent assets and
liabilities, and sold certain real estate. The Company realized approximately
$333,900 of income in 1997 related to these transactions of the joint venture.

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at July 11, 1997 consisted of the following:

<TABLE>
<CAPTION>
ESTIMATED
AMOUNT USEFUL LIVES
------------ -------------
<S> <C> <C>
Land......................................................... $ 77,066 --
Buildings and improvements................................... 1,259,863 3 - 25 years
Equipment.................................................... 300,815 5 - 20 years
Construction in progress..................................... 391,370 --
------------
$ 2,029,114
------------
------------
</TABLE>

(5) DEBT

Long-term debt at July 11, 1997 consists of the following:

<TABLE>
<S> <C>
Mortgage note payable to a financial institution with
interest at 2% above the base rate, secured by property
and buildings, payable in monthly principal and interest
payments of $22,878 through December 2006................. $ 1,574,949
Less current installments................................... 106,564
------------
$ 1,468,385
------------
------------
</TABLE>

The Company's debt agreements relating to the above notes contain
restrictive financial covenants.

(6) LEASES

The Company has several noncancelable operating leases for transportation
equipment that expire over the next six years. These leases require the Company
to pay certain executory costs, such as insurance, and purchase fuel from the
lessor.

F-133
<PAGE>
WOLFE GREENHOUSES, L.L.C.

SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 11, 1997

(UNAUDITED)

(7) INCOME TAXES

The Company is classified as a partnership for federal income tax purposes.
For federal tax purposes, partnership income is taxed directly to its members;
consequently, no provision is made in the accompanying financial statements for
federal income taxes. The income tax provision consist solely of state income
taxes. If the Company had been taxed as a C Corporation, the provision for
income taxes and net income would have been $520,071 and $780,107 in 1997 and
$346,929 and $520,394 in 1996, assuming an effective tax rate of 40%.

(8) BUSINESS CONCENTRATIONS

Approximately $2,954,000 and $3,021,000 of revenue representing 57% and 62%
of net sales were derived from four customers during the periods ended July 11,
1997 and July 12, 1996, respectively. The same four customers accounted for
$190,180 (or 42%) of trade accounts receivable at July 11, 1997.

(9) SUBSEQUENT EVENT

On July 31, 1997, 100% of the Members' interest in the Company was purchased
by Lone Star Growers, L.P. (a subsidiary of Color Spot Nurseries, Inc.).

F-134
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

BALANCE SHEET AS OF JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................. $ 252
Accounts receivable (less allowance for doubtful accounts of $25 as of June 30, 1997 and 1996)........ 901
Inventories........................................................................................... 966
Income taxes receivable and other assets.............................................................. --
-----------
Total current assets................................................................................ 2,119
PROPERTY AND EQUIPMENT, net........................................................................... 1,795
-----------
Total assets........................................................................................ $ 3,914
-----------
-----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Lines of credit....................................................................................... $ 265
Current maturities of long-term debt.................................................................. 9
Current maturities of stockholder loan................................................................ 106
Accounts payable...................................................................................... 406
Accrued expenses...................................................................................... 391
Deferred income taxes................................................................................. 319
-----------
Total current liabilities........................................................................... 1,496
LONG-TERM DEBT.......................................................................................... 125
DEFERRED INCOME TAXES................................................................................... 35
STOCKHOLDER LOAN........................................................................................ 470
-----------
Total liabilities................................................................................... 2,126
-----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 250,000 shares authorized and 10,000 shares issued and outstanding...... 1
Retained earnings..................................................................................... 1,787
-----------
Total stockholders' equity.......................................................................... 1,788
-----------
Total liabilities and stockholders' equity.......................................................... $ 3,914
-----------
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-135
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

(UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
NET SALES...................................................................................... $ 4,816 $ 3,075
COST OF SALES.................................................................................. 3,168 2,017
--------- ---------
Gross profit................................................................................. 1,648 1,058
OPERATING EXPENSES:
Selling, general and administrative.......................................................... 783 591
--------- ---------
Income from operations....................................................................... 865 467
INTEREST EXPENSE, net.......................................................................... (73) (33)
OTHER INCOME................................................................................... 71 60
--------- ---------
Income before income taxes................................................................... 863 494
PROVISION FOR INCOME TAXES..................................................................... (337) (190)
--------- ---------
Net income................................................................................... $ 526 $ 304
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-136
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................................... $ 526 $ 304
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation................................................................................. 157 53
Gain on sale of fixed assets................................................................. (10) --
(Increase) decrease in accounts receivable................................................... (327) 437
Decrease in inventories...................................................................... 76 10
Decrease in income taxes receivable and other assets......................................... 77 10
Decrease in accounts payable................................................................. (403) (633)
Increase in accrued expenses................................................................. 270 7
Increase in deferred income taxes............................................................ 4 26
--------- ---------
Net cash provided by operating activities.................................................. 370 214
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................................ (310) (273)
Proceeds from sale of fixed assets............................................................. 10 1
--------- ---------
Net cash used in investing activities (300) (272)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................................................................... 154 724
Repayments of long-term debt................................................................... (178) (316)
Net borrowing under revolving lines of credit.................................................. (85) (95)
--------- ---------
Net cash used in (provided by) financing activities........................................ (109) 313
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................................ (39) 255
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................................... 291 117
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF SIX MONTHS................................................... $ 252 $ 372
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest..................................................................................... $ 102 $ 25
--------- ---------
--------- ---------
Income taxes................................................................................. $ 3 $ 115
--------- ---------
--------- ---------
During the six months ended June 30, 1996, the Company exchanged property and equipment and a
related note payable with book values of $207 and $157, respectively, to the Stockholders.
In return, the Company received property and equipment and a related note payable of $144
and $94, respectively.
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-137
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

1. NATURE OF OPERATIONS AND DESCRIPTION OF BUSINESS:

The financial statements presented herein include the accounts of Peters'
Wholesale Greenhouses, Inc. (the Company). The Company is located in Walnut
Springs, Texas, and is a producer of bedding plants. The Company sells primarily
to general merchandise stores and retail garden stores in Central and East
Texas. The Company's sole stockholders are Tom and Ramona Peters (the
Stockholders).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Company in preparing its financial statements in accordance with generally
accepted accounting principles.

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 reported amounts of assets and liabilities (and
disclosure of contingent assets and liabilities) at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories consist primarily of plant inventory and are stated at the lower
of cost or market. Cost is determined using the average cost method and include
direct production costs and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over the estimated
useful lives on an accelerated basis as follows:

<TABLE>
<S> <C>
Buildings and improvements........................ 5 to 30 years
Fixtures and equipment............................ 3 to 7 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

F-138
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable, accounts
payable and notes payable, the Company's carrying amount approximates fair
value.

ASSET IMPAIRMENT

3. CONCENTRATIONS OF RISK:

The Company does not perform credit evaluations of its customers' financial
condition and generally does not require collateral, as the majority of its
customers are large, well-established customers. The Company maintains an
allowance for potential credit losses.

For the six months ended June 30, 1997 and 1996, five customers accounted
for approximately 99 percent and 96 percent of net sales, respectively. The
Company's two largest customers accounted for approximately 53 percent and 17
percent and 68 percent and 12 percent of net sales, respectively.

The Company purchases inventory and greenhouse building materials from
primarily two vendors. Purchases from these two vendors represent 82 percent and
90 percent of the accounts payable balance at June 30, 1997 and 1996,
respectively; 54 percent and 8 percent from B.W.I.--Schulenburg and 28 percent
and 82 percent from Ball Seed, respectively. Management believes alternative
suppliers could be obtained, if needed.

4. PROPERTY AND EQUIPMENT:

Property and equipment at June 30, 1997 and 1996, consist of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land..................................................................... $ 196 $ 196
Buildings and improvements............................................... 2,318 1,762
Fixtures and equipment................................................... 874 522
--------- ---------
3,388 2,480
Less: Accumulated depreciation........................................... (1,593) (1,368)
--------- ---------
Net property and equipment............................................. $ 1,795 $ 1,112
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the six months ended June 30, 1997 and 1996, was
$157 and $53, respectively.

F-139
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

4. PROPERTY AND EQUIPMENT: (CONTINUED)
During the 6 months ended June 30, 1996, the Company exchanged certain
property held in the Company which was not used in the Company's bedding plant
business for certain assets of the Stockholders which were used in the Company's
bedding plant business.

5. ACCRUED EXPENSES:

Accrued expenses as of June 30, 1997 and 1996, consist of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Interest and finance charges.................................................. $ 10 $ 8
Payroll and payroll taxes..................................................... 55 5
Federal income taxes.......................................................... 277 103
State franchise taxes......................................................... 44 22
Other......................................................................... 5 4
--------- ---------
Total accrued expenses...................................................... $ 391 $ 142
--------- ---------
--------- ---------
</TABLE>

6. DEBT:

Lines of credit and long-term debt at June 30, 1997 and 1996, consist of the
following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revolving line of credit (1).................................................. $ 165 $ 100
Revolving line of credit (2).................................................. 100 --
Note payable (3).............................................................. 89 94
Note payable (4).............................................................. 10 --
Note payable (5).............................................................. 35 --
--------- ---------
$ 399 $ 194
--------- ---------
--------- ---------
</TABLE>

- ------------------------

(1) $350 revolving line of credit with a financial institution under which $165
and $100 was outstanding at June 30, 1997 and 1996, respectively. Advances
under the line of credit accrue interest at 8.5 percent and 9.25 percent per
annum, respectively. The line is secured by all accounts the Company holds
with the bank, inventory and accounts receivable. The line was refinanced on
June 1, 1997, and expires on May 31, 1998.

(2) $300 revolving line of credit with a financial institution under which $100
was outstanding at June 30, 1997. Advances under the line of credit accrue
interest at the prime rate plus 1 percent per annum (9.5 percent at June 30,
1997). The line is secured by all accounts the Company holds with the bank
and equipment. The line expires on November 20, 1997.

(3) Note payable was incurred in conjunction with the purchase of land. The note
accrues interest at a variable interest rate per annum (7.9 percent and 9.75
percent at June 30, 1997 and 1996, respectively)

F-140
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

6. DEBT: (CONTINUED)
with interest and an installment of principal due annually and any unpaid
principal due in entirety on April 1, 2016. The note is collateralized by
the acquired land.

(5) Note payable was incurred in conjunction with fixed asset improvements. The
note requires semiannual principal payments of $5 plus accrued interest
beginning July 15, 1997. Unpaid principal and interest are due July 15,
2000. Interest accrues at 8.25 percent per annum. This note is
collateralized by all accounts the Company holds with the bank, inventory
and accounts receivable.

The annual amounts of principal maturities of long-term debt outstanding at
June 30, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Less than one year............................................................ $ 274 $ 100
Greater than one year, less than two years.................................... 14 --
Greater than two years, less than three years................................. 12 --
Greater than three years, less than four years................................ 10 --
Greater than four years, less than five years................................. -- --
Thereafter.................................................................... 89 94
--------- ---------
$ 399 $ 194
--------- ---------
--------- ---------
</TABLE>

7. INCOME TAXES:

The provision for income taxes consists of:

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Current--
Federal..................................................................... $ 289 $ 142
State and local............................................................. 44 22
Deferred--
Federal..................................................................... 4 26
State and local............................................................. -- --
--------- ---------
Provision for income taxes.................................................... $ 337 $ 190
--------- ---------
--------- ---------
</TABLE>

F-141
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

7. INCOME TAXES: (CONTINUED)
A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate of 34 percent to
income before income taxes is as follows:

<TABLE>
<CAPTION>
JUNE 30
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Income before income taxes.................................................... $ 863 $ 494
--------- ---------
--------- ---------
Amount of federal income tax based upon the statutory rate.................... $ 293 $ 168
State and local income taxes.................................................. 44 22
--------- ---------
Provision for income taxes.................................................... $ 337 $ 190
--------- ---------
--------- ---------
</TABLE>

Deferred tax assets (liabilities) are composed of the following at June 30,
1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets--
Allowance for doubtful accounts............................................ $ 9 $ 9
--------- ---------
Total deferred tax assets................................................ 9 9
--------- ---------
Deferred tax liabilities--
Inventories................................................................ (328) (297)
Property and equipment..................................................... (35) (35)
--------- ---------
Total deferred tax liabilities........................................... (363) (332)
--------- ---------
Net deferred tax liability................................................... $ (354) $ (323)
--------- ---------
--------- ---------
</TABLE>

8. RELATED-PARTY TRANSACTIONS:

On May 7, 1996, the Company received a stockholder loan from the
Stockholders. The loan accrues interest at a rate of 8.0 percent per annum and
provides the Company with available credit of $1,500. The note requires payments
of $75 on January 7 and July 7 each year until all outstanding principal and
interest has been repaid. At June 30, 1997 and 1996, the outstanding balance on
the loan was $576 and $630, respectively.

The Company's corporate offices are owned by the Stockholders. Beginning
January 1997, the Stockholders charged the corporate headquarters rent of $2.5
per month. Total rent expense for the six months ended June 30, 1997, was $15.
Prior to this date, no rent was charged for the facilities.

During the six months ended June 30, 1997 and 1996, the Company paid
management fees to the Stockholders of approximately $73 and $68, respectively.

F-142
<PAGE>
PETERS' WHOLESALE GREENHOUSES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997

(UNAUDITED)

(IN THOUSANDS)

9. OTHER INCOME AND EXPENSE:

10. COMMITMENTS AND CONTINGENCIES:

The Company has no operating leases with original maturities greater than
one year. From time to time, the Company will enter into weekly leases for
transportation equipment. Total rent expense under these leases for the six
months ended June 30, 1997 and 1996, was approximately $108 and $38,
respectively.

At June 30, 1997, the Company is the primary guarantor of debt owed by a
related-party investment company owned by the Shareholders. The outstanding
balance of the guaranteed debt is approximately $115.

11. SUBSEQUENT EVENTS:

On July 31, 1997, 100 percent of the outstanding stock of the Company was
purchased by Color Spot Nurseries, Inc., for cash.

F-143
<PAGE>
LONE STAR GROWERS CO.

BALANCE SHEET--DECEMBER 31, 1996

(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash............................................................................................. $ 151,133
Trade receivables, less allowance for doubtful accounts of $104,649 and $131,955, respectively... 1,056,107
Inventories...................................................................................... 11,002,411
Prepaid Expenses................................................................................. --
Notes receivable................................................................................. 19,943
-------------
Total current assets......................................................................... 12,229,594
PROPERTY AND EQUIPMENT, net........................................................................ 6,498,482
-------------
Total assets................................................................................. $ 18,728,076
-------------
-------------

LIABILITIES AND PARTNERSHIP CAPITAL

CURRENT LIABILITIES:...............................................................................
Cash Overdraft................................................................................... $ --
Payables.........................................................................................
Trade.......................................................................................... 2,112,898
Related parties................................................................................ 9,974
-------------
Total payables............................................................................... 2,122,872
Accrued expenses................................................................................. 793,294
Current portion of revolving line of credit...................................................... --
Current portion of long-term debt................................................................ 3,524,251
Advances from partner under revolving line of credit............................................. 3,000,000
-------------
Total current liabilities.................................................................... 9,440,417
LONG-TERM DEBT, net of current portion............................................................. 4,871,471
-------------
Total liabilities............................................................................ 14,311,888
-------------
PARTNERSHIP CAPITAL:
Partnership capital.............................................................................. 2,805,989
Undistributed profits............................................................................ 1,610,199
-------------
Total partnership capital.................................................................... 4,416,188
-------------
Total liabilities and partnership capital.................................................... $ 18,728,076
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-144
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
SALES................................................................................. $ 6,358,510 $ 5,546,121
COST OF SALES......................................................................... 3,075,270 2,877,772
------------ ------------
Gross profit...................................................................... 3,283,240 2,688,349
OPERATING EXPENSES:
Delivery............................................................................ 958,469 849,807
Sales and marketing................................................................. 904,469 748,842
General and administrative.......................................................... 781,016 708,526
Other expenses...................................................................... 204,523 313,888
Depreciation........................................................................ 74,596 56,496
------------ ------------
Income (loss) from operations..................................................... 359,670 (9,210)
INTEREST EXPENSE...................................................................... 403,378 521,234
OTHER EXPENSE, NET.................................................................... 762 8,907
------------ ------------
Net loss.......................................................................... $ (44,470) $ (539,351)
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-145
<PAGE>
LONE STAR GROWERS CO.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................................... $ (44,470) $ (539,351)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Loss on sale of fixed assets.................................................... 0 2,660
Depreciation and amortization................................................... 465,588 405,547
Changes in certain assets and liabilities:
Decrease in receivables....................................................... 5,531,559 1,180,858
Increase in inventories....................................................... (4,022,018) (3,262,125)
Decrease in prepaids and other assets......................................... 42,751 58,987
Decrease in notes receivable.................................................. 7,270 0
Increase in payables.......................................................... 333,144 1,136,264
Decrease in accrued expenses.................................................. (229,724) (42,237)
------------- -------------
Net cash provided by (used in) operating activities......................... 2,084,100 (1,059,397)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of fixed assets............................................ (1,102,481) (522,050)
Proceeds from sale of fixed assets................................................ 0 6,001
------------- -------------
Net cash used in investing activities....................................... (1,102,481) (516,049)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing of long-term debt......................................... 0 3,000,000
Repayments of long-term debt...................................................... (500,000) (500,000)
Net borrowings under revolving line of credit with bank........................... 2,500,000 300,000
Net repayments to partners........................................................ 0 (1,300,000)
Distributions to partners......................................................... (3,200,000) 0
------------- -------------
Net cash provided by (used in) financing activities......................... (1,200,000) 1,500,000
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................... (218,381) (75,446)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 369,514 332,977
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 151,133 $ 257,531
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......................................... $ 401,799 $ 470,556
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-146
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(UNAUDITED)

The financial statements presented herein include the accounts of Lone Star
Growers Co. (the Partnership) and have been prepared by the Partnership, without
audit. The Partnership believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Partnership's
results of operations, financial position and cash flows. The financial
statements should by read in conjunction with the financial statements and the
notes thereto included in the Partnership's annual financial statements for the
year ended June 30, 1996.

1. NATURE OF OPERATIONS:

ORGANIZATION

The Partnership was formed on January 1, 1985, by Lone Star Growers, Inc.
and Joseph Bradberry. The Partnership was formed to acquire, own, operate and
manage a nursery business located near San Antonio, Texas.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Partnership in preparing its financial statements in accordance with
generally accepted accounting principles:

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 reported amounts of assets and liabilities (and
disclosure of contingent assets and liabilities) at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

INVENTORIES

F-147
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method as follows:

<TABLE>
<S> <C>
Buildings and improvements.............. 10 - 40 years
Machinery and equipment................. 5 - 10 years
Furniture and fixtures.................. 5 - 10 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Partnership's financial instruments, including
accounts receivable, accounts payable and debt, approximates fair value.

INCOME TAXES

The Partnership is not subject to federal income taxes; rather, its income
from operations is passed directly through to its partners. If the Partnership
had been taxed as a C Corporation, the income tax benefit and net loss would
have been $17,788 and $(26,882) in 1996 and $215,740 and $(350,293) in 1995,
assuming an effective rate of 40%.

ASSET IMPAIRMENT

3. CONCENTRATION OF CREDIT RISK:

The Partnership performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral, as the majority
of the Partnership's customers are large, well-established companies. Five
customers accounted for approximately 41 percent of accounts receivable at
December 31, 1996. These same five customers accounted for approximately 42
percent of plant sales for the six months ended December 31, 1996.

F-148
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

4. INVENTORIES:

Inventories consisted of the following at December 31, 1996.

<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Raw materials and supplies..................................................... $ 722,633
Plant inventory................................................................ 10,279,778
-------------
Total inventory................................................................ $ 11,002,411
-------------
-------------
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1996, consisted of the
following:

<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Land........................................................................... $ 892,568
Machinery and equipment........................................................ 7,252,105
Buildings and improvements..................................................... 4,649,882
Furniture and fixtures......................................................... 765,238
-------------
13,559,793
Less: Accumulated depreciation................................................. (8,083,831)
-------------
5,475,962
Construction in progress....................................................... 1,022,520
-------------
Total property, plant and equipment.......................................... $ 6,498,482
-------------
-------------
</TABLE>

6. NOTES PAYABLE:

LINE OF CREDIT

As of December 31, 1996, the Partnership had a $5,000,000 revolving line of
credit with a financial institution under which there was $2,700,000 outstanding
at December 31, 1996. Advances under the line accrue interest at Frost National
Bank's prime rate of interest and are collateralized by substantially all of the
Partnership's assets. Borrowings are limited to 80 percent of adjusted accounts
receivable balances and 50 percent of the Partnership's total inventory balance
as defined in the agreement, less certain borrowings. The borrowing limit at
December 31, 1996, was approximately $2,985,000. The line of credit expires on
October 29, 1997.

F-149
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

6. NOTES PAYABLE: (CONTINUED)
LONG-TERM DEBT

Long-term debt at December 31, 1996, consisted of the following:

<TABLE>
<CAPTION>
1996
------------
<S> <C>
Note payable to bank, with quarterly principal and interest payments of
$173,814, interest at prime plus 0.5 percent (8.50 percent at December 31,
1996), secured by substantially all of the Partnerships assets, due on April
29, 2002...................................................................... $ 3,000,000
Note payable to bank, with quarterly principal and interest payments of $78,217,
interest at prime plus 0.5 percent (8.50 percent at December 31, 1996),
secured by substantially all of the Partnerships assets, due on April 29,
2002.......................................................................... 1,210,000
Note payable to bank, with quarterly principal and interest payments of $60,835,
interest at prime plus 0.5 percent (8.50 percent at December 31, 1996),
secured by substantially all of the Partnerships assets, due on April 29,
2002.......................................................................... 1,190,000
Note payable to seller, with annual principal and interest payments of $43,478,
interest at 6.0 percent, secured by land, due June 15, 2005................... 295,722
------------
5,695,722
Less: Current portion........................................................... (824,251)
------------
$ 4,871,471
------------
------------
</TABLE>

As a result of borrowing rates presently available to the Partnership, the
carrying value of debt approximates the fair value.

The provisions of the debt agreements with the bank generally impose
restrictions relating to, among other matters, cash flows, investments, capital
expenditures, incurrence of additional indebtedness, payment of dividends, and
maintenance of specified amounts of tangible net worth and working capital.

7. RELATED-PARTY TRANSACTIONS:

In the normal course of business, the Partnership has transactions with its
partners and other related parties. These include purchasing insurance on a
group basis, participating in a group profit-sharing plan and renting equipment.
The following table summarizes the Partnership's related-party transactions
presented in the balance sheet as of December 31, 1996:

<TABLE>
<CAPTION>
1996
------------
<S> <C>
Advances to related parties..................................................... $ 0
Advances from related parties................................................... 3,009,974
</TABLE>

Advances from related parties include amounts advanced by TETCO, Inc. (the
sole owner of Lone Star Growers, Inc.) pursuant to a revolving line of credit
agreement under which there was $3,000,000

F-150
<PAGE>
LONE STAR GROWERS CO.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

7. RELATED-PARTY TRANSACTIONS: (CONTINUED)
outstanding at December 31, 1996. Interest paid on the revolving line of credit
was $126,048 and $251,750 during the six months ended December 31, 1996 and
1995, respectively.

The Partnership made advances to entities under common ownership of $204,523
and $313,888 during the six months ended December 31, 1996 and 1995,
respectively, relating to investments in a mushroom project, a furniture
business and a Mexican turf grass project. The Partnership determined that these
advances were not recoverable and therefore expensed the advances (as other
expenses) in the related statements of income and expense in the year in which
they were made. In addition, the Partnership made sales to an affiliated company
of approximately $165,000 during the six months ended December 31, 1996 and
1995.

8. CONTINGENCIES:

9. SUBSEQUENT EVENT:

F-151
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

STATEMENT OF ASSETS AND LIABILITIES
AND DIVISIONAL EQUITY

DECEMBER 31, 1996

(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
CURRENT ASSETS:
Accounts receivable............................................................................... $ 445,569
Inventories....................................................................................... 2,165,493
Deferred income taxes............................................................................. --
Due from Parent................................................................................... --
------------
Total current assets............................................................................ 2,611,062

PROPERTY AND EQUIPMENT, net......................................................................... 365,207
------------
Total Assets.................................................................................... $2,976,269
------------
------------

LIABILITIES AND DIVISIONAL EQUITY

CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 520,312
Accrued liabilities............................................................................... --
Current portion of capital lease obligation....................................................... 28,498
------------
Total current liabilities....................................................................... 548,810
------------

CAPITAL LEASE OBLIGATION, net of current portion.................................................... 43,482
Total liabilities............................................................................... 592,292
------------
Divisional Equity................................................................................... 2,383,977
------------
Total Liabilities and Divisional Equity......................................................... $2,976,269
------------
------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-152
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

STATEMENTS OF REVENUES AND EXPENSES
AND DIVISIONAL EQUITY

FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER
31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET SALES............................................................................. $ 4,273,692 $ 4,522,731
COSTS OF SALES........................................................................ 3,079,790 4,002,510
------------ ------------
Gross profit........................................................................ 1,193,902 520,221
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................................... 1,181,652 1,301,330
------------ ------------
Income (Loss) from operations....................................................... 12,250 (781,109)
INCOME TAX BENEFIT.................................................................... -- (312,000)
------------ ------------
Net Income (Loss)................................................................... 12,250 (469,109)
------------ ------------
DIVISIONAL EQUITY, December 31, 1996 and 1995......................................... $ 2,383,977 $ 2,891,479
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-153
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995

(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ 12,250 $ (469,109)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation........................................................................ 60,281 58,898
Changes in assets and liabilities--
Decrease (Increase) in accounts receivable........................................ 411,424 (468,484)
Decrease (Increase) in inventories................................................ (311,151) 277,476
Decrease in deferred income tax asset............................................. 104,000 101,000
Decrease (Increase) in receivable from Parent..................................... 355,000 (392,000)
Increase (Decrease) in accounts payable........................................... (187,284) 289,915
Increase (Decrease) in accrued liabilities........................................ (70,475) 36,098
----------- -----------
Net cash provided by (used in) operating activities............................. 374,045 (566,206)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES, purchases of property and equipment............... (107,957) (7,918)
CASH FLOWS FROM FINANCING ACTIVITIES, transfer from (to) Parent......................... (266,088) 574,124
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................... -- --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ -- $ --
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of this financial statement

F-154
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(UNAUDITED)

The financial statements presented herein include the accounts of the
Wholesale Division of Sunnyside Plants, Inc. (the Division) and have been
prepared by the Division, without audit. The Division believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Division's results of operations and
financial position. The financial statements should by read in conjunction with
the financial statements and the notes thereto included in the Division's annual
financial statements for the year ended March 31, 1996.

1. OPERATIONS AND BASIS OF PRESENTATION:

Since the Company did not maintain separate accounting records for the
Division, certain estimates were required in order to segregate the Division's
account balances as of December 31, 1996 and 1995.

- Identification basis--Account balances relating to assets, liabilities,
revenues and expenses ("account balances") specifically pertaining to the
Division were identified and segregated. Account balances related to
general and administrative expenses incurred by the Company for general
purposes have been included in total as the Division was significant
portion of the Company's operations for the periods presented herein.

- Transfer basis--Account balances pertaining to the Company's retail
division or account balances which were not able to be specifically
allocated to either divisions were identified and excluded from the
Division.

- Allocation basis--The account balance related to cost of sales for the
Division has been estimated based on the estimated purchases of the
Division.

In management's opinion, the method of allocation is reasonable and the
results are representative of the results of operations that would have been
realized by the Division on a stand-alone basis.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed by
the Division in preparing its financial statements in accordance with generally
accepted accounting principles.

USE OF ESTIMATES

The preparation of the statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Division considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. All overdraft balances
have been reclassified to current liabilities.

F-155
<PAGE>
THE WHOLESALE DIVISION OF
SUNNYSIDE PLANTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES

Inventories are stated at the lower of cost or market and consist
substantially of finished goods. Cost is determined using the average cost
method and includes production costs and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over their
estimated useful lives on a straight line basis as follows:

<TABLE>
<S> <C>
Office equipment........................ 5 years
Machinery and equipment................. 5 - 7 years
</TABLE>

Repairs and maintenance are charged to operations as incurred, and
expenditures for renewals and betterments are capitalized and depreciated over
the estimated useful lives of the assets.

REVENUE RECOGNITION

Revenue is recognized upon transfer of title and risk of ownership to the
customer, which generally occurs upon product shipment. No single customer
accounted for 10% or more of net sales during the nine months ended December 31,
1996 or 1995.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including accounts receivable and payable
and capital lease obligations, the Division's carrying amount approximates fair
value.

INCOME TAXES

ASSET IMPAIRMENT

3. SUBSEQUENT EVENT:

In January 1997, the Company sold a significant portion of the net assets of
the Wholesale Division to CSN, Inc., the parent company of Color Spot Nurseries,
Inc.

F-156
<PAGE>
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- -------------------------------------------
ALTERNATE PAGE FOR NOTE PROSPECTUS -------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. i
Risk Factors................................... 1
Company History................................ 8
Recent Acquisitions............................ 8
Use of Proceeds................................ 9
Dividend Policy................................ 9
Capitalization................................. 10
Selected Consolidated Financial and Operating
Data......................................... 11
Unaudited Pro Forma Consolidated Statement of
Operations................................... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 25
Management..................................... 34
Certain Transactions........................... 40
Principal Stockholders......................... 42
Description of Capital Stock................... 43
Description of Certain Indebtedness............ 48
Description of Notes........................... 49
Description of Units........................... 65
Description of Series A Preferred Stock........ 65
Description of Warrants........................ 75
Certain Definitions............................ 78
Underwriting................................... 91
Legal Matters.................................. 92
Experts........................................ 92
Additional Information......................... 92
Index to Consolidated Financial Statements..... F-1
</TABLE>

--------------
UNTIL JANUARY 16, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

$100,000,000

[LOGO]

10 1/2% SENIOR SUBORDINATED
NOTES DUE 2007

------------
PROSPECTUS
------------

BT ALEX. BROWN

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

December 22, 1997

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