<PAGE>
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
U.S.A. FLORAL PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5193 52-2030697
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600 WEST
WASHINGTON, D.C. 20007
(202) 333-0800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. POIRIER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
U.S.A. FLORAL PRODUCTS, INC.
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600 WEST
WASHINGTON, D.C. 20007
(202) 333-0800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------
COPY TO:
DAVID A. GERSON, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
ONE OXFORD CENTRE
THIRTY-SECOND FLOOR
PITTSBURGH, PENNSYLVANIA 15219
(412) 560-3300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
-------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $.001 per
share................................ 12,500,000 Shares $217,968,750 $66,055
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the reported high and low sales prices for a share of
Common Stock on November 7, 1997 as reported on the Nasdaq National
Market.
-------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
PROSPECTUS
12,500,000 SHARES
U.S.A. FLORAL PRODUCTS, INC.
COMMON STOCK
----------------
This Prospectus covers 12,500,000 shares of common stock, $.001 par value
(the "Common Stock") which may be offered and issued by U.S.A. Floral
Products, Inc. (the "Company" or "USA Floral") from time to time in connection
with merger or acquisition transactions entered into by the Company. It is
expected that the terms of the acquisitions involving the issuance of
securities covered by this Prospectus will be determined by direct
negotiations with the owners or controlling businesses of the respective
businesses or assets to be merged with or acquired by the Company, and that
the shares of Common Stock issued will be valued at prices reasonably related
to the market prices of Common Stock either at the time the terms of a merger
or acquisition are agreed upon or at or about the time shares are delivered.
No underwriting discounts or commissions will be paid, although finder's fees
may be paid from time to time with respect to specific mergers or
acquisitions. Any person receiving such fees may be deemed to be an
underwriter within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
The Company's Common Stock is approved for quotation on the Nasdaq National
Market. As of November 6, 1997, 9,594,050 shares of Common Stock were
outstanding, of which 5,750,000 shares are registered and available for
unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on the Nasdaq National Market. On November 6, 1997, the closing price
of the Common Stock on the Nasdaq National Market was $17.50 per share. The
Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission. See "Additional Information."
All expenses of this offering will be paid by the Company.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
----------------
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.
----------------
The date of this Prospectus is November , 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT 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. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 9
Formation of the Company............ 15
Price Range of Common Stock......... 18
Dividend Policy..................... 18
Capitalization...................... 19
Selected Pro Forma Combined
Financial Data..................... 20
Management's Discussion and Analysis
of Pro Forma Combined Financial
Condition and Pro Forma Combined
Results of
Operations......................... 22
Selected Financial Data of the
Founding Companies................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations of the
Founding Companies................ 29
Business........................... 47
Management......................... 54
Certain Relationships and Related
Party Transactions................ 60
Principal Stockholders............. 65
Description of Capital Stock....... 66
Shares Eligible for Future Sale.... 68
Plan of Distribution............... 68
Legal Matters...................... 69
Experts............................ 69
Additional Information............. 69
Index to Financial Statements...... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with the consummation of its initial public offering (the
"IPO") on October 16, 1997, U.S.A. Floral Products, Inc. acquired, in separate
transactions (the "Mergers"), a number of floral products businesses
(collectively, the "Founding Companies"). See "Formation of the Company."
Unless otherwise indicated, all references to the "Company" include the
Founding Companies after the effectiveness of the Mergers, and references to
"USA Floral" mean U.S.A. Floral Products, Inc. prior to the effectiveness of
the Mergers. The following summary is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and the financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share, per share and financial
information set forth herein has been adjusted to give effect to the Mergers
and the IPO.
THE COMPANY
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company commenced
operations on October 16, 1997, the date of the consummation of the IPO and the
Mergers. The Company engages primarily in the wholesale distribution of
perishable floral products (including fresh cut flowers, greens and potted
plants) and floral-related hardgoods (including vases and glassware, foam for
flower arranging, tools and other supplies). The Company also imports cut
flowers from growers in foreign countries, provides pre-packaged floral
bouquets and arrangements to retail florists and mass-market retailers and
engages in brokerage services for wholesalers of both foreign and domestic cut
flowers. The Company believes, based upon the experience of management of USA
Floral and the Founding Companies, that it is one of the largest integrated
distributors of floral products in the United States. The Company has
approximately 945 employees and serves thousands of customers nationwide from
32 facilities in 17 states. For the year ended December 31, 1996, the Company
had pro forma combined revenues of $175.5 million, pro forma combined operating
income of $4.8 million and pro forma combined net income of $2.6 million.
The floriculture industry, which includes cultivators, distributors and
sellers of floral products, extends from growers, who produce perishable floral
products, through importers, brokers, shippers and wholesalers who distribute
and market fresh cut flowers and greens, potted plants and floral-related
hardgoods, to retail florists and mass market distributors, who sell floral
products to consumers. The distribution channel in the floriculture industry is
highly fragmented and consists mainly of small, family-owned firms that operate
from a single location or from a small number of outlets in a single region.
While floral products have historically been sold at retail through a large
number of traditional florists, who continue to serve the majority of
consumers, the Company believes, based upon the experience of management of USA
Floral and the Founding Companies, that changes in consumer buying habits are
causing more consumers to seek floral products from mass market retailers such
as supermarkets, discount retailers and chain stores. The Company believes that
sales in the retail segment of the floriculture industry totaled approximately
$15.0 billion in 1996, and that approximately 45% of retail sales are generated
by mass market retailers. Management believes that the growing consumer
preference for more convenient floral products retailers, together with the
potential efficiencies to be achieved from operating floral products businesses
on a large scale, have well positioned the floriculture industry for
consolidation and provide an attractive opportunity for the Company to build an
integrated, nationwide floral products distributor that can serve the growing
mass market while continuing to meet the needs of the traditional florists for
high quality products and services. See "Business--Industry Overview."
STRATEGY
The Company's goal is to become the leading consolidator and operator of
floral products distribution businesses. Key elements of the Company's strategy
include the following:
Pursue Strategic Acquisitions. The Company intends to capitalize upon
consolidation opportunities in the U.S. floral products industry by pursuing
selective acquisitions in the distribution segment of the industry. To
3
<PAGE>
build upon and enhance its nationwide presence, the Company will focus upon
opportunities that complement and complete its floral products offerings and in
new geographic markets with above-average population growth and floral products
consumption. The Company intends to implement an aggressive acquisition program
utilizing a "hub and spoke" strategy for expansion into its targeted markets.
As part of this strategy, the Company plans to make acquisitions of
established, high-quality local companies in targeted geographic areas, which
can then serve as"hubs" for the acquisition of smaller, synergistic "spokes" in
that locality or in surrounding markets. The Company believes that it can
successfully integrate the operations of acquired spokes into its hubs, in
order to leverage more effectively its sales, marketing and distribution
capabilities. Robert J. Poirier, the Company's co-founder, Chairman of the
Board, President and Chief Executive Officer, has over 22 years of experience
in the floral products industry, and has extensive relationships with
wholesalers, importers, brokers and bouquet manufacturers. Mr. Poirier's
industry knowledge is complemented by the acquisition expertise of Jonathan J.
Ledecky, the Company's co-founder and Non-Executive Chairman of the Board. Mr.
Ledecky is the founder and Chairman of the Board of U.S. Office Products
Company, a publicly-held supplier of a broad range of office products and
business services that has been built primarily through the acquisition and
integration of over 190 companies since its inception in October 1994, and is
the founder, Chairman and Chief Executive Officer of Consolidation Capital
Corporation, a company founded in February 1997 to build consolidated
enterprises with national market reach through the acquisition and integration
of businesses in fragmented industries.
Operate with Decentralized Management. The Company plans to conduct its
operations with a decentralized management approach through which individual
management teams will be responsible for the day-to-day operations of the
Founding Companies as well as for helping to identify additional acquisition
candidates in their respective locales. At the same time, a company-wide team
of senior management will provide the Founding Companies with strategic
oversight and guidance with respect to acquisitions, financing, marketing and
operations. As part of this strategy, the Company intends to foster a culture
of cooperation and teamwork that emphasizes dissemination of "best practices"
among its local management teams. The Company believes that stock ownership and
incentive compensation will help to keep the objectives of local management
aligned with those of the Company, and that a decentralized management approach
will result in better customer service by allowing local management the
flexibility to implement policies and make decisions based on the needs of
local customers.
Achieve Operating Efficiencies. The Company believes that it will be able to
increase operating efficiency and achieve certain synergies among its
constituent businesses. In particular, with larger operational scale, the
Company believes that it can increase distribution efficiencies by utilizing
shipping and delivery capacity more efficiently. The Company will also seek to
combine certain administrative functions, such as accounting and finance,
insurance, employee benefits, strategic marketing and legal support, at the
corporate level, and to institute a Company-wide management information system.
The Company believes that increased scale and administrative integration will
enable it not only to operate more efficiently, but also to obtain more
favorable discounts and rebates on floral products hardgoods and, to a lesser
extent, realize savings on transportation and handling costs of fresh flowers.
Introduce New Products and Services. The Company believes that over time it
will be able to develop and market high value-added products and services, such
as "branded" flowers and bouquets specifically identified with quality and
consistency. By utilizing its contacts with growers and leveraging its
distribution efficiencies, the Company believes that it can establish
specifications for fresh flowers and control product quality at each step in
the distribution process, thereby building a brand identification that will
command a premium price. The Company also intends to service retailers by
providing pre-packaged fresh flowers and arrangements during periods of peak
demand, as well as to market floral products through corporate account
relationships and other means. See "Business--Strategy."
4
<PAGE>
THE FOUNDING COMPANIES
USA Floral acquired the Founding Companies contemporaneously with the
consummation of the IPO, in part through the application of a portion of the
proceeds therefrom. USA Floral has conducted operations since October 16, 1997.
The Roy Houff Company ("Houff "). Founded in 1977, Houff is a wholesale
distributor of perishable floral products and floral-related hardgoods,
operating from seven locations in Illinois, Virginia and Arizona. Houff
purchases floral products from importers, brokers and shippers and sells them
to approximately 3,000 customers, including retail florists and mass market
retailers. Houff has approximately 270 employees. Houff's annual revenues in
1996 were approximately $39.1 million.
CFX, Inc. ("CFX"). Founded in 1974, CFX is an importer and distributor of
perishable floral products located in Miami, Florida. CFX imports flowers from
approximately 40 farms located primarily in Colombia and Ecuador, and
distributes them throughout the United States to approximately 400 wholesale
distributors as well as directly to mass market retailers. CFX has
approximately 110 employees. CFX's annual revenues in 1996 were approximately
$35.7 million.
Bay State Florist Supply, Inc. ("Bay State"). Founded in 1952, Bay State is a
wholesale distributor of perishable floral products and floral-related
hardgoods, operating from six locations in Massachusetts, New York, New
Hampshire, Connecticut and Rhode Island. Bay State purchases floral products
from domestic growers, importers, brokers and shippers and sells them to
approximately 3,000 customers, including retail florists and mass market
retailers. Bay State has approximately 190 employees. Bay State's annual
revenues in 1996 were approximately $30.6 million.
Flower Trading Corporation ("Flower Trading"). Founded in 1977, Flower
Trading is an importer and distributor of perishable floral products, located
in Miami, Florida. Flower Trading imports flowers from farms located primarily
in Colombia, Ecuador, Guatemala and Peru and distributes them throughout the
United States to approximately 350 wholesale distributors. Flower Trading has
approximately 45 employees. Flower Trading's annual revenues in 1996 were
approximately $20.3 million.
United Wholesale Florists, Inc. and United Wholesale Florists of America,
Inc. ("United Wholesale"). Founded in 1947, United Wholesale is a wholesale
distributor of perishable floral products and floral-related hardgoods,
operating from 13 locations in Arkansas, Alabama, Mississippi, Oklahoma,
Tennessee and Texas. United Wholesale purchases floral products from domestic
growers, importers, brokers and shippers and sells them to approximately 3,000
customers, including retail florists and mass marketers. United Wholesale has
approximately 175 employees. United Wholesale's revenues for the fiscal year
ended June 30, 1997 were approximately $19.7 million.
American Florist Supply, Inc. ("American Florist"). Founded in 1994, American
Florist is a wholesale distributor of perishable floral products and floral-
related hardgoods, located in Woburn, Massachusetts. American Florist purchases
floral products from foreign and domestic growers, brokers and importers and
sells them to approximately 450 customers, including retail florists and mass
market retailers in Maine, Massachusetts, Vermont and New Hampshire. American
Florist also provides pre-packaged fresh cut floral bouquets to retail florists
and mass-market retailers. American Florist has approximately 70 employees.
American Florist's annual revenues in 1996 were approximately $11.7 million.
Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc. ("Monterey
Bay"). Founded in 1993, Monterey Bay, located in Watsonville, California, is a
manufacturer of fresh cut flower bouquets, consisting primarily of specialty
California-grown flowers. Monterey Bay purchases flowers from 12 importers and
nearly 150 domestic growers and distributes them to a supermarket and a
discount retailer, each of which has numerous locations throughout the western
United States. Monterey Bay has approximately 65 employees. Monterey Bay's
annual revenues in 1996 were approximately $9.5 million.
5
<PAGE>
Alpine Gem Flower Shippers, Inc. ("Alpine Gem"). Founded in 1978, Alpine Gem
is a broker of perishable floral products, operating from one location in
Montana and one in California. Alpine Gem purchases flowers from approximately
250 growers, principally located in the United States, and sells flowers on
consignment for approximately 18 growers. Alpine Gem distributes flowers to
nearly 750 customers, primarily wholesalers, located throughout the U.S. Alpine
Gem has approximately 20 employees. Alpine Gem's annual revenues in 1996 were
approximately $9.3 million.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered in connection with an investment in the Common Stock offered hereby,
including, without limitation, risks related to: (i) the absence of a combined
operating history; (ii) the Company's acquisition strategy; (iii) the financing
of acquisitions; (iv) internal growth and operating strategies; (v) seasonality
and cyclicality, and fluctuations in quarterly operating results; (vi) weather;
(vii) competition; (viii) the valuations of the Founding Companies; (ix) the
amortization of intangible assets; (x) dependence upon key personnel; and (xi)
imported products and anti-dumping liability.
THE MERGERS
Simultaneously with the closing of the IPO, the Company consummated the
Mergers pursuant to agreements that the Company had entered into with the
Founding Companies and their stockholders (the "Merger Agreements"). The
aggregate consideration paid by the Company upon consummation of the Mergers
was approximately $63.7 million, which consisted of: (i) $42.4 million in cash
(before giving effect to the receipt by the Company upon consummation of the
Mergers of approximately $1.7 million of net related party receivables); (ii)
$4.0 million in S Corporation distributions to the stockholders of CFX and
Alpine Gem; and (iii) the $17.3 million fair value (based upon the initial
public offering price of $13.00 per share) of 1,334,050 shares of Common Stock
issued to the stockholders of the Founding Companies. In addition, pursuant to
earn-out arrangements provided for in the Merger Agreements with American
Florist and Monterey Bay, the Company may pay additional consideration of up to
$0.5 million in cash and up to $5.4 million in shares of Common Stock (or, in
the event the fair market value per share is less than $10.00, such additional
shares of Common Stock or, at the Company's option, cash as is necessary so
that the stockholders receive consideration equal to $10.00 per share). The
Company also assumed a tax liability of Flower Trading of approximately $0.5
million. For the consideration paid to each Founding Company, see "Formation of
the Company--the Mergers." The stockholders of the Founding Companies were
granted certain registration rights with respect to the shares of Common Stock
received under the Merger Agreements. The Merger Agreements also provided for
the grant of options to purchase a number of shares of Common Stock equal to
6.25% of the cash and Common Stock portion of the Merger consideration to
employees of the Founding Companies. The Merger Agreements contained covenants
not to compete (subject to certain exceptions) and required certain of the
executive officers of each of the Founding Companies to enter into employment
agreements with their respective Founding Companies effective upon consummation
of the Mergers. One of the executives of each of the Founding Companies will be
appointed to the Board of Directors of the Company at the Board's meeting in
November 1997. See "Formation of the Company," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Founding
Companies--Liquidity and Capital Resources," "Management--Employment
Agreements," "Certain Relationships and Related Party Transactions," "Shares
Eligible for Future Sale," and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto appearing elsewhere in this Prospectus.
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
USA Floral acquired the Founding Companies simultaneously with the
consummation of the IPO. For financial statement presentation purposes, USA
Floral has been identified as the "accounting acquiror." The following
unaudited summary pro forma combined financial data present data for the
Company, adjusted to give effect to (i) the consummation of the Mergers, (ii)
certain pro forma adjustments to the historical financial statements described
below and (iii) the consummation of the IPO and the application of the net
proceeds therefrom. The summary pro forma data are not necessarily indicative
of operating results or financial position that would have been achieved had
the events described above been consummated and should not be construed as
representative of future operating results or financial position. The summary
pro forma combined financial data should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the notes thereto and the
historical financial statements of the Founding Companies and the notes thereto
included elsewhere in this Prospectus. The Company anticipates that it will
realize savings from the following: more favorable discounts and rebates on
hardgood products than those obtained individually by the Founding Companies;
the combination of functions such as accounting and finance, insurance,
employee benefits, strategic marketing and legal support at the corporate
level; and, to a lesser extent, reduced transportation and handling costs on
perishable floral products. However, these savings cannot be quantified or
reasonably estimated and have not been included in the Unaudited Pro Forma
Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------------------------------
1996 1996 1997
--------------- ---------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Net sales............... $ 175,467 $ 97,269 $ 103,015
Gross profit (2)........ 49,247 27,146 29,378
Selling, general and ad-
ministrative expense
(3).................... 43,309 21,574 22,091
Goodwill amortization
(4).................... 1,090 545 545
-------------- ---------------- ----------------
Operating income........ 4,848 5,027 6,742
Interest and other (in-
come) expense, net
(5).................... (141) (211) (76)
-------------- ---------------- ----------------
Income before income
taxes.................. 4,989 5,238 6,818
-------------- ---------------- ----------------
Net income (6).......... $ 2,557 $ 2,925 $ 3,873
============== ================ ================
Net income per share.... $ .33 $ .38 $ .50
============== ================ ================
Shares used in computing
net income per share
(7).................... 7,738,819 7,738,819 7,738,819
============== ================ ================
<CAPTION>
AS OF JUNE 30, 1997
----------------------------------------
PRO FORMA AS
COMBINED ADJUSTED (9)
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (8):
Working capital......................... $(33,717) (10) $34,981
Total assets............................ 85,774 109,435
Total long term debt.................... 3,569 3,569
Stockholders' equity.................... 17,669 86,367
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Mergers and the IPO were consummated on January 1, 1996.
(2) Reflects the reduction in costs of sales of $579,000 for the year ended
December 31, 1996 and $290,000 and $300,000 for the six-month periods
ended June 30, 1996 and 1997, respectively, attributable to a significant
reduction in the services provided under a contract for various services
with an affiliated entity of Flower Trading that was renegotiated pursuant
to the Flower Trading Merger Agreement.
7
<PAGE>
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.6 million, $2.7 million and $403,000 for the year
ended December 31, 1996 and the six-month periods ended June 30, 1996 and
1997, respectively, in pro forma reductions in salaries, bonuses and
benefits to the stockholders of the Founding Companies to which they have
agreed in the employment agreements entered into upon consummation of the
IPO (the "Compensation Differential"), (ii) a net reduction of lease-
related expenses of $367,000 for the year ended December 31, 1996 and
$183,000 for each of the six-month periods ended June 30, 1996 and 1997,
pursuant to real estate acquired, real estate distributed and amendment of
associated lease agreements in connection with the Mergers, (iii) an
increase of $500,000, $250,000 and $220,000 for the year ended December
31, 1996, and for the six-month periods ended June 30, 1996 and 1997,
respectively, of expenses associated with corporate management, as well as
costs associated with being a public company, and (iv) $156,000 for the
year ended December 31, 1996 and $78,000 for each of the six-month periods
ended June 30, 1996 and 1997 of expense attributable to compensation
expense associated with 125,000 options granted with an exercise price
below the initial public offering price which will vest over a four-year
period.
(4) Consists of amortization of the $43.6 million of goodwill to be recorded
as a result of the Mergers over a 40-year period and computed on the basis
described in the Notes to the Unaudited Pro Forma Combined Financial
Statements.
(5) Reflects an increase in interest expense of $162,000 for the year ended
December 31, 1996 and $82,000 for each of the six-month periods ended June
30, 1996 and 1997 relating to debt assumed in connection with real estate
transferred to Houff from the stockholder of Houff as part of the
transaction.
(6) Assumes that all income is subject to a corporate income tax rate of 40%
and that all goodwill is non-deductible.
(7) Includes (i) 1,334,050 shares issued to stockholders of the Founding
Companies, (ii) 2,400,000 shares issued to the founders and initial
investors in USA Floral, (iii) 3,956,692 of the 5,750,000 shares sold in
the IPO to pay the cash portion of the Merger consideration, to fund S
Corporation distributions to stockholders of certain of the Founding
Companies, and to pay certain expenses of the Offering, and (iv) 48,077
shares related to the dilution attributable to options granted with an
exercise price below the initial public offering price, in accordance with
the treasury stock method.
(8) The pro forma combined balance sheet data assume that the Mergers were
consummated on June 30, 1997. Prior to the Mergers, Bay State distributed
to its stockholders certain real estate having a net book value of
$842,000. Additionally, in conjunction with the Mergers certain real
estate was acquired and certain associated debt was assumed.
(9) Adjusted to reflect the sale of the 5,750,000 shares of Common Stock in
the IPO and the application of the estimated net proceeds therefrom. Also
reflects proceeds of $1.4 million from the exercise by Jonathan J. Ledecky
of an option to purchase 110,000 shares at the initial public offering
price of $13.00 per share.
(10) Includes $44.6 million paid to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration paid from a
portion of the net proceeds of the IPO, plus S Corporation distributions
made to the stockholders of certain of the Founding Companies, less the
amount received by the Company upon consummation of the Mergers in
repayment of net related party receivables. See "Notes to Unaudited Pro
Forma Combined Financial Statements."
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the shares of Common Stock offered
hereby.
ABSENCE OF COMBINED OPERATING HISTORY
USA Floral was founded in April 1997 and has conducted operations since
October 16, 1997. USA Floral acquired the Founding Companies simultaneously
with the consummation of the IPO. Prior to the IPO, the Founding Companies had
been operating independently and the Company may not be able to integrate
these businesses successfully on an economic basis. The Company's management
group has been assembled only recently and the management control structure is
still in its formative stages. The pro forma combined financial results of USA
Floral and the Founding Companies cover periods when USA Floral and the
Founding Companies were not under common control or management and may not be
indicative of the Company's future financial or operating results. Management
of the individual Founding Companies will remain at the Founding Company
level, in accordance with the Company's decentralized management philosophy.
Currently, the full-time employees of USA Floral include Robert J. Poirier,
its Chairman of the Board, President and Chief Executive Officer, Raymond C.
Anderson, its Chief Financial Officer, a Vice President of Administration and
a Vice President of Marketing; these employees are responsible for the
Company's day-to-day management as a combined entity. Management may not be
able to oversee the combined entity effectively or to implement effectively
the Company's operating strategies. Any failure by the Company to implement
its strategies or oversee effectively the combined entity could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Formation of the Company," "Business--The Founding
Companies" and "Management."
VALUATIONS OF THE FOUNDING COMPANIES UNRELATED TO APPRAISALS OR ASSET VALUES
Valuations of the Founding Companies were not established by independent
appraisals, but were determined through negotiations between USA Floral and
representatives of each of the Founding Companies. The consideration paid for
each of the Founding Companies, including Founding Companies whose
stockholders become affiliates of the Company upon consummation of the
Offering, was based exclusively on these private negotiations between USA
Floral and the representatives of each Founding Company, in which a variety of
factors--including, but not limited to, the financial performance of each
Founding Company, its markets, its management and the interest of its owners
in reaching agreement upon a possible Merger--played roles; the consideration
paid does not necessarily bear any relationship to the net book value of the
acquired assets or to any other recognized indicia of value. For example,
valuations of the Founding Companies determined solely by appraisals of the
acquired assets would be less than the consideration being paid by USA Floral
for the Founding Companies. In particular, the aggregate purchase price paid
in the acquisitions of the Founding Companies was approximately $43.6 million
greater than the amount of that purchase price allocated to the assets
acquired for purposes of the Company's pro forma balance sheet. The future
performance of the Founding Companies may not be commensurate with the
consideration paid to acquire the Founding Companies. See "--Amortization of
Intangible Assets" and "Formation of the Company--The Mergers."
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $43.6 million, or 43.4%, of the Company's as adjusted pro
forma total assets as of June 30, 1997 consists of goodwill arising from the
acquisitions of the Founding Companies. Goodwill is an intangible asset that
represents the difference between the aggregate purchase price for the assets
acquired and the amount of such purchase price allocated to such assets for
purposes of the Company's pro forma balance sheet. The Company is required to
amortize the goodwill from the Mergers over a period of time, with the amount
amortized
9
<PAGE>
in a particular period constituting an expense that reduces the Company's net
income for that period. The amount amortized, however, will not give rise to a
deduction for tax purposes. In addition, the Company will be required to
amortize the goodwill, if any, from any future acquisitions. A reduction in
net income resulting from the amortization of goodwill may have an adverse
impact upon the market price of the Company's Common Stock.
The Company plans to amortize goodwill associated with the acquisitions of
the Founding Companies over a period of 40 years. The Company plans to
evaluate continually whether events or circumstances have occurred that
indicate that the remaining useful life of goodwill may warrant revision.
Additionally, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Company will evaluate
any potential goodwill impairments by reviewing the future cash flows of the
respective acquired entities' operations and comparing these amounts with the
carrying value of the associated goodwill.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company intends to grow significantly through the acquisition of
additional floral products businesses. This strategy will entail reviewing and
potentially reorganizing acquired business operations, corporate
infrastructure and systems and financial controls. Unforeseen expenses,
difficulties, complications and delays frequently encountered in connection
with the rapid expansion of operations could inhibit the Company's growth.
In addition, on October 16, 1997 the Company entered into a $100.0 million
revolving credit facility (the "Credit Facility") with various lenders, for
whom Bankers Trust Company ("BT") is agent. The Credit Facility contains
certain covenants which will restrict the ability of the Company to engage in
certain mergers, acquisitions and dispositions. Among other things, the Credit
Facility provides that: (i) the total consideration for any acquisition may
not exceed $25 million unless not more than 10% of such amount is in cash; and
(ii) for a group of acquisitions occurring within a six-month period, no less
than one-third of the aggregate purchase price therefor may be in Common Stock
of the Company. The Credit Facility also contains various financial covenants
customary for transactions of this type, including ratios of total debt to
cash flow and cash flow to fixed charges, each of which may limit the ability
of the Company to pursue future acquisitions. See "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations--Liquidity and Capital Resources."
There can be no assurance that the Company will maintain or accelerate its
growth or anticipate all of the changing demands that expanding operations
will impose on its management personnel, operational and management
information systems, and financial systems. The Company may not be able to
identify, acquire or manage profitably additional businesses or to integrate
successfully any acquired businesses into the Company without substantial
costs, delays or other operational or financial difficulties. Any failure by
the Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Strategy."
RISKS RELATED TO ACQUISITION FINANCING
A significant portion of the Company's resources may be used for
acquisitions. The timing, size and success of the Company's acquisition
efforts and any associated capital commitments cannot be readily predicted.
The Company currently intends to finance future acquisitions by using shares
of its Common Stock, cash or a combination of Common Stock and cash. If the
Common Stock does not maintain a sufficient market value, or if potential
acquisition candidates are otherwise unwilling to accept Common Stock as part
of the consideration for the sale of their businesses, the Company may be
required to utilize more of its cash resources, if available, in order to
initiate and maintain its acquisition program. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financings. There can be no
assurance that the Company will be able to obtain additional financing it may
need for its acquisition program on terms that the Company deems acceptable.
To the extent the Company uses Common Stock for all or a portion of the
consideration to be paid for future acquisitions, dilution may be experienced
by existing
10
<PAGE>
stockholders, including the purchasers of Common Stock in the Offering. See
"Dilution," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES
Key elements of the Company's strategy are to improve the profitability and
to continue to expand the net sales of the Founding Companies and any
subsequently acquired businesses. The Company's ability to increase net sales
will be affected by various factors, including demand for, pricing and
availability of floral products, the Company's ability to expand the range of
products and services offered and the Company's ability to enter new markets
successfully. Many of these factors are beyond the control of the Company, and
the Company's strategies may not be successful or the Company may be unable to
generate cash flow adequate for its operations and to support internal growth.
A key component of the Company's strategy is to operate on a decentralized
basis, with local management retaining responsibility for day-to-day
operations, profitability and the growth of the business. If proper overall
business controls are not implemented, this decentralized operating strategy
could result in inconsistent operating and financial practices at the Founding
Companies and subsequently acquired businesses, which could materially and
adversely affect the Company's overall profitability. See "Business--
Strategy."
SEASONALITY AND CYCLICALITY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Unit sales of floral products have historically been seasonal, concentrated
primarily in the first and second calendar quarters as a result of holidays
such as Valentine's Day and Mother's Day. In particular, a significant portion
of the Company's annual revenues is derived from sales of floral products for
Valentine's Day. Historically, Valentine's Day sales have been relatively
lower in those years when the holiday falls on a Saturday or Sunday. In 1998
and 1999, Valentine's Day will be on Saturday and Sunday, respectively;
accordingly, the Company expects relatively lower Valentine's Day product
sales in those years. By contrast with the first and second calendar quarters,
unit sales of floral products are significantly lower in the third and fourth
calendar quarters, which have relatively few flower-giving holidays.
The Company believes that the floriculture industry is influenced by general
economic conditions and particularly by the level of personal discretionary
spending, and thus that the industry tends to experience periods of decline
and recession during economic downturns. The industry may experience sustained
periods of decline in sales in the future, and any such decline may have a
material adverse effect on the Company.
The Founding Companies have in the past experienced quarterly variations in
revenues, operating income (including operating losses), net income (including
net losses) and cash flows; negative fluctuations have been particularly
pronounced, and net losses have been incurred, in the third and fourth
calendar quarters. The Company expects to continue to experience such
quarterly fluctuations in operating results (including possible net losses)
due to the factors discussed above, and may also experience quarterly
fluctuations as a result of other factors, including the loss of a major
customer, additional selling, general and administrative expenses to acquire
and support new business and the timing and magnitude of required capital
expenditures. The Company plans its operating expenditures based on revenue
forecasts, and a revenue shortfall below such forecasts in any quarter would
likely adversely affect the Company's operating results for that quarter. See
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations--Seasonality and Cyclicality; Fluctuations in
Quarterly Operating Results."
WEATHER
The supply of perishable floral products is significantly dependent on
weather conditions where the products are grown. Severe weather, including
unexpected cold weather, may have an effect on the available supply of flowers
at times of peak demand. For example, in order for a sufficient supply of
roses to be available for sale on Valentine's Day, rose-growing regions must
not suffer a freeze or other harsh conditions in the weeks leading up to the
holiday. Shortages or disruptions in the supply of fresh flowers or the
inability of the Company to procure such materials from alternate sources at
acceptable prices in a timely manner, could lead to the loss of customers
11
<PAGE>
which in turn could result in a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The distribution segment of the floriculture industry is highly competitive,
with numerous distributors in each market. The Company competes with other
importers, brokers, wholesalers and bouquet companies based upon price, credit
terms, breadth of product offerings, product quality, customer service and
location. In addition, the Company competes with other buyers and sellers of
floral and floral-related products, such as garden centers and farm stores. To
the extent that the Company is unable to compete successfully against its
existing and future competitors, its business, operating results and financial
condition would be materially adversely affected. While the Company believes
that it competes effectively within its industry, additional competitors with
greater resources than the Company may enter the industry and compete
effectively against the Company. Moreover, the Company may depend in part upon
a trend toward consolidation in the floral products industry in order to
execute effectively its acquisition and vertical integration strategy. This
trend may not continue. If the Company's customers do not receive the
Company's vertical integration strategy favorably, such customers have
numerous alternative sources of supply.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the efforts and abilities of Robert J. Poirier, its co-founder, Chairman
of the Board, President and Chief Executive Officer, Jonathan J. Ledecky, its
co-founder and Non-Executive Chairman of the Board, the Company's other
executive officers and, due to the Company's decentralized operating strategy,
senior management of the Founding Companies. Pursuant to the Company's Bylaws,
the duties of the Non-Executive Chairman of the Board consist of presiding at
meetings of the Board of Directors and stockholders of the Company, and do not
include serving as an officer of the Company or performing any executive,
supervisory or management functions or duties separate and apart from such
individual's role as a director of the Company. While the Company has entered
into employment agreements with Mr. Poirier and senior management of the
Founding Companies, the Company cannot assure that such individuals will
remain with the Company throughout the terms of the agreements, or thereafter.
The Company likely will depend on the senior management of any significant
business it acquires in the future. If the Company loses the services of one
or more of these key employees before the Company is able to attract and
retain qualified replacement personnel, the Company's business could be
adversely affected. See "Management." The Company does not maintain any
policies of key person life insurance on the lives of its senior management
personnel.
RISKS ASSOCIATED WITH IMPORTED PRODUCTS; ANTI-DUMPING LIABILITY
The majority of the perishable floral products distributed by the Company
are of foreign origin. These products are imported principally from countries
in South America and Latin America, including Colombia, Ecuador, Costa Rica
and Mexico. Floral product purchases are denominated in U.S. Dollars. The
Company is subject to the import and export restrictions of various
jurisdictions and is dependent to some extent upon general economic conditions
in and political relations with a number of foreign countries. Although such
restrictions and conditions have not had a material impact on the operations
of the Company or the Founding Companies to date, there can be no assurance
that such restrictions and conditions will not have a material adverse effect
on the Company's business, financial condition and results of operations. One
such factor, among others, is the imposition of anti-dumping duties upon
certain imports of perishable floral products. "Dumping" is the practice
whereby importers sell flowers in the United States at prices below the home
market value. The U.S. Commerce Department investigates claims of dumping made
by domestic growers. If the Commerce Department determines that an importer
sold flowers for a price less than the home market value, then the Commerce
Department will impose an anti-dumping duty upon the importer. The Commerce
Department is currently conducting anti-dumping reviews, related to the sales
of certain flowers imported from Colombia. Two periods (a period is March 1
through February 28) are being reviewed currently, and the determination of
the Commerce Department with
12
<PAGE>
respect to three other periods is pending appeal. The Company's operating
units that are importers, such as CFX and Flower Trading impose a surcharge
upon sales of those flowers that are under review or for which reviews are
pending appeal and maintain reserves to offset any final duty that may be
imposed. The surcharge is imposed because, although "dumping," if any, is an
activity that is purportedly engaged in by growers, not importers, any final
duty assessed is paid by importers, rather than by growers. Since any
liability will ultimately be paid by the importers, they maintain reserves
against that possible liability to the extent described in their financial
statements. In effect, the surcharge helps importers to generate the cash
necessary to pay any finally-determined duties. The accrued reserves may not
be adequate to satisfy any duty that is assessed. In addition, the Commerce
Department may initiate additional reviews at any time and duties may be
imposed on sales of flowers for which the importers have not maintained
reserves.
HOLDING COMPANY STRUCTURE
The Company is a holding company, the principal assets of which are the
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating operating revenues, the Company depends on
dividends and other payments from its subsidiaries to fund its obligations and
meet its cash needs. Expenses of the Company include salaries of its executive
officers, insurance, professional fees and service of any indebtedness that
may be outstanding from time to time. The Company's subsidiaries may not make
sufficient dividend or other payments to permit the Company to fund its
obligations or meet its cash needs, in whole or in part. See "Management--
Summary Compensation Table."
ABSENCE OF CONTRACTUAL RELATIONSHIPS WITH CUSTOMERS
Companies in the floral products industry generally do not enter into sales
contracts with their customers requiring them to make purchases over any
specific term. Instead, sales are generally evidenced by purchase orders or
similar documentation limited to specific sales. As a result of these
practices, the Company's customers generally have the right to terminate their
relationships with the Company without penalty and with little or no notice.
Accordingly, a customer from which the Company generates substantial revenue
in one period may not be a substantial source of revenue in a subsequent
period. If the Company's customers elect to reduce or cease purchases from the
Company, the Company's business, financial condition and results of operations
would be materially and adversely affected.
POTENTIAL CONFLICTS OF INTEREST
The Company is subject to risks associated with potential conflicts of
interest that may arise out of the interrelationships among certain of the
officers of the Founding Companies and related third party entities with which
the Founding Companies conduct business transactions. Dwight Haight, President
of CFX, owns a 25% interest in two farms, Miramonte and Mocari, located in
Colombia, from which CFX purchases roses. Mr. Haight also owns a 50% interest
in La Fleurette, a bouquet manufacturer with which CFX conducts business and
for which CFX provides management services. John T. Dickinson, President of
American Florist, has an ownership interest in a rose farm, Meadow Flowers,
located in Ecuador, from which American Florist purchases roses. For a more
detailed description of these and certain other related party transactions,
see "Certain Relationships and Related Party Transactions." While the Company
intends to conduct all related party transactions on terms no less favorable
than those the Company could negotiate with an unrelated third party, the
interests of officers of the Founding Companies in their capacities with
related third party entities may come into conflict with the interests of such
persons in their capacities with the Company.
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDERS
After the consummation of the IPO, the Company's executive officers,
directors and five-percent stockholders owned beneficially an aggregate of
approximately 29.3% of the outstanding shares of Common Stock. The Company's
officers, directors and five-percent stockholders if acting together may be
able to control
13
<PAGE>
the election of directors and matters requiring the approval of the
stockholders of the Company. This concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company. See
"Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
As of October 31, 1997, 9,594,050 shares of Common Stock were outstanding.
The 5,750,000 shares sold in the IPO are freely tradeable without restriction
or further registration under the Securities Act, unless acquired by an
"affiliate" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act ("Rule 144"); shares held by affiliates will be
subject to the resale limitations of Rule 144 described below. All of the
3,844,050 remaining outstanding shares of Common Stock will be available for
resale at various dates beginning 180 days after the date of the IPO, upon
expiration of applicable lock-up agreements and subject to compliance with
Rule 144 under the Securities Act as the holding provisions of Rule 144 are
satisfied. Of those shares, 3,654,050 may be included in certain registration
statements that may be filed by the Company, in accordance with piggyback
registration rights granted pursuant to the Merger Agreements or pursuant to
such rights granted to Mr. Ledecky and Mr. Poirier. The additional shares
(approximately 415,385 shares, assuming a price per share at the calculation
date equal to the initial public offering price of $13.00 per share) that may
be issued to stockholders of two of the Founding Companies pursuant to earn-
out arrangements (to be calculated with reference to the performance of those
Founding Companies) will also be subject to such piggyback registration
rights. Further, 941,250 shares of Common Stock are issuable upon the exercise
of stock options of which options to purchase 160,000 shares are currently
exercisable. The Company has filed a registration statement on Form S-8 to
register the issuance of the shares issuable upon the exercise of such
options. In addition, the 12,500,000 shares of Common Stock offered by this
Prospectus generally will be freely tradeable after their issuance by persons
not affiliated with the Company, unless their resale is contractually
restricted. Sales, or the availability for sale, of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and the future ability of the Company to raise equity capital and to
complete acquisitions in which all or a portion of the consideration is Common
Stock.
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the IPO, there was no public market for the Company's Common Stock.
The offering price for the Common Stock to be issued pursuant to this
Prospectus will be based upon the Company's closing stock price at a date
certain or the average closing stock price over a period of time determined by
negotiations between the Company and the owners of the Companies to be
acquired. Any such negotiated price may bear no relationship to the price at
which the Common Stock will trade after each respective acquisition and an
active trading market may not be sustained subsequent to any future
acquisition transactions. The trading price of the Common Stock could be
subject to significant fluctuations in response to activities of the Company's
competitors, variations in quarterly operating results, changes in market
conditions and other events or factors. Moreover, the stock market in the past
has experienced significant price and value fluctuations, which have not
necessarily been related to corporate operating performance. The volatility of
the market could adversely affect the market price of the Common Stock and the
ability of the Company to raise equity in the public markets.
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law may make a change in the control of the Company more
difficult to effect, even if a change in control were in the stockholders'
interest. Pursuant to the Certificate of Incorporation and Bylaws, the Board
of Directors is divided into three classes of directors elected for staggered
three-year terms. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law and the Company's
Certificate of Incorporation and Bylaws."
14
<PAGE>
FORMATION OF THE COMPANY
USA FLORAL
USA Floral was incorporated in Delaware in April 1997 as a holding company
to acquire businesses in the floriculture industry. Prior to the Mergers and
the IPO, USA Floral issued 2,400,000 shares of Common Stock for cash to its
co-founders and initial investors, including 1,000,000 shares to Robert J.
Poirier and 1,100,000 shares to Jonathan J. Ledecky. Mr. Poirier is the co-
founder, Chairman of the Board, President and Chief Executive Officer of USA
Floral and Mr. Ledecky is its co-founder and Non-Executive Chairman of the
Board. Immediately following the IPO, the co-founders of USA Floral owned
beneficially in the aggregate approximately 24.3% of the outstanding Common
Stock of the Company. See "Certain Relationships and Related Party
Transactions--Organization of USA Floral."
THE MERGERS
Simultaneously with the consummation of the IPO, USA Floral acquired in
eight separate transactions all of the issued and outstanding capital stock of
each of the Founding Companies for an aggregate consideration of $63.7
million, which consisted of: (i) $42.4 million in cash paid to the
stockholders of the Founding Companies, (before giving effect to the receipt
by the Company upon consummation of the Mergers of approximately $1.7 million
of net related party receivables); (ii) $4.0 million in cash to fund S
Corporation distributions to the stockholders of CFX and Alpine Gem; and (iii)
the $17.3 million fair value (based upon the initial public offering price of
$13.00 per share) of 1,334,050 shares of Common Stock issued to the
stockholders of the Founding Companies. In addition, the Company may pay
additional consideration of up to $0.5 million in cash and issue up to $5.4
million in shares of Common Stock (approximately 415,385 shares, assuming a
price per share at the calculation date equal to the initial public offering
price of $13.00 per share) (or, in the event the fair market value per share
is less than $10.00, such additional shares of Common Stock or, at the
Company's option, cash as is necessary so that the stockholders receive
consideration equal to $10.00 per share), pursuant to earn-out arrangements
with two of the Founding Companies. The Company also assumed an estimated tax
liability of one of the Founding Companies of approximately $0.5 million. The
purchase price for each Founding Company was determined based on negotiations
between USA Floral and that Founding Company. The factors considered by the
parties in determining the purchase price included, among other factors, cash
flows, historical operating results, growth rates and business prospects of
the Founding Companies. With the exception of the consideration paid to the
stockholders of each of the Founding Companies, the acquisition of each
Founding Company was subject to substantially the same terms and conditions as
those to which the acquisition of each other Founding Company was subject. The
following table contains information concerning the aggregate cash paid,
Common Stock issued (at the IPO price of $13.00 per share) and S Corporation
distributions made in connection with the Mergers:
<TABLE>
<CAPTION>
SHARES OF VALUE OF
S CORP. COMMON SHARES OF TOTAL
FOUNDING COMPANY CASH DISTRIBUTIONS STOCK COMMON STOCK CONSIDERATION
- ---------------- ----- ------------- --------- ------------ -------------
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Houff................... $11.0 -- -- -- $11.0
CFX..................... 5.8 $ 4.0 250,000 $ 3.2 13.0
Bay State............... 6.0 -- 495,550 6.4 12.4
Flower Trading.......... 5.9(1) -- 160,000 2.1 8.0
United Wholesale........ 4.8 -- 268,500 3.5 8.3
American Florist........ 4.8 -- -- (2) -- (2) 4.8(2)
Monterey Bay............ 2.5 -- -- (3) -- (3) 2.5(3)
Alpine Gem.............. 1.6 -- (4) 160,000 2.1 3.7
----- ----- --------- ----- -----
Total................. $42.4(5) $ 4.0 1,334,050 $17.3 $63.7
===== ===== ========= ===== =====
</TABLE>
- --------
(1) Does not include an estimated tax liability of approximately $0.5 million
payable after consummation of the Flower Trading Merger, which was assumed
by the Company in connection with the Flower Trading Merger.
(2) The sellers of American Florist have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of shares of Common Stock with an aggregate value of up
15
<PAGE>
to $2.4 million (based on the average closing price of the Common Stock for
the ten trading days prior to December 31, 1997). The earn-out is based
upon American Florist's 1997 earnings before interest and taxes.
(3) The sellers of Monterey Bay have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of up to $0.5 million in cash and shares of Common Stock with
an aggregate value of up to $3.0 million (based on the average closing
price of the Common Stock for the ten trading days prior to December 31,
1997). The earn-out is based upon Monterey Bay's 1997 earnings before
interest and taxes.
(4) The amount of the Alpine Gem S Corporation distribution is $42,000.
(5) Does not reflect the receipt by the Company upon consummation of the
Mergers of approximately $1.7 million of net related party receivables.
The consummation of each Merger was contingent upon the consummation of the
IPO and the satisfaction of customary closing conditions, including the
absence of material adverse changes in the business, operations and financial
condition of the Founding Companies and the Company and certification by the
parties to each Merger Agreement that the representations and warranties made
by such party in the Merger Agreement were true and correct as of the
consummation of the Merger and that such party had performed its obligations
under the Merger Agreement. The Merger Agreements provided that the
stockholders of the Founding Companies will have the right, under
circumstances specified in the Merger Agreements, to register the shares of
Common Stock received by the stockholders as a portion of the Merger
consideration. Pursuant to the Merger Agreements, options to purchase a number
of shares of Common Stock, equal to 6.25% of the cash and Common Stock portion
of the Merger consideration, based on the initial public offering price, were
made available to employees of the Founding Companies. The options have an
exercise price equal to the initial public offering price per share and vest
ratably over a four-year period, beginning on the anniversary of the date of
the grant. The Merger Agreements further provided that the stockholders of the
Founding Companies will indemnify USA Floral from certain liabilities that may
arise in connection with the Mergers. A portion of the consideration payable
to the stockholders of each of the Founding Companies will be escrowed, in the
case of cash, or pledged, in the case of Common Stock, for a period of twelve
months from the consummation of the IPO, as security for the stockholders'
indemnification obligations.
THE ROY HOUFF COMPANY
USA Floral acquired all of the outstanding stock of Houff in a reverse
subsidiary merger (the "Houff Merger") for $11.0 million in cash. In
connection with the Houff Merger, Roy O. Houff, the Chief Executive Officer
and sole stockholder of Houff, will become a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Houff entered
into a two-year covenant not to compete with the Company and its affiliates
and a two-year employment agreement with the subsidiary of the Company that
operates the Houff business after the Merger. Immediately prior to the Houff
Merger, Mr. Houff transferred the real estate acquired in the Houff Merger and
the indebtedness associated therewith. Two of the parcels of real property are
undergoing environmental remediation. The property located in Wheeling,
Illinois has undergone remediation to remove soil contaminated by a leaking
underground storage tank ("UST"). The Company has received a closure letter
from the Illinois Environmental Protection Agency, indicating that no further
remediation is required, and therefore the Company will acquire this property.
Two USTs are being removed and one UST is being closed in place on one of the
properties located in Chicago, Illinois. If further environmental
contamination is discovered at any property acquired by the Company, or if the
existing contamination is not properly remediated, the Company could incur
liability, which could be material and which could include payments for the
costs of cleanup, damages to third parties and penalties to state and federal
environmental agencies.
CFX, INC.
USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger (the "CFX Merger") for: (i) $9.8 million in cash, of which a
portion represents the amount of CFX's accumulated adjustments account which
was distributed to the stockholders of CFX immediately prior to the
consummation of the CFX Merger; and (iii) 250,000 shares of Common Stock. In
connection with the CFX Merger, Dwight
16
<PAGE>
Haight, the President of CFX, will become a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Haight entered
into a two-year covenant not to compete with the Company and its affiliates
(subject to certain exceptions) and a two-year employment agreement with the
subsidiary of the Company that operates the CFX business after the Merger.
BAY STATE FLORIST SUPPLY, INC.
USA Floral acquired all of the outstanding stock of Bay State in a reverse
subsidiary merger (the "Bay State Merger") for $6.0 million in cash and
495,550 shares of Common Stock. In connection with the Bay State Merger,
William W. Rudolph, the President of Bay State, will become a Director of the
Company upon appointment to the Board at its meeting in November 1997. Mr.
Rudolph entered into a two-year covenant not to compete with the Company and
its affiliates (subject to certain exceptions) and a two-year employment
agreement with the subsidiary of the Company that operates the Bay State
business after the Merger. Immediately prior to the consummation of the
Merger, Bay State distributed real estate owned by Bay State to its
stockholders. Bay State lease the property from the stockholders, at a rate to
be determined, which will not exceed the rate that would obtain in an arm's-
length negotiation.
FLOWER TRADING CORPORATION
USA Floral acquired all of the outstanding stock of Flower Trading in a
reverse subsidiary merger (the "Flower Trading Merger") for $5.9 million in
cash and 160,000 shares of Common Stock. In addition, the Company assumed an
estimated tax liability of Flower Trading of approximately $0.5 million. In
connection with the Flower Trading Merger, Gustavo Moreno, the President of
Flower Trading, will become a Director of the Company upon appointment to the
Board at its meeting in November 1997. Mr. Moreno entered into a two-year
covenant not to compete with the Company and its affiliates (subject to
certain exceptions) and a two-year employment agreement with the subsidiary of
the Company that operates the Flower Trading business after the Merger.
UNITED WHOLESALE FLORISTS, INC.
USA Floral acquired all of the outstanding stock of United Wholesale in a
reverse subsidiary merger (the "United Wholesale Merger") for $4.8 million in
cash and 268,500 shares of Common Stock. In connection with the Merger,
Raymond R. Ashmore, the President of United Wholesale, will become a Director
of the Company upon appointment to the Board at its meeting in November 1997.
Mr. Ashmore entered into a two-year covenant not to compete with the Company
and its affiliates and a two-year employment agreement with the subsidiary of
the Company that operates the United Wholesale business after the Merger. The
Merger Agreement provides that the Company will be granted a five-year option
to purchase the real estate leased by United Wholesale from affiliated
entities. United Wholesale will lease properties from affiliated entities, at
a rate to be determined, which will not exceed the rate that would obtain in
an arm's-length negotiation.
AMERICAN FLORIST SUPPLY, INC.
USA Floral acquired all of the outstanding stock of American Florist in a
reverse subsidiary merger (the "American Florist Merger") for $4.8 million in
cash. In connection with the American Florist Merger, John T. Dickinson, the
President of American Florist, will become a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Dickinson
entered into a two-year covenant not to compete with the Company and its
affiliates and a two-year employment agreement with the subsidiary of the
Company that operates the American Florist business after the Merger. In
addition, Mr. Dickinson may receive a contingent payment of up to $2.4
million, based on American Florist's earnings before interest and taxes for
the year ended December 31, 1997. The contingent payment is payable in Common
Stock. The number of shares to be issued in satisfaction of the contingent
payment will be calculated by reference to the average closing price of the
Common Stock for the ten trading days prior to December 31, 1997. The American
Florist Merger Agreement provides that, if the average closing price is less
than $10 per share, then the Company, at its sole option, may satisfy any
17
<PAGE>
contingent payment obligation in excess of 240,000 shares by issuance of
additional shares of Common Stock, by payment of cash, or by a combination of
cash and Common Stock.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
USA Floral acquired all of the outstanding stock of Monterey Bay in a
reverse subsidiary merger (the "Monterey Bay Merger") for $2.5 million in
cash. In connection with the Monterey Bay Merger, Jeffrey Brothers, the
President of Monterey Bay, will become a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Brothers entered
into a two-year covenant not to compete and a two-year employment agreement
with the subsidiary of the Company that operates the Monterey Bay business
after the Merger. In addition, the stockholders of Monterey Bay may receive a
contingent payment of up to $3.5 million, based on Monterey Bay's earnings
before interest and taxes for the year ended December 31, 1997. Of the
contingent payment, $0.5 million is payable in cash and $3.0 million is
payable in Common Stock. The number of shares to be issued in satisfaction of
the contingent payment will be calculated by reference to the average closing
price of the common stock for the ten trading days prior to December 31, 1997.
The Monterey Bay Merger Agreement provides that, if the average closing price
is less than $10 per share, then the Company, at its sole option, may satisfy
any contingent payment obligation in excess of 300,000 shares by issuance of
additional shares of Common Stock, by payment of cash, or by a combination of
cash and Common Stock.
ALPINE GEM FLOWER SHIPPERS, INC.
USA Floral acquired all of the outstanding stock of Alpine Gem in a reverse
subsidiary merger (the "Alpine Gem Merger") for (i) $1.6 million in cash; (ii)
$42,000 in cash representing the amount of Alpine Gem's accumulated
adjustments account, which was distributed to the stockholders of Alpine Gem
immediately prior to the consummation of the Alpine Gem Merger and (ii)
160,000 shares of Common Stock. In connection with the Alpine Gem Merger, John
Q. Graham, Jr., the President of Alpine Gem, will become a Director of the
Company. Mr. Graham entered into a two-year covenant not to compete with the
Company and its affiliates and a two-year employment agreement with the
subsidiary of the Company that operates the Alpine Gem business after the
Merger.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
since October 10, 1997. On November 7, 1997, the last sale price of the Common
Stock was $17.50 per share. As of November 6, 1997, there were approximately
60 holders of record of the Company's Common Stock. The Common Stock has
traded at prices ranging from $14.625 to $21.25 during the period from October
10, 1997 to November 7, 1997.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes. Any payment of future dividends will be at the discretion of the
Board of Directors and will depend upon, among other factors, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
considerations that the Company's Board of Directors deems relevant. In
addition, the Company's credit facility includes restrictions on the ability
of the Company to pay dividends without the consent of the lender.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1997, on a pro forma basis (i) to reflect the consummation of the Mergers and
the issuance of 1,334,050 shares of Common Stock in connection therewith, and
(ii) on such pro forma basis as adjusted to give effect to the IPO and the
issuance of 110,000 shares to Jonathan J. Ledecky in October 1997 pursuant to
the exercise of an option at an exercise price equal to the initial public
offering price of $13.00 per share, which option was granted to facilitate the
treatment of the issuance of shares in the Mergers as a tax-free exchange
under Section 351 of the Internal Revenue Code, and the application of the
estimated net proceeds therefrom. See "Selected Financial Data of the Founding
Companies." This table should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements and the notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
PRO FORMA
COMBINED AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term
debt................................................ $ 3,540 $ 3,540
------- -------
Long-term debt and capital lease obligations, less
current portion..................................... 3,569 3,569
Stockholders' equity:
Common stock, $.001 par value per share, authorized,
shares issued and outstanding pro forma, shares
issued and outstanding pro forma as adjusted........ 4 10
Additional paid-in capital........................... 17,695 86,387
Retained deficit..................................... (30) (30)
------- -------
Total stockholders' equity......................... 17,669 86,367
------- -------
Total capitalization............................. $21,238 $89,936
======= =======
</TABLE>
- --------
(1) Does not include: (i) shares which may be issued to the stockholders of
two of the Founding Companies pursuant to earn-out arrangements, to be
calculated with reference to the performance of those Founding Companies
through December 31, 1997 (approximately 415,385 shares, assuming a price
per share at the calculation date equal to the initial public offering
price of $13.00 per share); (ii) shares of Common Stock equal to 15% of
the shares of Common Stock outstanding from time to time that are reserved
for issuance under the Company's 1997 Long-Term Incentive Plan, of which
options to purchase 816,250 shares of Common Stock (including options to
purchase 200,000 shares to Jonathan J. Ledecky, the Company's Non-
Executive Chairman of the Board) were granted upon consummation of the
Offering at an exercise price equal to the initial public offering price
of $13.00 per share, and options to purchase 125,000 shares of Common
Stock were granted upon consummation of the Offering at an exercise price
equal to $8.00 per share; (iii) 300,000 shares of Common Stock reserved
for issuance under the Company's 1997 Non-Employee Directors' Stock Plan,
of which options to purchase 63,000 shares of Common Stock were granted
upon consummation of the Offering at an exercise price equal to the
initial public offering price of $13.00 per share; and (iv) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1997
Employee Stock Purchase Plan. See "Formation of the Company--The Mergers,"
"Management--1997 Long-Term Incentive Plan" and "--1997 Non-Employee
Directors' Stock Plan" and "Principal Stockholders."
19
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
USA Floral was established in April 1997 and acquired the Founding Companies
simultaneously with the consummation of the IPO. For financial statement
presentation purposes, USA Floral has been identified as the "accounting
acquiror." The following unaudited summary pro forma combined financial data
present data for the Company, adjusted to give effect to (i) the consummation
of the Mergers, (ii) certain pro forma adjustments to the historical financial
statements described below and (iii) the consummation of the IPO and the
application of the net proceeds therefrom. The selected pro forma data are not
necessarily indicative of operating results or financial position that would
have been achieved had the events described above been consummated and should
not be construed as representative of future operating results or financial
position. The selected pro forma combined financial data should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements and the
notes thereto and the historical financial statements of the Founding
Companies and the notes thereto included elsewhere in this Prospectus. The
Company anticipates that it will realize savings from the following: more
favorable discounts and rebates on hardgood products than those obtained
individually by the Founding Companies; the combination of functions such as
accounting and finance, insurance, employee benefits, strategic marketing and
legal support at the corporate level; and, to a lesser extent, reduced
transportation and handling costs on perishable floral products. However,
these savings cannot be quantified or reasonably estimated and have not been
included in the selected pro forma combined financial data.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------------------------
1996 1996 1997
--------------------------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA(1):
Net sales.................. $ 175,467 $ 97,269 $ 103,015
Gross profit(2)............ 49,247 27,146 29,378
Selling, general and admin-
istrative expense(3)...... 43,309 21,574 22,091
Goodwill amortization(4)... 1,090 545 545
--------------- --------------- ---------------
Operating income........... 4,848 5,027 6,742
Interest and other (income)
expense, net(5)........... (141) (211) (76)
--------------- --------------- ---------------
Income before income tax-
es........................ 4,989 5,238 6,818
--------------- --------------- ---------------
Net income(6).............. $ 2,557 $ 2,925 $ 3,873
=============== =============== ===============
Net income per share...... $ .33 $ .38 $ .50
=============== =============== ===============
Shares used in computing
net income per share(7).. 7,738,819 7,738,819 7,738,819
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------
PRO FORMA
COMBINED AS ADJUSTED(9)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(8):
Working capital.................................... $(33,717)(10) $ 34,981
Total assets....................................... 85,774 109,435
Total long-term debt............................... 3,569 3,569
Stockholders' equity............................... 17,669 86,367
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Mergers and the IPO were consummated on January 1, 1996.
(2) Reflects the reduction in costs of sales of $579,000 for the year ended
December 31, 1996 and $290,000 and $300,000 for the six-month periods
ended June 30, 1996 and 1997, respectively, attributable to a significant
reduction in the services provided under a contract for various services
with an affiliated entity of Flower Trading that was renegotiated
pursuant to the Flower Trading Merger Agreement.
20
<PAGE>
(3) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $3.6 million, $2.7 million and $403,000 for the year
ended December 31, 1996 and the six-month periods ended June 30, 1996 and
1997, respectively, in Compensation Differential, (ii) a net reduction of
lease-related expenses of $367,000 for the year ended December 31, 1996
and $183,000 for each of the six-month periods ended June 30, 1996 and
1997, pursuant to real estate acquired, real estate distributed and
amendment of associated lease agreements in connection with the Mergers,
(iii) an increase of $500,000, $250,000 and $220,000 for the year ended
December 31, 1996, and for the six-month periods ended June 30, 1996 and
1997, respectively, of expenses associated with corporate management, as
well as costs associated with being a public company, and (iv) $156,000
for the year ended December 31, 1996 and $78,000 for each of the six-
month periods ended June 30, 1996 and 1997 of expense attributable to
compensation expense associated with 125,000 options granted with an
exercise price below the initial public offering price which will vest
over a four-year period.
(4) Consists of amortization of the $43.6 million of goodwill to be recorded
as a result of the Mergers over a 40-year period and computed on the
basis described in the Notes to the Unaudited Pro Forma Combined
Financial Statements.
(5) Reflects an increase in interest expense of $162,000 for the year ended
December 31, 1996 and $82,000 for each of the six-month periods ended
June 30, 1996 and 1997 relating to debt assumed in connection with real
estate transferred to Houff from the stockholder of Houff as part of the
transaction.
(6) Assumes that all income is subject to a corporate income tax rate of 40%
and that all goodwill is non-deductible.
(7) Includes (i) 1,334,050 shares issued to stockholders of the Founding
Companies, (ii) 2,400,000 shares issued to the founders and initial
investors in USA Floral, (iii) 3,956,692 of the 5,750,000 shares sold in
the IPO to pay the cash portion of the Merger consideration, to fund S
Corporation distributions to stockholders of certain of the Founding
Companies, and to pay certain expenses of the Offering, and (iv) 48,077
shares related to the dilution attributable to options granted with an
exercise price below the initial public offering price, in accordance
with the treasury stock method.
(8) The pro forma combined balance sheet data assume that the Mergers were
consummated on June 30, 1997. Prior to the Mergers, Bay State distributed
to its stockholders certain real estate having a net book value of
$842,000. Additionally, in conjunction with the Mergers certain real
estate was acquired and certain associated debt was assumed.
(9) Adjusted to reflect the sale of the 5,750,000 shares of Common Stock in
the IPO and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." Also reflects proceeds of $1.4 million from the
exercise by Jonathan J. Ledecky of an option to purchase 110,000 shares
at the initial public offering price of $13.00 per share.
(10) Includes $44.6 million paid to stockholders of the Founding Companies,
representing the cash portion of the Merger consideration paid from a
portion of the net proceeds of the IPO, plus S Corporation distributions
made to the stockholders of certain of the Founding Companies, less the
amount received by the Company upon consummation of the Mergers in
repayment of net related party receivables. See "Notes to Unaudited Pro
Forma Combined Financial Statements."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company engages
primarily in the wholesale distribution of perishable floral products and
floral-related hardgoods. The Company also imports cut flowers from growers in
foreign countries, provides pre-packaged floral bouquets and arrangements to
retail florists and mass-market retailers and engages in brokerage services
for wholesalers of both foreign and domestic cut flowers.
The Company commenced operations on October 16, 1997, the date of the
consummation of the IPO and the Mergers. Prior to the Mergers, the Founding
Companies were operating independently. The Company intends to integrate these
businesses, their operations and their administrative functions over a period
of time. Such integration may present opportunities to reduce costs through
the elimination of duplicate functions and through economies of scale, and may
necessitate additional costs and expenditures for corporate management and
administration, corporate expenses related to being a public company, systems
integration, employee relocation and severance and facilities expansion. These
various costs and possible cost-savings may make comparison of future
operating results with historical operating results difficult.
The Company derives its revenues from the sale of perishable floral products
and floral-related hardgoods. Sales of perishable products, which include cut
flowers, bouquets and potted plants, accounted for approximately 90% of the
Company's pro forma combined revenues in 1996. Sales of floral-related
hardgoods, which include vases and glassware, foam for flower arranging, tools
and other supplies accounted for approximately 10% of the pro forma combined
revenues in 1996.
Net sales are recognized upon the shipment of products to customers. Cost of
sales generally includes the cost of perishable products and floral-related
hardgoods plus the cost of in-bound freight. Although the Company generally
does not enter into long-term contracts with its suppliers, it does conduct
business on a fixed-price "standing order" basis with certain importers in
order to insure an adequate supply of flowers during periods of peak demand.
In general, the Founding Companies have been able to pass on most of their
direct price increases to customers. Selling, general and administrative costs
include warehouse and customer delivery expenses, employee salaries, telephone
expenses, advertising and promotional expenses, wages and benefits,
depreciation and occupancy costs.
The Founding Companies operated historically as independent, privately-owned
entities, and their results of operations reflect varying tax structures,
including both S and C Corporations, which have influenced the historical
level of owners' compensation. The selling, general and administrative
expenses of the Founding Companies include compensation to employee-
stockholders totaling $3.5 million, $3.8 million and $5.0 million for the
fiscal years ended December 31, 1994, 1995 and 1996 (in the case of each
Founding Company other than United Wholesale) and June 30, 1995, 1996 and 1997
(in the case of United Wholesale), respectively. As a result of varying
practices regarding compensation to employee-stockholders among the Founding
Companies, the comparison of operating margins among the Founding Companies
and from period to period in respect of a particular Founding Company may be
difficult. Effective upon consummation of the Mergers, certain employee-
stockholders entered into employment agreements and the aggregate compensation
paid to the stockholders of the Founding Companies was reduced. See "Pro Forma
Results of Operations of the Founding Companies." This Compensation
Differential has been reflected in the Unaudited Pro Forma Combined Statement
of Operations.
22
<PAGE>
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited
Pro Forma Financial Statements, and the related notes thereto and the
historical financial statements of the Founding Companies and the related
notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1996 1997
------------- --------------
<S> <C> <C> <C> <C>
Net Sales....................................... $97,269 100.0% $103,015 100.0%
Cost of Sales................................... 70,123 72.1 73,637 71.5
Selling, General and Administrative Expenses.... 21,574 22.2 22,091 21.4
Goodwill........................................ 545 0.6 545 0.5
------- ----- -------- -----
Operating Income................................ $ 5,027 5.2% $ 6,742 6.6%
======= ===== ======== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $103.0 million in the six months ended
June 30, 1997 from $97.3 million in the six months ended June 30, 1996, an
increase of $5.7 million, or 5.9%. This increase was primarily driven by CFX
and Flower Trading, which accounted for $4.0 million of the increase as a
result of increased sales volume, higher prices for certain products, and a
fuel surcharge fee related to airline shipments that was added to customer
invoices, and a $2.0 million increase at Monterey Bay as a result of increases
in volume primarily due to additional promotional activities. These increases
were partially offset by a decrease at Houff as a result of the closing of its
wholesale distribution facility in Atlanta, Georgia in October 1996.
Cost of Sales. Cost of sales increased to $73.6 million in the six months
ended June 30, 1997 from $70.1 million in the six months ended June 30, 1996,
an increase of $3.5 million, or 5.0%, primarily as a result of the increased
sales. As a percentage of net sales, cost of sales decreased to 71.5% in the
six months ended June 30, 1997 from 72.1% in the six months ended June 30,
1996. The decrease in costs of sales as a percentage of sales is primarily a
result of the Founding Companies obtaining more favorable prices, partially
due to increased volume purchasing, better inventory management and reduced
freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $22.1 million in the six months ended June 30, 1997 from
$21.6 million in the six months ended June 30, 1996, an increase of $0.5
million, or 2.4%. The increase was primarily a result of increased personnel
costs to support the increase in sales. As a percentage of net sales, selling,
general and administrative expenses decreased to 21.4% in the six months ended
June 30, 1997 from 22.2% in the six months ended June 30, 1996 primarily as a
result of spreading fixed costs over increased sales.
Operating Income. As a result of the factors discussed above, operating
income increased to $6.7 million in the six months ended June 30, 1997 from
$5.0 million in the six months ended June 30, 1996, an increase of $1.7
million, or 34.1%. As a percentage of net sales, operating income increased to
6.6% in the six months ended June 30, 1997 from 5.2% in the six months ended
June 30, 1996.
PRO FORMA RESULTS OF OPERATIONS OF THE FOUNDING COMPANIES
The following tables provide the pro forma operating results for the year
ended December 31, 1996 and the six-month periods ended June 30, 1996 and 1997
for each of the respective Founding Companies. USA Floral has preliminarily
analyzed the savings that it expects to realize from reductions in salaries
and certain benefits to the owners of the Founding Companies. To the extent
that the owners of the Founding Companies have agreed to reductions in salary,
bonuses and benefits, these reductions have been reflected in the pro forma
combined statement of operations. Additionally, pro forma operating income has
been adjusted for other items directly attributable to the transaction and
reflects the amortization of goodwill recorded in connection with the Mergers.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Founding Companies' principal sources of liquidity have historically
been cash flows from operating activities and, to a lesser extent, borrowings.
Approximately $42.4 million of the proceeds from the Offering will be used to
fund the cash portion of the consideration to be paid in connection with the
Mergers and $4.0 million will be used to fund S Corporation distributions to
the stockholders of CFX and Alpine Gem. As of June 30, 1997, the Company had
cash and cash equivalents (on a pro forma combined basis) of approximately
$6.0 million. Although there can be no assurance of its ability to do so, the
Company expects to fund its future cash requirements from funds generated from
operations, from borrowed funds or from other sources.
In October 1997, the Company entered into a $100.0 million Credit Facility,
with a $75.0 million sub-limit for permitted acquisitions and a $10.0 million
sub-limit for letters of credit. The Credit Facility is provided by various
lenders, for whom BT is the Agent. Amounts outstanding under the Credit
Facility bear interest, at the Company's option, at either BT's base rate plus
an applicable margin of up to 0.625% or a eurodollar rate plus an applicable
margin of up to 1.875%. The Company's obligations under the Credit Facility
are guaranteed by the direct and indirect domestic subsidiaries of the Company
and by any applicable foreign subsidiaries. The Credit Facility is secured by
a first priority pledge of all of the notes and capital stock owned by the
Company and such guarantors, and a first priority security interest in all
other assets of the Company and such guarantors. The Credit Facility contains
customary conditions to the initial borrowings and to all subsequent loans,
including satisfactory documentation and capital structure, receipt of
required consents, absence of material adverse effect, absence of material
litigation, solvency, accuracy of representations and warranties and, as to
the initial borrowings, satisfactory completion of due diligence by the
lenders. The Credit Facility contains customary covenants, including
restrictions on other indebtedness, restrictions on mergers, acquisitions,
dispositions and similar transactions within certain parameters (including an
aggregate limit upon the cash consideration to be paid of $25.0 million,
subject to certain exceptions), sale-leaseback transactions and lease
payments, dividends, voluntary prepayments and amendments of other debt,
transactions with affiliates, investments, creation of liens, capital
expenditures and material amendments of organization documents, as well as
various financial covenants customary for transactions of this type, including
ratios of total debt to cash flow and cash flow to fixed charges. The Company
paid a financing fee equal to 1.5% of the total amount of the Credit Facility,
and is obligated to pay an annual administration fee of $75,000, and a
commitment fee of 0.25% to 0.5% per year on the unused portion of the Credit
Facility from and after the date on which the Credit Facility was entered
into. As of November 7, 1997, no amounts were outstanding under the Credit
Facility. See "Risk Factors--Risks Associated with Acquisition Strategy."
With the exception of United Wholesale, the Founding Companies' capital
expenditures for the twelve months ended December 31, 1996 and the six months
ended June 30, 1996 and 1997 were approximately $1.4 million, $0.4 million and
$0.7 million, respectively. United Wholesale's capital expenditures were $0.3
million, $0.3 million and $0.1 million for the three years ended June 30,
1997, respectively. These capital expenditures were primarily for machinery,
office equipment and computers, building additions and facility upgrades. The
Company currently does not have any commitments to make significant capital
expenditures in the next twelve months. The Company believes that funds
generated from operations, together with the proceeds from the Offering and
possible future sources of borrowings will be sufficient to finance its
current operations and planned capital expenditure requirements at least
through 1998. To the extent that the Company is successful in consummating
future acquisitions, if any, it may be necessary to finance such acquisitions
through the issuance of additional equity securities, incurrence of
indebtedness or a combination of both.
SEASONALITY AND CYCLICALITY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Unit sales of floral products have historically been seasonal, concentrated
primarily in the first and second calendar quarters as a result of holidays
such as Valentine's Day and Mother's Day. In particular, a significant portion
of the Company's revenues are derived from sales of floral products for
Valentine's Day. Historically, Valentine's Day product sales have been
relatively lower in those years when the holiday falls on a Saturday or
Sunday. In 1998 and 1999, Valentine's Day will be on Saturday and Sunday,
respectively; accordingly, the
24
<PAGE>
Company expects relatively lower Valentine's Day product sales in those years.
By contrast with the first and second calendar quarters, unit sales of floral
products are significantly lower in the third and fourth calendar quarters,
which have relatively few flower-giving holidays.
The Company believes that the floriculture industry is influenced by general
economic conditions and particularly by the level of personal discretionary
spending and that the industry tends to experience periods of decline and
recession during economic downturns. The industry may experience sustained
periods of decline in sales in the future, and any such decline may have a
material adverse effect on the Company.
The Founding Companies have in the past experienced quarterly variations in
revenues, operating income (including operating losses), net income (including
net losses) and cash flows; negative fluctuations have been particularly
pronounced, and net losses have been incurred, in the third and fourth
calendar quarters. The Company expects to continue to experience such
quarterly fluctuations in operating results (including possible net losses)
due to the factors discussed above, and may also experience quarterly
fluctuations as a result of other factors, including the loss of a major
customer, additional selling, general and administrative expenses to acquire
and support new business and the timing and magnitude of required capital
expenditures. The Company plans its operating expenditures based on revenue
forecasts, and a revenue shortfall below such forecasts in any quarter would
likely adversely affect the Company's operating results for that quarter. See
"Risk Factors--Seasonality and Cyclicality; Fluctuations in Quarterly
Operating Results."
The following table sets forth the pro forma combined total net sales of the
Company on a quarterly basis for the year ended December 31, 1996:
<TABLE>
<CAPTION>
1996 QUARTER
----------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................... $50,485 $46,784 $35,362 $42,836 $175,467
Percentage of annual net
sales....................... 28.8% 26.7% 20.1% 24.4% 100.0%
</TABLE>
25
<PAGE>
SELECTED FINANCIAL DATA OF THE FOUNDING COMPANIES
The selected financial data of the Founding Companies are derived in part
from the more detailed historical financial statements and notes thereto of
the Founding Companies included elsewhere in this Prospectus. The balance
sheet data as of December 31, 1995 and 1996, and the statement of operations
data for each of the three years in the period ended December 31, 1996, for
Houff, CFX, Bay State and Flower Trading have been derived from the audited
financial statements included elsewhere herein. The balance sheet data as of
December 31, 1995 and 1996 and the statement of operations data for each of
the two years in the period ended December 31, 1996 for American Florist,
Monterey Bay and Alpine Gem have been derived from the audited financial
statements included elsewhere herein. The balance sheet data as of June 30,
1996 and 1997 and the statement of operations data for each of the three years
in the period ended June 30, 1997 for United Wholesale have been derived from
the audited financial statements included elsewhere herein. The balance sheet
data as of December 31, 1992, 1993 and 1994 and the statement of operations
data for each of the two years in the period ended December 31, 1993, for
Houff, CFX, Bay State and Flower Trading have been derived from unaudited
financial statements. The balance sheet data as of December 31, 1992, 1993 and
1994 and the statement of operations data for each of the three years in the
period ended December 31, 1994 for American Florist, Monterey Bay and Alpine
Gem have been derived from unaudited financial statements. The balance sheet
data as of June 30, 1993, 1994 and 1995 and the statement of operations data
for each of the two years in the period ended June 30, 1994 for United
Wholesale have been derived from unaudited financial statements.
The selected individual financial data of the Founding Companies for the six
months ended June 30, 1996 and 1997 have been derived from the unaudited
financial statements included elsewhere herein. Such selected financial data
are not necessarily indicative of the results to be expected for the full
year.
In the opinion of the Company, the unaudited financial statements of the
Founding Companies reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Founding Companies for those periods
in accordance with generally accepted accounting principles. The following
selected financial data of the Founding Companies should be read in
conjunction with the historical financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Founding Companies" included elsewhere in this Prospectus.
All Founding Companies have fiscal years ending December 31, with the
exception of United Wholesale, whose fiscal year end is June 30.
26
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
STATEMENT OF OPERATIONS DATA: ------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
HOUFF
Net sales............... $31,392 $32,406 $39,098 $41,531 $39,090 $ 22,165 $ 20,410
Cost of sales........... 20,754 21,707 26,683 27,899 25,537 14,693 13,204
Selling, general and
administrative
expenses............... 9,654 10,091 11,617 12,695 12,789 6,533 5,924
Operating income........ 984 608 798 937 764 939 1,282
Net income.............. 1,139 784 991 1,068 775 1,043 1,299
CFX
Net sales............... $27,317 $26,736 $30,590 $32,096 $35,684 $ 20,585 $ 22,854
Cost of sales........... 20,356 19,976 23,839 24,328 28,190 16,031 17,759
Selling, general and
administrative
expenses............... 6,313 6,137 6,266 6,773 8,956 5,249 3,657
Operating income
(loss)................. 648 623 485 995 (1,462) (695) 1,438
Net income (loss)....... 881 721 355 1,538 (1,247) (551) 1,497
BAY STATE
Net sales............... $16,063 $17,979 $19,203 $25,592 $30,563 $ 16,412 $ 16,375
Cost of sales........... 10,919 12,040 12,807 17,068 20,722 11,279 11,080
Selling, general and
administrative
expenses............... 4,599 5,126 5,529 7,579 8,976 4,429 4,556
Operating income........ 545 813 867 945 865 704 739
Net income.............. 736 938 958 1,119 1,033 701 757
FLOWER TRADING
Net sales............... $15,145 $17,246 $18,478 $20,335 $20,313 $ 11,305 $ 12,997
Cost of sales........... 11,802 13,676 14,452 15,921 15,914 8,928 10,139
Selling, general and
administrative
expenses............... 2,789 3,292 3,605 4,068 4,142 1,944 1,936
Operating income........ 553 278 421 346 257 433 922
Net income.............. 415 196 301 130 62 253 545
AMERICAN FLORIST (1)
Net sales............... -- -- $ 6,293 $10,783 $11,679 $ 6,444 $ 7,082
Cost of sales........... -- -- 4,579 7,788 8,268 4,458 4,793
Selling, general and
administrative
expenses............... -- -- 1,545 2,531 2,723 1,421 1,579
Operating income........ -- -- 169 464 688 565 710
Net income.............. -- -- 132 423 683 561 711
MONTEREY BAY (2)
Net sales............... -- $ 2,615 $ 4,253 $ 6,903 $ 9,477 $ 4,827 $ 6,803
Cost of sales........... -- 2,259 3,773 5,959 8,285 4,166 5,575
Selling, general and
administrative
expenses............... -- 301 458 910 1,113 496 563
Operating income........ -- 55 22 34 79 165 665
Net income.............. -- 38 19 20 48 100 367
ALPINE GEM
Net sales............... $ 3,476 $ 4,547 $ 7,252 $ 8,139 $ 9,334 $ 4,979 $ 5,597
Cost of sales........... 2,710 3,448 5,438 6,287 7,132 3,840 4,259
Selling, general and
administrative
expenses............... 697 813 1,320 1,526 1,868 802 902
Operating income........ 69 286 494 326 334 337 436
Net income.............. 78 315 524 224 233 356 462
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Net sales............... $18,508 $18,541 $17,985 $19,030 $19,673
Cost of sales........... 12,250 12,042 11,556 12,563 12,862
Selling, general and
administrative
expenses............... 5,401 6,162 5,926 6,101 6,046
Operating income........ 286 337 503 366 765
Net income.............. 6 54 187 144 482
</TABLE>
- --------
(1) American Florist commenced operations in April 1994; accordingly there
were no historical operating results prior to that date.
(2) Monterey Bay commenced operations in March 1993; accordingly there were no
historical operating results prior to that date.
(3) United Wholesale Florists of America, Inc., one of the two constituent
corporations that compose United Wholesale, commenced operations in July
1992.
27
<PAGE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END DECEMBER 31,
---------------------------------- AS OF
1992 1993 1994 1995 1996 JUNE 30, 1997
BALANCE SHEET DATA: ------ ------ ------ ------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HOUFF
Total assets................. $5,874 $6,243 $8,169 $8,125 $7,276 $6,494
Debt......................... -- -- 76 -- 450 390
Equity....................... 2,095 2,159 2,285 1,974 2,006 2,464
CFX
Total assets................. $5,903 $5,826 $7,519 $7,342 $6,474 $8,027
Debt......................... 159 81 -- -- 21 12
Equity....................... 3,474 3,428 3,783 5,280 3,737 5,234
BAY STATE
Total assets................. $5,826 $6,076 $6,727 $7,657 $8,511 $9,110
Debt......................... -- -- -- 412 358 396
Equity....................... 4,309 4,504 4,697 5,032 5,466 5,566
FLOWER TRADING
Total assets................. $3,232 $3,483 $3,662 $3,615 $3,651 $4,211
Debt......................... -- 126 51 8 391 339
Equity....................... 1,456 1,693 1,994 2,124 1,470 2,015
AMERICAN FLORIST (1)
Total assets................. -- -- $1,878 $2,136 $2,438 $2,580
Debt......................... -- -- -- 598 598 598
Equity....................... -- -- 532 650 628 1,040
MONTEREY BAY(2)
Total assets................. -- $ 547 $ 797 $1,101 $1,321 $1,791
Debt......................... -- 13 23 30 24 36
Equity....................... -- 116 135 181 229 596
ALPINE GEM
Total assets................. $ 686 $ 872 $1,110 $1,269 $1,260 $1,615
Debt......................... -- -- -- -- -- --
Equity....................... 420 488 668 749 609 770
<CAPTION>
AS OF FISCAL YEAR END JUNE 30,
----------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Total assets................. $6,061 $5,968 $6,076 $6,789 $7,752
Debt......................... 1,019 645 1,265 961 356
Equity....................... 1,283 1,376 1,564 1,708 2,190
</TABLE>
- --------
(1) American Florist commenced operations in April 1994; accordingly there
were no historical results prior to that date.
(2) Monterey Bay commenced operations in March 1993; accordingly there were no
historical results prior to that date.
(3) United Wholesale Florists of America, Inc., one of the two constituent
corporations that compose United Wholesale, commenced operations in July
1992.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE FOUNDING COMPANIES
The following discussion should be read in conjunction with the Selected
Financial Data of the Founding Companies and the historical financial
statements of the Founding Companies and related notes thereto appearing
elsewhere in this Prospectus.
FOUNDING COMPANIES
Each of the Founding Companies (other than Flower Trading, Monterey Bay and
one of the two corporations that compose United Wholesale) has elected to be
treated as an S Corporation. As a result, no Founding Company (other than
Flower Trading, Monterey Bay and one of the two corporations that compose
United Wholesale) was subject to federal income taxes. The selling, general
and administrative expenses of the Founding Companies include compensation to
employee-stockholders of the Founding Companies totaling $3.5 million, $3.8
million and $5.0 million for the fiscal years ended December 31, 1994, 1995
and 1996 (in the case of each Founding Company other than United Wholesale)
and June 30, 1995, 1996 and 1997 (in the case of United Wholesale),
respectively. Upon consummation of the Mergers, certain employee-stockholders
entered into employment agreements and the aggregate compensation paid to
stockholders of the Founding Companies was reduced. As a result of varying
practices regarding compensation to employee-stockholders among the Founding
Companies, the comparison of operating margins among the Founding Companies
and from period to period in respect of a particular Founding Company may be
difficult.
THE ROY HOUFF COMPANY
Founded in 1977, Houff is a wholesale distributor of perishable floral
products and floral-related hardgoods. Perishable floral products, which
include flowers, plants and other greenery, accounted for approximately 84% of
sales, while floral-related hardgoods, which include products such as vases,
ribbons and balloons, accounted for approximately 16% of sales in fiscal year
1996. Houff operates from seven locations in Illinois, Virginia and Arizona.
Houff has approximately 270 employees and sells its products to approximately
3,000 customers.
Houff experienced a number of facility changes during the three-year period
ended December 31, 1996. In January 1994, Houff acquired a distressed
wholesale distribution facility in Atlanta, Georgia, which Houff believed it
could return to profitability. The Atlanta facility did not adequately meet
Houff's financial performance expectations and was closed in October 1996.
Houff also began a shipping business in January 1994 to provide shipping
services for smaller wholesalers. This business was discontinued in February
1996 due to a declining customer base. In October 1995, Houff opened a new
wholesale distribution facility in Phoenix, Arizona.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $39,098 100.0% $41,531 100.0% $39,090 100.0% $22,165 100.0% $20,410 100.0%
Cost of Sales........... 26,683 68.2 27,899 67.2 25,537 65.3 14,693 66.3 13,204 64.7
Selling, General and
Administrative
Expenses............... 11,617 29.7 12,695 30.6 12,789 32.7 6,533 29.5 5,924 29.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income........ $ 798 2.0% $ 937 2.3% $ 764 2.0% $ 939 4.2% $ 1,282 6.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
29
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales decreased to $20.4 million in the six months ended June
30, 1997 from $22.2 million in the six months ended June 30, 1996, a decrease
of $1.8 million, or 7.9%. This decrease resulted from the closing of Houff's
wholesale distribution facility in Atlanta, Georgia in October 1996, which
accounted for $2.0 million in net sales in the six months ended June 30, 1996,
partially offset by increases in other locations.
Cost of Sales. Cost of sales, which consists of perishable and hardgood
products and in-bound freight costs, decreased to $13.2 million in the six
months ended June 30, 1997 from $14.7 million in the six months ended June 30,
1996, a decrease of $1.5 million, or 10.1%. As a percentage of net sales,
costs of sales decreased to 64.7% in the six months ended June 30, 1997 from
66.3% in the six months ended June 30, 1996. This decrease resulted primarily
from a reduction in lower margin sales associated with the Atlanta, Georgia
facility and the shipping business and management's ability to obtain more
favorable pricing.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $5.9 million in the six months ended June 30, 1997 from
$6.5 million in the six months ended June 30, 1996, a decrease of $0.6
million, or 9.3%. As a percentage of net sales, selling general and
administrative expenses decreased to 29.0% in the six months ended June 30,
1997 from 29.5% in the six months ended June 30, 1996. This decrease resulted
from the closing of Houff's wholesale distribution facility in Atlanta,
Georgia in October 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $1.3 million in the six months ended June 30, 1997 from
$0.9 million in the six months ended June 30, 1997, an increase of $0.3
million, or 36.5%. As a percentage of net sales, operating income increased to
6.3% in the six months ended June 30, 1997 from 4.2% in the six months ended
June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales decreased to $39.1 million in the year ended December
31, 1996 from $41.5 million in the year ended December 31, 1995, a decrease of
$2.4 million, or 5.9%. The decrease in net sales resulted from the
discontinuation of the shipping business in February 1996, which accounted for
a decrease of $1.8 million, the closing of Houff's wholesale facility in
Atlanta, Georgia in October 1996, which accounted for a decrease of $1.5
million, and a greater focus on higher margin, lower volume business,
partially offset by increased sales attributable to a full year of operating
results from the facility in Phoenix, Arizona, which commenced operations in
October 1995.
Cost of Sales. Cost of sales decreased to $25.5 million in the year ended
December 31, 1996, from $27.9 million in the year ended December 31, 1995, a
decrease of $2.4 million, or 8.5%, as a result of Houff's greater focus on
higher margin, lower volume business. As a percentage of net sales, cost of
sales decreased to 65.3% in the year ended December 31, 1996 from 67.2% in the
year ended December 31, 1995. This decrease resulted primarily from a
reduction in lower margin sales associated with the Atlanta, Georgia facility
and the shipping business and Houff's ability to obtain more favorable
pricing.
Selling, General and Administrative. Selling, general and administrative
expenses remained relatively flat at $12.8 million in the year ended December
31, 1996, compared to $12.7 million in the year ended December 31, 1995, an
increase of $0.1 million, or 0.7%. As a percentage of net sales, selling,
general and administrative expenses increased to 32.7% for the year ended
December 31, 1996 from 30.6% for the year ended December 31, 1995. This
increase resulted from costs associated with the closing of the Atlanta,
Georgia facility, including a loss on disposition of fixed assets, the write-
off of intangibles and the write-off of uncollectible accounts.
Operating Income. As a result of the factors discussed above, operating
income decreased to $0.8 million in the year ended December 31, 1996 from $0.9
million in the year ended December 31, 1995, a decrease of $0.2 million or
18.5%. As a percentage of net sales, operating income decreased to 2.0% in the
year ended December 31, 1996 from 2.3% in the year ended December 31, 1995.
30
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $41.5 million in the year ended December
31, 1995 from $39.1 million in the year ended December 31, 1994, an increase
of $2.4 million, or 6.2%. The increase in net sales resulted from increased
revenues from the shipping business, increased sales for Valentine's Day in
1995, three months of revenues from the Phoenix, Arizona facility, which
opened in October 1995 and increased sales at other facilities.
Cost of Sales. Cost of sales increased to $27.9 million in the year ended
December 31, 1995 from $26.7 million in the year ended December 31, 1994, an
increase of $1.2 million, or 4.6%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 67.2% for the year
ended December 31, 1995 from 68.2% for the year ended December 31, 1994, due
to management changes and the implementation of more aggressive purchasing and
sales policies.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $12.7 million in the year ended December 31, 1995, from
$11.6 million in the year ended December 31, 1994, an increase of $1.1
million, or 9.3%. As a percentage of net sales, selling, general and
administrative expenses increased to 30.6% in the year ended December 31, 1995
from 29.7% in the year ended December 31, 1994. This increase resulted from an
increase in personnel and facilities costs attributable to the shipping
business, the Atlanta, Georgia facility and the Phoenix, Arizona facility.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.9 million in the year ended December 31, 1995 from $0.8
million in the year ended December 31, 1994, an increase of $0.1 million or
17.4%. As a percentage of net sales, operating income increased to 2.3% in the
year ended December 31, 1995 from 2.0% in the year ended December 31, 1994.
31
<PAGE>
CFX, INC.
Founded in 1974, CFX is an importer and distributor of perishable floral
products which are imported from approximately 40 farms located primarily in
Colombia and Ecuador, and distributed throughout the United States. CFX's net
sales are derived from the sale of perishable floral products and from
handling charges. Approximately 85% of CFX's sales are to approximately 400
wholesale distributors and 15% are to the mass market. For the year ended
December 31, 1996, net sales to H&H Flowers, Inc. d/b/a La Fleurette ("La
Fleurette"), a wholesale distributor owned by stockholders of CFX, totaled
$3.9 million. Approximately 43% of CFX's cost of sales in 1996 represented
purchases from two Colombian farms in which the stockholders of CFX prior to
the CFX Merger hold ownership interests. Neither the operations of La
Fleurette nor the Colombian farms were acquired in connection with the CFX
Merger. The Company intends to renegotiate, as necessary, all arrangements
with related parties so that all continuing obligations of CFX thereunder are
no greater than those the Company would agree to with unaffiliated third
parties. See "Certain Relationships and Related Party Transactions--CFX." CFX
has approximately 110 employees.
CFX imposes a surcharge upon certain flowers that are or may become subject
to an anti-dumping duty and reserves that amount against the possibility that
a duty will be imposed. The Commerce Department is currently reviewing two
anti-dumping cases, three anti-dumping cases are pending judicial appeal and
additional cases may be initiated at any time.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
------------- ------------- -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $30,590 100.0% $32,096 100.0% $35,684 100.0% $20,585 100.0% $22,854 100.0%
Cost of Sales........... 23,839 77.9 24,328 75.8 28,190 79.0 16,031 77.9 17,759 77.7
Selling, General and
Administrative
Expenses............... 6,266 20.5 6,773 21.1 8,956 25.1 5,249 25.5 3,657 16.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income
(Loss)................. $ 485 1.6% $ 995 3.1% $(1,462) (4.1)% $ (695) (3.4)% $ 1,438 6.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $22.9 million in the six months ended June
30, 1997 from $20.6 million in the six months ended June 30, 1996, an increase
of $2.3 million, or 11.0%. This increase resulted primarily from obtaining
higher prices for certain products, increased volume of sales and a fuel
surcharge fee related to airline shipments that was added to customer
invoices.
Cost of Sales. Cost of sales, which consists primarily of payment for fresh
cut flowers, increased to $17.8 million in the six months ended June 30, 1997
from $16.0 million in the six months ended June 30, 1996, an increase of $1.7
million, or 10.8%, primarily as a result of the increase in sales and the
imposition of a fuel surcharge related to airline shipments that was imposed
by airlines beginning in April 1996. As a percentage of net sales, costs of
sales decreased to 77.7% in the six months ended June 30, 1997 from 77.9% in
the six months ended June 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $3.7 million in the six months ended June 30, 1997 from
$5.2 million in the six months ended June 30, 1996, a decrease of $1.6
million, or 30.3%. This decrease resulted from decreased compensation to
employee-stockholders, partially offset by increases in personnel and
occupancy costs. As a percentage of net sales, selling,
32
<PAGE>
general and administrative expenses decreased to 16.0% in the six months ended
June 30, 1997 from 25.5% in the six months ended June 30, 1996. Selling,
general and administrative expenses included compensation paid to employee-
stockholders totaling $0.3 million in the six months ended June 30, 1997 and
$2.4 million in the six months ended June 30, 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $1.4 million in the six months ended June 30, 1997 from
($0.7) million in the six months ended June 30, 1996, an increase of $2.1
million. As a percentage of net sales, operating income increased to 6.3% in
the six months ended June 30, 1997 from (3.4%) in the six months ended June
30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $35.7 million in the year ended December
31, 1996 from $32.1 million in the year ended December 31, 1995, an increase
of $3.6 million, or 11.2%. The increase in net sales resulted primarily from
the availability and sale of higher quality flowers from a key supplier.
Cost of Sales. Cost of sales increased to $28.2 million in the year ended
December 31, 1996, from $24.3 million in the year ended December 31, 1995, an
increase of $3.9 million, or 15.9%, primarily as a result of the increase in
sales. As a percentage of net sales, cost of sales increased to 79.0% in the
year ended December 31, 1996 from 75.8% in the year ended December 31, 1995.
The increase resulted from an adjustment due to under-accrual for anti-dumping
liability in a prior period and from lower cost of sales in 1995 due to an
adjustment in that period for an over-accrual of anti-dumping liability.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $9.0 million in the year ended December 31, 1996, from
$6.8 million in the year ended December 31, 1995, an increase of $2.2 million,
or 32.2%. This increase primarily resulted from increased compensation and
increased expenses associated with CFX's customer promotion programs. As a
percentage of net sales, selling, general and administrative expenses
increased to 25.1% in the year ended December 31, 1996 from 21.1% in the year
ended December 31, 1995. Selling, general and administrative expenses include
compensation paid to employee-stockholders totaling $3.0 million in the year
ended December 31, 1996 and $1.4 million in the year ended December 31, 1995.
Operating Income. As a result of the factors discussed above, operating
income decreased to ($1.5) million in the year ended December 31, 1996 from
$1.0 million in the year ended December 31, 1995, a decrease of $2.5 million,
or 246.9% As a percentage of net sales, operating income decreased to (4.1%)
in the year ended December 31, 1996 from 3.1% in the year ended December 31,
1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $32.1 million in the year ended December
31, 1995 from $30.6 million in the year ended December 31, 1994, an increase
of $1.5 million, or 4.9%. This increase primarily resulted from the
availability and sale of higher quality products from a key supplier.
Cost of Sales. Cost of sales increased to $24.3 million in the year ended
December 31, 1995, from $23.8 million in the year ended December 31, 1994, an
increase of $0.5 million, or 2.1%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 75.8% in the year
ended December 31, 1995 from 77.9% in the year ended December 31, 1994,
primarily from an adjustment due to over-accrual for anti-dumping liability in
a prior period.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $6.8 million in the year ended December 31, 1995 from
$6.3 million in the year ended December 31, 1994, an
33
<PAGE>
increase of $0.5 million, or 8.1%. This increase primarily resulted from an
increase in personnel costs as well as increased contributions to CFX's profit
sharing plan. As a percentage of net sales, selling, general and
administrative expenses increased to 21.1% in the year ended December 31, 1995
from 20.5% in the year ended December 31, 1994. Selling, general and
administrative expenses include compensation paid to stockholder-employees
totaling $1.4 million in the year ended December 31, 1995 and $1.3 million in
the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income increased to $1.0 million in the year ended December 31, 1995 from $0.5
million in the year ended December 31, 1994, an increase of $0.5 million, or
105.2% As a percentage of net sales, operating income increased to 3.1% in the
year ended December 31, 1995 from 1.6% in the year ended December 31, 1994.
34
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
Founded in 1952, Bay State is a wholesale distributor of perishable floral
products and floral-related hardgoods, operating from six locations in
Massachusetts, New York, New Hampshire, Connecticut and Rhode Island. Bay
State purchases floral products from domestic growers, brokers and importers
and sells them to both retail florists and mass marketers. Perishable products
accounted for approximately 70% of sales, while hardgoods accounted for
approximately 30% of sales in 1996. Bay State has approximately 190 employees.
Bay State's results of operations have been impacted in recent years by its
acquisition of a distressed wholesale distributor in Providence, Rhode Island
in 1995 and a wholesale distributor in Clifton Park, New York in 1996.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $19,203 100.0% $25,592 100.0% $30,563 100.0% $16,412 100.0% $16,375 100.0%
Cost of Sales........... 12,807 66.7 17,068 66.7 20,722 67.8 11,279 68.7 11,080 67.7
Selling, General and
Administrative
Expenses............... 5,529 28.8 7,579 29.6 8,976 29.4 4,429 27.0 4,556 27.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income........ $ 867 4.5% $ 945 3.7% $ 865 2.8% $ 704 4.3% $ 739 4.5%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales were $16.4 million in the six months ended June 30,
1997 and the six months ended June 30, 1996. Net sales remained relatively
unchanged due to a reduction in sales to a supermarket chain in the six months
ended June 30, 1997. The supermarket chain, which accounted for $0.6 million
of net sales in the six months ended June 30, 1997 and $1.6 million of net
sales in the six months ended June 30, 1996, was acquired in late 1996 by
another supermarket chain which operates its own wholesale distribution
facility. The reduction in sales to this customer was offset by increased
sales to existing customers and sales to new customers, including new
supermarket customers.
Cost of Sales. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, decreased to $11.1 million in
the six months ended June 30, 1997 from $11.3 million in the six months ended
June 30, 1996, a decrease of $0.2 million, or 1.8%. As a percentage of net
sales, cost of sales decreased to 67.7% in the six months ended June 30, 1997
from 68.7% in the six months ended June 30, 1996. This decrease primarily
resulted from management's ability to obtain more favorable prices and better
inventory management.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $4.6 million in the six months ended June 30, 1997 from
$4.4 million in the six months ended June 30, 1996, an increase of $0.1
million, or 2.9%. As a percentage of net sales, selling, general and
administrative expenses increased to 27.8% in the six months ended June 30,
1997 from 27.0% in the six months ended June 30, 1996. This increase primarily
resulted from increased compensation and benefit expenses.
Operating Income. As a result of the factors discussed above, operating
income was $0.7 million in the six months ended June 30, 1997 and the six
months ended June 30, 1996. As a percentage of net sales, operating income
increased to 4.5% in the six months ended June 30, 1997 from 4.3% in the six
months ended June 30, 1996.
35
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $30.6 million in the year ended December
31, 1996 from $25.6 million in the year ended December 31, 1995, an increase
of $5.0 million, or 19.4%. This increase resulted primarily from the
acquisition of a wholesale distributor in Clifton Park, New York in 1996,
which accounted for $2.5 million in net sales in 1996, increased sales from
the Providence, Rhode Island facility, which accounted for $1.5 million of the
increase, and increased sales from other locations.
Cost of Sales. Cost of sales increased to $20.7 million in the year ended
December 31, 1996 from $17.1 million in the year ended December 31, 1995, an
increase of $3.7 million, or 21.4%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales increased to 67.8% in the year
ended December 31, 1996 from 66.7% in the year ended December 31, 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $9.0 million in the year ended December 31, 1996 from
$7.6 million in the year ended December 31, 1995, an increase of $1.4 million,
or 18.4%. This increase resulted primarily from costs and expenses associated
with the new Clifton Park, New York facility and the growth of the Providence,
Rhode Island facility. As a percentage of net sales, selling, general and
administrative expenses decreased to 29.4% in the year ended December 31, 1996
from 29.6% in the year ended December 31, 1995. Selling, general and
administrative expenses include compensation paid to employee-stockholders
totaling $0.8 million in the year ended December 31, 1996 and in the year
ended December 31, 1995.
Operating Income. As a result of the factors discussed above, operating
income decreased by $80,000 in the year ended December 31, 1996 from the year
ended December 31, 1995, a decrease of 8.5%. As a percentage of net sales,
operating income decreased to 2.8% in the year ended December 31, 1996 from
3.7% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $25.6 million in the year ended December
31, 1995 from $19.2 million in the year ended December 31, 1994, an increase
of $6.4 million, or 33.3%. This increase resulted primarily from the
acquisition of a wholesale distributor in Providence, Rhode Island in 1995.
Cost of Sales. Cost of sales increased to $17.1 million in the year ended
December 31, 1995 from $12.8 million in the year ended December 31, 1994, an
increase of $4.3 million, or 33.3%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales were 66.7% in the year ended
December 31, 1995 and the year ended December 31, 1994.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $7.6 million in the year ended December 31, 1995 from
$5.5 million in the year ended December 31, 1994, an increase of $2.1 million,
or 37.1%. This increase resulted primarily from costs associated with the
opening of the Providence, Rhode Island facility and increased sales efforts
at the Cromwell, Connecticut facility. As a percentage of net sales, selling
general and administrative expenses increased to 29.6% in the year ended
December 31, 1995 from 28.8% in the year ended December 31, 1994. Selling,
general and administrative expenses include compensation paid to employee-
stockholders totaling $0.8 million in the year ended December 31, 1995 and
$0.7 million in the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income decreased by $78,000 in the year ended December 31, 1995 from the year
ended December 31, 1994. As a percentage of net sales, operating income
decreased to 3.7% in the year ended December 31, 1995 from 4.5% in the year
ended December 31, 1994.
36
<PAGE>
FLOWER TRADING CORPORATION
Founded in 1977, Flower Trading is an importer and distributor of perishable
floral products which are imported from farms located primarily in Colombia
and Ecuador, and are distributed throughout the United States to approximately
350 wholesale distributors. Flower Trading has approximately 45 employees.
Flower Trading's net sales consist of sales of perishable floral products
and handling charges related to preparing products for shipment. Flower
Trading's cost of sales includes a "box fee" paid by Flower Trading on
purchases from Colombia. The box fees are paid to a broker with established
relationships in Colombia to procure flowers from various suppliers; the
broker is affiliated with a current Flower Trading stockholder. The broker's
services include arranging for a consistent, reliable, ample supply of quality
flowers and consolidating and arranging for shipments with common carriers to
provide Flower Trading with savings on shipping and handling costs.
Approximately 25% of Flower Trading's cost of sales in the year ended
December 31, 1996 was paid to affiliated entities. These entities were not
acquired in connection with the Flower Trading Merger. Flower Trading imposes
a surcharge upon certain flowers that are or may become subject to an anti-
dumping liability and reserves that amount against the possibility that a duty
will be imposed.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $18,478 100.0% $20,335 100.0% $20,313 100.0% $11,305 100.0% $12,997 100.0%
Cost of Sales........... 14,452 78.2 15,921 78.3 15,914 78.3 8,928 79.0 10,139 78.0
Selling, General and
Administrative
Expenses............... 3,605 19.5 4,068 20.0 4,142 20.4 1,944 17.2 1,936 14.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income........ $ 421 2.3% $ 346 1.7% $ 257 1.3% $ 433 3.8% $ 922 7.1%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Six Months Ended June 30, 1997 Compared To Six Months Ended June 30, 1996
Net Sales. Net sales increased to $13.0 million in the six months ended June
30, 1997 from $11.3 million in the six months ended June 30, 1996, an increase
of $1.7 million, or 15.0%. The increase resulted primarily from an increased
volume of sales, increased revenues at Valentine's Day and a fuel surcharge
fee that was added to customer invoices.
Cost of Sales. Cost of sales, which primarily consists of the cost of
purchasing fresh cut flowers, increased to $10.1 million in the six months
ended June 30, 1997 from $8.9 million in the six months ended June 30, 1996,
an increase of $1.2 million, or 13.6%. The increase resulted from the
imposition of a fuel surcharge related to airline shipments that was imposed
by airlines beginning in April 1996, and increases in direct purchase costs,
sales commissions and freight costs associated with the increased sales. As a
percentage of net sales, cost of sales decreased to 78.0% in the six months
ended June 30, 1997 from 79.0% in the six months ended June 30, 1996, due to
management's efforts to obtain more favorable prices.
Selling, General and Administrative. Selling, general and administrative
expenses were $1.9 million in the six months ended June 30, 1997 and the six
months ended June 30, 1996. As a percentage of net sales, selling,
37
<PAGE>
general and administrative expenses decreased to 14.9% in the six months ended
June 30, 1997 from 17.2% in the six months ended June 30, 1996. This decrease
resulted primarily from spreading fixed costs over increased sales.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.9 million in the six months ended June 30, 1997 from
$0.4 million in the six months ended June 30, 1996, an increase of $0.5
million, or 112.9%. As a percentage of net sales, operating income increased
to 7.1% in the six months ended June 30, 1997 from 3.8% in the six months
ended June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales were $20.3 million in the year ended December 31, 1996
and in the year ended December 31, 1995. Net sales remained at the same level
due to an increase attributable to a fuel surcharge that was added to customer
invoices, offset by a decrease in anti-dumping duties collected.
Cost of Sales. Cost of sales remained relatively constant at $15.9 million
in the year ended December 31, 1996 and in the year ended December 31, 1995.
Cost of sales increased due to a fuel surcharge that airlines imposed
beginning in April 1996, the imposition by U.S. Customs of a higher percentage
anti-dumping duty, and a negotiated lower margin with growers, due to the
decreased volume of flowers sold, which was offset by decreased volume of
flowers sold. As a percentage of net sales, cost of sales were 78.3% in the
year ended December 31, 1996 and in the year ended December 31, 1995.
Selling, General and Administrative. Selling, general and administrative
expenses were $4.1 million in the year ended December 31, 1996 and the year
ended December 31, 1995. As a percentage of net sales, selling, general and
administrative expenses increased to 20.4% in the year ended December 31, 1996
from 20.0% in the year ended December 31, 1995.
Operating Income. As a result of the factors discussed above, operating
income decreased by $89,000 in the year ended December 31, 1996 from the year
ended December 31, 1995, a decrease of 25.7%. As a percentage of net sales,
operating income decreased to 1.3% in the year ended December 31, 1996 from
1.7% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $20.3 million in the year ended December
31, 1995 from $18.5 million in the year ended December 31, 1994, an increase
of $1.9 million, or 10.0%. The increase resulted from an increase in the
volume of flowers sold, and an increase in handling charges and anti-dumping
duties.
Cost of Sales. Cost of sales increased to $15.9 million in the year ended
December 31, 1995 from $14.5 million in the year ended December 31, 1994, an
increase of $1.5 million, or 10.2%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales increased to 78.3% in the year
ended December 31, 1995 from 78.2% in the year ended December 31, 1994.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $4.1 million in the year ended December 31, 1995 from
$3.6 million in the year ended December 31, 1994, an increase of $0.5 million,
or 12.8%. This increase resulted from increased compensation expense and
related benefits. As a percentage of net sales, selling, general and
administrative expenses increased to 20.0% in the year ended December 31, 1995
from 19.5% in the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income decreased to $0.3 million in the year ended December 31, 1995 from $0.4
million in the year ended December 31, 1994, a decrease of $0.1 million, or
17.8%. As a percentage of net sales, operating income decreased to 1.7% in the
year ended December 31, 1995 from 2.3% in the year ended December 31, 1994.
38
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND UNITED WHOLESALE FLORISTS OF AMERICA, INC.
Founded in 1947, United Wholesale is a wholesale distributor of perishable
floral products and floral-related hardgoods operating from 13 locations in
Arkansas, Alabama, Mississippi, Oklahoma, Tennessee and Texas. United
Wholesale purchases floral products from domestic growers, brokers and
importers and sells them to approximately 3,000 customers, including both
retail florists, and mass market retailers. Perishable products accounted for
approximately 69% of sales, while hardgoods accounted for approximately 31% of
sales in fiscal 1997. United Wholesale has approximately 175 employees. United
Wholesale has expanded to 13 locations through acquisitions of wholesale
distributors.
In 1991, United Wholesale began to operate a bouquet manufacturing business.
This business was discontinued at the end of 1994 due to operating losses.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................ $17,985 100.0% $19,030 100.0% $19,673 100.0%
Cost of Sales.................... 11,556 64.3 12,563 66.0 12,862 65.4
Selling, General and
Administrative Expenses......... 5,926 32.9 6,101 32.1 6,046 30.7
------- ----- ------- ----- ------- -----
Operating Income................. $ 503 2.8% $ 366 1.9% $ 765 3.9%
======= ===== ======= ===== ======= =====
</TABLE>
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Net Sales. Net sales increased to $19.7 million in the year ended June 30,
1997 from $19.0 million in the year ended June 30, 1996, an increase of $0.6
million, or 3.4%, as a result of increased sales at United Wholesale's
Mississippi facilities due to reduced competition.
Cost of Sales. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, increased to $12.9 million in
the year ended June 30, 1997 from $12.6 million in the year ended June 30,
1996, an increase of $0.3 million, or 2.4%, primarily as a result of increased
sales. As a percentage of net sales, cost of sales decreased to 65.4% in the
year ended June 30, 1997 from 66.0% in the year ended June 30, 1996. This
decrease resulted from savings obtained through a group buying program and
reductions in in-bound freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $6.0 million in the year ended June 30, 1997 from $6.1
million in the year ended June 30, 1996, a decrease of $0.1 million, or 0.9%.
As a percentage of net sales, selling, general and administrative expenses
decreased to 30.7% in the year ended June 30, 1997 from 32.1% in the year
ended June 30, 1996. This decrease resulted primarily from spreading fixed
costs over increased sales.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.8 million in the year ended June 30, 1997 from $0.4
million in the year ended June 30, 1996, an increase of $0.4 million, or
109.0%. As a percentage of net sales, operating income increased to 3.9% in
the year ended June 30, 1997 from 1.9% in the year ended June 30, 1996.
39
<PAGE>
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Net Sales. Net sales increased to $19.0 million in the year ended June 30,
1996 from $18.0 million in the year ended June 30, 1995, an increase of $1.0
million, or 5.8%. This increase resulted primarily from increased sales at
United Wholesale's Mobile, Alabama facility, which increased its emphasis on
sales of perishables, and its Tulsa, Oklahoma facility, which increased its
customer base by beginning a policy of extending credit to customers.
Cost of Sales. Cost of sales increased to $12.6 million in the year ended
June 30, 1996 from $11.6 million in the year ended June 30, 1995, an increase
of $1.0 million, or 8.7%, primarily as a result of operational difficulties at
the Memphis, Tennessee location, particularly with respect to inventory
management. As a percentage of net sales, cost of sales increased to 66.0% in
the year ended June 30, 1996 from 64.3% in the year ended June 30, 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $6.1 million in the year ended June 30, 1996 from $5.9
million in the year ended June 30, 1995, an increase of $0.2 million, or 3.0%.
As a percentage of net sales, selling, general and administrative expenses
decreased to 32.1% in the year ended June 30, 1996 from 32.9% in the year
ended June 30, 1995. This decrease resulted primarily from spreading fixed
costs over increased sales.
Operating Income. As a result of the factors discussed above, operating
income decreased to $0.4 million in the year ended June 30, 1996 from $0.5
million in the year ended June 30, 1995, a decrease of $0.1 million, or 27.2%.
As a percentage of net sales, operating income decreased to 1.9% in the year
ended June 30, 1996 from 2.8% in the year ended June 30, 1995.
40
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
Founded in 1994, American Florist is a wholesale distributor of perishable
floral products and floral-related hardgoods located in Massachusetts. In
April 1994, American Florist acquired the wholesale distribution business of
Johnson's Roses, which was founded in 1927. American Florist purchases floral
products from foreign and domestic growers, brokers and importers and sells
them to both retail florists, and mass market retailers in Maine,
Massachusetts, Vermont and New Hampshire. American Florist also manufactures
floral bouquets for distribution to supermarkets. American Florist has
approximately 70 employees.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ --------------------------
1994 (1) 1995 1996 1996 1997
------------ ------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $6,293 100.0% $10,783 100.0% $11,679 100.0% $6,444 100.0% $7,082 100.0%
Cost of Sales........... 4,579 72.8 7,788 72.2 8,268 70.8 4,458 69.2 4,793 67.7
Selling, General and
Administrative
Expenses............... 1,545 24.6 2,531 23.5 2,723 23.3 1,421 22.1 1,579 22.3
------ ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating Income........ $ 169 2.7% $ 464 4.3% $ 688 5.9% $ 565 8.8% $ 710 10.0%
====== ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
- --------
(1) The financial data for 1994 reflect eight months of operations.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $7.1 million in the six months ended June
30, 1997 from $6.4 million in the six months ended June 30, 1996, an increase
of $0.6 million, or 9.9%. This increase resulted from increased sales to
existing customers and sales to new customers.
Cost of Sales. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, increased to $4.8 million in the
six months ended June 30, 1997 from $4.5 million in the six months ended June
30, 1996, an increase of $0.3 million, or 7.5%, primarily as a result of
increased sales. As a percentage of net sales, cost of sales decreased to
67.7% in the six months ended June 30, 1997 from 69.2% in the six months ended
June 30, 1996, due to management's ability to obtain more favorable prices,
improved inventory management and reduced freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.6 million in the six months ended June 30, 1997 from
$1.4 million in the six months ended June 30, 1996, an increase of $0.2
million, or 11.1%. As a percentage of net sales, selling, general and
administrative expenses increased to 22.3% in the six months ended June 30,
1997 from 22.1% in the six months ended June 30, 1996, primarily as a result
of additional personnel costs.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.7 million in the six months ended June 30, 1997 from
$0.6 million in the six months ended June 30, 1996, an increase of $0.1
million, or 25.7%. As a percentage of net sales, operating income increased to
10.0% in the six months ended June 30, 1997 from 8.8% in the six months ended
June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $11.7 million in the year ended December
31, 1996 from $10.8 million in the year ended December 31, 1995, an increase
of $0.9 million, or 8.3%. This increase resulted from an
41
<PAGE>
increased focus on bouquet sales to mass market retailers, improved quality of
products and the addition of floral-related hardgoods to American Florist's
product line.
Cost of Sales. Cost of sales increased to $8.3 million in the year ended
December 31, 1996 from $7.8 million in the year ended December 31, 1995, an
increase of $0.5 million, or 6.2%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 70.8% in the year
ended December 31, 1996 from 72.2% in the year ended December 31, 1995, due to
management's efforts to obtain more favorable product prices.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.7 million in the year ended December 31, 1996 from
$2.5 million in the year ended December 31, 1995, an increase of $0.2 million,
or 7.6%. As a percentage of net sales, selling, general and administrative
expenses decreased to 23.3% in the year ended December 31, 1996 from 23.5% in
the year ended December 31, 1995, primarily as a result of additional
personnel.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.7 million in the year ended December 31, 1996 from $0.5
million in the year ended December 31, 1995, an increase of $0.2 million or
48.3%. As a percentage of net sales, operating income increased to 5.9% in the
year ended December 31, 1996 from 4.3% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $10.8 million in the year ended December
31, 1995 from $6.3 million in the year ended December 31, 1994, an increase of
$4.5 million, or 71.3%. This increase primarily resulted from a full year of
operations in 1995 compared to eight months of operations in 1994.
Cost of Sales. Cost of sales increased to $7.8 million in the year ended
December 31, 1995 from $4.6 million in the year ended December 31, 1994, an
increase of $3.2 million, or 70.1%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 72.2% in the year
ended December 31, 1995 from 72.8% in the year ended December 31, 1994, due to
management's efforts to obtain more favorable prices.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.5 million in the year ended December 31, 1995 from
$1.5 million in the year ended December 31, 1994, an increase of $1.0 million,
or 63.8%. This increase primarily resulted from a full year of operations in
1995 compared to eight months of operations in 1994. As a percentage of net
sales, selling, general and administrative expenses decreased to 23.5% in the
year ended December 31, 1995 from 24.6% in the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.5 million in the year ended December 31, 1995 from $0.2
million in the year ended December 31, 1994, an increase of $0.3 million or
174.6%. As a percentage of net sales, operating income increased to 4.3% in
the year ended December 31, 1995 from 2.7% in the year ended December 31,
1994.
42
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
Founded in 1993, Monterey Bay, located in Watsonville, California, is a
manufacturer and wholesale distributor of fresh cut flower bouquets,
consisting primarily of specialty California grown flowers. Monterey Bay
purchases flowers from nearly 150 growers and 12 importers. Monterey Bay has
two customers which account for nearly all of its sales: a supermarket and a
discount retailer. Each of these customers has numerous locations throughout
the western United States. In February 1995, Monterey Bay acquired a bouquet
manufacturer that distributed bouquets to the discount retailer, and Monterey
Bay began producing bouquets for that discount retailer. Monterey Bay has
approximately 65 employees.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $4,253 100.0% $6,903 100.0% $9,477 100.0% $4,827 100.0% $6,803 100.0%
Cost of Sales........... 3,773 88.7 5,959 86.3 8,285 87.4 4,166 86.3 5,575 81.9
Selling, General and
Administrative
Expenses............... 458 10.8 910 13.2 1,113 11.7 496 10.3 563 8.3
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating Income........ $ 22 0.5% $ 34 0.5% $ 79 0.8% $ 165 3.4% $ 665 9.8%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $6.8 million in the six months ended June
30, 1997 from $4.8 million in the six months ended June 30, 1996, an increase
of $2.0 million, or 40.9%. The increase reflected an increased volume of
sales.
Cost of Sales. Cost of sales, which primarily consists of fresh cut flowers,
production, labor and distribution costs, increased to $5.6 million in the six
months ended June 30, 1997 from $4.2 million in the six months ended June 30,
1996, an increase of $1.4 million, or 33.8%, primarily as a result of the
increased sales. As a percentage of net sales, cost of sales decreased to
81.9% in the six months ended June 30, 1997 from 86.3% in the six months ended
June 30, 1996. This decrease resulted primarily from better prices obtained
through higher volume purchases of both perishable products and packaging
materials.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $0.6 million in the six months ended June 30, 1997 from
$0.5 million in the six months ended June 30, 1996, an increase of $0.1
million, or 13.5%. The increase was attributable to increased sales. As a
percentage of net sales, selling, general and administrative expenses
decreased to 8.3% in the six months ended June 30, 1997 from 10.3% in the six
months ended June 30, 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.7 million in the six months ended June 30, 1997 from
$0.2 million in the six months ended June 30, 1996, an increase of $0.5
million or 303.0%. As a percentage of net sales, operating income increased to
9.8% in the six months ended June 30, 1997 from 3.4% in the six months ended
June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $9.5 million in the year ended December
31, 1996 from $6.9 million in the year ended December 31, 1995, an increase of
$2.6 million, or 37.3%. This increase resulted primarily from increased
purchases from existing stores of both of Monterey Bay's customers due to
Monterey Bay's focus on service and quality, and expansion into new stores.
43
<PAGE>
Cost of Sales. Cost of sales increased to $8.3 million in the year ended
December 31, 1996 from $6.0 million in the year ended December 31, 1995, an
increase of $2.3 million, or 39.0%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales increased to 87.4% in the year
ended December 31, 1996 from 86.3% in the year ended December 31, 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.1 million in the year ended December 31, 1996 from
$0.9 million in the year ended December 31, 1995, an increase of $0.2 million,
or 22.3%. As a percentage of net sales, selling, general and administrative
expenses decreased to 11.7% for the year ended December 31, 1996 from 13.2%
for the year ended December 31, 1995. This decrease resulted primarily from
spreading fixed costs over increased net sales. Selling, general and
administrative expenses include compensation paid to employee-stockholders
totaling $0.3 million in both the year ended December 31, 1996 and the year
ended December 31, 1995.
Operating Income. As a result of the factors discussed above, operating
income increased by $45,000 in the year ended December 31, 1996 from the year
ended December 31, 1995, an increase of 132.4%. As a percentage of net sales,
operating income increased to 0.8% in the year ended December 31, 1996 from
0.5% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $6.9 million in the year ended December
31, 1995 from $4.3 million in the year ended December 31, 1994, an increase of
$2.7 million, or 62.3%. This increase resulted primarily from the acquisition
of a bouquet manufacturer that produced bouquets for a discount retailer in
February 1995 and Monterey Bay's focus on improving quality and service.
Cost of Sales. Cost of sales increased to $6.0 million in the year ended
December 31, 1995 from $3.8 million in the year ended December 31, 1994, an
increase of $2.2 million, or 57.9%, primarily as a result of the increase in
sales. As a percentage of sales, cost of sales decreased to 86.3% in the year
ended December 31, 1995 from 88.7% in the year ended December 31, 1994. This
decrease resulted primarily from favorable prices obtained through volume
purchasing.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $0.9 million in the year ended December 31, 1995 from
$0.5 million in the year ended December 31, 1994, an increase of $0.5 million,
or 98.7%. This increase primarily resulted from the addition of personnel. As
a percentage of net sales, selling general and administrative expenses
increased to 13.2% in the year ended December 31, 1995 from 10.8% in the year
ended December 31, 1994. Selling, general and administrative expenses include
compensation paid to employee-stockholders totaling $0.3 million in the year
ended December 31, 1995 and $0.2 million in the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income increased to $34,000 in the year ended December 31, 1995 from $22,000
in the year ended December 31, 1994, an increase of $12,000, or 54.5%. As a
percentage of net sales, operating income was 0.5% in the year ended December
31, 1995 and the year ended December 31, 1994.
44
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
Founded in 1978, Alpine Gem is a broker and shipper of perishable floral
products. Alpine Gem purchases flowers from approximately 250 growers and
sells flowers on consignment for approximately 18 growers. Alpine Gem
distributes flowers to nearly 750 customers, primarily wholesalers, located
throughout the United States. Alpine Gem has approximately 20 employees.
Alpine Gem has one location in Montana and one in California.
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $7,252 100.0% $8,139 100.0% $9,334 100.0% $4,979 100.0% $5,597 100.0%
Cost of Sales........... 5,438 75.0 6,287 77.2 7,132 76.4 3,840 77.1 4,259 76.1
Selling, General and
Administrative
Expenses............... 1,320 18.2 1,526 18.7 1,868 20.0 802 16.1 902 16.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating Income........ $ 494 6.8% $ 326 4.0% $ 334 3.6% $ 337 6.8% $ 436 7.8%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased to $5.6 million in the six months ended June
30, 1997 from $5.0 million in the six months ended June 30, 1996, an increase
of $0.6 million, or 12.4%, primarily from sales resulting from improved
promotion of goods and marketing of additional varieties of products.
Cost of Sales. Cost of sales, which primarily consists of the cost of fresh
cut flowers, to $4.3 million in the six months ended June 30, 1997 from $3.8
million in the six months ended June 30, 1996, an increase of $0.4 million, or
10.9%, primarily as a result of increased sales. As a percentage of net sales,
cost of sales decreased to 76.1% in the six months ended June 30, 1997 from
77.1% in the six months ended June 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $0.9 million in the six months ended June 30, 1997 from
$0.8 million in the six months ended June 30, 1996, an increase of $0.1
million, or 12.5%, primarily as a result of increased sales, marketing and
lease expenses. As a percentage of net sales, selling, general and
administrative expenses were 16.1% in the six months ended June 30, 1997 and
the six months ended June 30, 1996.
Operating Income. As a result of the factors discussed above, operating
income increased to $0.4 million in the six months ended June 30, 1997 from
$0.3 million in the six months ended June 30, 1996, an increase of $0.1
million, or 29.4%. As a percentage of net sales, operating income increased to
7.8% in the six months ended June 30, 1997 from 6.8% in the six months ended
June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased to $9.3 million in the year ended December
31, 1996 from $8.1 million in the year ended December 31, 1995, an increase of
$1.2 million, or 14.7%. This increase resulted primarily from increased
marketing efforts directed at increasing the variety of available products.
Cost of Sales. Cost of sales increased to $7.1 million in the year ended
December 31, 1996 from $6.3 million in the year ended December 31, 1995, an
increase of $0.8 million, or 13.4%. This increase resulted primarily from
increased sales. As a percentage of net sales, cost of sales decreased to
76.4% in the year ended
45
<PAGE>
December 31, 1996 from 77.2% in the year ended December 31, 1995, as a result
of increased sales of products with a higher value to purchasers, for which
Alpine Gem was able to charge a premium.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.9 million in the year ended December 31, 1996 from
$1.5 million in the year ended December 31, 1995, an increase of $0.3 million,
or 22.4%. As a percentage of net sales, selling, general and administrative
expenses increased to 20.0% in the year ended December 31, 1996 from 18.7% in
the year ended December 31, 1995.
Operating Income. Operating income was $0.3 million in the year ended
December 31, 1996 and the year ended December 31, 1995. As a percentage of net
sales, operating income decreased to 3.6% in the year ended December 31, 1996
from 4.0% in the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased to $8.1 million in the year ended December
31, 1995 from $7.3 million in the year ended December 31, 1994, an increase of
$0.9 million, or 12.2%. This increase resulted primarily from the use of
independent sales representatives to sell products, as well as entry into the
Florida market. Alpine Gem subsequently discontinued its Florida operations.
Cost of Sales. Cost of sales increased to $6.3 million in the year ended
December 31, 1995 from $5.4 million in the year ended December 31, 1994, an
increase of $0.8 million, or 15.6%. This increase resulted primarily from
Alpine Gem's entry into the Florida market. As a percentage of net sales, cost
of sales increased to 77.2% in the year ended December 31, 1995 from 75.0% in
the year ended December 31, 1994.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.5 million in the year ended December 31, 1995 from
$1.3 million in the year ended December 31, 1994, an increase of $0.2 million,
or 15.6%. As a percentage of net sales, selling general and administrative
expenses increased to 18.7% in the year ended December 31, 1995 from 18.2% in
the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income decreased to $0.3 million in the year ended December 31, 1995 from $0.5
million in the year ended December 31, 1994, a decrease of $0.2 million, or
34.0%. As a percentage of net sales, operating income decreased to 4.0% in the
year ended December 31, 1995 from 6.8% in the year ended December 31, 1994.
46
<PAGE>
BUSINESS
OVERVIEW
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company commenced
operations on October 16, 1997, the date of the consummation of the IPO and
the Mergers. The Company engages primarily in the wholesale distribution of
perishable floral products and floral-related hardgoods. The Company also
imports cut flowers from growers in foreign countries, provides pre-packaged
floral bouquets and arrangements to retail florists and mass-market retailers
and engages in brokerage and shipping services for wholesalers of both foreign
and domestic cut flowers. The Company believes, based upon the experience of
management of USA Floral and the Founding Companies, that it is one of the
largest integrated distributors of floral products in the United States. The
Company has approximately 945 employees and serves thousands of customers
nationwide from 32 facilities in 17 states. For the year ended December 31,
1996, the Company had pro forma combined revenues of $175.5 million, pro forma
combined operating income of $4.8 million and pro forma combined net income of
$2.6 million.
INDUSTRY OVERVIEW
The floriculture industry produces, distributes and markets fresh cut
flowers and greens, potted plants and floral-related hardgoods such as vases
and glassware, foam for flower arranging, and tools and supplies. Through a
network of importers, brokers, shippers and wholesalers, flowers are brought
from growing regions throughout the United States and in countries around the
world to consumers who purchase from retail florists and mass market
distributors such as supermarkets and discount stores.
Fresh flowers are grown commercially at farms around the world. Principal
sources of supply for the United States market are growers in Colombia and
Ecuador in South America, Costa Rica and Mexico in Latin America, Holland in
Europe, and to a lesser extent Australia and New Zealand in the Pacific Rim.
Latin America and South America are the predominant sources of supply for
flowers imported into the United States. Domestic sources of supply include
farms in California and the Pacific Northwest, as well as Hawaii for tropical
varieties and the Northeast for greens that are particularly in demand during
the winter holidays. While a limited number of growers operate large,
integrated farms, both foreign and domestic growers are typically small
businesses operating in a highly fragmented environment.
Flowers grown abroad arrive at United States ports of entry, principally
Miami, Florida, by air each day. Flowers imported into the United States
primarily consist of roses, carnations, mums and alstromeria, each of which
are imported in a number of varieties. Importers of floral products receive
these flowers, generally on consignment, and facilitate their passage through
U.S. customs inspection and clearance procedures. Once the flowers have
cleared customs, the importers often pre-cool the flowers at their own
facilities to help preserve them as they move through the distribution
channel. Typically, flowers spend only one or two days in customs clearance
and pre-cooling.
Importers, for foreign flowers, and brokers, for both foreign and domestic
flowers, match the available flower supply with demand from wholesalers and
bouquet companies. The flowers are shipped to shippers and wholesalers from
importers' facilities at ports of entry or from domestic growers on
refrigerated trucks, usually arriving at the wholesaler within one to three
days. Shippers break large shipments of perishable floral products down into
lots sized to meet customer requirements, and then send them to wholesalers,
bouquet companies and mass-market retailers. Wholesalers then market and
supply fresh flowers and floral products hardgoods to traditional retail
florists and mass-market retailers, as well as to bouquet manufacturers.
Bouquet companies, which have emerged over the past decade to provide pre-
packaged products to mass-market retailers, obtain flowers from importers, as
well as directly from growers, and, to a lesser extent, from wholesalers and
shippers. Bouquet companies employ mass-production techniques in order to
replicate cost-effectively a particular floral product design for widespread
distribution. They wrap cut flowers in plastic sleeves and produce floral
arrangements, which are packaged in shipping containers, for sale through mass
market retailers such as the floral departments of grocery stores and discount
merchandisers.
47
<PAGE>
At each stage of the distribution chain, the pricing of cut flowers varies
with quality and freshness. As days pass from the time of first cutting, fresh
products that remain unsold decline in price, until they are ultimately sold
or discarded. Since the freshest, highest-quality flowers command the highest
prices, the distribution system effectively rewards the growers that produce
the best flowers, the importers and brokers that clear and match flowers with
buyers most efficiently, and the wholesalers and bouquet companies that store
and preserve flowers most effectively and bring the best products to market
most quickly.
The distribution channel in the floriculture industry is highly fragmented,
and consists mainly of small, family-owned firms that operate from a single
location or from a small number of outlets in a single region. While floral
products have historically been sold at retail through a large number of
traditional florists, who continue to serve the majority of consumers, the
Company believes, based upon the experience of management of USA Floral and of
the Founding Companies, that changes in consumer buying habits are causing
more consumers to seek floral products from mass-market retailers such as
supermarkets, discount retailers and chain stores. The Company believes that
sales in the retail segment of the floriculture industry totaled approximately
$15.0 billion in 1996, and that approximately 45% of retail sales are
generated by mass market retailers. Management believes that the growing
consumer preference for more convenient floral products retailers, together
with the potential efficiencies to be achieved from operating floral products
businesses on a large scale, have well positioned the floriculture industry
for consolidation and provide an attractive opportunity for the Company to
build an integrated, nationwide floral products distributor that can serve the
growing mass market while continuing to meet the needs of the traditional
florists for high quality products and services.
STRATEGY
The Company believes that it is a leading consolidator in the highly
fragmented floral products industry and is therefore uniquely positioned to
create a new industry operating model that streamlines distribution, improves
product quality and provides better service to retailers, particularly in the
mass market. To attain its goals, the Company's strategy is to (i) acquire
profitable floral products businesses in each segment of the distribution
channel, (ii) empower decentralized local management to stay close to
customers and generate new ideas for Company-wide dissemination, (iii) achieve
operating efficiencies by combining certain functions at the corporate level,
and (iv) introduce new products and services to the traditional retail
florist, the mass market supplier and the consumer, including "brand-name"
flowers and express services for certain pre-packaged products.
Pursue Strategic Acquisitions. The Company intends to capitalize upon
consolidation opportunities in the U.S. floral products industry by pursuing
selective acquisitions in all components of the distribution segment of the
industry. To build upon and enhance its nationwide presence, the Company will
focus upon opportunities that complement and complete its floral products
offerings and in new geographic markets with above-average population growth
and floral products consumption. The Company intends to implement an
aggressive acquisition program utilizing a "hub and spoke" strategy for
expansion into its targeted markets. As part of this strategy, the Company
plans to make acquisitions of established, high-quality local companies in
targeted geographic areas, which can then serve as "hubs" for the acquisition
of smaller, synergistic "spokes" in that locality or in surrounding markets.
The Company believes that it can successfully integrate the operations of
acquired spokes into its hubs, in order to leverage more effectively its
sales, marketing and distribution capabilities. Robert J. Poirier, the
Company's co-founder, Chairman of the Board, President and Chief Executive
Officer, has over 22 years of experience in the floral products industry, with
extensive relationships with wholesalers, importers, brokers and bouquet
manufacturers. Mr. Poirier's industry knowledge is complemented by the
acquisition expertise of Jonathan J. Ledecky, the Company's co-founder and
Non-Executive Chairman of the Board. Mr. Ledecky is the founder and Chairman
of the Board of U.S. Office Products Company, a publicly-held supplier of a
broad range of office products and business services that has been built
primarily through the acquisition and integration of over 190 companies since
its inception in October 1994, and is the founder, Chairman and Chief
Executive Officer of Consolidation Capital Corporation, a company founded in
February 1997 to build consolidated enterprises with national market reach
through the acquisition and integration of businesses in fragmented
industries.
48
<PAGE>
Operate with Decentralized Management. The Company plans to conduct its
operations with a decentralized management approach through which individual
management teams will be responsible for the day-to-day operations of the
Founding Companies as well as for helping to identify additional acquisition
candidates in their respective locales. At the same time, a company-wide team
of senior management will provide the Founding Companies with strategic
oversight and guidance with respect to acquisitions, financing, marketing and
operations. As part of this strategy, the Company intends to foster a culture
of cooperation and teamwork that emphasizes dissemination of "best practices"
among its local management teams. The Company believes that stock ownership
and incentive compensation will help to keep the objectives of local
management aligned with those of the Company, and that a decentralized
management approach will result in better customer service by allowing local
management the flexibility to implement policies and make decisions based on
the needs of local customers.
Achieve Operating Efficiencies. The Company believes that it will be able to
increase operating efficiency and achieve certain synergies among its
constituent businesses. In particular, with larger operational scale, the
Company believes that it can increase distribution efficiencies by utilizing
shipping and delivery capacity more efficiently. The Company will also seek to
combine certain administrative functions, such as accounting and finance,
insurance, employee benefits, strategic marketing and legal support, at the
corporate level, and to institute a Company-wide management information
system. The Company believes that increased scale and administrative
integration will enable it not only to operate more efficiently, but also to
obtain more favorable discounts and rebates on floral products hardgoods and,
to a lesser extent, realize savings on transportation and handling costs of
fresh flowers.
Introduce New Products and Services. The Company believes that over time it
will be able to develop and market high-value added products and services,
such as "branded" flowers and bouquets specifically identified with quality
and consistency. By utilizing its contacts with growers and leveraging its
distribution, the Company believes that it can establish specifications for
fresh flowers and control product quality at each step in the distribution
process, thereby building a brand identification that will command a premium
price. The Company also intends to service retailers by providing pre-packaged
fresh flowers and arrangements during periods of peak demand, as well as to
market floral products through corporate account relationships and other
means.
THE FOUNDING COMPANIES
USA Floral acquired the Founding Companies contemporaneously with the
consummation of the IPO, in part through the application of a portion of the
proceeds therefrom. USA Floral has conducted operations since October 16,
1997.
The Roy Houff Company. Founded in 1977, Houff is a wholesale distributor of
perishable floral products and floral-related hardgoods, operating from seven
locations in Illinois, Virginia and Arizona. Houff purchases floral products
from importers, brokers and shippers and sells them to approximately 3,000
customers, including retail florists and mass market retailers. Houff has
approximately 270 employees. Houff's annual revenues in 1996 were
approximately $39.1 million.
CFX, Inc. Founded in 1974, CFX is an importer and distributor of perishable
floral products located in Miami, Florida. CFX imports flowers from
approximately 40 farms located primarily in Colombia and Ecuador, and
distributes them throughout the United States to approximately 400 wholesale
distributors as well as directly to mass market retailers. CFX has
approximately 110 employees. CFX's annual revenues in 1996 were approximately
$35.7 million.
Bay State Florist Supply, Inc. Founded in 1952, Bay State is a wholesale
distributor of perishable floral products and floral-related hardgoods,
operating from six locations in Massachusetts, New York, New Hampshire,
Connecticut and Rhode Island. Bay State purchases floral products from
domestic growers,
49
<PAGE>
importers, brokers and shippers and sells them to approximately 3,000
customers, including retail florists and mass market retailers. Bay State has
approximately 190 employees. Bay State's annual revenues in 1996 were
approximately $30.6 million.
Flower Trading Corporation. Founded in 1977, Flower Trading is an importer
and distributor of perishable floral products, located in Miami, Florida.
Flower Trading imports flowers from farms located primarily in Colombia,
Ecuador, Guatemala and Peru and distributes them throughout the United States
to approximately 350 wholesale distributors. Flower Trading has approximately
45 employees. Flower Trading's annual revenues in 1996 were approximately
$20.3 million.
United Wholesale Florists, Inc. Founded in 1947, United Wholesale is a
wholesale distributor of perishable floral products and floral-related
hardgoods, operating from 13 locations in Arkansas, Alabama, Mississippi,
Oklahoma, Tennessee and Texas. United Wholesale purchases floral products from
domestic growers, importers, brokers and shippers and sells them to
approximately 3,000 customers, including retail florists and mass marketers.
United Wholesale has approximately 175 employees. United Wholesale's revenues
for the fiscal year ended June 30, 1997 were approximately $19.7 million.
American Florist Supply, Inc. Founded in 1994, American Florist is a
wholesale distributor of perishable floral products and floral-related
hardgoods, located in Woburn, Massachusetts. American Florist purchases floral
products from foreign and domestic growers, brokers and importers and sells
them to approximately 450 customers, including retail florists and mass market
retailers in Maine, Massachusetts, Vermont and New Hampshire. American Florist
also provides pre-packaged fresh cut floral bouquets to retail florists and
mass-market retailers. American Florist has approximately 70 employees.
American Florist's annual revenues in 1996 were approximately $11.7 million.
Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc. Founded in 1993,
Monterey Bay, located in Watsonville, California, is a manufacturer of fresh
cut flower bouquets, consisting primarily of specialty California-grown
flowers. Monterey Bay purchases flowers from 12 importers and nearly 150
domestic growers and distributes them to a supermarket and a discount
retailer, each of which has numerous locations throughout the western United
States. Monterey Bay has approximately 65 employees. Monterey Bay's annual
revenues in 1996 were approximately $9.5 million.
Alpine Gem Flower Shippers, Inc. Founded in 1978, Alpine Gem is a broker of
perishable floral products, operating from one location in Montana and one in
California. Alpine Gem purchases flowers from approximately 250 growers,
principally located in the United States, and sells flowers on consignment for
approximately 18 growers. Alpine Gem distributes flowers to nearly 750
customers, primarily wholesalers, located throughout the U.S. Alpine Gem has
approximately 20 employees. Alpine Gem's annual revenues in 1996 were
approximately $9.3 million.
COMPANY PRODUCTS AND SERVICES
Through the Founding Companies, the Company provides a full range of
interrelated floral products and services, including importing, brokerage,
wholesaling and bouquet manufacturing.
Importing. Through CFX and Flower Trading, the Company imports fresh
flowers, including roses, carnations, mums and alstromeria, from abroad,
principally from Colombia and Ecuador. The Company imports flowers daily
through the U.S. port of entry in Miami, Florida. CFX and Flower Trading
assist in clearing each shipment through U.S. customs and then transfer the
flowers to their own facilities for pre-cooling. CFX and Flower Trading then
act as intermediaries to link their available stocks of flowers with
wholesalers throughout the country. To a limited extent, Alpine Gem also
imports flowers grown in the Pacific Rim.
Brokerage. Through Alpine Gem, the Company serves as a broker for domestic
flowers, linking flowers grown primarily in California with wholesalers
throughout the United States. Alpine Gem obtains information
50
<PAGE>
about maturing fresh flowers in California fields from a network of nearly 100
growers. At the same time, Alpine Gem gauges wholesaler demand for domestic
flowers through contacts with wholesale distributors across the country. When
matches are made, Alpine Gem obtains the flowers from the growers, breaks them
down and repackages them to suit customer requirements and arranges delivery
from the grower or from Alpine Gem to the wholesaler or bouquet company by
refrigerated trucks operated by third-party shippers. To a lesser extent, CFX
and Flower Trading also serve as brokers, arranging for drop shipments of
flowers directly to wholesalers and bouquet companies.
Wholesaling. Wholesalers sell imported and domestic perishable floral
products and floral-related hardgoods directly to thousands of retail florists
as well as to mass market retailers. The Company operates in Illinois,
Virginia and Arizona through Houff; in Massachusetts, Connecticut, New York,
New Hampshire and Rhode Island, through Bay State; in Arkansas, Alabama,
Mississippi, Oklahoma, Tennessee and Texas through United Wholesale; and in
Massachusetts, Vermont, New Hampshire and Maine through American Florist.
Houff, Bay State and United Wholesale each have multiple branches within a
region in order to provide customers with timely and complete service.
Upon receipt of shipments of flowers from suppliers, the Company's
wholesalers process incoming flowers (i.e., break bulk, hydrate, re-cut stems
and repackage to suit customer demand) to facilitate further distribution to
retailers. In some cases, these wholesalers will also prepare specific
arrangements to meet customer needs. Most of the Company's wholesale
facilities are able to make deliveries to each of their retail customers once
per day, and in some cases twice per day.
Bouquet Manufacturing. Through Monterey Bay and American Florist, the
Company takes fresh flowers obtained from growers or importers and creates
pre-packaged bunches or arrangements for distribution to retail florists and
mass market retailers, and primarily to a large supermarket chain and a large
chain discount retailer.
SALES AND MARKETING
The Founding Companies each employ a dedicated sales force to market floral
products directly to entities at the next level of the distribution chain.
Sales and marketing are conducted primarily on a one-to-one basis by telephone
calls to established accounts. The Founding Companies employ an aggregate of
275 salespersons. Most of these employees are compensated on a commission
basis or through other incentive-based compensation programs that encourage
employees to build existing business as well as generate new customer
relationships.
In addition, the Company's wholesalers typically maintain limited "showroom"
space, for walk-in business from trade customers, in which hardgoods such as
vases and ribbons are displayed for sale. Trade customers can also examine and
select fresh flowers from the wholesalers' on-site coolers.
The Company believes that the nationwide scope and significant scale that it
can attain through its acquisition strategy will create opportunities, over
time, to promote high-quality, brand-name products, principally through direct
sales techniques and retail promotions. In addition, the Company intends to
seek corporate account opportunities to market products to selected audiences
of employees and corporate purchasing personnel.
SOURCES OF SUPPLY
Approximately 75% of the fresh flowers sold by the Company are imported from
abroad, principally from Colombia and Ecuador; the remaining 25% are grown in
the United States, principally in California. Although the Company does not
generally enter into contracts with its suppliers, it actively manages
relationships with a large number of growers, importers and brokers to obtain
high-quality flowers in amounts and at times needed. In addition, when
appropriate the Company enters into standing order arrangements with certain
importers, which provide for fixed quantity purchases on a fixed price basis
throughout the year with higher quantities at that price during peak demand
periods, to ensure an adequate supply of flowers during periods of peak
demand. The
51
<PAGE>
Company believes that it has good relationships with its suppliers and that
the large number of current and potential suppliers should continue to make
perishable floral products available to the Company as needed. The Company
sources its hardgood products from a number of suppliers. The Company believes
that it has good relationships with its suppliers, and that alternative
sources of supply are readily available if necessary.
CUSTOMERS
The Founding Companies have thousands of customers, consisting of other
wholesalers and bouquet companies, traditional florists and mass market
retailers. Certain other participants in the floriculture industry, including
wire services such as Florists' Transworld Delivery Association ("FTD") and
order aggregators such as 1-800-FLOWERS (both of which rely upon traditional
retail florists such as those supplied by the Company to fulfill their
orders), are also indirect customers for the Company's products through the
demand that their orders generate at retail florists. The Company generally
does not enter into long-term sales contracts with its
customers. The Company's sales are generally evidenced by a purchase order or
other sales documentation limited to a specific sale. No single customer
accounted for more than 5% of the Company's pro forma combined 1996 revenues.
To a limited extent, the Founding Companies have historically been suppliers
to and customers of each other; the Company expects that these relationships
will continue following the Mergers, and that the Company's strategy of
fostering cooperation and teamwork may yield new opportunities for the
Founding Companies and any subsequently acquired companies to pursue business
together.
COMPETITION
The distribution segment of the floriculture industry is highly competitive,
with numerous distributors in each market. The Company competes with other
importers, brokers, wholesalers and bouquet companies based upon price, credit
terms, breadth of product offerings, product quality, customer service and
location. In addition, the Company competes with other buyers and sellers of
floral and floral-related products, such as garden centers and farm stores. To
the extent that the Company is unable to compete successfully against its
existing and future competitors, its business, operating results and financial
condition would be materially adversely affected. While the Company believes
that it competes effectively within its industry, additional competitors with
greater resources than the Company may enter the industry and compete
effectively against the Company. Moreover, the Company may depend in part upon
a trend toward consolidation in the floral products industry in order to
execute effectively its acquisition and vertical integration strategy. This
trend may not continue. If the Company's customers do not receive the
Company's vertical integration strategy favorably, such customers have
numerous alternative sources of supply.
FACILITIES
The Company's corporate offices are located in leased space in Washington,
D.C. at 1025 Thomas Jefferson Street, N.W., Suite 600 West, Washington, D.C.
20007. The telephone number of its principal executive offices is (202) 333-
0800.
In addition to its corporate offices, the Company maintained the following
facilities as of November 7, 1997:
<TABLE>
<CAPTION>
OWNED OR
FOUNDING COMPANY LOCATION PRINCIPAL USE LEASED
---------------- -------- ------------- --------
<S> <C> <C> <C>
Houff................... Chicago, IL Headquarters and Distribution Owned
Facility
Chicago, IL Distribution Facility Owned
Normal, IL Distribution Facility Owned
Wheeling, IL Distribution Facility Owned
Phoenix, AZ Distribution Facility Owned
Norfolk, VA Distribution Facility Owned
Richmond, VA Distribution Facility Leased
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
OWNED OR
FOUNDING COMPANY LOCATION PRINCIPAL USE LEASED
---------------- -------- ------------- --------
<S> <C> <C> <C>
CFX..................... Miami, FL Headquarters, Sales Office, Leased
Distribution Facility
Bay State............... Waltham, MA Headquarters and Distribution Leased
Facility
Springfield, MA Distribution Facility Leased
Cromwell, CT Distribution Facility Leased
Manchester, NH Distribution Facility Leased
Clifton Park, NY Distribution Facility Leased
Providence, RI Distribution Facility Leased
Flower Trading.......... Miami, FL Headquarters, Sales Office, Leased
Distribution Facility
United Wholesale........ Little Rock, AR Headquarters Leased
Little Rock, AR Distribution Facility Leased
Fort Smith, AR Distribution Facility Leased
Mobile, AL Distribution Facility Leased
Jackson, MS Distribution Facility Owned
Tupelo, MS Distribution Facility Leased
Oklahoma City, OK Distribution Facility Owned
Tulsa, OK Distribution Facility Leased
Jackson, TN Distribution Facility Owned
Memphis, TN Distribution Facility Owned
Amarillo, TX Distribution Facility Leased
Longview, TX Distribution Facility Leased
Texarkana, TX Distribution Facility Leased
Tyler, TX Distribution Facility Leased
American Florist........ Woburn, MA Headquarters and Distribution Leased
Facility
Monterey Bay............ Watsonville, CA Headquarters and Bouquet Leased
Manufacturing Facility
Alpine Gem.............. Thompson Falls, MT Headquarters and Sales Office Leased
Watsonville, CA Sales Office and Distribution Leased
Facility
</TABLE>
The Company believes that its facilities are adequate for the Company's
current and anticipated operations.
EMPLOYEES
On a pro forma combined basis as of June 30, 1997, the Company employed
approximately 945 people, of whom approximately 845 were full-time employees
and approximately 100 were part-time employees. Approximately 475 employees
were engaged in operations, 275 were engaged in sales, and 195 were engaged in
a variety of administrative and managerial functions. Approximately 15
delivery personnel employed by Houff are members of Illinois Local 703 of the
International Brotherhood of Teamsters, and are employed pursuant to a
collective bargaining agreement. The Company believes that its relations with
all of its employees are good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
53
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company as of November 7, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Robert J. Poirier 45 Chairman of the Board, President and Chief Executive
Officer
Jonathan J. Ledecky 39 Non-Executive Chairman of the Board
Raymond C. Anderson 32 Chief Financial Officer
Raymond R. Ashmore 53 President of United Wholesale and Person Named to
Become a Director
Jeffrey Brothers 38 President of Monterey Bay and Person Named to Become a
Director
John T. Dickinson 36 President of American Florist and Person Named to
Become a Director
John Q. Graham, Jr. 49 President of Alpine Gem and Person Named to Become a
Director
Dwight Haight 50 President of CFX and Person Named to Become a Director
Roy O. Houff 56 Chief Executive Officer of Houff and Person Named to
Become a Director
Gustavo Moreno 43 President of Flower Trading Corporation and Person
Named to be a Director
William W. Rudolph 64 President of Bay State and Person Named to Become a
Director
Vincent W. Eades 38 Director
Edward J. Mathias 55 Director
John A. Quelch 46 Director
</TABLE>
Robert J. Poirier co-founded USA Floral in April 1997 and has since served
as its Chairman of the Board, President and Chief Executive Officer. Mr.
Poirier served as Vice President of 1-800-FLOWERS from 1993 until March 1997,
and was most recently responsible for that company's florist network
operations, consisting of 2,500 independent retail florists. From 1989 to
1993, Mr. Poirier served as Group Director of FTD. Mr. Poirier has been
employed in the floral products industry for 22 years, and has extensive
experience at all levels of the floral distribution channel.
Jonathan J. Ledecky co-founded USA Floral in April 1997 and has since served
as its Non-Executive Chairman of the Board. Mr. Ledecky founded U.S. Office
Products Company, a publicly-held supplier of a broad range of office products
and business services, in October 1994 and has served since then as its
Chairman of the Board and, until November 5, 1997, its Chief Executive
Officer. Since its inception, U.S. Office Products Company has acquired and
integrated over 190 companies. In February 1997, Mr. Ledecky founded
Consolidation Capital Corporation, a company that will seek to build
consolidated enterprises with national market reach through the acquisition
and integration of businesses in fragmented industries. Mr. Ledecky currently
serves as Chairman and Chief Executive Officer of Consolidation Capital
Corporation. From 1991 until September 1994 Mr. Ledecky served as President
and Chief Executive Officer of Legacy Dealer Capital Fund, Inc.
Raymond C. Anderson has been the Chief Financial Officer of USA Floral since
July 1997. From May 1997 until September 1, 1997, Mr. Anderson served as the
President and Chief Operating Officer of Houff. From April 1995 until May
1997, Mr. Anderson served as the Vice President-Finance of Houff. From 1991
until April 1995, Mr. Anderson was associated with the Tax Division of Arthur
Andersen & Co.
Raymond R. Ashmore has served as President of the Company's United Wholesale
operating unit since the United Wholesale Merger and will serve as a Director
of USA Floral upon appointment to the Board at its meeting in November 1997.
Mr. Ashmore has served as President of United Wholesale since 1983.
54
<PAGE>
Jeffrey Brothers has served as President of the Company's Monterey Bay
operating unit since the Monterey Bay Merger and will serve as a Director of
USA Floral upon appointment to the Board at its meeting in November 1997. Mr.
Brothers has served as President of Monterey Bay since February 1993. From
1985 until January 1993, Mr. Brothers was President of Brothers Brothers,
Inc., a wholesale flower distributor.
John T. Dickinson has served as President of the Company's American Florist
operating unit since the American Florist Merger and will serve as a Director
of USA Floral upon appointment to the Board at its meeting in November 1997.
Mr. Dickinson has served as President of American Florist since 1994. Prior to
1994, Mr. Dickinson served in a number of sales and marketing positions for
General Electric Company, most recently as an area sales manager.
John Q. Graham, Jr. has served as President of the Company's Alpine Gem
operating unit since the Alpine Gem Merger and will serve as a Director of USA
Floral upon appointment to the Board at its meeting in November 1997. Mr.
Graham has served as President of Alpine Gem since 1978.
Dwight Haight has served as President of the Company's CFX operating unit
since the CFX Merger and will serve as a Director of USA Floral upon
appointment to the Board at its meeting in November 1997. Mr. Haight has
served as President of CFX, Inc. since 1974.
Roy O. Houff has served as Chief Executive Officer of the Company's Houff
operating unit since the Houff Merger and will serve as a Director of USA
Floral upon appointment to the Board at its meeting in November 1997. Mr.
Houff has served as Chief Executive Officer of Houff since May 1997, and
served as President of Houff from 1977 until May 1997.
Gustavo Moreno has served as President of the Company's Flower Trading
operating unit since the Flower Trading Merger and will serve as a Director of
the Company upon appointment to the Board at its meeting in November 1997. Mr.
Moreno has served as President of Flower Trading since 1977.
William W. Rudolph has served as President of the Company's Bay State
operating unit since the Bay State Merger and will serve as a Director of USA
Floral upon appointment to the Board at its meeting in November 1997. Mr.
Rudolph has served in an executive capacity with Bay State since 1962, most
recently serving as President of Bay State since 1990.
Vincent W. Eades has been a Director of USA Floral since July 1997. From
April 1995 to the present, Mr. Eades has served as the Senior Vice President
of Sales and Marketing for Starbucks Coffee Co. Inc. For more than five years
prior to April 1995, Mr. Eades was associated with Hallmark Cards Inc., most
recently as a General Manager.
Edward J. Mathias has been a Director of USA Floral since July 1997. Mr.
Mathias served as a Director of U.S. Office Products Company since February
1995. Mr. Mathias has served as Managing Director of the Carlyle Group, a
Washington, D.C. based merchant bank since 1993. From 1971 to 1993, Mr.
Mathias was with T. Rowe Price Associates, Inc., an investment management
organization, most recently as a Managing Director.
John A. Quelch has been a Director of USA Floral since July 1997. Dr. Quelch
has been a Director of U.S. Office Products Company since February 1995. Dr.
Quelch is the Sebastian S. Kresge Professor of Marketing at the Harvard
Business School. Dr. Quelch serves on the board of directors of WPP Group plc,
a marketing services company that includes Ogilvy & Mather, J. Walter Thompson
and Hill & Knowlton.
The Company does not currently intend to increase the size of the Board of
Directors beyond 13 members.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to
conduct the annual audit of the books and records of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid,
reviewing accounting and financial controls of the Company with the
independent public accountants and the Company's financial and accounting
staff and reviewing and approving transactions between the Company and its
directors, officers and affiliates. Messrs. Mathias and Quelch are the members
of the Audit Committee.
55
<PAGE>
The Compensation Committee provides a general review of the Company's
compensation plans and policies to ensure that they meet corporate objectives.
As described below, the Company's existing plans with respect to executive
compensation are largely based upon contractual commitments set forth in
employment agreements that are either in effect or are to be entered into upon
consummation of the Mergers. See "--Executive Compensation." The
responsibilities of the Compensation Committee also include administering the
1997 Long-Term Incentive Plan, including selecting the officers and salaried
employees to whom awards will be granted. Messrs. Ledecky and Mathias are the
members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers,
employees or consultants of the Company are entitled to receive an annual
retainer fee of $25,000, plus reimbursement of expenses for each meeting of
the Board of Directors and each committee meeting that they attend in person.
In addition, non-employee directors receive certain formula grants of non-
qualified stock options under the 1997 Non-Employee Directors' Stock Plan. See
"--1997 Non-Employee Directors' Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Ledecky and Mathias.
EXECUTIVE COMPENSATION
USA Floral was incorporated in April 1997. Effective upon consummation of
the Mergers and for the balance of 1997, the Company will, pursuant to
employment agreements, pay compensation based on the following annual salaries
to its Chief Executive Officer and Chief Financial Officer named below who are
to be executive officers of the Company and whom the Company believes will be
its only executive officers in 1997 (together, the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- ---------------------
SECURITIES UNDERLYING
NAME POSITION SALARY BONUS OPTIONS
---- -------- ------------ --------- ---------------------
<S> <C> <C> <C> <C>
Robert J. Poirier....... Chairman of the Board, $160,000 -- (1) 110,000 (2)
President and Chief
Executive Officer
Raymond C. Anderson..... Chief Financial Officer $150,000 -- (3) 50,000 (4)
</TABLE>
- --------
(1) Mr. Poirier will be entitled to an annual bonus based upon the operating
performance of the Company. The terms and amount of the annual bonus will
be determined by the Board of Directors.
(2) Consists of options granted under the 1997 Long-Term Incentive Plan as of
October 9, 1997, at an exercise price equal to the initial public offering
price per share. Options to purchase 60,000 shares will be immediately
exercisable, and options to purchase the remaining 50,000 shares will vest
in 25% annual installments over four years commencing on the first
anniversary of the date of grant.
(3) Will consist of a performance bonus, if any, to be awarded based in part
upon the individual's performance and in part upon the operating
performance of the Company, on terms to be determined by the Board of
Directors.
(4) Consists of options to be granted under the 1997 Long-Term Incentive Plan
as of October 9, 1997, at an exercise price equal to $8.00 per share. The
options will vest in 25% annual installments over four years commencing on
the first anniversary of the date of grant.
1997 LONG-TERM INCENTIVE PLAN
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the Company's 1997 Long-Term Incentive Plan (the "Incentive
Plan"). The maximum number of shares of
56
<PAGE>
Common Stock that may be subject to outstanding awards may not be greater than
that number of shares equal to 15% of the number of shares of Common Stock
outstanding from time to time. Awards may be settled in cash, shares, other
awards or other property, as determined by the Committee. The number of shares
reserved or deliverable under the Incentive Plan and the annual per-
participant limit on the number of shares as to or with reference to which
awards may be granted are subject to adjustment in the event of stock splits,
stock dividends and certain other corporate events.
The purpose of the Incentive Plan is to provide executive officers
(including directors who also serve as executive officers), key employees,
consultants and other service providers with additional incentives by enabling
such persons to increase their ownership interests in the Company. Individual
awards under the Incentive Plan may take the form of one or more of: (i)
either incentive stock options ("ISOs") or non-qualified stock options
("NQSOs," and together with ISOs, "Options"); (ii) stock appreciation rights
("SARs"); (iii) restricted or deferred stock; (iv) dividend equivalents; (v)
bonus shares and awards in lieu of Company obligations to pay cash
compensation; and (vi) other awards the value of which is based in whole or in
part upon the value of the Common Stock. Upon a change of control of the
Company (as defined in the Incentive Plan), certain conditions and
restrictions relating to an award with respect to the exercisability or
settlement of such award will lapse.
The Compensation Committee will administer the Incentive Plan and generally
select the individuals who will receive awards. In addition, the Compensation
Committee will determine the type and number of awards and the terms and
conditions of those awards (including exercise prices, vesting and forfeiture
conditions, performance conditions and periods during which awards will remain
outstanding). The Incentive Plan also provides that no participant may be
granted in any calendar year awards which may be settled by delivery of more
than 750,000 shares and limits payments under cash-settled awards in any
calendar year to an amount equal to the fair market value of that number of
shares.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the
Incentive Plan, except that (i) no deduction is permitted in connection with
ISOs if the participant holds the shares acquired upon exercise for the
required holding periods, and (ii) deductions for some awards could be limited
under the $1.0 million deductibility cap of Section 162(m) of the Internal
Revenue Code. This limitation, however, should not apply to awards granted
under a plan during a grace period of up to three years following the
Offering, and should not apply to certain options, SARs and performance-based
awards granted thereafter if the Company complies with certain requirements
under Section 162(m).
The Incentive Plan will remain in effect until terminated by the Board. The
Incentive Plan may be amended by the Board without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which provides for the automatic grant to each non-employee director
of (i) an option (an "Initial Grant") to purchase 21,000 shares on the later
of the date on which the non-employee director is elected to the Board of
Directors or the effective date of the registration statement relating to the
IPO, and (ii) an option to purchase 6,000 shares on the day after each annual
meeting of the Company's stockholders. A total of 300,000 shares are reserved
for issuance under the Directors' Plan. The number of shares reserved, as well
as the number to be subject to automatically granted options, will be adjusted
in the event of stock splits, stock dividends and certain other corporate
events.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant (in the
case of Initial Grants upon the effective date of the registration
57
<PAGE>
statement relating to the IPO, the initial public offering price per share).
Options will expire at the earlier of 10 years from the date of grant or one
year after termination of service as a director. Options will vest and become
exercisable ratably, 50% six months after the date of initial grant and 50%
one year after the date of initial grant. In the event of a change in control
of the Company (as defined in the Directors' Plan) prior to normal vesting,
all options not already exercisable would become fully vested and exercisable
under the Directors' Plan. A non-employee director's death would also cause
immediate vesting of his or her non-vested options. In addition, the
Directors' Plan permits non-employee directors to elect to receive, in lieu of
cash directors' fees, nonforfeitable shares or nonforfeitable credits
representing "deferred shares" settleable at future dates, as elected by the
director. The number of shares or "deferred shares" received will be equal to
the number of shares which, at the date the fees would otherwise be payable,
will have an aggregate fair market value equal to the amount of such fees.
Each "deferred share" will be settled by delivery of a share of Common Stock
at such time as may have been elected by the director prior to the deferral.
The Directors' Plan will remain in effect until terminated by the Board or
until no shares of Common Stock are available for issuance under the
Directors' Plan. The Directors' Plan may be amended by the Board without the
consent of the stockholders of the Company, except that any amendment,
although effective when made, will be subject to stockholder approval if
required by any federal or state law or regulation or by the rules of any
stock exchange or automated quotation system on which the Common Stock may
then be listed or quoted.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors has adopted, and the Company's stockholders
have approved, the 1997 Employee Stock Purchase Plan (the "Purchase Plan").
The Purchase Plan will permit eligible employees of the Company and its
subsidiaries (generally all full-time employees who have completed one year of
service) to purchase shares of Common Stock at a discount. Employees who elect
to participate will have amounts withheld through payroll deduction during
purchase periods. At the end of each purchase period, accumulated payroll
deductions will be used to purchase stock at a price equal to 85% of the
market price at the beginning of the period or the end of the period,
whichever is lower. Stock purchased under the Purchase Plan will be subject to
a one-year holding period. The Company has reserved 1,000,000 shares of Common
Stock for issuance under the Purchase Plan.
The Purchase Plan will remain in effect until terminated by the Board or
until no shares of Common Stock are available for issuance under the Purchase
Plan. The Purchase Plan may be amended by the Board without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
EMPLOYMENT AGREEMENTS
Effective as of April 22, 1997 and as amended August 6, 1997, USA Floral
entered into a two-year Employment Agreement with Robert J. Poirier, pursuant
to which USA Floral agreed to employ Mr. Poirier as Chairman of the Board,
President and Chief Executive Officer for a term of two years at an annual
base salary of $160,000. In addition, pursuant to the agreement, Mr. Poirier:
(i) was granted an option on October 9, 1997 to purchase 110,000 shares of
Common Stock at an exercise price equal to the initial public offering price
of $13,000 per share, which was fully vested and immediately exercisable as to
60,000 shares, and which shall vest and become exercisable with respect to
12,500 additional shares on each of the first four anniversaries of the date
of the grant; and (ii) is to be granted an immediately exercisable option in
October 1998 to purchase an additional 60,000 shares at an exercise price
equal to the then-current fair market value per share. The agreement also
includes a two-year post-employment non-competition provision. The agreement
provides that Mr. Poirier will be eligible to participate in an incentive
bonus program, which is to be established. If Mr. Poirier is terminated
without cause, he is entitled to receive his base salary, plus benefits, for
the two year period following the termination, and all unvested options become
fully vested.
58
<PAGE>
Upon consummation of the IPO, the Company entered into a two-year employment
agreement with Raymond C. Anderson, the Company's Chief Financial Officer,
providing for a base salary of $150,000 for a term of two years, plus a bonus
based upon the performance of the Company. The agreement also includes a two-
year post-employment non-competition provision. In addition, Mr. Anderson was
granted options on October 9, to purchase 50,000 shares of Common Stock with
an exercise price equal to $8.00 per share. If Mr. Anderson is terminated
without cause, he is entitled to receive accelerated vesting of vested options
to purchase shares of Common Stock then held by him, as well as his base
salary plus benefits for the greater of (i) the remainder of the term or (ii)
twelve months.
The Company, through its wholly-owned subsidiaries, has entered into
employment agreements with certain of the individuals principally responsible
for management of the Founding Companies. Each of the agreements described
below provides that the employee (i) will receive a specified base salary,
(ii) will be employed for a two-year period, (iii) agrees to not compete with
the Company for two years following termination of employment and (iv) is
eligible for an annual bonus of up to 100% of base salary based in part on the
performance of the applicable Founding Company and in part upon the
performance of the Company. Roy O. Houff's employment agreement with Houff
provides that Mr. Houff will be employed for a two-year period with a base
salary of $150,000. Dwight Haight's employment agreement with CFX provides
that Mr. Haight will be employed for a two-year period with a base salary of
$216,000. William W. Rudolph's employment agreement with Bay State provides
that Mr. Rudolph will be employed for a two-year period with a base salary
equal to his current salary through December 31, 1997 and a base salary of
$150,000 beginning January 1, 1998. Jeffrey Brother's employment agreement
with Monterey Bay provides that Mr. Brothers will be employed for a two-year
period with a base salary of $170,000. In addition, Mr. Brothers was granted
options to purchase 50,000 shares of Common Stock with an exercise price equal
to the initial public offering price of $13.00 per share. John Q. Graham,
Jr.'s employment agreement with Alpine Gem provides that Mr. Graham will be
employed for a two-year period with a base salary of $80,000. In addition, Mr.
Graham was granted options to purchase 50,000 shares of Common Stock with an
exercise price equal to the initial public offering price of $13.00 per share.
Raymond R. Ashmore's employment agreement with United Wholesale provides that
Mr. Ashmore will be employed for a two-year period with a base salary of
$150,000. John T. Dickinson's employment agreement with American Florist
provides that Mr. Dickinson will be employed for a two-year period with a base
salary of $150,000. In addition, Mr. Dickinson was granted options to purchase
50,000 shares of Common Stock, with an exercise price equal to the initial
public offering price of $13.00 per share. Gustavo Moreno's employment
agreement with Flower Trading provides that Mr. Moreno will be employed for a
two-year period with a base salary of $270,000.
59
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between USA Floral and certain persons who are or will become officers,
directors and principal stockholders of the Company following the Mergers and
IPO. In addition, set forth below is certain information regarding
transactions and relationships prior to the Mergers between certain of the
Founding Companies and their respective officers, directors and principal
stockholders.
ORGANIZATION OF USA FLORAL
USA Floral was founded as a holding company to acquire businesses in the
floral products distribution industry. Prior to the Mergers and the Offering,
USA Floral issued 2,400,000 shares of Common Stock for cash to its co-founders
and initial investors, including 1,000,000 shares to Robert J. Poirier and
1,100,000 shares to Jonathan J. Ledecky. Mr. Poirier is the co-founder,
Chairman of the Board, President and Chief Executive Officer of USA Floral and
Mr. Ledecky is its co-founder and Non-Executive Chairman of the Board. For
information regarding certain employment arrangements between the Company and
certain directors, officers and key employees, see "Management--Employment
Agreements."
THE MERGERS
Simultaneously with the consummation of the IPO, USA Floral acquired in
eight separate transactions all of the issued and outstanding capital stock of
each of the Founding Companies for an aggregate consideration of $63.7
million, which consisted of: (i) $42.4 million in cash paid to the
stockholders of the Founding Companies, (before giving effect to the receipt
by the Company upon consummation of the Mergers of approximately $1.7 million
of net related party receivables); (ii) $4.0 million in cash to fund
S Corporation distributions to the stockholders of CFX and Alpine Gem; and
(iii) the $17.3 million fair value (based upon the initial public offering
price of $13.00 per share) of 1,334,050 shares of Common Stock issued to the
stockholders of the Founding Companies. In addition, the Company may pay
additional consideration of up to $0.5 million in cash and issue up to $5.4
million in shares of Common Stock (approximately 415,385 shares, assuming a
price per share equal at the calculation date to the initial public offering
price of $13.00 per share) (or, in the event the fair market value per share
is less than $10.00, such additional shares of Common Stock or, at the
Company's option, cash as is necessary so that the stockholders receive
consideration equal to $10.00 per share), pursuant to earn-out arrangements
with two of the Founding Companies. The Company also assumed a tax liability
of one of the Founding Companies of approximately $0.5 million. The purchase
price for each Founding Company was determined based on negotiations between
USA Floral and that Founding Company. The factors considered by the parties in
determining the purchase price included, among other factors, cash flows,
historical operating results, growth rates and business prospects of the
Founding Companies. With the exception of the consideration paid to the
stockholders of each of the Founding Companies, the acquisition of each
Founding Company was subject to substantially the same terms and conditions as
those to which the acquisition of each other Founding Company was subject. The
following table contains information concerning the aggregate cash to be paid,
Common Stock issued (at an initial public offering price of $13.00 per share)
and S Corporation distributions to be made in connection with the Mergers:
60
<PAGE>
<TABLE>
<CAPTION>
S CORP. SHARES OF VALUE OF SHARES OF TOTAL
FOUNDING COMPANY CASH DISTRIBUTIONS COMMON STOCK COMMON STOCK CONSIDERATION
- ---------------- ----- ------------- ------------ ------------------ -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Houff................... $11.0 -- -- -- $11.0
CFX..................... 5.8 $ 4.0 250,000 $ 3.2 13.0
Bay State............... 6.0 -- 495,550 6.4 12.4
Flower Trading.......... 5.9(1) -- 160,000 2.1 8.0
United Wholesale........ 4.8 -- 268,500 3.5 8.3
American Florist........ 4.8 -- -- (2) -- (2) 4.8(2)
Monterey Bay............ 2.5 -- -- (3) -- (3) 2.5(3)
Alpine Gem.............. 1.6 -- (4) 160,000 2.1 3.7
----- ----- --------- ----- -----
Total................. $42.4(5) $ 4.0 1,334,050 $17.3 $63.7
===== ===== ========= ===== =====
</TABLE>
- --------
(1) Does not include an estimated tax liability of approximately $0.5 million
payable after consummation of the Flower Trading Merger, which is to be
assumed by the Company in connection with the Flower Trading Merger.
(2) The sellers of American Florist have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of shares of Common Stock with an aggregate value of up to $2.4
million (based on the average closing price of the Common Stock for the ten
trading days prior to December 31, 1997). The earn-out is based upon
American Florist's 1997 earnings before interest and taxes.
(3) The sellers of Monterey Bay have entered into an earn-out arrangement
pursuant to which the sellers may receive additional consideration
consisting of up to $0.5 million in cash and shares of Common Stock with an
aggregate value of up to $3.0 million (based on the average closing price
of the Common Stock for the ten trading days prior to December 31, 1997).
The earn-out is based upon Monterey Bay's 1997 earnings before interest and
taxes.
(4) The amount of the Alpine Gem S Corporation distribution is $42,000.
(5) Does not reflect the receipt by the Company upon consummation of the
Mergers of approximately $1.7 million of net related party receivables.
THE ROY HOUFF COMPANY
USA Floral acquired all of the outstanding stock of Houff in a reverse
subsidiary merger for $11.0 million in cash. In connection with the Houff
Merger, Roy O. Houff, the Chief Executive Officer and sole stockholder of
Houff, will become a Director of the Company upon appointment to the Board at
its meeting in November 1997. Mr. Houff entered into a two-year covenant not to
compete with the Company and its subsidiaries and a two-year employment
agreement with the subsidiary of the Company that operates the Houff business
after the Houff Merger.
Mr. Houff is the sole stockholder of RHI Industries, Inc. ("RHI Industries").
Houff paid management fees, vehicle lease payments and health insurance
premiums to RHI Industries, which payments totaled $1.0 million in the year
ended December 31, 1996. All payments to RHI Industries terminated upon
consummation of the Merger. Houff leased six of its seven facilities from Mr.
Houff. Lease payments totaled $0.5 million for the year ended December 31,
1996. The properties owned by Mr. Houff were acquired by Houff prior to the
Houff Merger and the lease arrangement was thereupon be terminated. From time
to time, Houff loaned funds to Mr. Houff. As of December 31, 1996 Mr. Houff
owed approximately $0.1 million to Houff. All amounts due from Mr. Houff were
repaid to Houff upon consummation of the Houff Merger.
CFX, INC.
USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger for: (i) $9.8 million in cash, of which a portion represents
the amount of CFX's accumulated adjustments account, which was distributed to
the stockholders of CFX immediately prior to the consummation of the CFX
Merger; and
61
<PAGE>
(ii) 250,000 shares of Common Stock. In connection with the CFX Merger, Dwight
Haight, the President of CFX, will become a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Haight received
approximately $2.8 million in cash and 118,750 shares of Common Stock for his
shares of capital stock of CFX. Mr. Haight entered into a two-year covenant not
to compete with the Company and its affiliates (subject to certain exceptions)
and a two-year employment agreement with the subsidiary of the Company that
operates the CFX business after the CFX Merger.
Mr. Haight owns 25% of two farms, Miramonte and Mocari, both of which are
located in Colombia (of the other 75% interest, 25% is held by a current
stockholder of CFX). CFX purchases roses from these farms on a consignment
basis, which purchases totaled $12.0 million in the year ended December 31,
1996. Mr. Haight owns 50% of La Fleurette, a bouquet manufacturer with which
CFX conducts business (the other 50% interest is held by a current
stockholder of CFX). Sales to and purchases from La Fleurette in the year ended
December 31, 1996 totaled $3.9 million and $0.3 million, respectively. CFX
provides management services to La Fleurette, for which services La Fleurette
paid fees totaling $0.6 million in the year ended December 31, 1996. The
Company intends to renegotiate, as necessary, all arrangements with related
parties so that all continuing obligations of CFX thereunder are no greater
than those the Company would agree to with unaffiliated third parties. Mr.
Haight owns 50% of Floraltech, Inc., an entity that manages CFX's Colombian
business activities (the other 50% interest is held by a current stockholder of
CFX). CFX paid $0.3 million to Floraltech, Inc. in the year ended December 31,
1996. The CFX Merger Agreement provides that, upon consummation of the Merger,
CFX will acquire the stock of Floraltech, Inc. for $10.00. Mr. Haight owns 50%
of Flying High Venture, from which entity CFX leases its facility in Miami,
Florida (the other 50% interest is held by a current stockholder of CFX). Lease
payments to Flying High Venture in the year ended December 31, 1996 totaled
$0.2 million. In connection with Flying High Venture's financing of the
acquisition of the real property, CFX guaranteed an industrial revenue bond and
a term loan to Flying High Venture. CFX's guaranty obligation under the
industrial revenue bond is secured by a pledge of all of the assets of CFX. As
of December 31, 1996, the outstanding principal balance of the industrial
revenue bond and the term loan in the aggregate was $4.9 million. Interest on
the industrial revenue bond and the term loan accrues at an effective annual
rate of 7.48% and 9.44%, respectively. While USA Floral has not assumed any
guaranty obligation and is not an obligor under the bond or the term loan, CFX
will continue to be a guarantor of the industrial revenue bond and term loan
following consummation of the Merger. From time to time, CFX has advanced funds
to Mr. Haight. As of June 30, 1997, the total amount owed to CFX by Mr. Haight
was approximately $0.2 million. All amounts due to CFX from Mr. Haight were
repaid to CFX upon consummation of the CFX Merger.
BAY STATE FLORIST SUPPLY, INC.
USA Floral acquired all of the outstanding stock of Bay State in a reverse
subsidiary merger for $6.0 million in cash and 495,550 shares of Common Stock.
In connection with the Bay State Merger, William W. Rudolph, the President of
Bay State, will become a Director of the Company upon appointment to the Board
at its meeting in November 1997. Mr. Rudolph received approximately $0.5
million in cash and 43,000 shares of Common Stock for his shares of capital
stock of Bay State. Mr. Rudolph entered into a two-year covenant not to compete
with the Company and its affiliates (subject to certain exceptions) and a two-
year employment agreement with the subsidiary of the Company that operates the
Bay State business after the Bay State Merger.
Mr. Rudolph owns 8.7% of Cromwell Floral Properties LLC ("Cromwell"), which
is the owner of a building in Cromwell, Connecticut from which Bay State
operates a wholesale distribution facility. Bay State made rental payments to
Cromwell in the amount of $0.1 million for the year ended December 31, 1996.
The Company intends to renegotiate, if necessary, the lease so that its terms
are no less favorable than those the Company could obtain from an unaffiliated
third party.
Pursuant to a deferred compensation arrangement entered into between Bay
State and Mr. Rudolph in July 1976 and amended in August 1984 and March 1997,
Mr. Rudolph is to receive deferred compensation of $35,000 per year for the 10
years following the termination of his employment with Bay State.
62
<PAGE>
FLOWER TRADING CORPORATION
USA Floral acquired all of the outstanding stock of Flower Trading in a
reverse subsidiary merger for $5.9 million in cash and 160,000 shares of Common
Stock. In addition, the Company assumed an estimated tax liability of Flower
Trading of approximately $0.5 million. In connection with the Flower Trading
Merger, Gustavo Moreno, the President of Flower Trading, will become a Director
of the Company upon appointment to the Board at its meeting in November 1997.
Mr. Moreno received approximately $0.8 million in cash and 22,400 shares of
Common Stock for his shares of capital stock of Flower Trading. Mr. Moreno
entered into a two-year covenant not to compete with the Company and its
affiliates (subject to certain exceptions) and a two-year employment agreement
with the subsidiary of the Company that operates the Flower Trading business
after the Merger.
Flower Trading owns a 75% interest in UltraFlora Corporation Limited
("UltraFlora"). Flower Trading provides handling services to UltraFlora. In the
year ended December 31, 1996, UltraFlora paid Flower Trading $0.2 million for
such services. Prior to the Flower Trading Merger, Flower Trading sold its
ownership interest in UltraFlora directly to one of the stockholders of Flower
Trading.
UNITED WHOLESALE FLORISTS, INC. AND UNITED WHOLESALE FLORISTS OF AMERICA, INC.
USA Floral acquired all of the outstanding stock of United Wholesale in a
reverse subsidiary merger for $4.8 million in cash and 268,500 shares of Common
Stock. In connection with the United Wholesale Merger, R. Raymond Ashmore, the
President of United Wholesale, will become a Director of the Company upon
appointment to the Board at its meeting in November 1997. Mr. Ashmore received
approximately $1.0 million in cash and 98,625 shares of Common Stock for his
shares of capital stock of United Wholesale. Mr. Ashmore entered into a two-
year covenant not to compete with the Company and its affiliates and a two-year
employment agreement with the subsidiary of the Company that operates the
United Wholesale business after the United Wholesale Merger.
Mr. Ashmore owns 33% of United Properties, an entity from which United
Wholesale leases eight of its facilities. Lease payments made by United
Wholesale to United Properties in the year ended December 31, 1996 totaled $0.3
million. United Wholesale leases its corporate headquarters from a partnership
in which United Properties has a 50% interest. Lease payments to the affiliate
in the year ended December 31, 1996 totaled $0.1 million. The Company was
granted a five-year option to purchase the property leased from these
affiliated entities.
United Wholesale has made advances to Mr. Ashmore totaling $34,000 in the
year ended December 31, 1996 and to United Properties totaling $1.1 million as
of March 31, 1997. Upon consummation of the United Wholesale Merger, Mr.
Ashmore and United Properties repaid the balance of these advances.
AMERICAN FLORIST SUPPLY, INC.
USA Floral acquired all of the outstanding stock of American Florist in a
reverse subsidiary merger for $4.8 million in cash. In connection with the
American Florist Merger, John T. Dickinson, the President of American Florist,
will become a Director of the Company upon appointment to the Board at its
meeting in November 1997. Mr. Dickinson is the sole stockholder of American
Florist. Mr. Dickinson entered into a two-year covenant not to compete with the
Company and its affiliates and a two-year employment agreement with the
subsidiary of the Company that operates the American Florist business after the
American Florist Merger. Mr. Dickinson received options to purchase 50,000
shares of Common Stock at an exercise price per share equal to the initial
public offering price. In addition, Mr. Dickinson may receive a contingent
payment of up to $2.4 million, based on American Florist's earnings before
interest and taxes for the year ended December 31, 1997. The contingent payment
is payable in Common Stock. The number of shares to be issued in satisfaction
of the contingent payment will be calculated by reference to the average
closing price of the Common Stock for the ten trading days prior to December
31, 1997. The American Florist Merger Agreement provides that if the average
closing price is less than $10 per share, then the Company, at its sole option,
may satisfy the contingent payment obligation, if any over 240,000 shares, by
issuance of additional shares of Common Stock, or payment of cash, or a
combination of cash and Common Stock.
63
<PAGE>
Mr. Dickinson has an ownership interest in a rose farm in Ecuador ("Meadow
Flowers"). Mr. Dickinson's spouse is the sole stockholder of Farm Direct
Flowers, Inc., which has a 13.5% interest in Meadow Flowers. American Florist
purchases roses, as well as other types of flowers, from Meadow Flowers; for
the year ended December 31, 1996, purchases from Meadow Flowers totaled $0.1
million. The Company intends to evaluate the terms of purchases made from
Meadow Flowers to ensure that the terms are no less favorable than those the
Company could obtain from an unaffiliated third party.
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
USA Floral acquired all of the outstanding stock of Monterey Bay in a reverse
subsidiary merger for $2.5 million in cash. In connection with the Monterey Bay
Merger, Jeffrey Brothers, the President of Monterey Bay, will become a Director
of the Company upon appointment to the Board at its meeting in November 1997.
Mr. Brothers received $1.0 million in cash for his shares of capital stock of
Monterey Bay. Mr. Brothers entered into a two-year covenant not to compete with
the Company and its affiliates and a two-year employment agreement with the
subsidiary of the Company that operates the Monterey Bay business after the
Monterey Bay Merger. Mr. Brothers received options to purchase 50,000 shares of
Common Stock at an exercise price per share equal to the initial public
offering price. The stockholders of Monterey Bay, including Mr. Brothers, may
receive a contingent payment of up to $3.5 million, based on Monterey Bay's
earnings before interest and taxes for the year ended December 31, 1997. Of the
contingent payment, $0.5 million is payable in cash and $3.0 million is payable
in Common Stock. The number of shares to be issued in satisfaction of the
contingent payment will be calculated by reference to the average closing price
of the Common Stock for the ten trading days prior to December 31, 1997. The
Monterey Bay Merger Agreement provides that if the average closing price is
less than $10 per share, then the Company, at its sole option may satisfy the
contingent payment obligation, if any, over 300,000 shares by issuance of
additional shares of Common Stock, or payment of cash, or a combination of cash
and Common Stock.
Jeffrey Brothers has a 40% interest in the entity that owns the property
which Monterey Bay leases. Monterey Bay's lease payments totaled $0.1 million
in the year ended December 31, 1996. The lease, which terminates December 31,
1999, provides for monthly rental payments of $12,000.
ALPINE GEM FLOWER SHIPPERS, INC.
USA Floral will acquire all of the outstanding stock of Alpine Gem for (i)
$1.6 million in cash; (ii) S Corporation distributions of approximately
$42,000; and (iii) 160,000 shares of Common Stock. In connection with the
Alpine Gem Merger, John Q. Graham, Jr., will become a Director of the Company
upon appointment to the Board at its meeting in November 1997. Mr. Graham
received $0.8 million in cash and 80,000 shares of Common Stock for his shares
of capital stock of Alpine Gem. Mr. Graham entered into a two-year covenant not
to compete with the Company and its affiliates and a two-year employment
agreement with the subsidiary of the Company that operates the business after
the Alpine Gem Merger. Mr. Graham received options to purchase 50,000 shares of
Common Stock at an exercise price per share equal to the initial public
offering price.
64
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 31, 1997, by: (i) each person (or
group of affiliated persons) known by the Company to be the beneficial owner of
more than five percent of the outstanding Common Stock; (ii) each Named
Executive Officer of the Company; (iii) each director of the Company and each
person named to become a director; and (iv) all of the Company's directors,
persons named to become directors and executive officers as a group. Each
stockholder possesses sole voting and investment power with respect to the
shares listed, unless otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK OWNED
---------------- ---------------- ------------------
<S> <C> <C>
Jonathan J. Ledecky (1).................... 1,310,000 13.5
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Robert J. Poirier (2)...................... 1,060,000 11.0
c/o U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, D.C. 20007
Raymond C. Anderson........................ -- *
Vincent W. Eades........................... -- *
Edward J. Mathias (3)...................... 100,000 1.0
John A. Quelch............................. 25,000 *
Raymond R. Ashmore......................... 98,625 1.0
Jeffrey Brothers........................... -- *
John T. Dickinson.......................... -- *
John Q. Graham, Jr. ....................... 80,000 *
Dwight Haight.............................. 118,750 1.2
Roy O. Houff............................... -- *
Gustavo Moreno............................. 22,400 *
William W. Rudolph......................... 42,955 *
All directors, persons named to become
directors,
and executive officers, as a group (4).... 2,857,730 29.3
</TABLE>
- --------
*Less than one percent.
(1) Includes 100,000 shares which may be acquired within 60 days of October 31,
1997 pursuant to the exercise of options granted under the Incentive Plan.
(2) Includes 60,000 shares which may be acquired within 60 days of October 31,
1997 pursuant to the exercise of options granted under the Incentive Plan.
Also includes 100,000 shares held by a trust for the benefit of Mr.
Poirier's spouse and children. Mr. Poirier disclaims beneficial ownership
of all such shares.
(3) Includes 50,000 shares owned by Mr. Mathias' daughter. Mr. Mathias
disclaims beneficial ownership of all such shares.
(4) Includes 160,000 shares which may be acquired within 60 days of October 31,
1997 pursuant to the exercise of options granted under the Incentive Plan.
See Notes (1) and (2).
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, par value $.001 per share. The following summary description of
the capital stock of the Company does not purport to be complete and is subject
to the detailed provisions of, and qualified in its entirety by reference to,
the Company's Certificate of Incorporation and Bylaws, copies of which have
been filed as exhibits to the registration statement of which this Prospectus
forms a part, and to the applicable provisions of the General Corporation Law
of the State of Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in the distribution of all assets remaining
after payment of liabilities, subject to the rights of any holders of preferred
stock of the Company. The holders of Common Stock have no preemptive rights to
subscribe for additional shares of the Company and no right to convert their
Common Stock into any other securities. In addition, there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, fully paid and nonassessable.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior to
the proposed business combination has owned 15% or more of the corporation's
voting stock.
The Company's Certificate of Incorporation and Bylaws divide the Board of
Directors of the Company into three classes, each class to be as nearly equal
in number of directors as possible. At each annual meeting of stockholders,
directors in each class will be elected for three-year terms to succeed the
directors of that class whose terms are expiring. Messrs. Ashmore, Haight,
Houff and Rudolph will be Class I directors whose terms will expire in 1998.
Messrs. Brothers, Dickinson, Graham and Moreno will be Class II directors whose
terms will expire in 1999. Messrs. Poirier, Ledecky, Eades, Mathias and Quelch
are Class III directors whose terms will expire in 2000. In accordance with the
Delaware General Corporation Law, directors serving on classified boards of
directors may only be removed from office for cause. These provisions could,
under certain circumstances, operate to delay, defer or prevent a change in
control of the Company.
The Company's Certificate of Incorporation provides that liability of
directors of the Company is eliminated to the fullest extent permitted under
Section 102(b)(7) of the DGCL. As a result, no director of the Company will be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability: (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 which involve intentional misconduct or a
knowing violation of law; (iii) for any wilful or negligent payment of an
unlawful dividend, stock purchase or redemption; or (iv) for any transaction
from which the director derived an improper personal benefit.
66
<PAGE>
REGISTRATION RIGHTS
Pursuant to the Merger Agreements, the Company granted to the recipients of
Common Stock in the Mergers the right to include all or a portion of the shares
of Common Stock held by them in any registration by the Company under the
Securities Act of shares of Common Stock, other than a registration on Form S-4
or Form S-8 or their then equivalents, and other than a "shelf" registration of
securities for sale by the Company. Such a registration will be at the expense
of the Company, other than underwriting discounts and commissions, which will
be borne by the sellers of the shares. The Company has also granted such
registration rights to Messrs. Poirier and Ledecky on substantially the same
terms.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of October 16, 1997, 9,594,050 shares of Common Stock were outstanding.
The 5,750,000 shares sold in the IPO are freely tradeable without restriction
or further registration under the Securities Act, unless acquired by an
"affiliate" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act ("Rule 144"); shares held by affiliates will be
subject to resale limitations of Rule 144 described below. All of the 3,844,050
remaining outstanding shares of Common Stock will be available for resale at
various dates beginning 180 days after the date of the IPO, upon expiration of
applicable lock-up agreements and subject to compliance with Rule 144 under the
Securities Act as the holding provisions of Rule 144 are satisfied. Of those
shares, 3,654,050 may be included in certain registration statements that may
be filed by the Company, in accordance with piggyback registration rights
granted pursuant to the Merger Agreements or pursuant to such rights granted to
Mr. Ledecky and Mr. Poirier. The additional shares (approximately 415,385
shares, assuming a price per share at the calculation date equal to the initial
public offering price of $13.00 per share) that may be issued to stockholders
of two of the Founding Companies pursuant to earn-out arrangements (to be
calculated with reference to the performance of those Founding Companies) will
also be subject to such piggyback registration rights. Further, 941,250 shares
of Common Stock are issuable upon the exercise of stock options of which
options to purchase 160,000 shares are currently exercisable. The Company has
filed a registration statement on Form S-8 to register the issuance of the
shares issuable upon the exercise of such options. In addition, the 12,500,000
shares of Common Stock offered by this Prospectus generally will be freely
tradeable after their issuance by persons not affiliated with the Company,
unless their resale is contractually restricted. Sales, or the availability for
sale, of substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices and the future ability of the Company
to raise equity capital and to complete acquisitions in which all or a portion
of the consideration is Common Stock.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons
who are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) one percent of the
outstanding shares of Common Stock; or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements relating to the manner
and notice of sale and the availability of current public information about the
Company.
Prior to the IPO, there was no public market for the Company's Common Stock.
The offering price for the Common Stock to be issued pursuant to this
Prospectus will be based upon the Company's closing stock price at a date
certain or the average closing stock price over a period of time determined by
negotiations between the Company and the owners of the Companies to be
acquired. The negotiated price may bear no relationship to the price at which
the Common Stock will trade after the respective acquisition and an active
trading market may not be sustained subsequent to any future acquisition
transactions. The trading price of the Common Stock could be subject to
significant fluctuations in response to activities of the Company's
competitors, variations in quarterly operating results, changes in market
conditions and other events or factors. Moreover, the stock market in the past
has experienced significant price and value fluctuations, which have not
necessarily been related to corporate operating performance. The volatility of
the market could adversely affect the market price of the Common Stock and the
ability of the Company to raise equity in the public markets.
PLAN OF DISTRIBUTION
The Company will issue the Common Stock from time to time in connection with
merger or acquisition transactions entered into by the Company. It is expected
that the terms of such acquisitions will be determined by direct negotiations
with the owners or controlling persons of the businesses, assets or securities
to be acquired by the Company. No underwriting discounts or commissions will be
paid, although finder's fees may be paid from time to time with respect to
specific mergers or acquisitions. Any person receiving such fees may be deemed
to be an underwriter within the meaning of the Securities Act.
68
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Morgan, Lewis & Bockius LLP, Pittsburgh, Pennsylvania.
EXPERTS
The financial statements of USA Floral as of June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Houff, Bay State, and Flower Trading, as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of American Florist, Monterey Bay and Alpine Gem as
of December 31, 1995 and 1996 and for the years then ended included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of United Wholesale as of June 30, 1996 and 1997 and
for each of the three years in the period ended June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of CFX as of December 31, 1996 and for the year then
ended have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of CFX as of December 31, 1994 and 1995 and for the
years then ended included in this Prospectus have been so included in reliance
on the report of Madsen, Sapp, Mena, Rodriguez & Co., P.A. independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, covering the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement, and the exhibits and schedules thereto for
further information with respect to the Company and the Common Stock offered
hereby. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance, reference is made
to the exhibit for a more complete description of the matter involved, each
such statement being qualified in its entirety by such reference. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
maintained at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
69
<PAGE>
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at prescribed rates at the public reference facilities maintained by
the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission
maintained at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. In addition,
registration statements and certain other filings made with the Commission
through EDGAR are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov.
70
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
U.S.A. FLORAL PRODUCTS, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements.... F-3
Unaudited Pro Forma Combined Balance Sheet........................... F-4
Unaudited Pro Forma Combined Statement of Operations................. F-5
Notes to Unaudited Pro Forma Combined Financial Statements........... F-8
U.S.A. FLORAL PRODUCTS, INC.
Report of Independent Accountants.................................... F-15
Balance Sheet........................................................ F-16
Notes to Financial Statements........................................ F-17
THE ROY HOUFF COMPANY
Report of Independent Accountants.................................... F-20
Balance Sheet........................................................ F-21
Statement of Operations.............................................. F-22
Statement of Stockholder's Equity.................................... F-23
Statement of Cash Flows.............................................. F-24
Notes to Financial Statements........................................ F-25
CFX, INC.
Report of Independent Accountants.................................... F-30
Independent Auditors' Report......................................... F-31
Balance Sheet........................................................ F-32
Statement of Operations.............................................. F-33
Statement of Stockholders' Equity.................................... F-34
Statement of Cash Flows.............................................. F-35
Notes to Financial Statements........................................ F-36
BAY STATE FLORIST SUPPLY, INC.
Report of Independent Accountants.................................... F-42
Balance Sheet........................................................ F-43
Statement of Operations.............................................. F-44
Statement of Stockholders' Equity.................................... F-45
Statement of Cash Flows.............................................. F-46
Notes to Financial Statements........................................ F-47
FLOWER TRADING CORPORATION
Report of Independent Accountants.................................... F-53
Balance Sheet........................................................ F-54
Consolidated Statement of Operations................................. F-55
Consolidated Statement of Stockholders' Equity....................... F-56
Consolidated Statement of Cash Flows................................. F-57
Notes to Consolidated Financial Statements........................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
UNITED WHOLESALE FLORISTS, INC.
Report of Independent Accountants...................................... F-64
Balance Sheet.......................................................... F-65
Combined Statement of Operations....................................... F-66
Combined Statement of Stockholders' Equity............................. F-67
Combined Statement of Cash Flows....................................... F-68
Notes to Combined Financial Statements................................. F-69
AMERICAN FLORIST SUPPLY, INC.
Report of Independent Accountants...................................... F-76
Balance Sheet.......................................................... F-77
Statement of Operations................................................ F-78
Statement of Stockholder's Equity...................................... F-79
Statement of Cash Flows................................................ F-80
Notes to Financial Statements.......................................... F-81
MONTEREY BAY BOUQUET, INC.
Report of Independent Accountants...................................... F-86
Combined Balance Sheet................................................. F-87
Combined Statement of Operations....................................... F-88
Combined Statement of Stockholders' Equity............................. F-89
Combined Statement of Cash Flows....................................... F-90
Notes to Combined Financial Statements................................. F-91
ALPINE GEM FLOWER SHIPPERS, INC.
Report of Independent Accountants...................................... F-96
Balance Sheet.......................................................... F-97
Statement of Operations................................................ F-98
Statement of Stockholders' Equity...................................... F-99
Statement of Cash Flows................................................ F-100
Notes to Financial Statements.......................................... F-101
</TABLE>
F-2
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by U.S.A. Floral Products, Inc. ("USA Floral") of the
outstanding capital stock of The Roy Houff Company, CFX, Inc., Flower Trading
Corporation, Bay State Florist Supply, Inc., United Wholesale Florists, Inc.,
American Florist Supply, Inc., Monterey Bay Bouquet and Alpine Gem Flower
Shippers, Inc. (together, the "Founding Companies"). These acquisitions (the
"Mergers") will occur simultaneously with the closing of USA Floral's initial
public offering (the "IPO") and will be accounted for using the purchase
method of accounting. USA Floral is deemed to be the accounting acquiror.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on June 30, 1997. The unaudited pro
forma combined statements of operations give effect to these transactions as
if they had occurred on January 1, 1996. The pro forma combined statements of
operations reflect the operating results of each of the Founding Companies for
their fiscal year ending December 31, 1996 and the interim six month periods
ending June 30, 1996 and 1997; in the case of USA Floral, which was
incorporated in April 1997, no operations were conducted in the year ended
December 31, 1996 or the six months ended June 30, 1996. USA Floral and each
of the Founding Companies have fiscal years ending December 31, with the
exception of United Wholesale, whose fiscal year end is June 30. Specifically,
for purposes of the December 31, 1996 pro forma income statement, United
Wholesale's operating results for the year ended June 30, 1996 were adjusted
by adding subsequent interim period July 1, 1996 to December 31, 1996 and
subtracting the six months ended July 1, 1995 to December 31, 1995. The pro
forma income statements for the six months ended June 30, 1996 and 1997
represent United Wholesale's operating results for these respective interim
periods.
USA Floral has preliminarily analyzed the savings that it expects to realize
from reductions in salaries and certain benefits to the owners of the Founding
Companies. To the extent the owners of the Founding Companies have agreed
prospectively to reductions in salary, bonuses, and benefits in connection
with the merger transactions, these reductions have been reflected in the pro
forma combined statement of operations. With respect to other potential cost
savings, USA Floral has not and cannot quantify these savings until completion
of the combination of the Founding Companies. Additionally, the pro forma
combined statement of operations gives effect to anticipated compensation of
USA Floral's new corporate management and associated costs of being a public
company.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what USA
Floral's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not
necessarily representative of USA Floral's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.
F-3
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MERGER
ADJUST-
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE MENTS PRO FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM (SEE NOTE 3) COMBINED
------ ------- ------- ------- ------- --------- -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........ $ 317 $ 61 $ 2,284 $ 1,714 $ 862 $ 625 $ 421 $ 319 $ 131 $ (800) $ 5,934
Accounts receivable,
net................ 3,210 3,916 3,076 2,526 1,186 1,379 912 1,441 17,646
Inventories......... 1,144 1,751 47 1,963 91 181 5,177
Due from related
parties............ 210 380 40 1,240 (1,620) 250
Due from
stockholders....... 389 (389)
Prepaid expenses and
other.............. 455 172 187 106 169 127 25 28 20 1,289
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total current
assets......... 772 4,587 6,597 7,027 3,644 5,530 1,916 1,440 1,592 (2,809) 30,296
Property and
equipment, net..... 1,907 352 1,605 332 1,886 289 175 23 3,131 9,700
Due from related
parties............ 8 8
Due from
stockholders....... 602 52 (654)
Deferred taxes...... 90 188 278
Goodwill, net....... 222 287 43,566 44,075
Other assets........ 468 478 145 114 88 124 1,417
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total assets.... $ 772 $ 6,494 $ 8,027 $ 9,110 $ 4,211 $ 7,752 $ 2,580 $ 1,791 $ 1,615 $ 43,422 $ 85,774
===== ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt..... $ $ 220 $ 19 $ 281 $ 104 $ 1,987 $ $ 84 $ 845 $ $ 3,540
Notes payable to
stockholders....... 21 558 (579)
Accounts payable and
accrued expenses... 400 3,399 2,480 2,467 922 2,390 885 784 13,727
Due to related
parties............ 282 581 863
Income taxes
payable............ 250 210 32 254 500 1,246
Payable to
stockholders....... 44,637 44,637
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total current
liabilities.... 400 3,640 2,781 2,748 1,857 5,145 917 1,122 845 44,558 64,013
Long-term debt...... 390 12 396 339 356 598 36 1,442 3,569
Other............... 400 61 25 37 523
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
liabilities.... 400 4,030 2,793 3,544 2,196 5,562 1,540 1,195 845 46,000 68,105
Stockholders'
equity:
Common stock...... 2 250 3 5 150 11 400 78 727 (1,622) 4
Additional paid-in
capital.......... 400 175 57 376 328 25 16,334 17,695
Retained
earnings......... (30) 2,039 5,174 5,661 1,537 2,179 640 493 43 (17,766) (30)
Less: Treasury
stock (476) 476
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
stockholders'
equity......... 372 2,464 5,234 5,566 2,015 2,190 1,040 596 770 (2,578) 17,669
----- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total
liabilities and
stockholders'
equity......... $ 772 $ 6,494 $ 8,027 $ 9,110 $ 4,211 $ 7,752 $ 2,580 $ 1,791 $ 1,615 $ 43,422 $ 85,774
===== ======= ======= ======= ======= ======= ======= ======= ======= ======== ========
<CAPTION>
PRO FORMA
OFFERING
ADJUST-
MENTS AS
(SEE NOTE 3) ADJUSTED
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash
equivalents........ $24,116 $ 30,050
Accounts receivable,
net................ 17,646
Inventories......... 5,177
Due from related
parties............ 250
Due from
stockholders.......
Prepaid expenses and
other.............. (455) 834
------------ ---------
Total current
assets......... 23,661 53,957
Property and
equipment, net..... 9,700
Due from related
parties............ 8
Due from
stockholders.......
Deferred taxes...... 278
Goodwill, net....... 44,075
Other assets........ 1,417
------------ ---------
Total assets.... $23,661 $109,435
============ =========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt..... $ $ 3,540
Notes payable to
stockholders.......
Accounts payable and
accrued expenses... (400) 13,327
Due to related
parties............ 863
Income taxes
payable............ 1,246
Payable to
stockholders....... (44,637)
------------ ---------
Total current
liabilities.... (45,037) 18,976
Long-term debt...... 3,569
Other............... 523
------------ ---------
Total
liabilities.... (45,037) 23,068
Stockholders'
equity:
Common stock...... 6 10
Additional paid-in
capital.......... 68,692 86,367
Retained
earnings......... (30)
Less: Treasury
stock
------------ ---------
Total
stockholders'
equity......... 68,698 86,367
------------ ---------
Total
liabilities and
stockholders'
equity......... $23,661 $109,435
============ =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-4
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUST- PRO
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE MENTS FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM (SEE NOTE 4) COMBINED
------ -------- -------- -------- -------- --------- -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ -- $ 39,090 $ 35,684 $ 30,563 $ 20,313 $ 19,327 $ 11,679 $ 9,477 $ 9,334 $ -- $ 175,467
Cost of sales.... -- 25,537 28,190 20,722 15,914 12,751 8,268 8,285 7,132 (579) 126,220
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Gross profit.... -- 13,553 7,494 9,841 4,399 6,576 3,411 1,192 2,202 579 49,247
Selling, general
and
administrative.. -- 12,789 8,956 8,976 4,142 6,056 2,723 1,113 1,868 (3,314) 43,309
Goodwill
amortization.... -- 1,090 1,090
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Income from
operations..... -- 764 (1,462) 865 257 520 688 79 334 2,803 4,848
Other (income)
expense:
Interest
expense........ -- 110 33 32 226 43 15 162 621
Interest
income......... -- (39) (115) (35) (5) (119) (11) (41) (365)
Other, net...... -- (95) (100) (247) 120 10 (64) (8) (13) (397)
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Income before
income taxes.... -- 788 (1,247) 1,114 110 403 720 72 388 2,641 4,989
Provision for
income taxes.... -- 13 81 48 126 37 24 2,103 2,432
--- -------- -------- -------- -------- -------- -------- ------- ------- ------- ---------
Net income....... -- $ 775 $ (1,247) $ 1,033 $ 62 $ 277 $ 683 $ 48 $ 388 $ 538 $ 2,557
=== ======== ======== ======== ======== ======== ======== ======= ======= ======= =========
Net income per
share........... $ .33
=========
Shares used in
computing pro
forma net income
per share(1).... 7,738,819
=========
</TABLE>
- --------
(1) Includes (i) 2,400,000 shares issued upon formation of USA Floral, (ii)
1,334,050 shares issued to owners of the Founding Companies, (iii)
3,956,692 of the 5,750,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of the IPO and (iv) 48,077 shares
related to the dilution attributable to options granted at below the
offering price in accordance with the treasury stock method.
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-5
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
FORMA
ADJUST- PRO
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE MENTS FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM (SEE NOTE 4) COMBINED
------ ------- -------- ------- ------- --------- -------- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... -- $22,165 $ 20,585 $16,412 $11,305 $10,552 $6,444 $4,827 $4,979 $ -- $ 97,269
Cost of sales...... -- 14,693 16,031 11,279 8,928 7,018 4,458 4,166 3,840 (290) 70,123
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Gross profit...... -- 7,472 4,554 5,133 2,377 3,534 1,986 661 1,139 290 27,146
Selling, general
and
administrative.... -- 6,533 5,249 4,429 1,944 3,241 1,421 496 802 (2,541) 21,574
Goodwill
amortization...... -- 545 545
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Income from
operations....... -- 939 (695) 704 433 293 565 165 337 2,286 5,027
Other (income)
expense:
Interest expense.. -- 58 17 5 121 20 5 82 308
Interest income... -- (12) (51) (20) (2) (53) (3) (20) (161)
Other, net........ -- (150) (93) (55) (6) (3) (43) (9) 1 (358)
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Income before
income taxes...... -- 1,043 (551) 762 436 228 591 169 356 2,204 5,238
Provision for
income taxes...... -- 61 183 84 30 69 1,886 2,313
--- ------- -------- ------- ------- ------- ------ ------ ------ ------- ---------
Net income......... -- $ 1,043 $ (551) $ 701 $ 253 $ 144 $ 561 $ 100 $ 356 $ 318 $ 2,925
=== ======= ======== ======= ======= ======= ====== ====== ====== ======= =========
Net income per
share $ .38
=========
Shares used in
computing pro
forma net income
per share(1)......... 7,738,819
=========
</TABLE>
- --------
(1) Includes (i) 2,400,000 shares issued upon formation of USA Floral, (ii)
1,334,050 shares issued to owners of the Founding Companies, (iii)
3,956,692 of the 5,750,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of the IPO and (iv) 48,077 shares
related to the dilution attributable to options granted at below the
offering price in accordance with the treasury stock method.
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-6
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
FORMA
ADJUST-
MENTS PRO
USA ROY CFX, BAY FLOWER UNITED AMERICAN MONTEREY ALPINE (SEE FORMA
FLORAL HOUFF INC. STATE TRADING WHOLESALE FLORIST BAY GEM NOTE 4) COMBINED
------ ------- ------- ------- ------- --------- -------- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $20,410 $22,854 $16,375 $12,997 $10,897 $7,082 $6,803 $5,597 $ -- $ 103,015
Cost of sales.......... 13,204 17,759 11,080 10,139 7,128 4,793 5,575 4,259 (300) 73,637
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Gross profit.......... 7,206 5,095 5,295 2,858 3,769 2,289 1,228 1,338 300 29,378
Selling, general and
administrative........ $ 30 5,924 3,657 4,556 1,936 3,232 1,579 563 902 (288) 22,091
Goodwill amortization.. 545 545
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Income
(loss) from
operations........... (30) 1,282 1,438 739 922 537 710 665 436 43 6,742
Other (income) expense:
Interest expense...... 40 25 35 126 25 8 82 341
Interest income....... (10) (32) (23) (4) (68) (8) (17) (162)
Other, net............ (47) (27) (90) 7 (31) (54) (4) (9) (255)
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Income (loss) before
income taxes.......... (30) 1,299 1,497 827 884 510 747 661 462 (39) 6,818
Provision for income
taxes................. 70 339 163 36 294 2,043 2,945
---- ------- ------- ------- ------- ------- ------ ------ ------ ------- ---------
Net income (loss)...... $(30) $ 1,299 $ 1,497 $ 757 $ 545 $ 347 $ 711 $ 367 $ 462 $(2,082) $ 3,873
==== ======= ======= ======= ======= ======= ====== ====== ====== ======= =========
Net income per share... $ .50
=========
Shares used in
computing pro forma
net income per
share(1).............. 7,738,819
=========
</TABLE>
- --------
(1) Includes (i) 2,400,000 shares issued upon formation of USA Floral, (ii)
1,334,050 shares issued to owners of the Founding Companies, (iii)
3,956,692 of the 5,750,000 shares sold in the IPO necessary to pay the
cash portion of the Merger consideration, to fund the S Corporation
distributions and to pay expenses of the IPO and (iv) 48,077 shares
related to the dilution attributable to options granted at below the
offering price in accordance with the treasury stock method.
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-7
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1--GENERAL
U.S.A. Floral Products, Inc. ("USA Floral") was founded in April 1997 to
create a national consolidator and operator of floral products distribution
businesses. USA Floral has conducted no operations to date and will acquire
the Founding Companies concurrently with and as a condition to the closing of
this Offering.
The historical financial statements reflect the financial position and
results of operations of USA Floral and the Founding Companies and were
derived from USA Floral and the respective Founding Companies' financial
statements where indicated. The periods included in these financial statements
USA Floral and for all of the individual Founding Companies are for the year
ended December 31, 1996 and for the six months ended June 30, 1996 and as of
and for the six months ended June 30, 1997. The audited historical financial
statements included elsewhere herein have been included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 80.
NOTE 2--ACQUISITION OF FOUNDING COMPANIES
Concurrently with and as a condition to the closing of the IPO, USA Floral
will acquire all of the outstanding capital stock of the Founding Companies.
The acquisitions will be accounted for using the purchase method of accounting
with USA Floral being treated as the accounting acquiror.
The following table sets forth the consideration to be paid (the "Purchase
Consideration") (a) in cash and (b) in shares of Common Stock to the common
stockholders of each of the Founding Companies, the allocation of the
consideration to net assets acquired and resulting goodwill. For purposes of
computing the estimated purchase price for accounting purposes, the value of
shares is based upon the assumed initial public offering price of $13.00. The
total Purchase Consideration does not reflect the S Corporation distributions
totaling $4,800 constituting substantially all of the undistributed earnings
of the Founding Companies that are S Corporations previously taxed to their
stockholders and tax payments on current earnings of such Founding Companies
("S Corporation Distributions"), the assumption of an estimated tax liability
of approximately $0.5 million of one of the Founding Companies or contingent
consideration related to earn out arrangements included in the definitive
agreements for American Florist and Monterey Bay. These arrangements provide
for the Company to pay additional consideration, based on 1997 earnings before
interest and taxes, of up to $0.5 million in cash and up to $5.4 million in
shares of common stock, calculated by reference to the average closing price
of the Common Stock for the ten trading days prior to December 31, 1997.
The purchase price has been allocated to the Company's historical assets and
liabilities based on their respective carrying values, with the exception of
acquired property at certain of the entities, as these carrying values are
deemed to represent fair market value of these assets and liabilities. The
fair market value of the properties acquired was determined via an independent
valuation by a third party. Additionally, adjustments have been made for S
Corporation distributions subsequent to June 30, 1997, debt assumed as part of
property purchased and the establishment of deferred income tax liabilities
and assets assumed in the transaction for purposes of determining the excess
of the purchase price over the net assets acquired. The allocation of the
purchase price is considered preliminary until such time as the closing of the
transaction and consummation of the Mergers. The Company does not anticipate
that the final allocation of purchase price will differ significantly from
that presented.
F-8
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHARES OF VALUE NET
COMMON OF TOTAL ASSETS
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roy Houff............... $11,000 -- $11,000 $ 4,727 $ 6,273
CFX, Inc................ 5,790 250,000 $ 3,250 9,040 1,194 7,846
Bay State............... 6,000 495,550 6,442 12,442 4,374 8,068
Flower Trading.......... 5,900 160,000 2,080 7,980 1,515 6,465
United Wholesale
Florists, Inc.......... 4,773 268,500 3,491 8,264 2,363 5,901
American Florist Supply,
Inc.................... 4,800 -- 4,800 743 4,057
Monterey Bay............ 2,500 -- 2,500 596 1,904
Alpine Gem.............. 1,600 160,000 2,080 3,680 628 3,052
------- --------- ------- ------- ------- -------
Total................. $42,363 1,334,050 $17,343 $59,706 $16,140 $43,566
======= ========= ======= ======= ======= =======
</TABLE>
F-9
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 3--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
MERGER OFFERING POST-
ADJUSTMENTS PRO FORMA ADJUSTMENTS MERGER
------------------------------------------------ ADJUST- ------------------------ ADJUST-
(A) (B) (C) (D) (E) (F) MENTS (G) (H) (I) MENTS
------- ------- ------ ---- ------- ------- --------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents......... $ (800) $ (800) $67,323 $1,430 $(44,637) $24,116
Due from related
parties............. $(1,620) (1,620)
Due from
stockholders........ (389) (389)
Prepaid expenses and
other............... (455) (455)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total current
assets............. (800) (2,009) (2,809) 66,868 1,430 (44,637) 23,661
Property and
equipment........... $ (842) $ 3,973 3,131
Due from
stockholders........ (654) (654)
Deferred taxes....... $188 188
Goodwill, net........ (188) 43,754 43,566
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total assets........ $ (800) $ (842) $ -- $47,727 $(2,663) $ 43,422 $66,868 $1,430 $(44,637) $23,661
======= ======= ====== ==== ======= ======= ======== ======= ====== ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable to
stockholders........ $ (579) $ (579)
Accounts payable and
accrued expenses.... $ (400) $ (400)
Income taxes
payable............. $ 500 500
Payable to
stockholders........ $42,363 $ 4,000 (1,726) 44,637 (44,637) (44,637)
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total current
liabilities........ 42,363 4,000 500 (2,305) 44,558 (400) (44,637) (45,037)
Long-term debt....... 1,800 (358) 1,442
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total liabilities... 42,363 4,000 2,300 (2,663) 46,000 (400) (44,637) (45,037)
Stockholders' equity:
Common stock........ (1,622) (1,622) 6 6
Additional paid-in
capital............ (42,363) 58,697 16,334 67,262 1,430 68,692
Retained earnings... (4,800) (842) (12,124) (17,766)
Treasury stock...... 476 476
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total stockholders'
equity............. (42,363) (4,800) (842) 45,427 (2,578) 67,268 1,430 68,698
------- ------- ------ ---- ------- ------- -------- ------- ------ -------- -------
Total liabilities
and stockholders'
equity............. $ -- $ (800) $ (842) $47,727 $(2,663) $ 43,422 $66,868 $1,430 $(44,637) $23,661
======= ======= ====== ==== ======= ======= ======== ======= ====== ======== =======
</TABLE>
F-10
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(a) Records the liability for the cash portion of the consideration to be paid
to the stockholders of the Founding Companies in connection with the
Mergers. (See Note 1).
(b) Establishment of liability for S Corporation distributions to be paid in
connection with the Merger of $4,000 with respect to CFX and to reflect
normal S Corporation distributions which occurred subsequent to June 30,
1997 totaling $800 ($350 for Bay State, $50 for Houff, $300 for American
Florist, $50 for Alpine Gem and $50 for CFX).
(c) Records the distribution by Bay State of certain real estate totaling $842
prior to the Merger.
(d) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax basis of
assets and liabilities held in S Corporations consisting of a net deferred
tax asset of $288 at Roy Houff and a deferred tax liability at Alpine Gem
of $100.
(e) Records the purchase of the Founding Companies by USA Floral, including
consideration of $42,363 in cash and 1,334,050 shares of common stock
valued at $13 per share (or $17,343) for a total estimated purchase price
of $59,706. The purchase price has been allocated to reflect the estimated
fair market value of real estate acquired from the stockholder of Houff of
$3,973 including $1,800 of debt assumed in connection with the acquisition
of the real estate, and the establishment of a $500 tax liability
resulting from the sale of the UltraFlora subsidiary of Flower Trading
prior to the Merger. The excess of the purchase price over the fair value
of assets acquired is $43,566.
(f) Represents the settlement of certain related party and shareholder
receivables and payables as required by the Merger agreements (comprised
of related party and shareholder receivables of $1,629 and payables of
$558 at United Wholesale, a shareholder receivable of $602 at CFX, a
shareholder receivable of $52 at Monterey Bay, a related party receivable
of $380 at Bay State and debt of $379 at Bay State to be repaid with the
proceeds from the receivable). The net cash to be received by the Company
from the settlement of these amounts of $1,726 has been recorded as a
reduction of the amounts payable to the shareholders at closing.
(g) Records the cash proceeds from the issuance of 5,750,000 shares of USA
Floral Common Stock net of offering costs. IPO costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(h) Records the net proceeds of the issuance of 110,000 shares at the price of
$13 from the exercise of a stock option granted to Jonathan J. Ledecky on
October 9, 1997.
(i) Records the use of IPO proceeds to i) pay the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the Mergers ($42,363) and ii) fund the $4,000 S
Corporation distributions to stockholders of certain of the Founding
Companies, net of related parties receivables of $1,726.
F-11
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 4--UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ----- ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(579) $ (579)
Selling, general and
administrative......... $(3,603) $ (367) $ 656 (3,314)
Goodwill amortization... $ 1,090 1,090
------- ------- ----- ------ ----- ----- ------- --------
Income from
operations............ 3,603 (1,090) 367 (656) 579 2,803
Other (income) expense:
Interest expense....... $ 162 162
------- ------- ----- ------ ----- ----- ------- --------
Income before income
taxes.................. 3,603 (1,090) (162) 367 (656) 579 2,641
Provision for income
taxes.................. $ 2,103 2,103
------- ------- ----- ------ ----- ----- ------- --------
Net income.............. $ 3,603 $(1,090) $(162) $ 367 $(656) $ 579 $(2,103) $ 538
======= ======= ===== ====== ===== ===== ======= ========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ----- ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(290) $ (290)
Selling, general and
administrative......... $(2,686) $ (183) $ 328 (2,541)
Goodwill amortization... $ 545 545
------- ------- ----- ------ ----- ----- ------- --------
Income from
operations............ 2,686 (545) 183 (328) 290 2,286
Other (income) expense:
Interest expense....... $ 82 82
------- ------- ----- ------ ----- ----- ------- --------
Income before income
taxes.................. 2,686 (545) (82) 183 (328) 290 2,204
Provision for income
taxes.................. $ 1,886 1,886
------- ------- ----- ------ ----- ----- ------- --------
Net income.............. $ 2,686 $ (545) $ (82) $ 183 $(328) $ 290 $(1,886) $ 318
======= ======= ===== ====== ===== ===== ======= ========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------- ----- ------ ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $(300) $ (300)
Selling, general and
administrative......... $ (403) $ (183) $ 298 (288)
Goodwill amortization... $ 545 545
------- ------- ----- ------ ----- ----- ------- --------
Income from
operations............ 403 (545) 183 (298) 300 43
Other (income) expense:
Interest expense....... $ 82 82
------- ------- ----- ------ ----- ----- ------- --------
Income before income
taxes.................. 403 (545) (82) 183 (298) 300 (39)
Provision for income
taxes.................. $ 2,043 2,043
------- ------- ----- ------ ----- ----- ------- --------
Net income.............. $ 403 $ (545) $ (82) $ 183 $(298) $ 300 $(2,043) $ (2,082)
======= ======= ===== ====== ===== ===== ======= ========
</TABLE>
F-12
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(a) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies to which they have agreed prospectively, as
follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
FOR THE YEAR ENDED
DECEMBER 31, 1996 1996 1997
------------------ ---------- ---------
<S> <C> <C> <C>
Roy Houff........................... $ 252 $ 126 $ 86
CFX, Inc............................ 2,629 2,235 108
Bay State........................... 196 108 95
Flower Trading...................... 116 15 --
United Wholesale.................... 232 114 114
American Florist.................... 65 32 32
Monterey Bay........................ 183 92 --
Alpine Gem.......................... (70) (36) (32)
------ ---------- --------
$3,603 $2,686 $ 403
====== ========== ========
</TABLE>
Pursuant to the terms of employment agreements to be entered into upon
consummation of the Mergers, the owners of the Founding Companies will be
eligible for performance-based bonuses of up to 100% of their respective
annual base salaries. Bonuses under the employment agreements will be
awarded based upon substantial improvement in the operating performance of
both the Founding Companies and USA Floral. The bonuses paid historically
to the owners of the Founding Companies were not awarded based upon the
same performance criteria and compensation expense has been reduced
accordingly in the pro forma adjustments. Whether the bonuses that may be
awarded under the new employment agreements will be earned cannot be
determined at this time and therefore are not reflected in the pro forma
adjustments. If bonuses are awarded, compensation expense would increase.
(b) Reflects the amortization of goodwill to be recorded as a result of these
Mergers over 40-year estimated life.
(c) Reflects the interest expense at a rate of 9% on $1,800 of debt assumed on
certain real estate purchased from a stockholder of one of the Founding
Companies.
(d) Reflects adjustment for the following:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
FOR THE YEAR ENDED
DECEMBER 31, 1996 1996 1997
------------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Elimination of rent due to acquisi-
tion of real estate by Houff ..... $(561) $ (280) $ (280)
Increase in depreciation expense
related to real estate acquired by
Houff (approximately $3,800 over
30-year useful life).............. 130 65 65
Increase in rental expense at Bay
State as a result of the distribu-
tion of real estate (book value of
$842) and subsequent leaseback.... 186 94 94
Elimination of Bay State deprecia-
tion on real estate distributed to
stockholders of Bay State......... (24) (12) (12)
Elimination of Bay State real es-
tate taxes on real estate distrib-
uted to stockholders of Bay
State............................. (98) (50) (50)
----- --------- ---------
$(367) $ (183) $ (183)
===== ========= =========
</TABLE>
(e) Reflects (i) an increase in expenses associated with USA Floral management
of $310 and the costs of being a public entity of $190 ($500 for the year
ended December 31, 1996, and $250 for the six months ended June 30, 1996
and $220 for the six months ended June 30, 1997), and (ii) compensation
expense associated
F-13
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
with the issuance of 125,000 stock options with an exercise price below the
initial public offering which vest over four years ($156 for the year ended
December 31, 1996 and $78 for each of the six month periods ended June 30,
1996 and 1997).
(f) Reflects the reduction in costs of sales attributable to a significant
reduction in the services provided under a contract for various services
with an affiliated entity of Flower Trading that was renegotiated pursuant
to the Flower Trading Merger Agreement.
(g) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations' adjustments and for income
taxes on S Corporation income, assuming a corporate income tax rate of 40%
and the non-deductibility of goodwill.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
U.S.A. Floral Products, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of U.S.A. Floral Products, Inc. at
June 30, 1997, in conformity with generally accepted accounting principles.
This financial statement is the responsibility of the Company's management;
our responsibility is to express an opinion on this financial statement based
on our audit. We conducted our audit of this statement in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
July 30, 1997
F-15
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
ASSETS
Cash and cash equivalents............................................. $ 317
Deferred offering costs............................................... 455
-----
Total assets...................................................... $ 772
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities................................................... $ 400
Stockholders' equity:
Common stock, $.001 par, 100,000,000 shares authorized, 2,400,000
shares issued and outstanding...................................... 2
Additional paid-in capital.......................................... 400
Accumulated deficit................................................. (30)
-----
Total stockholders' equity........................................ 372
-----
Total liabilities and stockholders' equity........................ $ 772
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS AND ORGANIZATION
U.S.A. Floral Products, Inc., a Delaware corporation, ("USA Floral" or the
"Company") was founded in April 1997 to create a nationwide distributor of
floral products. USA Floral intends to acquire eight U.S. businesses (the
"Mergers"), upon consummation of an initial public offering (the "Offering")
of its common stock and, subsequent to the Offering, continue to acquire
through merger or purchase, similar companies to expand its national
operations.
USA Floral has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. The Company's cash balances were
generated from the initial capitalization of the Company. Accordingly,
statements of operations and cash flows for this period would not provide
meaningful information and have been omitted. Operating expenses subsequent to
inception consist primarily of the salary of the Company's one employee which
has been expensed. As of June 30, 1997 approximately $455 has been incurred in
connection with the Offering and the Company has capitalized these costs as
Deferred Offering costs. These costs include legal and accounting fees which
will be offset against the proceeds of the Offering at closing. USA Floral is
dependent upon the Offering to execute the pending Mergers. There is no
assurance that the pending Mergers discussed will be completed or that USA
Floral will be able to generate future operating revenues.
NOTE 2--STOCKHOLDERS' EQUITY
Common Stock
In connection with the organization and initial capitalization of USA
Floral, the Company on April 22, 1997 issued 2,000,000 shares of common stock
at $.001 per share. Subsequently, the Company issued on April 23, 1997 300,000
shares for $1.00 per share, on May 8, 1997 issued 25,000 shares for $1.00 per
share, on May 10, 1997 issued 25,000 shares for $1.00 and on May 25, 1997
issued 50,000 shares at $1.00 per share.
1997 Long-Term Incentive Plan
The Company's Board of Directors has adopted and the Company's stockholders
have approved the Company's 1997 Long-Term Incentive Plan (the "Incentive
Plan"). The maximum number of shares of Common Stock that may be subject to
outstanding awards may not be greater than that number of shares equal to
fifteen percent (15%) of the outstanding shares. Awards may be settled in
cash, shares, other awards or other property, as determined by the
Compensation Committee of the Company's Board of Directors (the "Committee").
The terms of the option awards will be established by the Committee. The
Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under this Plan. The Company expects to grant stock options to
purchase approximately 875,000 shares of Common Stock to key employees of the
Company at the initial public offering price upon consummation of the Offering
and options to purchase 125,000 shares of Common Stock to other key employees
at the greater of $8.00 per share or 60% of the initial public offering price.
Compensation expense will be recorded in the future over the four year vesting
period for the options issued at a discount.
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors has adopted and the Company's stockholders
have approved the 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which provides for the automatic grant to each nonemployee director of
an option to purchase 21,000 shares on the date elected or on the effective
date of the Offering. Thereafter nonemployee directors will receive an option
to purchase 6,000 shares on the day after each
F-17
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
annual meeting of the Company's stockholders. A total of 300,000 shares are
reserved for issuance under the Directors' Plan, and options to purchase
63,000 options are to be issued on the date of the Offering.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant. Options
will expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options will vest and become exercisable
ratably, 20% per year, over the five-year period following the date of grant
of the options, subject to acceleration by the Board. In the event of a change
in control of the Company prior to normal vesting, all options not already
exercisable would become fully vested and exercisable.
NOTE 3--STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new fair
value based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB Opinion No. 25 must
make pro forma disclosures of net income and earnings per share as if the fair
value method of accounting has been applied. The Company will provide pro
forma disclosure of net income and earnings per share, as applicable, in the
notes to future consolidated financial statements.
NOTE 4--NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share
("diluted EPS"). Basic EPS excludes dilution and is determined by dividing
income available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to fully diluted earnings per share under current
accounting rules. The implementation of SFAS No. 128 is not expected to have a
material effect on the Company's earnings per share as determined under
current accounting rules.
NOTE 5--UNAUDITED SUBSEQUENT EVENTS
Wholly-owned subsidiaries of USA Floral have acquired by merger eight
companies ("Founding Companies") effective contemporaneously with the IPO. The
companies acquired are The Roy Houff Company, CFX, Inc., Flower Trading, Inc.,
Bay State Florist Supply, Inc., United Wholesale Florists, Inc., American
Florist Supply, Inc., Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc.
and Alpine Gem Flower Shippers, Inc. The aggregate consideration paid by USA
Floral to acquire the Founding Companies was approximately $42,363 million in
cash and 1,334,050 shares of Common Stock.
F-18
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table reflects the consideration paid in cash and shares of
Common Stock, the allocation of the consideration to net assets acquired and
resulting goodwill.
<TABLE>
<CAPTION>
SHARES OF VALUE NET
COMMON OF TOTAL ASSETS
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roy Houff............... $11,000 -- $11,000 $ 4,727 $ 6,273
CFX, Inc................ 5,790 250,000 $ 3,250 9,040 1,194 7,846
Bay State............... 6,000 495,550 6,442 12,442 4,374 8,068
Flower Trading.......... 5,900 160,000 2,080 7,980 1,515 6,465
United Wholesale
Florists, Inc.......... 4,773 268,500 3,491 8,264 2,363 5,901
American Florist Supply,
Inc.................... 4,800 -- 4,800 743 4,057
Monterey Bay............ 2,500 -- 2,500 596 1,904
Alpine Gem.............. 1,600 160,000 2,080 3,680 628 3,052
------- --------- ------- ------- ------- -------
Total................. $42,363 1,334,050 $17,343 $59,706 $16,140 $43,566
======= ========= ======= ======= ======= =======
</TABLE>
The total consideration does not reflect contingent consideration which may
be issued pursuant to earn out arrangements included in the definitive
agreements for American Florist and Monterey Bay. These arrangements provide
for the Company to pay additional consideration of up to $.5 million in cash
and issue up to $5.4 million in shares of Common Stock, based on 1997 earnings
before interest and taxes.
The purchase price has been allocated to the Company's historical assets and
liabilities based on their respective carrying values, with the exception of
acquired property at certain of the entities, as these carrying values are
deemed to represent fair market value of these assets and liabilities. The
fair market value of the properties acquired was determined via an independent
valuation by a third party. Additionally, adjustments have been made for the S
Corporation distributions subsequent to June 30, 1997, debt assumed as part of
property purchased and establishment of deferred income tax liabilities and
assets assumed in the transaction for purposes of determining the excess of
the purchase price over the net assets acquired. The allocation of the
purchase price is considered preliminary until such time as the closing of the
transaction and consummation of the Mergers. The Company does not anticipate
that the final allocation of purchase price will differ significantly from
that presented.
On August 7, 1997 USA Floral filed a registration statement on Form S-1 for
the initial public offering of its common stock. On October 16, 1997 USA
Floral consummated the IPO and acquisitions of the Founding Companies.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholder of
The Roy Houff Company
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of The Roy Houff Company at December
31, 1995 and 1996 and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 25, 1997
F-20
<PAGE>
THE ROY HOUFF COMPANY
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 67 $ 210 $ 61
Accounts receivable, net......................... 4,101 3,604 3,210
Inventory........................................ 1,202 1,118 1,144
Prepaid expenses and other current assets........ 178 211 172
Advances to stockholder.......................... 88
------- ------- -------
Total current assets........................... 5,548 5,231 4,587
Property and equipment, net........................ 2,187 2,045 1,907
Advances to stockholder............................ 312
Intangible assets.................................. 78
------- ------- -------
Total assets................................... $ 8,125 $ 7,276 $ 6,494
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank line of credit.............................. $ 1,500 $ 400 $ 100
Notes payable--current........................... 120 120
Accounts payable................................. 3,827 3,519 2,799
Accrued expenses................................. 601 657 600
Due to related parties........................... 223 124 21
------- ------- -------
Total current liabilities...................... 6,151 4,820 3,640
Notes payable, net of current maturities........... 450 390
Commitments and contingencies
Stockholder's equity:
Common stock, no par value; 10,000 shares
authorized; 50 shares issued and outstanding.... 425 425 425
Retained earnings................................ 1,549 1,581 2,039
------- ------- -------
Total stockholder's equity..................... 1,974 2,006 2,464
------- ------- -------
Total liabilities and stockholder's equity..... $ 8,125 $ 7,276 $ 6,494
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $39,098 $41,531 $39,090 $ 22,165 $ 20,410
Cost of sales................... 26,683 27,899 25,537 14,693 13,204
------- ------- ------- -------- --------
Gross margin................ 12,415 13,632 13,553 7,472 7,206
Selling, general and
administrative expenses........ 11,617 12,695 12,789 6,533 5,924
------- ------- ------- -------- --------
Operating income............ 798 937 764 939 1,282
Other (income) expense:
Interest expense.............. 58 84 110 58 40
Interest income............... (34) (76) (39) (12) (10)
Other, net.................... (227) (151) (95) (150) (47)
------- ------- ------- -------- --------
Income before provision for
income taxes................... 1,001 1,080 788 1,043 1,299
Provision for income taxes...... 10 12 13
------- ------- ------- -------- --------
Net income...................... $ 991 $ 1,068 $ 775 $ 1,043 $ 1,299
======= ======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income before
provision for income taxes... $ 1,001 $ 1,080 $ 788 $ 1,043 $ 1,299
Provision for income taxes.... 400 432 315 417 520
------- ------- ------- -------- --------
Pro forma income (see Note 2)... $ 601 $ 648 $ 473 $ 626 $ 779
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............. 50 $425 $ 1,654 $ 2,079
Net income............................. 991 991
Dividends paid......................... (785) (785)
--- ---- ------- -------
Balance at December 31, 1994............. 50 425 1,860 2,285
Net income............................. 1,068 1,068
Dividends paid......................... (1,379) (1,379)
--- ---- ------- -------
Balance at December 31, 1995............. 50 425 1,549 1,974
Net income............................. 775 775
Dividends paid......................... (743) (743)
--- ---- ------- -------
Balance at December 31, 1996............. 50 425 1,581 2,006
Net income (unaudited)................. 1,299 1,299
Dividends paid (unaudited)............. (841) (841)
--- ---- ------- -------
Balance at June 30, 1997 (unaudited)..... 50 $425 $ 2,039 $ 2,464
=== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 991 $ 1,068 $ 775 $ 1,043 $ 1,299
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 460 546 687 316 435
Loss on disposal of fixed
assets......................... 3 123 144 (6)
Change in operating assets and
liabilities:
Accounts receivable............ (478) (147) 497 (22) 394
Inventory...................... (304) (295) 84 (99) (25)
Prepaid expenses and other
current assets................ (68) (46) (33) (83) 39
Due to affiliate............... (64) 17
Accounts payable and accrued
expenses...................... 494 344 (254) 136 (777)
------ -------- ------- ------- -------
Net cash provided by operating
activities................... 1,098 1,593 1,900 1,227 1,376
Cash flows from investing
activities:
Purchases of property and
equipment....................... (591) (1,043) (640) (184) (298)
Proceeds from disposal of
property and equipment.......... 30 6
------ -------- ------- ------- -------
Net cash used in investing
activities................... (591) (1,043) (610) (184) (292)
Cash flows from financing
activities:
Advances to stockholder.......... (787) (365) (13)
Repayments to stockholder........ 840 237 312 88
Due from/to related parties...... 77 (226) (4)
Borrowings (repayments) under
line of credit agreement, net... 1,200 322 (530) (967) (480)
Proceeds from notes payable...... 56 75 23
Payments of notes payable........ (26) (249) (117)
Stockholder dividends............ (785) (1,379) (743) (360) (841)
------ -------- ------- ------- -------
Net cash used in financing
activities................... (265) (982) (1,147) (1,015) (1,233)
Net increase (decrease) in cash
and cash equivalents............. 242 (432) 143 28 (149)
Cash and cash equivalents--
beginning of period.............. 257 499 67 67 210
------ -------- ------- ------- -------
Cash and cash equivalents--end of
period........................... $ 499 $ 67 $ 210 $ 95 $ 61
====== ======== ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest........................ $ 58 $ 84 $ 93 $ 58 $ 40
Cash paid during the period for
income taxes.................... $ 10 $ 12 $ 13
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1977, The Roy Houff Company (the "Company") is a distributor of
perishable floral products and floral-related hardgoods, operating from seven
locations in Illinois, Virginia and Arizona. The Company purchases floral
products from importers, brokers and shippers and sells them to retail
florists and mass marketers.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue Recognition
Revenue is recognized upon shipment of product.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less at date of purchase to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis (FIFO).
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
related assets (five years). Leasehold improvements are amortized over the
shorter of their lease term or estimated useful life.
Intangible Assets
Intangible assets consisted of goodwill acquired in the purchase of new
branches and was amortized ratably over a period of five to fifteen years. In
1996, the remaining goodwill balance was written off in connection with the
disposition of the Atlanta operation as discussed in Note 10.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
F-25
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
The Company has elected to be treated as an S Corporation for federal and
state income taxes and, accordingly, any liabilities for income taxes are the
direct responsibility of the stockholders. The Company is liable only for
Illinois state replacement tax.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1996, the
tax basis of the Company's net assets exceeds the financial reporting bases by
approximately $535.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company as of June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
1996 and 1997 as presented in the accompanying unaudited interim financial
statements.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND WRITE- AT END
OF PERIOD EXPENSES OFFS OF PERIOD
---------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994....... $ 216 $ 108 $ (91) $ 233
Year ended December 31, 1995....... $ 233 $ 163 $ (135) $ 261
Year ended December 31, 1996....... $ 261 $ 280 $ (275) $ 266
</TABLE>
NOTE 4--INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Perishables.................................................... $ 142 $ 147
Hardgoods...................................................... 1,060 971
------ ------
$1,202 $1,118
====== ======
</TABLE>
F-26
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Leasehold improvements..................................... $ 1,179 $ 1,420
Computer equipment......................................... 852 650
Furniture, fixtures and equipment.......................... 2,466 2,436
Vehicles................................................... 17 17
------- -------
4,514 4,523
Accumulated depreciation and amortization.................. (2,327) (2,478)
------- -------
$ 2,187 $ 2,045
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $450, $526 and $609, respectively.
NOTE 6--CREDIT FACILITIES
Line of Credit
At December 31, 1995 and 1996, the Company had a $2,000 and $1,450 revolving
line of credit with a bank, respectively. Advances on the credit line are
payable on demand and bear interest at prime (8.50% and 8.25% as of December
31, 1995 and 1996, respectively). The credit line is unsecured. Outstanding
balances on the line were $1,500 and $400 as of December 31, 1995 and 1996,
respectively.
Bank Term Note
During 1996, the Company borrowed $600 under a term note that requires
payments of $120 per year through 2000 and $90 in 2001. The note bears
interest at the bank's prime rate (8.25% at December 31, 1996) and is secured
by certain equipment.
Notes Payable to Related Parties
Included in amounts shown as Due to Related Parties is an unsecured demand
note which bears interest at the higher of 10% or prime. The balance of this
note was $215 and $120 as of December 31, 1995 and 1996, respectively. This
note was paid in May, 1997.
Principal maturities on notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $ 240
1998............................................................ 120
1999............................................................ 120
2000............................................................ 120
2001............................................................ 90
-----
Total......................................................... $ 690
=====
</TABLE>
F-27
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company has established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code. Virtually all employees are
eligible to participate in the plan. Employees can contribute up to 15% of
their gross salary to the plan. The Company is liable for matching
contributions of 50% of participants' contributions up to a certain amount per
participant. For the years ended December 31, 1994, 1995 and 1996, Company
contributions to the plan were approximately $17, $22 and $23, respectively.
NOTE 8--RELATED PARTY TRANSACTIONS
Salaries for several officers of the Company are paid through an entity
owned by the Company's stockholder. In turn, the related entity charges the
Company a management fee based on net sales. Management fees paid to the
related entity were approximately $584, $563 and $567 for 1994, 1995 and 1996,
respectively.
The Company also leases vehicles from the related entity. Total lease
payments were approximately $322, $208 and $71 for 1994, 1995 and 1996,
respectively.
The Company also purchases its health insurance through the related entity.
Premiums paid by the Company were approximately $322, $323 and $293 for 1994,
1995 and 1996, respectively.
The Company leases its corporate and six branch facilities under operating
leases with its sole stockholder. Rent expense under these operating leases
for 1994, 1995 and 1996 were approximately $320, $364 and $481, respectively.
The leases expire in years 1997 through 2001.
At December 31, 1995 and 1996, the Company had receivables of $312 and $88,
respectively, of advances to the stockholder of the Company. Interest income
related to this receivable was $15 for the years ended December 31, 1995 and
1996.
NOTE 9--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its warehouse and office facilities and all delivery
vehicles under noncancelable operating leases. Some of the facilities are
leased directly from the Company's stockholder, and certain vehicles are
leased from an entity owned by the Company's stockholder (see Note 8). The
aggregate future minimum rentals (exclusive of real estate taxes and expenses)
are as follows:
<TABLE>
<S> <C>
1997.................................................................. $ 998
1998.................................................................. 826
1999.................................................................. 511
2000.................................................................. 310
2001.................................................................. 106
------
$2,751
======
</TABLE>
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
F-28
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--CLOSING OF THE ATLANTA BRANCH
During October 1996, the Company closed its branch in Atlanta, Georgia. To
the extent possible, remaining inventories and certain equipment were
transferred to other branches. The operations of the Atlanta branch, which are
reflected in the accompanying statement of income for 1996, follow:
<TABLE>
<S> <C>
Net sales.......................................................... $ 2,690
Cost of sales...................................................... (1,997)
-------
Gross margin................................................... 693
Selling, general and administrative expenses:
Operating expenses............................................... (960)
Write-off of intangibles......................................... (78)
Loss on disposition of fixed assets.............................. (127)
-------
Net loss........................................................... $ (472)
=======
</TABLE>
NOTE 11--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholder entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were exchanged
for cash concurrent with the consummation of the initial public offering of
the common stock of USA Floral.
The management fees, leasing payments and health insurance premiums paid to
a related party as described in Note 8 were terminated upon consummation of
the merger. Additionally the properties owned by Roy Houff were acquired by
the Company prior to the merger and the lease arrangement described in Note 8
was thereupon be terminated. All amounts due from Roy Houff were repaid to
Houff upon consummation of the Houff merger.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
CFX, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of CFX, Inc. at 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. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. The financial statements of CFX, Inc. for the years
ended December 31, 1994 and 1995 were audited by other independent accountants
whose report dated March 8, 1996, expressed an unqualified opinion on those
statements.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CFX, Inc.
Miami, Florida
We have audited the accompanying balance sheets of CFX, Inc., as of December
31, 1995 and 1994, and the related statements of income and retained earnings
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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CFX, Inc., as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Madsen, Sapp, Mena, Rodriguez & Co. P.A.
Plantation, Florida
March 8, 1996
F-31
<PAGE>
CFX, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 105 $1,385 $2,284
Marketable trading securities...................... 877
Accounts receivable, net........................... 3,143 3,242 3,916
Due from related parties........................... 96 397 210
Prepaid expenses and other current assets.......... 112 78 68
Advances to growers................................ 61 145 119
------ ------ ------
Total current assets............................. 4,394 5,247 6,597
Property and equipment, net.......................... 450 402 352
Other assets:
Due from related parties........................... 1,535 8
Cash surrender value--life insurance............... 247 207 207
Deposits........................................... 37 13 39
Advances to stockholders........................... 673 428 602
Advances to growers................................ 175 128
Other.............................................. 6 2 94
------ ------ ------
Total assets..................................... $7,342 $6,474 $8,027
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit..................................... $ 1 $ 1 $ 1
Current maturities of notes payable................ 16 18
Accounts payable................................... 403 548 558
Accrued expenses................................... 733 1,835 1,922
Due to related party growers....................... 925 316 282
------ ------ ------
Total current liabilities........................ 2,062 2,716 2,781
Notes payable, net of current maturities............. 21 12
Commitments and contingencies
Stockholders' equity:
Common stock $5.00 par value; 1,000 shares
authorized; 600 shares issued and outstanding..... 3 3 3
Additional paid-in capital......................... 57 57 57
Retained earnings.................................. 5,220 3,677 5,174
------ ------ ------
Total stockholders' equity....................... 5,280 3,737 5,234
------ ------ ------
Total liabilities and stockholders' equity....... $7,342 $6,474 $8,027
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
CFX, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (includes sales to
related parties of $2,420,
$3,121 and $3,859)............. $30,590 $32,096 $35,684 $ 20,585 $ 22,854
Cost of sales (includes
purchases from related parties
of $9,081, $9,644 and
$12,263)....................... 23,839 24,328 28,190 16,031 17,759
------- ------- ------- -------- --------
Gross margin................ 6,751 7,768 7,494 4,554 5,095
Selling, general and
administrative expenses........ 6,266 6,773 8,956 5,249 3,657
------- ------- ------- -------- --------
Operating income (loss)..... 485 995 (1,462) (695) 1,438
Other (income) expense:
Interest income............... (117) (173) (115) (51) (32)
Other, net.................... 247 (370) (100) (93) (27)
------- ------- ------- -------- --------
Net income (loss)........... $ 355 $ 1,538 $(1,247) $ (551) $ 1,497
======= ======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income (loss)
before provision (benefit)
for income taxes............. $ 355 $ 1,538 $(1,247) $ (551) $ 1,497
Provision (benefit) for income
taxes........................ 202 615 (499) (220) 599
------- ------- ------- -------- --------
Pro forma income (loss) (see
Note 2)...................... $ 153 $ 923 $ (748) $ (331) $ 898
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
CFX, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993........................ 600 $ 3 $57 $ 3,367 $ 3,427
Net income................. 355 355
--- --- --- ------- -------
Balance at December 31,
1994........................ 600 3 57 3,722 3,782
Net income................. 1,538 1,538
Dividends paid............. (40) (40)
--- --- --- ------- -------
Balance at December 31,
1995........................ 600 3 57 5,220 5,280
Net loss................... (1,247) (1,247)
Dividends paid............. (296) (296)
--- --- --- ------- -------
Balance at December 31,
1996........................ 600 3 57 3,677 3,737
Net income (unaudited)..... 1,497 1,497
--- --- --- ------- -------
Balance at June 30, 1997
(unaudited)................. 600 $ 3 $57 $ 5,174 $ 5,234
=== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
CFX, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- --------------
1994 1995 1996 1996 1997
------- -------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................. $ 355 $ 1,538 $ (1,247) $ (551) $1,497
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization..... 244 265 264 110 115
Unrealized/realized loss (gain)
on marketable trading
securities....................... 118 (336) (92) (92)
Gain on disposal of property,
plant and equipment.............. (8) (1) (3)
Purchase of marketable trading
securities....................... (765) (14)
Proceeds on sale of marketable
trading securities............... 603 966 966
Changes in operating assets and
liabilities:
Accounts receivable.............. (504) (50) (99) (450) (674)
Prepaid expenses and other
current assets.................. (24) (13) 34 55 10
Long-term receivables............ 17 12 4
Other assets..................... 130 (42) 67 (3) (118)
Accounts payable and accrued
expenses........................ 402 (231) 1,231 2,810 98
Due from/to related parties...... 28 (383) (518) 251 (34)
------ -------- -------- ------ ------
Net cash provided by operating
activities..................... 1 1,341 609 3,093 894
Cash flows from investing
activities:
Advances to growers............... (33) 72 (243) 30 72
Decrease in certificate of
deposit.......................... 16 180
Purchases of property and
equipment........................ (166) (287) (179) (68) (65)
Proceeds from sale of equipment... 8 1 3
Advances to related parties....... (299) (450) (126) (51) (8)
Repayments from related parties... 253 24 1,269 1,524 187
Advances to stockholders.......... (255) (258) (1,557) (548) (174)
Repayments from stockholders...... 1,802
------ -------- -------- ------ ------
Net cash provided by (used in)
investing activities........... (484) (711) 967 890 12
Cash flows from financing
activities:
Borrowings/payments on bank line
of credit........................ 810 (810)
Repayments of long-term debt...... (77) (81) (1) (7)
Repayments of stockholders notes
payable.......................... (100)
Repayments of life insurance
loan............................. (254)
Stockholder dividends............. (40) (296) (296)
------ -------- -------- ------ ------
Net cash provided by (used in)
financing activities........... 479 (1,031) (296) (297) (7)
Net increase (decrease) in cash and
cash equivalents.................. (4) (401) 1,280 3,686 899
Cash and cash equivalents--
beginning of period............... 510 506 105 105 1,385
------ -------- -------- ------ ------
Cash and cash equivalents--end of
period............................ $ 506 $ 105 $ 1,385 $3,791 $2,284
====== ======== ======== ====== ======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest......................... $ 46 $ 21 $ 2 $ 1 $ 12
Supplemental disclosure of noncash
investing and financing
activities:
Debt incurred for the acquisition
of equipment..................... $ 37
Acquired grower advance asset by
assuming directly related
liability........................ $ 16
Reclassification from accounts
payable to due to related
parties.......................... $ 816
Reclassification from advances to
growers to advances to
stockholders..................... $ 160
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1974, CFX, Inc. (the "Company") is an importer and distributor of
perishable floral products operating from one location in Florida. The Company
imports flowers from farms located primarily in Columbia and Ecuador, and
distributes them throughout the United States to wholesale distributors and
mass markets.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Significant estimates used in preparing these financial statements include
those assumed in computing the antidumping duty liability.
Revenue Recognition
Revenue is recognized upon shipment of product.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Advances to Growers
Advances to growers consist of cash advances to unrelated growers for
working capital purposes. The advances are usually to be repaid by sales of
flowers by the Company, on behalf of the growers.
Financial Instruments
Investments in debt and equity securities are categorized as trading
securities. Unrealized holding gains and losses are included in earnings. Cost
of investments are determined on a specific identification basis.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
related assets (three to seven years). Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful life.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
F-36
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents, marketable
trading securities, trade accounts receivable and amounts due from related
parties and related and unrelated growers. The Company extends unsecured
credit to wholesale florists primarily throughout the United States. The
Company, from time to time, advances funds to related parties and related and
unrelated growers on an unsecured basis. Receivables are not collateralized
and accordingly, the Company performs ongoing credit evaluations of its
customers to reduce the risk of loss.
The Company receives a significant portion of their fresh-cut flowers from
the South American country of Colombia.
Income Taxes
The Company has elected to be treated as an S Corporation for federal and
state income taxes and, accordingly, any liability for income taxes are the
direct responsibility of the stockholders.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to applicable federal and state income taxes for the entire periods
presented.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1997, and
the results of its operations and its cash flows for the six months ended June
30, 1996 and 1997, as presented in the accompanying unaudited interim
financial statements.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994.... $145 $(43) $(12) $90
Year ended December 31, 1995.... $ 90 $ 15 $(15) $90
Year ended December 31, 1996.... $ 90 $ 32 $(32) $90
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Leasehold improvements..................................... $ 729 $ 729
Equipment.................................................. 1,446 1,547
Vehicles................................................... 417 491
Furniture and fixtures..................................... 162 138
------- -------
2,754 2,905
Accumulated depreciation and amortization.................. (2,304) (2,503)
------- -------
$ 450 $ 402
======= =======
</TABLE>
F-37
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $244, $265 and $264, respectively.
NOTE 5--CREDIT FACILITIES
Bank Lines of Credit
The Company maintains a line of credit and an overline facility which
provide for borrowings of up to $2,000 and $500, respectively, and bear
interest at prime plus 1/2% (9.5% and 8.75% at December 31, 1995 and 1996,
respectively). These facilities expired on May 31, 1997; however, any amount
drawn upon the overline may be converted to a promissory note. The borrowings
are collateralized by all of the Company's personal property and place
restrictions on indebtedness, capital expenditures, the payment of dividends,
the sale of assets, and mergers and acquisitions. In addition, the loan
agreement requires certain ratios and other financial statistics and
restrictions. The Company was in compliance with these restrictions as of
December 31, 1996 with the exception of the covenants relating to tangible net
worth, indebtedness and payment of dividends. Appropriate waivers were
obtained for those covenants that were in default.
Note Payable to Bank
The Company's $37 note payable with a bank requires monthly installments of
approximately $2 due through January 1999 plus interest at prime (8.25% at
December 31, 1996). This note is collateralized by automotive equipment, with
a carrying value of approximately $37.
Principal maturities on the note payable over the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $16
1998............................................................ 19
1999............................................................ 2
Thereafter......................................................
---
Total......................................................... $37
===
</TABLE>
NOTE 6--PROFIT SHARING PLAN
The Company has a contributory profit sharing plan covering substantially
all employees. Participant contributions may not exceed 15% of eligible
compensation. Employer contributions, if any, are determined annually by the
Board of Directors and may not exceed the amount deductible for federal income
tax purposes. The Company's contributions to this plan were $0, $100 and $100
for the years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 7--RELATED PARTY TRANSACTIONS
The Company receives flowers from farms partially owned by the Company's
majority stockholders. Total purchases from these related party farms were
$9,081, $9,644 and $11,993 in cost of sales for the years ended December 31,
1994, 1995 and 1996, respectively.
The Company sells flowers to, and purchases flowers from, a bouquet
manufacturer affiliate owned by its majority stockholders. Sales were
approximately $2,420, $3,121 and $3,859 to this affiliate for the years ended
F-38
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1994, 1995 and 1996, respectively. Related accounts receivable
balances were $224 and $0 at December 31, 1995 and 1996, respectively. The
financial statements include cost of sales of $0, $0 and $270 for the years
ended December 31, 1994, 1995 and 1996, respectively.
The Company also provides services to and receives services from the bouquet
manufacturer affiliate. Net management fee income for such services were
approximately $605, $518 and $570 for the years ended December 31, 1994, 1995
and 1996, respectively. At December 31, 1995 and 1996, the outstanding
receivable balance resulting from such transactions was approximately $1,623
and $388, respectively. In 1995, $96 of the outstanding balance is included in
due from related parties--current and $1,527 is in due from related parties--
noncurrent. The entire 1996 balance is included in due from related parties--
current.
The Company uses a related party agent corporation to handle certain
business activities in Colombia. Administrative expenses paid to the agent
corporation were approximately $212 and $308 for the years ended December 31,
1995 and 1996, respectively. At December 31, 1996, the outstanding balance
resulting from such transactions was approximately $11 and is included in
accounts payable. In addition, a long-term receivable exists from the related
party agent of approximately $8 as of December 31, 1995 and 1996 and is
included in due from related parties--noncurrent at December 31, 1995 and due
from related parties--current at December 31, 1996.
The Company loans cash to the bouquet manufacturer affiliate on a daily
basis. The accompanying financial statements include interest income from
related parties of approximately $62, $112 and $61 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Advances to stockholders represent noninterest bearing funds advanced to the
Company's majority stockholders for the purpose of acquiring an interest in a
farm in Central America and initial capitalization of an agent corporation
located in South America. Official terms of the advances have not been
determined.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its bouquet manufacturer affiliate jointly lease office and
warehouse space from partnership owned by the Company's majority shareholders.
Lease payments in 1996 were divided 33% to the Company and 67% to the
affiliate based on square footage of lease space utilized.
The lease expires December 31, 2006 and requires basic rent of an amount
equal to principal and interest payments on the bond and second mortgage and
other expenses of the partnership.
As of December 31, 1996, CFX's allocable share of the future minimum rent
under the current terms of the above office and warehouse lease are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $ 274
1998............................................................ 274
1999............................................................ 274
2000............................................................ 274
2001............................................................ 274
Thereafter...................................................... 1,369
------
Total......................................................... $2,739
======
</TABLE>
F-39
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense was $228, $203 and $213 for the years ended December 31, 1994,
1995 and 1996, respectively.
Guarantees
During 1996, an affiliated partnership owned by the Company's majority
stockholders extended the terms of an Industrial Development Bond and entered
into an interest rate swap as a hedge. The bond has an outstanding balance of
approximately $4,000 and $3,760 at December 31, 1995 and 1996, respectively,
and matures in January 2002. The affiliated partnership also entered into a
variable rate second mortgage during 1996. The mortgage has an outstanding
balance of approximately $1,180 at December 31, 1996 and matures in October
2006. The bond and mortgage are collateralized by land and building which are
leased by the Company and its wholesale affiliate. The Company has pledged all
of its assets as collateral and guaranteed the bond and mortgage. The bond
agreement places restrictions on indebtedness and liens, the payment of
dividends, the sale of assets, mergers and acquisitions and other
restrictions. In addition, the bond agreement requires the Company and its
wholesale affiliate to maintain certain combined ratios and other financial
statistics.
During 1995, a related party farm obtained a loan to purchase a vehicle
which the Company has guaranteed. The loan matures in August 1998 and had an
outstanding balance at December 31, 1995 and 1996 of approximately $45 and
$29, respectively.
At December 31, 1995 and 1996, the Company had three outstanding
uncollateralized letters of credit totaling approximately $403 and $318,
respectively, which were used for the borrowings of related farms. The letters
of credit reduce the borrowings allowed under the line of credit discussed in
Note 5.
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of the Company.
Antidumping Duty
In 1986, the U.S. Department of Commerce ("DOC") imposed an antidumping duty
deposit ("ADD") on the importation of certain flowers, pending the imposition
of a final duty rate based on annual reviews of the flower growers' margins.
Since that time, the DOC has undertaken ten reviews, the last one for the
period ending February 28, 1997. As a result of those reviews, the Company's
importation of flowers from its suppliers has been subject to antidumping
duties. The ADDs from the second and fourth reviews are awaiting final
liquidation from the DOC. Final rate determinations have been published for
the fifth through seventh reviews but judicial appeals are pending. The eighth
review was liquidated at the cash-deposit rate. The ninth review is pending
final rate determination. The tenth review is in process. All other reviews
have been resolved.
Included in accrued expenses is approximately $184 and $1,248 as of December
31, 1995 and 1996, respectively, of estimated antidumping duty imposed by the
Department of Commerce. The duty is based on rates imposed on certain products
from certain growers in Colombia and Ecuador. The antidumping duty is subject
to change upon the Department of Commerce's final review of all open
antidumping periods as well as various legal appeals.
F-40
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--OTHER INCOME
Significant components of other income (expense) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Realized gains on trading securities ...................... $ $ 14 $ 92
Unrealized gains (losses) on trading securities............ (119) 265
Gain on sale of property and equipment..................... 65
Other...................................................... (128) 26 8
----- ---- ----
$(247) $370 $100
===== ==== ====
</TABLE>
NOTE 10--SIGNIFICANT CUSTOMERS
Sales to the Company's bouquet manufacturing affiliate approximated 7%, 10%
and 11% of revenues for 1994, 1995 and 1996, respectively.
Additionally, this customer represented 7% and 0% of accounts receivable at
December 31, 1995 and 1996, respectively. This customer is 100% owned by the
two majority stockholders.
NOTE 11--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were exchanged
for cash and shares of USA Floral common stock concurrent with the
consummation of the initial public offering of the common stock of USA Floral.
All related party agreements, understandings and arrangements as outlined in
Note 7 will be amended so that all continuing obligations thereunder are no
greater than they would be under agreements with unaffiliated third parties.
In addition, all advances to stockholders balances were paid to the Company
with the consummation of the initial public offering.
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Bay State Florist Supply, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Bay State Florist Supply, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 27, 1997
F-42
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 795 $ 791 $1,714
Accounts receivable, net......................... 3,090 3,413 3,076
Inventory........................................ 1,397 1,701 1,751
Due from related parties......................... 486 559 380
Prepaid expenses and other current assets........ 199 165 106
------ ------ ------
Total current assets........................... 5,967 6,629 7,027
Property and equipment, net........................ 1,339 1,505 1,605
Cash surrender value--life insurance............... 338 364 365
Other assets....................................... 13 13 113
------ ------ ------
Total assets................................... $7,657 $8,511 $9,110
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank............................. $ 200 $ 212
Current maturities of long-term debt............. $ 50 50 69
Accounts payable................................. 1,441 1,701 2,060
Accrued expenses................................. 322 336 407
------ ------ ------
Total current liabilities...................... 1,813 2,287 2,748
Note payable, net of current maturities............ 412 358 396
Commitments and contingencies (Note 6)
Other long term liabilities........................ 400 400 400
Stockholders' equity:
Common stock $0.01 par value; 500,000 shares
authorized; 461,840 shares issued and
outstanding..................................... 5 5 5
Additional paid-in capital....................... 376 376 376
Retained earnings................................ 5,127 5,561 5,661
Less: Treasury stock............................. (476) (476) (476)
------ ------ ------
Total stockholders' equity..................... 5,032 5,466 5,566
------ ------ ------
Total liabilities and stockholders' equity..... $7,657 $8,511 $9,110
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $19,203 $25,592 $30,563 $16,412 $16,375
Cost of sales..................... 12,807 17,068 20,722 11,279 11,080
------- ------- ------- ------- -------
Gross margin.................. 6,396 8,524 9,841 5,133 5,295
Selling, general and
administrative expenses.......... 5,529 7,579 8,976 4,429 4,556
------- ------- ------- ------- -------
Operating income.............. 867 945 865 704 739
Other (income) expense:
Interest expense................ 9 16 33 17 25
Interest income................. (26) (48) (35) (20) (23)
Other, net...................... (199) (229) (247) (55) (90)
------- ------- ------- ------- -------
Income before income taxes........ 1,083 1,206 1,114 762 827
Provision for income taxes........ 125 87 81 61 70
------- ------- ------- ------- -------
Net income........................ $ 958 $ 1,119 $ 1,033 $ 701 $ 757
======= ======= ======= ======= =======
Unaudited pro forma information:
Pro forma net income before
provision for income taxes..... $ 1,083 $ 1,206 $ 1,114 $ 762 $ 827
Provision for income taxes...... 433 482 446 305 331
------- ------- ------- ------- -------
Pro forma income (see Note 2)... $ 650 $ 724 $ 668 $ 457 $ 496
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 461,040 $ 5 $372 $4,549 $(422) $4,504
Net income............ 958 958
Dividends paid........ (769) (769)
Stock issued.......... 800 4 4
------- --- ---- ------ ----- ------
Balance at December 31,
1994................... 461,840 5 376 4,738 (422) 4,697
Net income............ 1,119 1,119
Dividends paid........ (730) (730)
Repurchase of stock... (54) (54)
------- --- ---- ------ ----- ------
Balance at December 31,
1995................... 461,840 5 376 5,127 (476) 5,032
Net income............ 1,033 1,033
Dividends paid........ (599) (599)
------- --- ---- ------ ----- ------
Balance at December 31,
1996................... 461,840 5 376 5,561 (476) 5,466
Net income
(unaudited).......... 757 757
Dividends paid
(unaudited).......... (657) (657)
------- --- ---- ------ ----- ------
Balance at June 30, 1997
(unaudited)............ 461,840 $ 5 $376 $5,661 $(476) $5,566
======= === ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 958 $ 1,119 $ 1,033 $ 701 $ 757
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation..................... 144 149 154 111 73
Change in operating assets and
liabilities:
Accounts receivable............ (51) (919) (323) (200) 337
Inventory...................... 87 (116) (304) (271) (51)
Prepaid expenses and other
current assets................ 18 (54) 34 (10) (40)
Accounts payable and accrued
expenses...................... (12) 681 274 (66) 430
Due from/to related parties.... (533) 47 (73)
------- ------- ------- ------ -------
Net cash provided by (used
in) operating activities.... 611 907 795 265 1,506
Cash flows from investing
activities:
Purchases of property and
equipment....................... (148) (219) (320) (95) (173)
Repayments from related parties.. 8 179
Cash surrender value of life
insurance....................... (16) (49) (26)
------- ------- ------- ------ -------
Net cash used in investing
activities.................. (164) (268) (346) (87) 6
Cash flows from financing
activities:
Proceeds from issuance of long-
term debt....................... 550 200 200 68
Payments of long-term debt....... (87) (54) (25)
Issuance of common stock......... 4
Purchase of treasury stock....... (54)
Stockholder dividends............ (769) (730) (599) (294) (657)
------- ------- ------- ------ -------
Net cash used in financing
activities.................. (215) (871) (453) (119) (589)
Net increase (decrease) in cash and
cash equivalents.................. 232 (232) (4) 59 923
Cash and cash equivalents--
beginning of period............... 795 1,027 795 795 791
------- ------- ------- ------ -------
Cash and cash equivalents--end of
period............................ $ 1,027 $ 795 $ 791 $ 854 $ 1,714
======= ======= ======= ====== =======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest........................ $ 9 $ 16 $ 33 $ 17 $ 25
Note payable issued for
acquisition..................... $ 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1952, Bay State Florist Supply, Inc. (the "Company") is a
wholesale distributor of perishable floral products and floral-related
hardgoods, operating from six locations in Massachusetts, New York, New
Hampshire, Connecticut and Rhode Island. The Company purchases floral products
from domestic growers, importers, brokers and shippers and sells them to
retail florists and mass marketer retailers throughout the United States.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 these estimates.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid short-term investments with maturities of less than three months
at date of purchase to be cash equivalents.
Inventory
Inventory is valued at the lower of average cost or market, cost being
determined on a first-in first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost. Replacements and improvements are
capitalized, while repairs and maintenance costs are charged to expense as
incurred. Depreciation is provided using an accelerated method for federal
income tax reporting purposes and the straight line method for financial
statement reporting purposes over the estimated useful lives of the related
assets (3 to 40 years). Leasehold improvements are amortized over the shorter
of the lease term or the estimated useful life.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
F-47
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collateralized and accordingly, the Company performs on going credit
evaluations of its customers to reduce the risk of loss. The Company, from
time to time, advances funds to related parties on an unsecured basis.
Accounts Payable
Accounts payable includes certain amounts which represent checks written but
not yet cleared by the bank.
Income Taxes
The Company has elected to be treated as an S Corporation for federal and
state income taxes and, accordingly, any liabilities for income taxes are the
direct responsibility of the stockholders. No provision for federal income tax
is required. The Commonwealth of Massachusetts, which is the Company's
principal place of business, imposes a corporate level state income tax on
certain S Corporations which has been provided for.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the entire periods presented.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company as of June 30, 1997 and
the results of operations and cash flows for the six months ended June 30,
1996 and 1997 as presented in the accompanying unaudited interim financial
statements.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
allowance for doubtful
accounts..................... $ 0 $86 $(26) $60
Year ended December 31, 1995
allowance for doubtful
accounts..................... $60 $71 $(71) $60
Year ended December 31, 1996
allowance for doubtful
accounts..................... $60 $57 $(57) $60
</TABLE>
NOTE 4--INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Perishable..................................................... $ 88 $ 165
Non-perishable, net............................................ 1,309 1,536
------ ------
Total........................................................ $1,397 $1,701
====== ======
</TABLE>
F-48
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Perishable goods consist of assorted flowers and green plants. Non-
perishable goods consist of assorted silk flowers, vases, baskets and
accessories.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Land....................................................... $ 393 $ 393
Buildings.................................................. 939 939
Building improvements...................................... 693 911
Furniture, fixtures and equipment.......................... 896 919
Motor vehicles............................................. 185 184
------- -------
3,106 3,346
Accumulated depreciation................................... (1,767) (1,841)
------- -------
$ 1,339 $ 1,505
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $144, $149 and $154, respectively.
NOTE 6--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space, vehicles and equipment under operating
leases. Future minimum lease payments under such leases at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $196
1998............................................................ 196
1999............................................................ 60
2000............................................................ 60
----
Total future minimum payments................................. $512
====
</TABLE>
Rental expense under operating leases during 1994, 1995 and 1996 was $154,
$298 and $365, respectively.
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
F-49
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--CREDIT FACILITIES
Short-Term Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Revolving line of credit; due May 31, 1998; interest on
outstanding balance at the bank's prime rate per annum;
$1,000,000 borrowing maximum; limited to eligible accounts
receivable and inventory, as defined....................... $ 0 $ 200
----- ------
$ 0 $ 200
===== ======
</TABLE>
Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Note payable, due March 31, 1998; interest on outstanding
balance at the bank's prime rate plus 0.5% per annum......... $ 462 $ 408
Less: Current maturities 50 50
------ ------
$ 412 $ 358
====== ======
</TABLE>
As further discussed in Note 9, Related Party Transactions, this note
payable represents an unsecured note, the proceeds of which were provided to a
separate affiliated entity, Cromwell Properties LLC (the "LLC"), to purchase a
building in Cromwell, Connecticut. The Company has a corresponding receivable
classified as Due from Related Parties in the financial statements.
Principal maturities on notes payable over the next three years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997............................................................ $ 50
1998............................................................ 50
1999............................................................ 308
----
Total......................................................... $408
====
</TABLE>
Interest expense incurred for the years ended December 31, 1994, 1995 and
1996 was $9, $16 and $33, respectively.
In March 1997, the Company entered into a Note Payable in conjunction with
the purchase of a facility in Clifton Park, which requires annual principal
and interest payments of $19 for a period of eight years. The outstanding
balance was $100 at March 31, 1997.
NOTE 8--EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all employees.
Under the plan, the Company matches 50% of employee contributions up to the
first 6% of an employee's compensation contributed to the
F-50
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
plan. The Company's contributions to the 401(k) savings plan were
approximately $33, $41 and $56 for 1994, 1995 and 1996, respectively.
Additionally, the Company, at its discretion, may make additional
contributions (considered profit sharing contributions). The Company's goal is
to contribute 4% of net income to the Plan through the 401(k) match or the
discretionary contribution. In 1994, the Company made a discretionary
contribution of approximately $11. No discretionary contributions were made in
1995 or 1996.
NOTE 9--RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1996, the Company held a note payable to Bank
Boston, the proceeds of which were provided to the affiliate LLC and used to
purchase a building in Cromwell, Connecticut. The Company leases this building
from the LLC on a month-to-month basis. Rental expense to the LLC under this
lease was $24, $108 and $108 for 1994, 1995 and 1996, respectively. Included
in Due from Related Parties is a corresponding receivable from the LLC for
amounts provided.
Additionally, the Company is acting as Guarantor for a $75 loan from
BayBank, N.A. to a Director of the Company. The loan arrangement, executed on
June 5, 1996, is payable in 60 monthly installments of $1 at the bank's prime
rate plus 1.5% per annum. Additionally, the Director has pledged his share in
the Company (approximately 13%) as consideration for this guaranty.
NOTE 10--OTHER INCOME/OTHER EXPENSE
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Finance charges........................................ $(100) $(139) $(176)
Real estate rental income, net......................... (33) (35) (23)
Other (income) expense, net............................ (66) (55) (48)
----- ----- -----
Total other (income)................................. $(199) $(229) $(247)
===== ===== =====
</TABLE>
NOTE 11--STOCK SPLIT
In March 1997, the Company approved (i) a 40-for-1 stock split; (ii) an
increase in number of authorized shares from 200,000 to 500,000; and (iii) a
decrease in par value from $10.00 to $0.01.
Accordingly, all share data presented in these financial statements has been
restated to give retroactive effect to the stock split and amendment.
NOTE 12--DEFERRED COMPENSATION ARRANGEMENTS
The Company has entered into deferred compensation arrangements with three
officers which call for monthly payments to the officer or a designated
beneficiary for a period of ten years following retirement. The Company has
recorded the present value of these future payments as a long term liability
and has purchased life insurance policies on these individuals to provide a
funding mechanism for these liabilities.
NOTE 13--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were exchanged
for cash and shares of USA Floral common stock concurrent with the
consummation of the initial public offering of the common stock of USA Floral.
F-51
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the merger the amounts Due From Related Parties were
repaid and the proceeds were used to pay the outstanding balance of the Note
Payable described in Note 7.
Additionally, the terms of the lease described in Note 9 will be evaluated
and renegotiated, if necessary, to ensure such terms are no less favorable to
the Company than those that Bay State could obtain with unaffiliated third
parties.
F-52
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Flowtrad Corporation, N.V.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Flowtrad
Corporation, N.V. (for the purposes hereof, "Flower Trading Corporation" or
the "Company") at December 31, 1995 and 1996 and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
August 1, 1997
F-53
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 126 $ 70 $ 862
Accounts receivable, net........................... 2,612 2,747 2,526
Officers, employees and related party receivables.. 21 38 40
Other receivables.................................. 109 10 18
Inventory.......................................... 23 52 47
Prepaid expenses and other current assets.......... 36 171 151
------ ------ ------
Total current assets........................... 2,927 3,088 3,644
Property and equipment, net.......................... 489 330 332
Cash surrender value--life insurance................. 39 44 44
Deferred income taxes................................ 91 79 90
Other assets......................................... 69 110 101
------ ------ ------
Total assets......................................... $3,615 $3,651 $4,211
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit................................ $ 200
Notes payable--current............................. $ 43 112 $ 104
Trade accounts payable............................. 862 669 667
Trade accounts payable due to affiliates........... 483 532 581
Other accounts payable and accrued expenses........ 86 277 255
Income taxes payable............................... 9 250
------ ------ ------
Total current liabilities........................ 1,483 1,790 1,857
Notes payable, net of current maturities............. 8 391 339
------ ------ ------
Total liabilities................................ 1,491 2,181 2,196
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value; 150,000 shares
authorized, issued and outstanding................ 150 150 150
Additional paid-in capital......................... 328 328 328
Retained earnings.................................. 1,646 992 1,537
------ ------ ------
Total stockholders' equity....................... 2,124 1,470 2,015
------ ------ ------
Total liabilities and stockholders' equity....... $3,615 $3,651 $4,211
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................ $18,478 $20,335 $20,313 $ 11,305 $ 12,997
Cost of sales (including
purchases from affiliated farms
of $2,612, $4,451, $3,921 for
the years ended December 31,
1994, 1995 and 1996 and $1,779
and $2,259 for the six months
ended June 30, 1996 and 1997,
respectively)................... 14,452 15,921 15,914 8,928 10,139
------- ------- ------- -------- --------
Gross profit................. 4,026 4,414 4,399 2,377 2,858
Selling, general and
administrative expenses......... 3,605 4,068 4,142 1,944 1,936
------- ------- ------- -------- --------
Operating income............. 421 346 257 433 922
Other (income) expense:
Interest expense............... 17 9 32 5 35
Interest income................ (11) (18) (5) (2) (4)
Write off of investment........ 181 129
Other, net..................... (87) (51) (9) (6) 7
------- ------- ------- -------- --------
Income before provision for
income taxes.................... 502 225 110 436 884
Provision for income taxes....... 201 95 48 183 339
------- ------- ------- -------- --------
Net income....................... $ 301 $ 130 $ 62 $ 253 $ 545
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.. 160,000 $ 150 $ 328 $ 1,215 $ 1,693
Net income.................. 301 301
------- ----- ----- ------- -------
Balance at December 31, 1994.. 160,000 150 328 1,516 1,994
Net income.................. 130 130
------- ----- ----- ------- -------
Balance at December 31, 1995.. 160,000 150 328 1,646 2,124
Net income.................. 62 62
Distribution to shareholders
for investment in
subsidiary................. (716) (716)
------- ----- ----- ------- -------
Balance at December 31, 1996.. 160,000 150 328 992 1,470
Net income (unaudited)...... 545 545
------- ----- ----- ------- -------
Balance at June 30, 1997
(unaudited).................. 160,000 $ 150 $ 328 $ 1,537 $ 2,015
======= ===== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
FLOWER TRADING CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -------------
1994 1995 1996 1996 1997
------- ------- -------- ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 301 $ 130 $ 62 $ 253 $ 545
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 196 216 202 93 80
Loss on investment................. 181 129
Loss on disposal of fixed assets... 40
Change in operating assets and
liabilities:
Accounts receivable............... 99 63 (53) (141) 211
Inventory......................... 19 (7) (29) 7 5
Prepaid expenses and other current
assets........................... 195 (15) (176) 5 20
Accounts payable.................. 43 (27) (144) (164) 47
Accrued expenses.................. (235) 59 191 (43) (22)
Income taxes payable.............. 78 (69) (9) 88 250
Deferred taxes asset and other
assets........................... 3 (91) 41 (2)
------- ------ -------- ----- ------
Net cash (used) provided by
operating activities............ 699 440 254 98 1,134
Cash flows from investing activities:
Purchase of investment.............. (181) (129)
Purchases of property and
equipment.......................... (83) (32) (82)
Proceeds from disposal of property
and equipment...................... (288) (162)
Cash surrender value of life
insurance.......................... 4 (5)
Advances to related parties......... (67) 28
------- ------ -------- ----- ------
Net cash used in investing
activities...................... (355) (311) (217) (32) (82)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................... 1,100
Repayments of long-term debt........ (74) (74) (648) (37) (52)
Distribution to stockholders for
investment in subsidiary........... (745)
Borrowings (repayments) under line
of credit agreement, net........... (200) 200 (208)
------- ------ -------- ----- ------
Net cash (used) provided by in
financing activities............ (274) (74) (93) (37) (260)
Net increase (decrease) in cash and
cash equivalents.................... 70 55 (56) 29 792
Cash and cash equivalents--beginning
of period........................... 1 71 126 126 70
------- ------ -------- ----- ------
Cash and cash equivalents--end of
period.............................. $ 71 $ 126 $ 70 $ 155 $ 862
======= ====== ======== ===== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest........................... $ 17 $ 9 $ 32 $ 4 $ 34
Cash paid during the period for
income taxes....................... $ 201 $ 189 $ 189 $ 73 $ 52
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1977, Flower Trading Corporation is an importer and distributor
of perishable floral products which are imported from farms located primarily
in Colombia and Ecuador and distributed to wholesale florists throughout the
United States.
Basis of Presentation
These consolidated financial statements represent the financial position,
results of operations and net cash flows of Flowtrad Corporation N.V. and its
wholly owned subsidiary, Flower Trading Corporation ("Flower Trading" or the
"Company"). All significant intercompany accounts have been eliminated in
consolidation.
The Company and its stockholders plan to enter into a definitive agreement
with U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
will merge with a subsidiary of USA Floral. All outstanding shares of the
Company will be exchanged for cash and shares of USA Floral common stock
concurrent with the consummation of an initial public offering of the common
stock of USA Floral.
Flower Trading also holds a 75 percent interest in a subsidiary, UltraFlora
Corporation, which owns a 99.62 percent interest in UltraFlora Corporation
Limited, a subsidiary in Colombia. The Company does not plan to include
UltraFlora Corporation and its subsidiary in the merger, and will divest this
interest prior to the merger. Accordingly, these financial statements do not
reflect the financial position, results of operations or net cash flows of
UltraFlora Corporation and its subsidiary.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimate
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.
Revenue Recognition
Revenue is recognized upon shipment of product.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less at date of purchase to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. A significant portion of
inventory is purchased on a consignment basis. Cost is determined by the
specific identification method.
F-58
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided using accelerated methods over the estimated useful
lives of the related assets (three to seven years).
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
The Company is a C Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the liability method under the
provisions on the Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Other Income
In 1995 and 1996 the Company loaned a start-up company $181 and $129,
respectively. As the collectibility of these loans was considered uncertain,
these loans were written off in each of the respective years.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company as of June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
1996 and 1997 as presented in the accompanying unaudited interim financial
statements.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994.... $ 0 $ 4 $ 4 $ 0
Year ended December 31, 1995.... $ 0 $96 $18 $78
Year ended December 31, 1996.... $78 $21 $21 $78
</TABLE>
F-59
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Machinery and equipment.................................... $ 584 $ 596
Computer equipment and software............................ 634 408
Furniture, fixtures and equipment.......................... 241 245
Vehicles................................................... 81 81
------- -------
1,540 1,330
Accumulated depreciation and amortization.................. (1,051) (1,000)
------- -------
$ 489 $ 330
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $196, $216 and $202, respectively.
NOTE 5--CREDIT FACILITIES
Line of Credit
At December 31, 1995 and 1996, the Company had a $750 revolving line of
credit with a bank which is due on demand and expired on June 30, 1997. This
line of credit was renewed through June 30, 1998 and increased to $1,500.
Advances on the credit line are payable on demand and bear interest at 1
percent above the prime rate with interest payable monthly (9.25% at December
31, 1995 and 1996). The credit line is secured by all of the Company's
personal property, including but not limited to the Company's accounts,
inventory and fixed assets. Outstanding balances on the line were $0 and $200
as of December 31, 1995 and 1996, respectively.
Long-Term Debt
Long-term debt consists of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Note payable to bank, due in monthly installments of $9,
bearing interest at bank's prime rate plus 1% (9.25% at
December 31, 1995 and 1996), due September 6, 2001;
secured by assets of the Company and real property owned
by affiliate.............................................. $ 495
Note payable to bank, due in monthly installments of $5,
bearing interest at bank's prime rate plus 1.5% (9.75% at
December 31, 1995 and 1996), due June 30, 1996; secured by
receivables, property and equipment, and certain assets of
the Company............................................... $ 31
Note payable to financial corporation, due in monthly
installments of $1, including interest, through March 1997
and one final payment of $5; secured by a vehicle with a
net book value of $12 and $10 in 1995 and 1996,
respectively.............................................. 20 8
----- ------
51 503
Less: Current maturities................................... (43) (112)
----- ------
Long-term debt, excluding current maturities............... $ 8 $ 391
===== ======
</TABLE>
F-60
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principal maturities on notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $112
1998............................................................ 104
1999............................................................ 104
2000............................................................ 104
2001............................................................ 79
----
Total....................................................... $503
====
</TABLE>
NOTE 6--INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current expense:
State...................................................... $ 20 $ 19 $ 4
Federal.................................................... 179 166 32
---- ---- ---
Total income tax provision............................... $199 $185 $36
==== ==== ===
Deferred expense:
State........................................................ $ 2 $ (9) $ 1
Federal...................................................... (81) 11
---- ---- ---
Total income tax provision............................... $ 2 $(90) $12
==== ==== ===
</TABLE>
The provision for income taxes differs from the U.S. statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate................................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit........................ 3.7 3.7 3.7
Meals and entertainment.................................... 1.3 3.1 4.5
Other...................................................... 1.0 1.4 1.4
---- ---- ----
40.0% 42.2% 43.6%
==== ==== ====
</TABLE>
Deferred tax assets were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Allowance for doubtful accounts.............................. $ 91 $ 23
Accruals..................................................... 56
------ ------
$ 91 $ 79
====== ======
</TABLE>
F-61
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLAN
In 1995 the Company has established an employee savings plan under the
provisions of section 401(k) of the Internal Revenue Code. Virtually all
employees are eligible to participate in the plan. Employees can contribute up
to 5% of their gross salary to the plan. The Company is liable for matching
contributions of 30% of participants' contributions up to a certain amount per
participant. Company contributions to the plan were approximately $19 and $22
for the year ended December 31, 1995 and 1996, respectively.
NOTE 8--RELATED PARTY TRANSACTIONS
The Company pays a representative fee to a related entity for flowers
shipped from Colombia. This related entity ensures that the Company has a
reliable source of fresh cut flowers in Colombia. This entity also provides
each of the Company's suppliers with technical expertise to improve and
maintain the yield, quality and durability of the fresh cut flowers. In
addition, due to the large number of suppliers in Colombia, the Company
requires the service of this entity to consolidate the shipments of flowers
with a common carrier, and generate the paperwork necessary to complete the
shipment of flowers. Representative fees paid for the years ended December 31,
1994, 1995 and 1996 were $658, $793 and $675, respectively.
The Company purchases flowers from a related entity. Total purchases were
approximately $1,954, $3,658 and $3,246 for 1994, 1995 and 1996, respectively.
The Company leases office and warehouse space from a related entity. Total
lease payments were approximately $201, $223 and $230 for 1994, 1995 and 1996,
respectively.
The Company charges a related entity a monthly fee for the handling of
floral products. Total handling fees were $172, $279 and $225 for 1994, 1995
and 1996, respectively. Also included in other income at December 31, 1994,
1995 and 1996 is $79, $66 and $54, respectively, representing administrative
fees received by the Company from this related party. At December 31, 1995 and
1996, the Company had receivables from this entity of $52 and $41,
respectively.
The Company guarantees two lines of credit a related entity maintains with a
bank up to a total of $750. These lines expire on May 31, 1998.
NOTE 9--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its warehouse and office facilities from a related party
under a noncancelable operating lease expiring in 1999. Rental payments
include minimum rentals adjusted annually for changes in the consumer price
index. The aggregate future minimum rentals are as follows:
<TABLE>
<S> <C>
1997.................................................................... $230
1998.................................................................... 230
1999.................................................................... 230
----
$690
====
</TABLE>
Antidumping Duty
In 1986, the U.S. Department of Commerce ("DOC") imposed an antidumping duty
deposit ("ADD") on the importation of certain flowers, pending the imposition
of a final duty rate based on annual reviews of the
F-62
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
flower growers' margins. Since that time, the DOC has undertaken ten reviews.
As a result of those reviews, the Company's importation of flowers from its
suppliers has been subject to antidumping duties. The ADDs from the second and
fourth reviews are awaiting final liquidation from the DOC. Final
determinations have been published for the fifth through seventh reviews but
judicial appeals are pending. The eighth review was liquidated at the cash-
deposit rate. The ninth review is pending final determination. The tenth
review is in process. All other reviews have been resolved.
Included in accrued expenses is approximately $0 and $150 as of December 31,
1995 and 1996, respectively, of estimated antidumping duty imposed by the
Department of Commerce. The duty is based on rates imposed on certain products
from certain growers in Colombia and Ecuador. The antidumping duty is subject
to change upon the Department of Commerce's final review of all open
antidumping periods as well as various legal appeals.
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 10--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholders entered into a definitive agreement with
USA Floral pursuant to which the Company merged with USA Floral. All
outstanding shares of the Company were exchanged for cash and shares of USA
Floral common stock concurrent with the consummation of the initial public
offering of the common stock of USA Floral.
Upon consummation of the merger described above, a portion of the Company's
related party agreements as outlined in Note 8 were amended. The Company will
continue to pay a representative fee in connection with flowers shipped from
Colombia, however, the fee will be reduced from $3.50 per box to $0.50 per box
due to a significant reduction in the services provided. In addition, the
Company's guarantee of the two lines of credit of a related entity will be
discontinued as will the guarantee of the Company's debt by such related
party.
The Company will continue to lease office and warehouse space under the
current lease agreement, and will also continue to provide handling and
administrative services to a related entity for a monthly fee. Additionally,
the Company will continue to purchase flowers from a related entity.
F-63
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
United Wholesale Florists, Inc. and
United Wholesale Florists of America, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of United
Wholesale Florists, Inc. and United Wholesale Florists of America, Inc. (the
"Company") at June 30, 1996 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
July 31, 1997
F-64
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 434 $ 625
Accounts receivable, net....................................... 1,062 1,186
Inventory...................................................... 1,799 1,963
Advances to affiliates......................................... 1,240
Advances to stockholders....................................... 389
Prepaid expenses and other current assets...................... 41 127
------ ------
Total current assets......................................... 3,336 5,530
Property and equipment, net...................................... 1,802 1,886
Advances to affiliates........................................... 1,059
Advances to stockholders......................................... 221
Goodwill......................................................... 233 222
Deferred income taxes............................................ 6
Other assets..................................................... 132 114
------ ------
Total assets................................................. $6,789 $7,752
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................. $1,283 $1,683
Current maturities of long-term debt........................... 96 104
Current maturities of notes payable to stockholders............ 222 558
Current obligations under capital leases....................... 145 200
Accounts payable............................................... 2,127 2,179
Accrued expenses and other current liabilities................. 163 211
Income taxes payable........................................... 210
------ ------
Total current liabilities.................................... 4,036 5,145
Long-term debt................................................... 194 62
Obligations under capital leases................................. 195 294
Notes payable to stockholders.................................... 572
Other liabilities................................................ 84 61
Commitments and contingencies
Stockholders' equity:
Common stock................................................... 11 11
Retained earnings.............................................. 1,697 2,179
------ ------
Total stockholders' equity................................... 1,708 2,190
------ ------
Total liabilities and stockholders' equity................... $6,789 $7,752
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $17,985 $19,030 $19,673
Cost of sales....................................... 11,556 12,563 12,862
------- ------- -------
Gross margin.................................... 6,429 6,467 6,811
Selling, general and administrative expenses........ 5,926 6,101 6,046
------- ------- -------
Operating income................................ 503 366 765
Other (income) expense:
Interest expense.................................. 227 236 231
Interest income................................... (91) (95) (133)
Other, net........................................ 9 (14) (20)
------- ------- -------
Income before income taxes.......................... 358 239 687
Provision for income taxes.......................... 171 95 205
------- ------- -------
Net income.......................................... $ 187 $ 144 $ 482
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for income
taxes............................................ $ 358 $ 239 $ 687
Provision for income taxes........................ 143 96 275
------- ------- -------
Pro forma income (see Note 2)....................... $ 215 $ 143 $ 412
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1994.................. 2,000 $ 11 $ 1,366 $1,377
Net income.............................. 187 187
----- ---- ------- ------
Balance at June 30, 1995.................. 2,000 11 1,553 1,564
Net income.............................. 144 144
----- ---- ------- ------
Balance at June 30, 1996.................. 2,000 11 1,697 1,708
Net income.............................. 482 482
----- ---- ------- ------
Balance at June 30, 1997.................. 2,000 $ 11 $ 2,179 $2,190
===== ==== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1995 1996 1997
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 187 $ 144 $ 482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 341 410 442
Deferred income taxes................................. 17 26 6
Loss on disposal of fixed assets...................... 18
Provision for doubtful accounts....................... 26 16 25
Change in operating assets and liabilities:
Accounts receivable.................................. (30) (149) (149)
Inventory............................................ 74 (99) (164)
Prepaid expenses and other current assets............ (6) (18) (86)
Accounts payable and accrued expenses................ (266) 881 100
Income taxes payable................................. 66 (153) 210
Changes in other assets............................... (6) (12) (12)
Changes in other liabilities.......................... (19) (21) (23)
------ ------ -----
Net cash provided by operating activities........... 402 1,025 831
Cash flows from investing activities:
Purchases of property and equipment.................... (304) (295) (107)
Proceeds from disposal of property and equipment....... 8 1
Advances to stockholders............................... (30) (155) (168)
Advances to affiliates................................. (151) (19) (181)
------ ------ -----
Net cash used in investing activities............... (477) (469) (455)
Cash flows from financing activities:
Net borrowings on line of credit....................... 300 383 400
Principal payments on capital lease obligations........ (207) (202) (225)
Proceeds from long-term debt........................... 470 57 18
Repayments on long-term debt........................... (990) (323) (142)
Proceeds from notes payable to stockholders............ 1,192 2
Repayments of notes payable to stockholders............ (849) (274) (236)
------ ------ -----
Net cash used in financing activities.................. (84) (357) (185)
------ ------ -----
Net increase (decrease) in cash and cash equivalents... (159) 199 191
Cash and cash equivalents--beginning of period......... 394 235 434
------ ------ -----
Cash and cash equivalents--end of period................ $ 235 $ 434 $ 625
====== ====== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............... $ 216 $ 231 $ 246
Cash paid during the period for income taxes........... $ 84 $ 242 $ 57
Supplemental disclosure of non-cash transactions:
Acquisition of vehicles under capital leases........... $ 174 $ 219 $ 379
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1947, United Wholesale Florists, Inc. and United Wholesale
Florists of America, Inc. (together the "Company") compose a wholesale
distributor of perishable floral products and floral-related hardgoods,
operating from 13 locations in Arkansas, Alabama, Mississippi, Oklahoma,
Tennessee and Texas. The Company purchases floral products from domestic
growers, importers, brokers and shippers and sells them to retail florists and
mass marketers.
The accompanying combined financial statements include the accounts of
United Wholesale Florists, Inc. ("UWF") and United Wholesale Florists of
America, Inc. ("UWFA") which are affiliated through common ownership and
management. All intercompany transactions have been eliminated in these
financial statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue Recognition
Income is recognized upon shipment of goods to the customer.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Inventories
Inventories consist of fresh-cut flowers and floral supplies and are valued
at the lower of cost or market. Cost is determined using the first-in, first-
out ("FIFO") method.
Property and Equipment
Property and equipment are stated at cost including the cost of additions
and improvements which materially increase the useful lives or values of the
assets. Depreciation is provided using straight-line and accelerated methods
over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life. Average useful lives are as follows: buildings and improvements--
8 to 30 years; and furniture and equipment--5 to 7 years. Amortization on
vehicles under capital leases is computed on a straight-line basis over the
estimated useful life of the vehicles (5 years).
Goodwill
Goodwill is being amortized by the straight-line basis over a 40 year
period. Accumulated amortization was $213 and $224 at June 30, 1996 and 1997,
respectively.
F-69
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At each balance sheet date, the Company assesses whether there has been an
impairment in the value of long-lived assets by determining whether projected
undiscounted future cash flows from operations of each facility (as defined in
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
exceeds its net book value as of the assessment date. At June 30, 1997, there
were no impairments of the Company's assets.
Other Assets
Other assets is comprised of organizational costs with a net value of $5 and
$0 at June 30, 1996 and 1997 and a non-compete agreement with a net value of
$57 and $31 as of June 30, 1996 and 1997, respectively. These amounts are
being amortized on a straight-line basis over a five and six year period,
respectively. Amortization expense was $31 for each of the years ended June
30, 1995, 1996 and 1997.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents, trade
accounts receivable and amounts due from related parties. The Company limits
the amounts of cash that is deposited in any one bank to ensure balances do
not exceed amounts insured by the Federal Deposit Insurance Corporation. Trade
receivables are not collateralized and accordingly, the Company performs
ongoing credit evaluations of its customers to minimize the risk of loss.
Stockholders' Equity
UWF has 200 shares of Class A, voting, $11 par value, common stock
authorized, issued and outstanding. There are also 800 shares of Class B,
nonvoting, $9.75 par value, common stock authorized, issued and outstanding.
UWFA has 1,000 shares of voting common stock, no par value, issued and
outstanding (2,000 shares authorized).
Income Taxes
UWF accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes are provided for the tax effects of temporary differences between the
financial reporting basis and income tax basis of the Company's assets and
liabilities.
UWFA has elected to be treated as an S Corporation for federal and state
income taxes and, accordingly, any liabilities for income taxes are the direct
responsibility of the stockholders. UWFA reports earnings for tax purposes
with a fiscal year ending on December 31. UWF is organized as a C Corporation
and maintains its financial records on a fiscal year ending on June 30.
F-70
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma income tax information included in the Combined
Statement of Operations is presented in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the Company
had been subject to federal income taxes for the entire periods presented.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCES AT
AT BEGINNING COSTS AND WRITE- END OF
OF PERIOD EXPENSES OFFS PERIOD
------------ ---------- ------ -----------
<S> <C> <C> <C> <C>
Year-ended June 30, 1995
allowance for doubtful
accounts..................... $21 $26 $(10) $37
Year-ended June 30, 1996
allowance for doubtful
accounts..................... $37 $16 $(37) $16
Year-ended June 30, 1997
allowance for doubtful
accounts..................... $16 $25 $(11) $30
</TABLE>
NOTE 4--INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Perishables.................................................... $ 138 $ 143
Hardgoods...................................................... 1,661 1,820
------ ------
$1,799 $1,963
====== ======
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1996 1997
------- -------
<S> <C> <C>
Land....................................................... $ 157 $ 157
Buildings and leasehold improvements....................... 1,414 1,426
Automobiles and delivery vehicles.......................... 1,253 1,321
Furniture, fixtures and equipment.......................... 1,349 1,438
------- -------
4,173 4,342
Accumulated depreciation and amortization.................. (2,371) (2,456)
------- -------
$ 1,802 $ 1,886
======= =======
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1995,
1996 and 1997 was $299, $368 and $401, respectively.
F-71
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--CREDIT FACILITIES
Short-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Line of credit arrangement collateralized by accounts
receivable and inventory, due May 1998, including interest at
a variable rate (8.5% at June 30, 1997)...................... $1,283 $1,683
====== ======
</TABLE>
In connection with the line of credit arrangement, the Company must maintain
a minimum net worth of $1,500,000, working capital of $500,000 and a ratio of
earnings before interest, taxes and depreciation to interest expense of 2 to
1. Additionally, if the Company is not in compliance with the restrictive
covenants or any other requirements contained in this debt instrument, the
Company is prohibited from making payments on obligations to its stockholders.
The Company was in compliance with its covenants, with the exception of the
working capital minimum, for which an appropriate waiver was obtained.
Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30,
-----------
1996 1997
---- -----
<S> <C> <C>
Various secured fixed payment notes payable to banks at
interest rates ranging from 7.5% to 12%, payments ranging
from $1 to $5 monthly; maturing from May 1996 to November
1999......................................................... $100 $ 33
Various secured notes payable to banks; interest payable
monthly at rates ranging from 9.25% to 10%; principal due at
maturity; maturing from June 1996 to November 1997........... 124 96
Unsecured notes payable to individuals arising from non-
compete agreements, due 1998................................. 66 37
Less: Current maturities...................................... (96) (104)
---- -----
$194 $ 62
==== =====
</TABLE>
Long-term principal maturities on notes payable over the next three years
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
-------------
<S> <C>
1998........................................................... $104
1999........................................................... 40
2000........................................................... 22
----
Total........................................................ $166
====
</TABLE>
F-72
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable to stockholders of $794 and $558 at June 30, 1996 and 1997,
respectively, are discussed in Note 8.
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1995 1996 1997
------------------- ------------------- -------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current......... $130 $24 $154 $59 $11 $70 $168 $31 $199
Deferred........ 14 3 17 21 4 25 5 1 6
---- --- ---- --- --- --- ---- --- ----
$144 $27 $171 $80 $15 $95 $173 $32 $205
==== === ==== === === === ==== === ====
</TABLE>
Net deferred tax asset (liability) is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------
1996 1997
---- ----
<S> <C> <C>
Allowance for doubtful accounts.................................. $ 6 $11
Inventory reserves............................................... 8 8
---- ---
Current deferred tax assets.................................... 14 19
Deferred compensation............................................ 32 23
Depreciation..................................................... (40) (42)
---- ---
Noncurrent deferred tax asset (liability)...................... (8) (19)
---- ---
Net deferred tax assets........................................ $ 6 $--
==== ===
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax rate
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income taxes of the statutory rate............... $125 35% $84 35% $240 35%
(Income) loss of S Corporation................... 22 6 (7) (3) (58) (8)
State income tax, net of federal benefit......... 18 5 10 4 21 3
Non-deductible goodwill amortization............. 4 1 4 2 4 1
Other............................................ 2 1 4 2 (2) (1)
---- --- --- --- ---- ---
$171 48% $95 40% $205 30%
==== === === === ==== ===
</TABLE>
NOTE 8--RELATED PARTY TRANSACTIONS
The Company makes advances to affiliates in the ordinary course of business.
Receivables from affiliates totaled $1,059 and $1,240 at June 30, 1996 and
1997, respectively. The advances bear interest at a rate of 8.5% per annum;
although no formal repayment terms exist. Interest income related to this
receivable for the years ended June 30, 1995, 1996 and 1997, was $87, $89 and
$80, respectively.
The Company makes advances to the stockholders. Receivables from
stockholders totaled $221 and $389 at June 30, 1996 and 1997, respectively.
The advances bear interest at a rate of 8.5% per annum although no formal
F-73
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
repayment terms exist. Interest income related to this receivable for the
years ended June 30, 1995, 1996 and 1997 was $5, $12 and $24, respectively.
The Company leases eight of its thirteen facilities from an affiliated
partnership, United Properties. Total rent expense related to these leases was
$206 in 1995 and $221 in 1996 and 1997, respectively.
During 1995, the Company entered into a lease for its corporate headquarters
from a partnership which is 50% owned by United Properties. Total lease
payments were $27 in 1995 and $81 in 1996 and 1997.
At June 30, 1995, 1996 and 1997, the Company has $1,066, $794 and $558,
respectively, payable to the stockholders of the Company. These obligations
bear interest at rates from 8% to 9.25%. Included in interest expense for the
years ended June 30, 1995, 1996 and 1997 was $102, $106 and $54, respectively,
of interest related to this obligation.
Principal maturities on these notes payable as of June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998.................................................................... $ 36
1999.................................................................... 40
2000.................................................................... 43
2001.................................................................... 47
Thereafter.............................................................. 392
----
$558
====
</TABLE>
NOTE 9--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its land sites and buildings for most of its stores and
office space for corporate operations under operating leases. These leases are
primarily with related party lessors (Note 8). Rent expense under all
operating leases was $245 for the year ended June 30, 1995 and $334 for both
of the years ended June 30, 1996 and 1997.
The Company leases its vehicle fleet under capital leases. The leases
generally include renewal options at varying terms. The book value and
corresponding accumulated depreciation for the vehicles under capital lease as
of June 30, 1996 are $1,186 and $768, and $1,252 and $675 as of June 30, 1997,
respectively. Depreciation expense of vehicles under capital lease for the
years ended June 30, 1995, 1996 and 1997 was approximately $184, $218 and
$220, respectively.
F-74
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Minimum lease payments under the noncancelable portion of capital and
operating leases at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- --------- -------
<S> <C> <C>
1998....................................................... $ 340 $ 255
1999....................................................... 340 206
2000....................................................... 313 116
2001....................................................... 259 14
Thereafter................................................. 259 --
------ -----
Future minimum lease payments.............................. $1,511 591
======
Imputed interest........................................... (97)
-----
Present value of minimum lease payments.................... 494
Current portion............................................ (200)
-----
Long-term portion.......................................... $ 294
=====
</TABLE>
Subsequent to the balance sheet date, the Company renewed its lease
agreements with a related party in six of its thirteen store locations. Terms
of the new leases are substantially the same to those which were in effect at
the balance sheet date.
Litigation
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 9--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholder entered into a definitive agreement with USA
Floral Products, Inc. ("USA Floral") pursuant to which the Company merged with
USA Floral. All outstanding shares of the Company were exchanged for cash and
shares of USA Floral common stock concurrent with the consummation of the
initial public offering of the common stock of USA Floral.
In conjunction with the merger all amounts Due from related parties and Due
from stockholders were repaid to the Company. Additionally, amounts Due to
stockholders were repaid by the Company.
F-75
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholder of
American Florist Supply, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of American Florist Supply, Inc. at
December 31, 1995 and 1996 and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
July 11, 1997
F-76
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 3 $ 4 $ 421
Accounts receivable, net........................... 1,339 1,460 1,379
Inventory.......................................... 39 65 91
Notes receivable--stockholder...................... 21 231
Prepaid expenses and other current assets.......... 28 30 25
------ ------ ------
Total current assets............................. 1,430 1,790 1,916
Property and equipment, net.......................... 311 278 289
Goodwill and intangibles, net........................ 327 298 287
Restricted investments............................... 25 26 27
Other assets......................................... 43 46 61
------ ------ ------
Total assets..................................... $2,136 $2,438 $2,580
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit..................................... $ 80 $ 302
Accounts payable................................... 687 709 $ 727
Accrued expenses................................... 75 147 158
Income taxes payable............................... 21 29 32
------ ------ ------
Total current liabilities........................ 863 1,187 917
Long-term debt....................................... 598 598 598
Other long-term liabilities.......................... 25 25 25
Commitments and contingencies (Note 11)
Stockholder's equity:
Common stock, no par value; 5,000 shares
authorized; 1,000 shares issued and outstanding... 400 400 400
Retained earnings.................................. 250 228 640
------ ------ ------
Total stockholder's equity....................... 650 628 1,040
------ ------ ------
Total liabilities and stockholder's equity....... $2,136 $2,438 $2,580
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $10,783 $11,679 $ 6,444 $ 7,082
Cost of sales............................ 7,788 8,268 4,458 4,793
------- ------- -------- --------
Gross margin......................... 2,995 3,411 1,986 2,289
Selling, general and administrative
expenses................................ 2,531 2,723 1,421 1,579
------- ------- -------- --------
Operating income..................... 464 688 565 710
Other (income) expense:
Interest expense....................... 42 43 20 25
Interest income........................ (4) (11) (3) (8)
Other, net............................. (14) (64) (43) (54)
------- ------- -------- --------
Income before income taxes............... 440 720 591 747
Provision for income taxes............... 17 37 30 36
------- ------- -------- --------
Net income............................... $ 423 $ 683 $ 561 $ 711
======= ======= ======== ========
Unaudited pro forma information:
Pro forma net income before provision
for income taxes...................... $ 440 $ 720 $ 591 $ 747
Provision for income taxes............. 176 288 236 299
------- ------- -------- --------
Pro forma income (see Note 2).......... $ 264 $ 432 $ 355 $ 448
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.............. 1,000 $400 $ 92 $ 492
Net income.............................. 423 423
Dividends paid.......................... (265) (265)
----- ---- ----- ------
Balance at December 31, 1995.............. 1,000 400 250 650
Net income.............................. 683 683
Dividends paid.......................... (705) (705)
----- ---- ----- ------
Balance at December 31, 1996.............. 1,000 400 228 628
Net income (unaudited).................. 711 711
Dividends paid (unaudited).............. (299) (299)
----- ---- ----- ------
Balance at June 30, 1997 (unaudited)...... 1,000 $400 $ 640 $1,040
===== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 423 $ 683 $ 561 $ 711
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 89 91 52 40
Loss on disposal of fixed assets....... 32 8 6
Changes in operating assets and
liabilities:
Accounts receivable................... (126) (121) 95 81
Inventory............................. (39) (26) (18) (26)
Prepaid expenses and other assets..... (1) (2) (11) (10)
Due from related parties.............. (16) (210) (20) 231
Accounts payable and accrued
expenses............................. (85) 94 43 29
Income taxes payable.................. 16 8 34 3
------- ------- ------- ---------
Net cash provided by operating
activities.......................... 293 525 736 1,065
Cash flows from investing activities:
Purchases of property and equipment..... (7) (45) (13) (50)
Equipment sale proceeds................. 2
Purchases of investments................ (2) (1) (1)
------- ------- ------- ---------
Net cash used in investing
activities.......................... (9) (44) (13) (51)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................... 1,576 1,861 589 1,773
Repayments on note payable.............. (1,595) (1,636) (669) (2,071)
Stockholder dividends................... (265) (705) (276) (299)
------- ------- ------- ---------
Net cash used in financing
activities.......................... (284) (480) (356) (597)
Net increase in cash and cash
equivalents............................. 1 367 417
Cash and cash equivalents--beginning of
period.................................. 3 3 3 4
------- ------- ------- ---------
Cash and cash equivalents--end of
period.................................. $ 3 $ 4 $ 370 $ 421
======= ======= ======= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................... $ 42 $ 43 $ 20 $ 20
Cash paid during the period for taxes... $ 15 $ 17 $ 11 $ 21
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
American Florist Supply, Inc. (the "Company") is a wholesale distributor of
perishable floral products and floral-related hardgoods, operating from one
location in Massachusetts. The Company purchases floral products from domestic
growers, brokers and importers and sells them to retail florists and mass
marketers in Maine, Massachusetts, Vermont and New Hampshire. The Company also
manufactures fresh cut floral bouquets and distributes them to supermarkets.
The Company was incorporated on April 11, 1994, as a result of the acquisition
of certain assets and liabilities of the distribution business of Johnson's
Roses, Inc.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 these estimates.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid short-term investments with maturities of three months or less
at date of purchase to be cash equivalents.
Inventory
Inventory consists of plants and supplies to be sold and is stated at the
lower of cost or market. Cost is determined on a first-in, first-out (FIFO)
basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets
(five to seven years). Leasehold improvements are amortized over the shorter
of the lease term or the estimated useful life.
F-81
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Goodwill and other intangible assets and related amortization are as
follows:
<TABLE>
<CAPTION>
OTHER
GOODWILL INTANGIBLES TOTAL
-------- ----------- -----
<S> <C> <C> <C>
Balance, December 31, 1994....................... $330 $26 $356
Additions......................................
Amortization................................... (21) (8) (29)
---- --- ----
Balance, December 31, 1995....................... 309 18 327
Additions......................................
Amortization................................... (21) (8) (29)
---- --- ----
Balance, December 31, 1996....................... $288 $10 $298
==== === ====
</TABLE>
Goodwill represents the excess of the cost of the acquired business over the
fair market value of the net tangible assets. Goodwill is being amortized on
the straight-line method over a period of 15 years. Other intangibles are
stated at cost and amortized on the straight-line method over a period of five
years. Management periodically evaluates the recoverability of goodwill, which
would be adjusted for a permanent decline in value, if any, by comparing
anticipated undiscounted future cash flows from operations to net book value.
Restricted Investments
The Company has set aside certain equity investments in an educational fund
for one of their key employees. The principal investment and all earnings on
this investment will be used to fund the Company's recorded obligation to pay
educational expenses for the employee's children in the future. The Company
has classified these investments as available-for-sale. The amounts presented
at December 31, 1995 and 1996 are at cost which approximates fair value of the
underlying investments.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
The Company has elected to be treated as an S Corporation for federal and
state income taxes and, accordingly, any liabilities for income taxes are the
direct responsibility of the stockholder. No provision for federal income tax
is required. The Commonwealth of Massachusetts, which is the Company's
principal place of business, imposes a corporate level state income tax on
certain S Corporations which has been provided for.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1996, the
financial reporting bases of the Company's net assets exceeds the tax basis by
approximately $50.
F-82
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to applicable federal and state income taxes for the entire periods
presented.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company as of June 30, 1997 and
the results of operations and cash flows for the six months ended June 30,
1996 and 1997 as presented in the accompanying unaudited interim financial
statements.
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND WRITE- AT END
OF PERIOD EXPENSES OFFS OF PERIOD
---------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1995......... $48 $58 $(58) $48
Year ended December 31, 1996......... $48 $48
</TABLE>
NOTE 4--ACQUISITION
The Company acquired certain assets and liabilities of the distribution
business of Johnson's Roses, Inc. on April 11, 1994 under the terms defined in
an Asset Purchase Agreement (the "Agreement"). The final purchase price,
payable to Johnson's Roses, Inc. was $1,284 and consisted of $686.5 in cash
and a subordinated promissory note for principal of $597.5. The acquisition
was accounted for under the purchase method of accounting and the results of
operations have been included from the date of acquisition.
As part of the Agreement with Johnson's Roses, Inc. (the Seller), the
Company has the exclusive right and obligation to buy the Seller's
domestically graded roses at fixed prices through December 1998. See
commitments footnote (Note 11).
NOTE 5--INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Perishables........................................................ $12 $19
Hardgoods.......................................................... 27 46
--- ---
$39 $65
=== ===
</TABLE>
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Machinery and equipment...................................... $ 243 $ 255
Office equipment............................................. 122 127
Furniture, fixtures and equipment............................ 38 38
------ ------
403 420
Accumulated depreciation and amortization.................... (92) (142)
------ ------
$ 311 $ 278
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 was $65
and $67, respectively.
F-83
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--RELATED PARTIES
Notes receivable--stockholder consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Unsecured note, due on demand, with interest at 8.5%.............. $186
Unsecured note, due on demand, with no state interest rate........ $17 42
--- ----
$17 $228
=== ====
</TABLE>
Related Party Purchases
The Company's stockholder's spouse is the sole stockholder of Farm Direct
Flowers, Inc. Farm Direct Flowers, Inc. has a direct interest in Meadow
Flower-Meflor C. LTDA (Meadow Flowers), a rose farm in Ecuador. The Company's
stockholder is also a Director of Meadow Flowers. The Company purchased $2 and
$135 of merchandise from Meadow Flowers during 1995 and 1996, respectively.
These transactions were at arms-length prices. This relationship provides the
Company with the opportunity for access to roses as well as other various
types of flowers.
NOTE 8--CREDIT FACILITIES
Line of Credit
The Company has a revolving line of credit with a commercial bank for
borrowings up to $600. Interest accrues at 1/4% over the bank's base rate
(9.5% and 9% at December 31, 1995 and 1996, respectively) and is payable
quarterly in arrears. The note matures on April 30, 1998 and provides for a
commitment fee payable quarterly, computed as 1/4% of the average unused
facility during the quarter. The note is secured by a first priority perfected
security interest in all assets of the Company. Outstanding balances on the
line were $80 and $302 as of December 31, 1995 and 1996, respectively.
The Company's current credit facility contains financial and operating
covenants which, among other things, requires the Company to maintain
prescribed levels of tangible net worth and ratios of liabilities to net
worth. As of December 31, 1995 and 1996, the Company was in compliance in the
performance of its obligations with respect to the covenants.
Long-Term Debt
The Company has a promissory note payable to Johnson's Roses, Inc. due May
2, 1999 in the amount of $597.5, on which interest accrues at 6% and is
payable quarterly in arrears. The note is secured by a subordinated security
interest in all of the assets of the Company. Under the terms of the
Agreement, beginning in 1996, the Company is required to make mandatory pre-
payments of principal equal to 50% of the excess cash flow of the Company for
the year then ended subject to the approval of the commercial bank described
above. No such pre-payments have been made through December 31, 1996.
NOTE 9--EMPLOYEE BENEFIT PLAN
The Company has established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code. All employees are eligible to
participate in the plan subject to certain requirements. Employees can
contribute up to 15% of their gross salary to the plan. In addition, the plan
provides for discretionary Company contributions. Company contributions to the
plan for the year ended December 31, 1996 were $76.
F-84
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LEASES
The Company leases office space, computers and trucks used in the delivery
of orders to customers under various agreements classified as operating
leases. Rent expense under these operating leases for 1995 and 1996 were
approximately $230 and $267, respectively. The leases expire in years 1997
through 2001.
The aggregate future minimum rentals under these operating leases are as
follows:
<TABLE>
<S> <C>
1997.................................................................... $235
1998.................................................................... 196
1999.................................................................... 73
2000.................................................................... 37
2001.................................................................... 9
----
$550
====
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES
Purchase Commitment
The Company is committed to pay the actual costs of Johnson's Roses, Inc.
rose growing operations in return for the exclusive rights to their roses. The
term of the contract is from November 1, 1995 to December 31, 1998; however,
the Company may cancel the contract earlier, provided that six months prior
written notification is given to Johnson Roses. Costs paid to Johnson's Roses
were approximately $1 million for each of the years ended 1995 and 1996.
Prices paid under this contract may be higher than those obtainable from other
suppliers.
Deferred Compensation Plan
The Company has a deferred compensation plan for one of the key executives.
The deferred compensation plan stipulates that if the executive remains in
continuous employment of the Company until age 65, then upon retirement the
Company shall pay the executive the full proceeds from a life insurance
policy. Payments of the sum specified shall be made in 120 equal monthly
payments. The cash surrender value of the life insurance policy is
approximately $40 as of December 31, and 1996 and is reflected on the
Company's balance sheet within other assets.
NOTE 12--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholder entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were exchanged
for cash concurrent with the consummation of the initial public offering of
the common stock of USA Floral. Pursuant to the definitive agreement, the
Company's shareholders may receive additional consideration in the form of
shares of USA Floral's common stock based upon 1997 earnings.
In conjunction with the merger the amounts outstanding under Notes
Receivable from stockholders were paid to the Company.
F-85
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Monterey Bay Bouquet, Inc. and
Bay Area Bouquets, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Monterey
Bay Bouquet, Inc. and Bay Area Bouquets, Inc. (the "Company") at December 31,
1995 and 1996, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-86
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 34 $ 19 $ 319
Accounts receivable................................ 673 909 912
Inventory.......................................... 138 126 181
Prepaid expenses and other current assets.......... 8 9 28
------ ------ ------
Total current assets............................. 853 1,063 1,440
Property and equipment, net.......................... 158 144 175
Other assets:
Cash surrender value--life insurance............... 43 73 88
Intangibles........................................ 47 41
Advances to stockholders........................... 52
Other.............................................. 36
------ ------ ------
Total assets..................................... $1,101 $1,321 $1,791
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line payable................................ $ 100 $ 49 $ 50
Current maturities of long-term debt............... 20 6 34
Accounts payable................................... 591 783 737
Accrued expenses................................... 81 167 47
Notes payable to officers and stockholders......... 47 10
Income taxes payable............................... 3 12 254
------ ------ ------
Total current liabilities........................ 842 1,027 1,122
Long-term debt, net of current maturities............ 30 24 36
Growers contract--related party...................... 48 41
Other long-term liabilities.......................... 37
------ ------ ------
Total liabilities................................ 920 1,092 1,195
Commitments and contingencies
Stockholders' equity:
Common stock, Monterey Bay Bouquet, Inc., no par
value; 1,000,000 shares authorized; 102,502 shares
issued and outstanding............................ 78 78 78
Common stock, Bay Area Bouquets, Inc., no par
value; 1,000 shares authorized; 100 shares issued
and outstanding................................... 25 25 25
Retained earnings.................................. 78 126 493
------ ------ ------
Total stockholders' equity....................... 181 229 596
------ ------ ------
Total liabilities and stockholders' equity....... $1,101 $1,321 $1,791
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $6,903 $9,477 $ 4,827 $ 6,803
Cost of sales............................. 5,959 8,285 4,166 5,575
------ ------ -------- --------
Gross margin.......................... 944 1,192 661 1,228
Selling, general and administrative
expenses................................. 910 1,113 496 563
------ ------ -------- --------
Operating income...................... 34 79 165 665
Other (income) expense:
Interest expense........................ 13 15 5 8
Other, net.............................. (9) (8) (9) (4)
------ ------ -------- --------
Income before provision for income taxes.. 30 72 169 661
Provision for income taxes................ 10 24 69 294
------ ------ -------- --------
Net income................................ $ 20 $ 48 $ 100 $ 367
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-88
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------- ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............. 102,502 $ 78 $ 58 $136
Net income............................. 20 20
Issuance of common stock, Bay Area
Bouquets, Inc......................... 100 25 25
------- ---- ---- ----
Balance at December 31, 1995............. 102,602 103 78 181
Net income............................. 48 48
------- ---- ---- ----
Balance at December 31, 1996............. 102,602 103 126 229
Net income (unaudited)................. 367 367
------- ---- ---- ----
Balance at June 30, 1997 (unaudited)..... 102,602 $103 $493 $596
======= ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-89
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- ------------
1995 1996 1996 1997
------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 20 $ 48 $ 100 $ 367
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 64 87 2 41
Change in deferred income taxes................ 1 (3) 69
Change in operating assets and liabilities:
Accounts receivable........................... (157) (236) 95 (3)
Inventory..................................... (51) 12 84 (55)
Prepaid expenses and other current assets..... (6) (1) (16) (19)
Income taxes payable.......................... 6 12 1 243
Accounts payable and accrued expenses......... 180 278 (193) (171)
Grower contract............................... (8) (2)
------ ------ ----- -----
Net cash provided by operating activities.... 57 189 140 403
Cash flows from investing activities:
Purchases of property and equipment............. (97) (63) (32) (67)
Cash surrender value of life insurance.......... (15) (15)
Increase in officer receivable.................. (30) (30) (70)
Increase in intangibles......................... (12) (3)
------ ------ ----- -----
Net cash used in investing activities........ (139) (96) (117) (82)
Cash flows from financing activities:
Advances to stockholder......................... (28) (37) (52)
Proceeds from issuance of common stock.......... 25
Net borrowings (repayments) on line of credit... 19 (51) (30) 1
Repayments from related parties................. 14
Proceeds from issuance of long-term debt........ 40 3
Repayments of long-term debt.................... (29) (20) (10)
Proceeds from stockholder loans................. 75 5 27
------ ------ ----- -----
Net cash (used in) provided by financing
activities.................................. 116 (108) (35) (21)
Net increase (decrease) in cash and cash
equivalents..................................... 34 (15) (12) 300
Cash and cash equivalents--beginning of period... 34 34 19
------ ------ ----- -----
Cash and cash equivalents--end of period......... $ 34 $ 19 $ 22 $ 319
====== ====== ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........ $ 13 $ 15 $ 4 $ 8
Cash paid during the period for income taxes.... $ 4 $ 14 $ 3
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-90
<PAGE>
MONTEREY BAY BOUQUET, INC. AND BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1993, Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc.
(together the "Company") is a manufacturer of fresh cut flower bouquets
operating from one location in California. The Company purchases flowers from
importers and domestic growers and distributes them to a supermarket and a
discount retailer, each of which has locations throughout the southwestern
United States. The flower bouquets produced by the Company consist primarily
of specialty California-grown flowers.
The balance sheets and operating results for Monterey Bay Bouquet, Inc. and
Bay Area Bouquets, Inc. have been combined, as both companies have common
ownership and management. All intercompany sales and balances between the two
companies have been eliminated from these financial statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue Recognition
Income is recognized when flower bouquets are delivered to the customer.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, with costs determined on
a first-in, first-out (FIFO) basis. Inventory consists of fresh flowers and
miscellaneous bouquet supplies.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
the double declining balance method over the estimated useful lives of the
related assets (five to seven years). Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful life.
Intangibles
Intangible assets include the costs incurred for the start up and
incorporation of both Monterey Bay Bouquet, Inc. and Bay Area Bouquets, Inc.
and are being amortized over five years. Accumulated amortization of
intangible assets at December 31, 1995 and 1996 was $16 and $25, respectively.
F-91
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, insurance receivable, accrued
expenses and short-term debt approximates fair value because of the short
maturity of these instruments. The estimated fair value of long-term debt and
other long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market rates
for debt with similar terms and average maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collaterialized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
The Company is a C Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments. necessary for a fair
presentation of the financial position of the Company as of June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
1996 and 1997 as presented in the accompanying unaudited interim financial
statements.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Leasehold improvements....................................... $ 41 $ 59
Equipment.................................................... 80 127
Vehicles..................................................... 127 130
------ ------
248 316
Accumulated depreciation and amortization.................... (90) (172)
------ ------
$ 158 $ 144
====== ======
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1995
and 1996 was $58 and $78, respectively.
NOTE 4--CREDIT FACILITIES
Short-Term Debt
The Company's unsecured revolving line of credit, which expires in July
1997, provides for direct borrowings of up to $100 and $50 in 1995 and 1996,
respectively, and bears interest at the prime rate plus 1 3/4%
F-92
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(8.5% and 8.25% at December 31, 1995 and 1996, respectively). The prime rate
was 8.50% and 8.25% as of December 31, 1995 and 1996, respectively. Monthly
payment of interest only is required. The outstanding balance on this line of
credit was $100 and $49 at December 31, 1995 and 1996, respectively.
Long-Term Debt
Outstanding long-term debt consists of the following capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Car lease; monthly principal and interest payments of $.5
through July 1997, interest at 7.9%........................ $ 8 $ 3
Car lease; monthly principal and interest payments of $.4
through February 1999, interest at 8.5%.................... 13 8
Car lease; monthly principal and interest payments of $1
through June 1999, interest at 12.5%....................... 27 19
Equipment lease; monthly principal and interest payments of
$.6 through April 1996, interest at 10%.................... 2 0
------ -----
50 30
Less: Current maturities ................................... (20) (6)
------ -----
$ 30 $ 24
====== =====
</TABLE>
Principal maturities on notes payable over the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................ $13
1998............................................................ 12
1999............................................................ 5
---
Total......................................................... $30
===
</TABLE>
NOTE 5--INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Current expense:
State...................................................... $ 3 $ 7
Federal.................................................... 7 17
------ ------
Total income tax provision............................... $ 10 $ 24
====== ======
</TABLE>
F-93
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the U.S. statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Statutory federal tax rate................................... 34.0% 34.0%
State taxes, net of federal benefit.......................... 1.4 1.4
Rate differentials........................................... (2.0) (2.2)
------ ------
33.4% 33.2%
====== ======
</TABLE>
Composition of deferred taxes has not been presented as amounts are
insignificant.
NOTE 6--RELATED PARTY TRANSACTIONS
The Company has leased its operating premises from the three stockholders of
the Company since April 1996. Rent paid to these stockholders was $70 for the
year ended December 31, 1996.
There is a net loan payable to the three stockholders in the amount of $47
and $10 for the years ended December 31, 1995 and 1996, respectively. Interest
is at a rate of 10% per annum and is due upon demand.
Consulting fees were paid to the stockholders in the amounts of $92 and $182
for the years ended December 31, 1995 and 1996, respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Minimum lease payments under capital and noncancellable operating leases at
December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997....................................................... $16 $135
1998....................................................... 14 144
1999....................................................... 5 144
2000....................................................... --
2001....................................................... --
Thereafter................................................. --
--- ----
Total minimum lease payments........................... 35 $423
====
Less: Amounts representing interest.................... (5)
---
Present value of net minimum lease payments............ $30
===
</TABLE>
The Company entered into a new non-cancelable operating lease on April 1,
1997 with the owners of the Company's operating premises, the stockholders.
Under the terms of the lease, monthly rental of $12 is payable until the
leases expire in December 31, 1999.
In June 1997, the Company entered into capital leases for the purchase of
three delivery trucks. Under the terms of these capital leases monthly lease
payments of $6 are payable between June 1997 and until the leases expire in
June 2000.
F-94
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
Grower Contract
The Company has entered into a contract with a grower who is also a
stockholder in the Company. The stockholder gave the Company cash up front in
exchange for a commitment from the Company to purchase product from the
stockholder. The contract, although due to expire in 2005, will be terminated
in 1997. Income realized for the years ended December 31, 1995 and 1996 was $8
and $8, respectively.
NOTE 8--SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Sales to customers that exceeded 10% of total revenues were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Customer A.................................................... 65% 58%
Customer B.................................................... 33% 39%
</TABLE>
Additionally, these customers represented 95% and 97% of accounts receivable
at December 31, 1995 and 1996, respectively. Both customers are national
publicly traded companies with multiple purchase divisions.
NOTE 9--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were exchanged
for cash concurrent with the consummation of the initial public offering of
the common stock of USA Floral. Pursuant to the definitive agreement, the
Company's shareholders may receive additional consideration of $500 in cash
and additional shares of USA Floral's common stock based upon 1997 earnings.
In conjunction with the merger, all amounts due from related parties and all
amounts due from stockholders were repaid to the Company.
The Company's line of credit was renewed in July 1997.
F-95
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Alpine Gem Flower Shippers, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Alpine Gem Flower Shippers, Inc.
at December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 20, 1997
F-96
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 162 $ 1 $ 131
Accounts receivable............................... 1,070 1,215 1,441
Prepaid expenses and other current assets......... 19 18 20
------ ------ ------
Total current assets............................ 1,251 1,234 1,592
Property and equipment, net......................... 18 26 23
------ ------ ------
Total assets.................................... $1,269 $1,260 $1,615
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 357 $ 469 $ 632
Commissions payable............................... 147 168 198
Accrued expenses.................................. 16 14 15
------ ------ ------
Total liabilities............................... 520 651 845
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 50,000 shares
authorized; 20,000 shares issued and
outstanding...................................... 727 727 727
Retained earnings (deficit)....................... 22 (118) 43
------ ------ ------
Total stockholders' equity...................... 749 609 770
------ ------ ------
Total liabilities and stockholders' equity...... $1,269 $1,260 $1,615
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.................................. $8,139 $9,334 $ 4,979 $ 5,597
Cost of sales.............................. 6,287 7,132 3,840 4,259
------ ------ -------- --------
Gross margin........................... 1,852 2,202 1,139 1,338
Selling, general and administrative
expenses.................................. 1,526 1,868 802 902
------ ------ -------- --------
Operating income....................... 326 334 337 436
Other (income) expense:
Interest income.......................... (35) (41) (20) (17)
Other, net............................... (12) (13) 1 (9)
------ ------ -------- --------
Net income................................. $ 373 $ 388 $ 356 $ 462
====== ====== ======== ========
Unaudited pro forma information:
Pro forma net income before provision for
income taxes............................ $ 373 $ 388 $ 356 $ 462
Provision for income taxes............... 149 155 142 185
------ ------ -------- --------
Pro forma income (see Note 2)............ $ 224 $ 233 $ 214 $ 277
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.............. 20,000 $727 $ (59) $ 668
Net income.............................. 373 373
Dividends paid.......................... (292) (292)
------ ---- ----- -----
Balance at December 31, 1995.............. 20,000 727 22 749
Net income.............................. 388 388
Dividends paid.......................... (528) (528)
------ ---- ----- -----
Balance at December 31, 1996.............. 20,000 727 (118) 609
Net income (unaudited).................. 462 462
Dividends paid (unaudited).............. (301) (301)
------ ---- ----- -----
Balance at June 30, 1997 (unaudited)...... 20,000 $727 $ 43 $ 770
====== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- ------------
1995 1996 1996 1997
------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 373 $ 388 $ 356 $ 462
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 13 27 13 4
Change in operating assets and liabilities:
Accounts receivable........................... (266) (145) (201) (226)
Prepaid expenses and other current assets..... (5) 1 (10) (2)
Accounts payable and accrued expenses......... 79 131 164 194
------ ------ ----- -----
Net cash provided by operating activities.... 194 402 322 432
Cash flows from investing activities:
Purchases of property and equipment............. (3) (40) (31) (1)
Proceeds from disposal of property and
equipment...................................... 5
------ ------ ----- -----
Net cash used in investing activities........ (3) (35) (31) (1)
Cash flows from financing activities:
Proceeds from short-term loan from
stockholders...................................
Stockholder dividends........................... (292) (528) (67) (301)
------ ------ ----- -----
Net cash (used in) provided by financing
activities.................................. (292) (528) (67) (301)
Net increase (decrease) in cash and cash
equivalents..................................... (101) (161) 224 130
Cash and cash equivalents--beginning of period... 263 162 162 1
------ ------ ----- -----
Cash and cash equivalents--end of period......... $ 162 $ 1 $ 386 $ 131
====== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Founded in 1972, Alpine Gem Flower Shippers, Inc. (the "Company") is a
broker and shipper of perishable floral products, operating from two locations
in Montana and California. The Company distributes primarily to wholesalers
throughout the United States.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue Recognition
The Company recognizes revenue from product sales when the goods are shipped
to its customers.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets
(five to seven years).
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable and accrued expenses approximates
fair value because of the short maturity of these instruments.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collateralized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss.
Income Taxes
The Company has elected to be treated as a cash basis S Corporation for
federal and state income taxes and, accordingly, any liabilities for income
taxes are the direct responsibility of the stockholders.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities primarily related to accounts
receivable and accounts payable. At December 31, 1996, the Company's net
assets for financial reporting purposes exceeds the tax basis by approximately
$745. In conjunction with the proposed merger with USA Floral, the Company's S
Corporation election will terminate
F-101
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and the net difference between the book and tax bases of assets at that date
will be immediately recognized in the financial statements.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company as of June 30, 1997 and
of the results of operations and cash flows for the six months ended June 30,
1996 and 1997 as presented in the accompanying unaudited interim financial
statements.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Equipment.................................................... $ 136 $ 163
Accumulated depreciation..................................... (117) (137)
------ ------
$ 19 $ 26
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 was $13
and $27, respectively.
NOTE 4--RELATED PARTY TRANSACTIONS
The Company rents office space from the stockholders of Alpine Gem for the
years ended 1995 and 1996, total rent payments made were $18.
In March 1997, the Company borrowed $100 from the stockholders which was
repaid in full in May 1997.
NOTE 5--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company occupies premises under one noncancelable operating lease which
expires on December 31, 1998. At December 31, 1996, future minimum rental
payments under this lease arrangement are as follows:
<TABLE>
<S> <C>
1997................................................................... $114
1998................................................................... 111
----
Total minimum lease payments......................................... $225
====
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 was $82 and
$179, respectively.
F-102
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position or
results of operations or cash flows of the Company.
NOTE 6--UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholders entered into a definitive agreement with
U.S.A. Floral Products, Inc. ("USA Floral") pursuant to which the Company
merged with USA Floral. All outstanding shares of the Company were exchanged
for cash and shares of USA Floral common stock concurrent with the
consummation of initial public offering of the common stock of USA Floral.
F-103
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and other
estimated expenses expected to be incurred in connection with issuance and
distribution of securities being registered. All such fees and expenses shall
be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ............ $ 66,965
Nasdaq National Market Listing Fee.............................. 17,500
Legal Fees and Expenses......................................... 10,000
Miscellaneous................................................... 5,535
--------
Total......................................................... $100,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of
directors to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty, except for liability (a) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Article 10 of the registrant's Certificate of Incorporation provides that the
personal liability of directors of the registrant is eliminated to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in
accordance with the applicable standard of conduct set forth in such statutory
provision. Article 7 of the registrant's Bylaws provides that the registrant
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses. Article 7 further permits the registrant to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the registrant, or is or was serving at the request of
the registrant as a director, officer, employee or agent of another entity,
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of his status as such, whether or not the
registrant would have the power to indemnify such person against such
liability under the DGCL. The registrant maintains directors' and officers'
liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 22, 1997 the registrant sold 1,000,000 shares of its common stock
to Robert J. Poirier in an organizational subscription for aggregate cash
consideration of $1,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 22, 1997 the registrant sold 1,000,000 shares of its common stock
to Jonathan Ledecky in an organizational subscription for aggregate cash
consideration of $1,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
II-1
<PAGE>
On April 23, 1997, the registrant sold 100,000 shares of its common stock to
Jonathan Ledecky in an organizational subscription for aggregate cash
consideration of $100,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 23, 1997, the registrant sold 100,000 shares of its common stock to
Dewey K. Shay in an organizational subscription for aggregate cash
consideration of $100,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On April 23, 1997, the registrant sold 100,000 shares of its common stock to
Edward J. Mathias in an organizational subscription for aggregate cash
consideration of $100,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On May 8, 1997, the registrant sold 25,000 shares of its common stock to Mark
Ein in an organizational subscription for aggregate cash consideration of
$25,000. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
On May 10, 1997, the registrant sold 25,000 shares of its common stock to
John A. Quelch in an organizational subscription for aggregate cash
consideration of $25,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On May 25, 1997, the registrant sold 50,000 shares of its common stock to
Joanne C. McClure in an organizational subscription for aggregate cash
consideration of $50,000. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with CFX, Inc. ("CFX"), Floral Acquisition
Corporation and Dwight Haight, James A. Hill and Michael Grover, pursuant to
which the registrant has agreed to issue 250,000 shares of its Common Stock, as
partial consideration for the merger of a wholly-owned subsidiary of the
registrant with and into CFX. Pursuant to the Agreement and Plan of
Contribution, the Company has agreed to grant options to purchase that number
of shares of Common Stock equal to 6.25% of the Consideration (as defined in
the Agreement and Plan of Contribution) to certain employees of CFX following
consummation of the merger. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
As of August 6, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Bay State Florist Supply ("Bay State"),
and BSF Acquisition Corp., pursuant to which the registrant has agreed to issue
495,550 shares of its Common Stock, as partial consideration for the merger of
a wholly-owned subsidiary of the registrant with and into Bay State. Pursuant
to the Agreement and Plan of Contribution, the Company has agreed to grant
options to purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) to certain
employees of Bay State following consummation of the merger. The transaction
was intended to be exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Alpine Gem Flower Shippers, Inc.
("Alpine Gem"), AGFS Acquisition Corp. and John Q. Graham, Jr. and Diane
Lizotte-Graham, pursuant to which the registrant has agreed to issue 160,000
shares of its Common Stock, as partial consideration for the merger of a
wholly-owned subsidiary of the registrant with and into Alpine Gem. Pursuant to
the Agreement and Plan of Contribution, the Company has agreed to grant options
to purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) to certain
employees of Alpine Gem following consummation of the merger. The transaction
was intended to be exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof.
As of August 4, 1997, the registrant entered into an Agreement and Plan of
Contribution with United Wholesale Florists, Inc., United Wholesale Florists of
America, Inc., UWF Acquisition Corp., UWFA
II-2
<PAGE>
Acquisition Corp. and G. Warren Stephenson and Raymond R. Ashmore, pursuant to
which the registrant has agreed to issue 268,500 shares of its Common Stock as
partial consideration for the merger of wholly-owned subsidiaries of the
registrant with and into "United Wholesale" (as defined in the Prospectus).
Pursuant to the Agreement and Plan of Contribution, the Company has agreed to
grant options to purchase that number of shares of Common Stock equal to 6.25%
of the Consideration (as defined in the Agreement and Plan of Contribution) to
certain employees of United Wholesale following consummation of the merger. The
transaction was intended to be exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with The Roy Houff Company ("Houff"), RHI
Acquisition Corp. and Roy O. Houff, pursuant to which the registrant has agreed
to grant options to purchase that number of shares of Common Stock equal to
6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) to certain employees of Houff following consummation of the
merger. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Agreement and Plan of
Contribution with American Florist Supply, Inc., AFS Acquisition Corp. and John
T. Dickinson, pursuant to which the registrant has agreed (i) to grant options
to purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) and (ii)
to issue up to that number of shares of Common Stock with an aggregate value of
up to $2,400,000 pursuant to an earn-out arrangement. The transaction was
intended to be exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Monterey Bay Bouquet, Inc., Bay Area
Bouquets, Inc., USA Floral Acquisition Co. and Jeffrey Brothers, Philip Buran
and Douglas Anderson, pursuant to which the registrant has agreed to (i) grant
options to purchase that number of shares of Common Stock equal to 6.25% of the
Consideration (as defined in the Agreement and Plan of Contribution) to certain
employees of Monterey Bay following consummation of the merger and (ii) to
issue up to that number of shares of Common Stock with an aggregate value of up
to $3,000,000 pursuant to an earn-out arrangement. The transaction was intended
to be exempt from the registration requirements of the Securities Act by virtue
of Section 4(2) thereof.
As of August 4, 1997, the registrant entered into an Agreement and Plan of
Contribution with Flower Trading Corporation, Flowtrad Corporation N.V., FT
Acquisition Corp., Gustavo Moreno, Seacross Trading, Inc. and Alvaro
McAllister, pursuant to which the registrant has agreed to issue 160,000 shares
of its Common Stock as partial consideration for the merger of a wholly-owned
subsidiary of the registrant with and into "Flower Trading" (as defined in the
Prospectus). Pursuant to the Agreement and Plan of Contribution, the Company
has agreed to grant options to purchase that number of shares of Common Stock
equal to 6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) to certain employees of Flower Trading following consummation of
the merger. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
On August 6, 1997, the registrant granted Jonathan Ledecky an option to
purchase 110,000 shares of Common Stock at an exercise price equal to the
initial public offering price. The transaction was intended to be exempt from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
On October 9, 1997 the registrant sold 110,000 shares of its common stock to
Jonathan Ledecky for aggregate cash consideration of 1,430,000, upon exercise
of the above-described option. The transaction was intended to be exempt from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-33131)
------- ----------- ----------------------
<C> <S> <C>
3.01 Certificate of Incorporation of U.S.A. Floral 3.01
Products, Inc., as amended.
3.02 Amended and Restated Bylaws of U.S.A. Floral 3.02
Products, Inc.
5.01 Opinion of Morgan, Lewis & Bockius LLP as to
the legality of the securities being
registered.*
10.01 Amended and Restated Agreement and Plan of 10.01
Contribution by and among U.S.A. Floral
Products, Inc., RHI Acquisition Corp., The
Roy Houff Company and Roy O. Houff, dated as
of August 5, 1997.
10.02 Amended and Restated Agreement and Plan of 10.02
Contribution by and among U.S.A. Floral
Products, Inc., Floral Acquisition Corp.,
CFX, Inc. and Dwight Haight, James A. Hill
and Michael Grover, dated as of August 5,
1997.
10.03 Amended and Restated Agreement and Plan of 10.03
Contribution by and among U.S.A. Floral
Products, Inc., BSF Acquisition Corp. and
Bay State Florist Supply, dated as of August
6, 1997.
10.04 Amended and Restated Agreement and Plan of 10.04
Contribution by and among U.S.A. Floral
Products, Inc., USA Floral Acquisition Co.,
Monterey Bay Bouquet, Inc. and Bay Area
Bouquets, Inc., and Jeffrey Brothers, Philip
Buran and Douglas Anderson, dated as August
5, 1997.
10.05 Amended and Restated Agreement and Plan of 10.05
Contribution by and among U.S.A. Floral
Products, Inc., AGFS Acquisition Corp.,
Alpine Gem Flower Shippers, Inc., John Q.
Graham, Jr. and Diane Lizotte-Graham, dated
as of August 5, 1997.
10.06 Agreement and Plan of Contribution by and 10.06
among U.S.A. Floral Products, Inc., United
Wholesale Florists, Inc., United Wholesale
Florists of America, Inc., UWF Acquisition
Corp., UWFA Acquisition Corp. and G. Warren
Stephenson and Raymond R. Ashmore, dated as
of August 4, 1997.
10.07 Amended and Restated Agreement and Plan of 10.07
Contribution by and among U.S.A. Floral
Products, Inc., American Florist Supply,
Inc., AFS Acquisition Corp. and John T.
Dickinson, dated as of August 5, 1997.
10.08 Agreement and Plan of Contribution by and 10.08
among U.S.A. Floral Products, Inc., FT
Acquisition Corporation, Flower Trading
Corporation, Flowtrad Corporation N.V. and
the stockholders of Flowtrad Corporation
N.V., dated as of August 4, 1997.
</TABLE>
- --------
*Filed herewith.
II-4
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-33131)
------- ----------- ----------------------
<C> <S> <C>
10.09(a) Employment Agreement between U.S.A. Floral 10.09(a)
Products, Inc. and Robert Poirier, dated
as of April 22, 1997.
10.09(b) Amendment No. 1 to Employment Agreement 10.09(b)
between U.S.A. Floral Products, Inc. and
Robert Poirier, dated August 6, 1997.
10.10 U.S.A. Floral Products, Inc. 1997 Long-Term 10.10
Incentive Plan.
10.11 U.S.A. Floral Products, Inc. 1997 Non- 10.11
Employee Directors' Stock Plan.
10.12 U.S.A. Floral Products, Inc. 1997 Employee 10.12
Stock Purchase Plan.
10.13 Employment Agreement between U.S.A. Floral
Products, Inc. and Raymond C. Anderson.*
10.14 Employment Agreement between The Roy Houff
Company and Roy O. Houff, dated October
16, 1997.*
10.15 Employment Agreement between CFX, Inc. and
Dwight Haight, dated October 16, 1997.*
10.16 Employment Agreement between Bay State
Florist Supply, Inc. and William W.
Rudolph, dated October 16, 1997.*
10.17 Employment Agreement between Monterey Bay
Bouquet, Inc. and Jeffrey Brothers, dated
October 16, 1997.*
10.18 Employment Agreement between Alpine Gem
Flower Shippers, Inc. and John Q. Graham,
Jr., dated October 16, 1997.*
10.19 Employment Agreement between United
Wholesale Florists, Inc. and Raymond R.
Ashmore, dated October 16, 1997.*
10.20 Employment Agreement between American
Florist Supply, Inc. and John T.
Dickinson, dated October 16, 1997.*
10.21 Employment Agreement between Flower Trading
Corporation and Gustavo Moreno, dated
October 16, 1997.*
10.22 Registration Rights Agreement, dated as of 10.22
July 25, 1997, among U.S.A. Floral
Products, Inc. and certain stockholders
named therein.
10.23 Credit Agreement among U.S.A. Floral
Products, Inc., various Lending
Institutions and Bankers Trust Company, as
Agent, dated as of October 16, 1997.
23.01 Consent of Price Waterhouse LLP.*
23.02 Consent of Madsen, Sapp, Mena, Rodriguez &
Co., P.A.*
23.03 Consent of Morgan, Lewis & Bockius LLP
(included in opinion filed as Exhibit
5.1).*
24.01 Power of Attorney (included on signature
page of this registration statement).
27.01 Financial Data Schedule.*
99.01 Consent of Roy O. Houff as a person named
to become a director.*
99.02 Consent of Dwight Haight as a person named
to become a director.*
99.03 Consent of William W. Rudolph as a person
named to become a director.*
</TABLE>
- --------
*Filed herewith.
II-5
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-33131)
------- ----------- ----------------------
<C> <S> <C>
99.04 Consent of Jeffrey Brothers as a person named
to become a director.*
99.05 Consent of John Q. Graham, Jr. as a person
named to become a director.*
99.06 Consent of Raymond R. Ashmore as a person
named to become a director.*
99.07 Consent of John T. Dickinson as a person
named to become a director.*
99.08 Consent of Gustavo Moreno as a person named
to become a director.*
</TABLE>
- --------
*Filed herewith.
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X,
or the information that would otherwise be included in such schedules is
contained in the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-6
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represents a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b), if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, District of
Columbia, on November 7, 1997.
U.S.A. Floral Products, Inc.
By: /s/ Robert J. Poirier
----------------------------------
Robert J. Poirier
Chairman of the Board,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and apppoints Robert J. Poirier and Jonathan J. Ledecky, and
each of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each
said attorney-in-fact and agent full power and authority to do and perform
each and every act in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/s/ Robert J. Poirier Chairman of the November 7,
- ------------------------------------- Board, President 1997
Robert J. Poirier and Chief Executive
Officer and a
Director (Principal
Executive Officer)
/s/ Raymond C. Anderson Chief Financial November 7,
- ------------------------------------- Officer (Principal 1997
Raymond C. Anderson Financial and
Accounting Officer)
/s/ Jonathan J. Ledecky Director November 7,
- ------------------------------------- 1997
Jonathan J. Ledecky
/s/ Vincent W. Eades Director November 7,
- ------------------------------------- 1997
Vincent W. Eades
/s/ Edward J. Mathias Director November 7,
- ------------------------------------- 1997
Edward J. Mathias
/s/ John A. Quelch Director November 7,
- ------------------------------------- 1997
John A. Quelch
II-8
<PAGE>
EXHIBIT 5.01
One Oxford Centre MORGAN, LEWIS
Thirty-Second Floor & BOCKIUS LLP
Pittsburgh, PA 15219-6401 COUNSELORS AT LAW
412-560-3300
November 10, 1997
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington, D.C. 20007
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of its Registration
Statement on Form S-1 filed today by the Company with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, relating
to the offering and sale by the Company of up to 12,500,000 shares (the "Company
Shares") of the Company's Common Stock, par value $.001 per share ("Common
Stock").
We are familiar with the Registration Statement. We have reviewed the Company's
Certificate of Incorporation and Bylaws, each as amended to date. We have also
examined such other public and corporate documents, certificates, instruments
and corporate records, and such questions of law, as we have deemed necessary
for purposes of expressing an opinion on the matters hereinafter set forth. In
all examinations of documents, instruments and other papers, we have assumed the
genuineness of all signatures on original and certified documents and conformity
to original and certified documents of all copies submitted to us as conformed,
photostatic or other copies.
On the basis of the foregoing, we are of the opinion that the Company Shares,
when issued and sold in accordance with the plan of distribution set forth in
the Registration Statement, will be validly issued, fully paid and
non-assessable.
We consent to the filing of the opinion as an exhibit to the Registration
Statement and to the use of our name in the Prospectus forming a part thereof
under the caption "Legal Matters." By giving this consent, we do not admit that
we are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Yours truly,
/s/ MORGAN, LEWIS & BOCKIUS LLP
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 9th day of October, 1997,
is by and between U.S.A. Floral Products, Inc., a Delaware corporation (the
"Company") and Raymond C. Anderson ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term").
2. Position and Duties. The Company hereby employs Employee as Chief
-------------------
Financial Officer. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of the chief financial officer of
the Company. Employee will report directly to the Chief Executive Officer or
the Board of Directors of the Company (the "Board"). Employee hereby accepts
this employment upon the terms and conditions herein contained and agrees to
devote all of his professional time, attention, and efforts to promote and
further the business of the Company. Employee shall faithfully adhere to,
execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times as are, specified in Exhibit A attached hereto. The
amount, manner of payment, and form of consideration, if any, shall be
determined by the Board, in its sole and absolute discretion, and such
determination shall be binding and final. To the extent that such bonus is to
be determined in light of financial performance
<PAGE>
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) Stock Options. Upon execution of this Agreement, the Company shall
grant Employee options to purchase 50,000 shares of the Company's common stock,
which shall vest at the rate of 25% per year, commencing one year from the date
of grant. The options will have an exercise price equal to the greater of $8.00
or 60% of the initial public offering price per share.
(d) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee understands that he may be requested by
--------------------
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will provide Employee with a relocation allowance, in an amount determined by
the Company, to assist Employee in covering the costs of moving himself, his
immediate family, and their personal property and effects. The total amount and
type of costs to be covered shall be determined by the Company, in light of
prevailing Company policy at the time. Provided, however, the Company shall not
request Employee to relocate for a period of one year from the date hereof.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis
2
<PAGE>
for a period of four consecutive months, or for a total of four months in any
six-month period, then 30 days after written notice to the Employee (which
notice may be given before or after the end of the aforementioned periods, but
which shall not be effective earlier than the last day of the applicable
period), the Company may terminate Employee's employment hereunder if Employee
is unable to resume his full-time duties at the conclusion of such notice
period. Subject to Section 6(f) below, if Employee's employment is terminated
as a result of Employee's disability, the Company shall continue to pay Employee
his base salary at the then-current rate for the lesser of (i) three months from
the effective date of termination, or (ii) whatever time period is remaining
under the then-current period of the Term (without regard to renewals thereof).
Such payments shall be made in accordance with the Company's regular payroll
cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company, and that in the judgment
of the Company materially and adversely affects the operations or reputation of
the Company; (iv) Employee's conviction of a felony or other crime involving
moral turpitude; or (v) Employee's abuse of alcohol or drugs (legal or illegal)
that, in the Company's judgment, materially impairs Employee's ability to
perform his duties hereunder. In the event of a termination "for cause," as
enumerated above, Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for the lesser of (i) three months from the effective date of
termination, or (ii) whatever time period is remaining under the then-current
period of the Term (without regard to renewals thereof). Such payments shall be
made in accordance with the Company's regular payroll cycle. If Employee
resigns or otherwise terminates his employment for any reason or for no reason,
Employee shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared
3
<PAGE>
but not paid prior to termination. In addition, in the event of a termination
by the Company under Section 6(b) or 6(d), Employee shall be entitled to receive
incentive bonus compensation through the end of the Company's fiscal year in
which termination occurs, calculated as if Employee had remained employed by the
Company through the end of such fiscal year, and paid in such amounts, at such
times, and in such forms as are determined pursuant to Section 3(b) above and
Exhibit A attached hereto. Except as specified in the preceding two sentences,
Employee shall not be entitled to receive any incentive bonus compensation after
the effective date of termination of his employment. All other rights and
obligations the Company, and Employee under this Agreement shall cease as of the
effective date of termination, except that Employee's obligations under Sections
7, 8, 9 and 10 below shall survive such termination in accordance with their
terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
on an "at will" basis, for the duration of such period, and thereafter for a
period equal to the longer of (x) two years, or (y) the period during which
Employee is receiving any severance pay from the Company, Employee shall not,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, company, partnership, corporation, business, group, or other
entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company
including without limitation the importing, brokerage, shipping or marketing of
floral products, or any business engaging in the consolidation of the floral
industry within the United States of America (the "Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company for the purpose or with the intent of enticing such
employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory; or
4
<PAGE>
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company was either
called upon by the Company as a prospective acquisition candidate or was the
subject of an acquisition analysis conducted by the Company.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company and enters into a business or pursues other activities
that, at such time, are not in competition with the Company, Employee shall not
be chargeable with a violation of this Section 7 if the Company subsequently
enters the same (or a similar) competitive business or activity. In addition,
if Employee has no actual knowledge that his actions violate the terms of this
Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company of
such breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "the Company" shall mean
U.S.A. Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
--------
the failure of the Company to make any payments required under this Agreement,
the Employee may, upon 30 days' prior written notice to the Company, waive his
right to receive any additional compensation pursuant to this Agreement and
engage in any activity prohibited by the covenants of this Section 7. It is
specifically agreed that the period of two years stated at the beginning of this
Section 7, during which the agreements and covenants of Employee made in this
Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
5
<PAGE>
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company, and its respective officers,
directors, employees, and stockholders. It is further agreed that the Company
and Employee intend that such covenants be construed and enforced in accordance
with the changing activities, business, and locations of the Company throughout
the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
--------
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. Inventions. Employee shall disclose promptly to the Company any and
----------
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of his employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
his interests therein to the Company or its nominee. Whenever requested to do
so by the Company, Employee shall execute any and all applications, assignments,
or other instruments that the Company shall deem necessary to apply for
6
<PAGE>
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company or its respective representatives,
vendors, or customers that pertain to the business of the Company, whether in
paper, electronic, or other form; and (c) all keys, credit cards, vehicles, and
other property of the Company. Employee shall not retain or cause to be
retained any copies of the foregoing. Employee hereby agrees that all of the
foregoing shall be and remain the property of the Company, as the case may be,
and be subject at all times to its discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or
7
<PAGE>
written agreements. This written Agreement may not be later modified except by
a further writing signed by a duly authorized officer of the Company and
Employee, and no term of this Agreement may be waived except by a writing signed
by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
Attention: Robert Poirier
To Employee: Raymond C. Anderson
5722 Crestview
Western Springs, Illinois 60558
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct
8
<PAGE>
expense of any arbitration proceeding shall be borne by the Company. Each party
shall bear its own counsel fees. The arbitration proceeding shall be held in
the city where the principal office of the Company is located. Notwithstanding
the foregoing, the Company shall be entitled to seek injunctive or other
equitable relief, as contemplated by Section 17 above, from any court of
competent jurisdiction, without the need to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Illinois, without regard to its conflict
of laws principles.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
------------------------------
Name: Robert J. Poirier
Title: President and CEO
EMPLOYEE:
/s/ Raymond C. Anderson
- ----------------------------------
Raymond C. Anderson
10
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 16th day of October, 1997, is
by and between The Roy Houff Company, an Illinois corporation (the "Company")
and a wholly-owned subsidiary of U.S.A. Floral Products, Inc. ("USFloral"), a
Delaware corporation, and Roy O. Houff ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term").
2. Position and Duties. The Company hereby employs Employee as Chief
-------------------
Executive Officer. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of the chief executive officer of
the Company. Employee will report directly to the Board of Directors of the
Company (the "Board"). Employee hereby accepts this employment upon the terms
and conditions herein contained and agrees to devote all of his professional
time, attention, and efforts to promote and further the business of the Company.
Employee shall faithfully adhere to, execute, and fulfill all policies
established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times as are, specified in Exhibit A attached hereto. The
amount, manner of payment, and form of consideration, if any, shall be
determined by the Board, in its sole and absolute discretion, and such
determination shall be
<PAGE>
binding and final. To the extent that such bonus is to be determined in light
of financial performance during a specified fiscal period and this Agreement
commences on a date after the start of such fiscal period, any bonus payable in
respect of such fiscal period's results may be prorated. In addition, if the
period of Employee's employment hereunder expires before the end of a fiscal
period, and if Employee is eligible to receive a bonus at such time (such
eligibility being subject to the restrictions set forth in Section 6 below), any
bonus payable in respect of such fiscal period's results may be prorated.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board. Employee shall be permitted to take up to twelve weeks of
vacation during each calendar year.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee understands that he may be requested by
--------------------
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will provide Employee with a relocation allowance, in an amount determined by
the Company, to assist Employee in covering the costs of moving himself, his
immediate family, and their personal property and effects. The total amount and
type of costs to be covered shall be determined by the Company, in light of
prevailing Company policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to
2
<PAGE>
resume his full-time duties at the conclusion of such notice period. Subject to
Section 6(f) below, if Employee's employment is terminated as a result of
Employee's disability, the Company shall continue to pay Employee his base
salary at the then-current rate for the lesser of (i) three months from the
effective date of termination, or (ii) whatever time period is remaining under
the then-current period of the Term (without regard to renewals thereof). Such
payments shall be made in accordance with the Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company or USFloral, and that in
the judgment of the Company or USFloral materially and adversely affects the
operations or reputation of the Company or USFloral; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for the lesser of (i) three months from the effective date of
termination, or (ii) whatever time period is remaining under the then-current
period of the Term (without regard to renewals thereof). Such payments shall be
made in accordance with the Company's regular payroll cycle. If Employee
resigns or otherwise terminates his employment for any reason or for no reason,
Employee shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had
3
<PAGE>
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of his employment.
All other rights and obligations of USFloral, the Company, and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USFloral on an "at will" basis, for the duration of such period, and
thereafter for a period equal to the longer of (x) two years, or (y) the period
during which Employee is receiving any severance pay from the Company, Employee
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, company, partnership, corporation, business, group, or
other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or
USFloral including without limitation the importing, brokerage, shipping or
marketing of floral products, or any business engaging in the consolidation of
the floral industry within the United States of America (the "Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company or USFloral for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company or
USFloral;
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USFloral within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USFloral within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company or USFloral
was either called
4
<PAGE>
upon by the Company or USFloral as a prospective acquisition candidate or was
the subject of an acquisition analysis conducted by the Company or USFloral.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USFloral and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or
USFloral, Employee shall not be chargeable with a violation of this Section 7 if
the Company or USFloral subsequently enters the same (or a similar) competitive
business or activity. In addition, if Employee has no actual knowledge that his
actions violate the terms of this Section 7, Employee shall not be deemed to
have breached the restrictive covenants contained herein if, promptly after
being notified by the Company or USFloral of such breach, Employee ceases the
prohibited actions.
(d) For purposes of this Section 7, references to "USFloral" shall mean
U.S.A. Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USFloral, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by USFloral or the Company of such
covenants; provided, that upon the failure of the Company to make any payments
--------
required under this Agreement, the Employee may, upon 30 days' prior written
notice to the Company, waive his right to receive any additional compensation
pursuant to this Agreement and engage in any activity prohibited by the
covenants of this Section 7. It is specifically agreed that the period of two
years stated at the beginning of this Section 7, during which the agreements and
covenants of Employee made in this Section 7 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this Section 7.
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to
5
<PAGE>
receive from the Company his base salary at the rate then in effect solely for
the longer of (i) the time period during which the provisions of this Section 7
shall be enforceable under the provisions of such applicable law, or (ii) the
time period during which Employee is not engaging in any competitive activity,
but in no event longer than the applicable period provided in Section 6 above.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USFloral, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company and USFloral throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USFloral (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company and/or USFloral because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USFloral's business and trade, including, without limitation,
technologies, products, processes, plans, clients, personnel, operations, and
business activities. This restriction shall not apply to any Confidential
Information that (a) becomes known generally to the public through no fault of
the Employee; (b) is required by applicable law, legal process, or any order or
mandate of a court or other governmental authority to be disclosed; or (c) is
reasonably believed by Employee, based upon the advice of legal counsel, to be
required to be disclosed in defense of a lawsuit or other legal or
administrative action brought against Employee; provided, that in the case of
--------
clauses (b) or (c), Employee shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons
and circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
9. Inventions. Employee shall disclose promptly to the Company and
----------
USFloral any and all significant conceptions and ideas for inventions,
improvements, and valuable discoveries, whether patentable or not, that are
conceived or made by Employee, solely or jointly with another, during the period
of employment or within one year thereafter, and that are directly related to
the business or activities of the Company or USFloral and that Employee
conceives as a result of his employment by the Company, regardless of whether or
not such ideas, inventions, or improvements qualify as "works for hire."
Employee hereby assigns and agrees to assign all his interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments, or other instruments that
the Company shall deem
6
<PAGE>
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USFloral or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USFloral, whether in paper, electronic, or other form; and (c) all
keys, credit cards, vehicles, and other property of the Company or USFloral.
Employee shall not retain or cause to be retained any copies of the foregoing.
Employee hereby agrees that all of the foregoing shall be and remain the
property of the Company or USFloral, as the case may be, and be subject at all
times to their discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USFloral other than the Company,
unless Employee and his new employer agree otherwise in writing, this Agreement
shall automatically be deemed to have been assigned to such new employer (which
shall thereafter be an additional or substitute beneficiary of the covenants
contained herein, as appropriate), with the consent of Employee, such assignment
shall be considered a condition of employment by such new employer, and
references to the "Company" in this Agreement shall be deemed to refer to such
new employer. If the Company is merged with or into another subsidiary or
affiliate of USFloral, such action shall
7
<PAGE>
not be considered to cause an assignment of this Agreement, and the surviving or
successor entity shall become the beneficiary of this Agreement and all
references to the "Company" shall be deemed to refer to such surviving or
successor entity. It is intended that USFloral will be a third-party beneficiary
of the rights of the Company under this Agreement. No other Person shall be a
third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: The Roy Houff Company
6200 South Oak Park Avenue
Chicago, Illinois 60638
Attention: Secretary
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
Attention: Robert Poirier
To Employee: Roy O. Houff
33 Baybrook Lane
Oak Brook, Illinois 60521
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions
8
<PAGE>
of Section 7(e) above. The paragraph headings herein are for reference purposes
only and are not intended in any way to describe, interpret, define or limit the
extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USFloral as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USFloral for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USFloral
at law or in equity, the Company and USFloral shall be entitled to specific
performance and any injunctive or other equitable relief as a remedy for any
breach or threatened breach of the aforementioned restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the principal office of
the Company is located. Notwithstanding the foregoing, the Company and/or
USFloral shall be entitled to seek injunctive or other equitable relief, as
contemplated by Section 17 above, from any court of competent jurisdiction,
without the need to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Illinois, without regard to its conflict
of laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
THE ROY HOUFF COMPANY
By: /s/ Henry Kite
----------------------------------
Name: Henry Kite
Title: President
EMPLOYEE:
/s/ Roy O. Houff
- -------------------------------
Roy O. Houff
9
<PAGE>
EXHIBIT A
---------
Under USFloral's Incentive Bonus Plan, Employee will be eligible to earn up to
100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of Directors of USFloral or a compensation
committee thereof, depending upon the achievement of specified criteria and
payable in the form of cash, stock options, or other non-cash awards, in such
proportions, and in such forms, as are determined by the Board of Directors of
USFloral or a compensation committee thereof. Bonuses under the Incentive Bonus
Plan will be determined by measuring Employee's performance, the Company's
performance and USFloral's performance based on the following criteria, weighted
as indicated, and measured against target performance levels established by the
Board of Directors of USFloral or such compensation committee: (i) USFloral's
profit - 25%, (ii) the profit of the Company - 50% and (iii) revenue growth of
the Company due to acquisitions - 25%.
10
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 16th day of October, 1997, is by
and between CFX, Inc., a Florida corporation (the "Company") and a wholly owned
subsidiary of USA Floral Products, Inc. ("USAF"), a Delaware corporation, and
Dwight Haight ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term").
2. Position and Duties. The Company hereby employs Employee as President.
-------------------
As such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of a president of the Company. Employee will report
directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote a majority of his professional time, attention, and efforts
to promote and further the business of the Company. Employee shall faithfully
adhere to, execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $216,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times as are, specified in Exhibit A attached hereto. The
amount, manner of payment, and form of consideration, if any, shall be
determined by the Board in its sole and absolute discretion, and such
determination shall be binding and final. To the extent that such bonus is to
be determined in light of financial performance
<PAGE>
during a specified fiscal period and this Agreement commences on a date after
the start of such fiscal period, any bonus payable in respect of such fiscal
period's results may be prorated. In addition, if the period of Employee's
employment hereunder expires before the end of a fiscal period, and if Employee
is eligible to receive a bonus at such time (such eligibility being subject to
the restrictions set forth in Section 6 below), any bonus payable in respect of
such fiscal period's results may be prorated.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee understands that he may be requested by
--------------------
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will provide Employee with a relocation allowance, in an amount determined by
the Company, to assist Employee in covering the costs of moving himself, his
immediate family, and their personal property and effects. The total amount and
type of costs to be covered shall be determined by the Company, in light of
prevailing Company policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to resume his full-time
duties at the conclusion of such notice period. Subject to Section 6(f) below,
if Employee's employment is terminated as a result of Employee's disability, the
Company shall
2
<PAGE>
continue to pay Employee his base salary at the then-current rate for the lesser
of (i) 12 months from the effective date of termination, or (ii) whatever time
period is remaining under the then-current period of the Term (without regard to
renewals thereof). Such payments shall be made in accordance with the Company's
regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company or USAF, and that in the
judgment of the Company or USAF materially and adversely affects the operations
or reputation of the Company or USAF; (iv) Employee's conviction of a felony or
other crime involving moral turpitude; or (v) Employee's abuse of alcohol or
drugs (legal or illegal) that, in the Company's judgment, materially impairs
Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for whatever time period is remaining under the then-current period of
the Term (without regard to renewals thereof). Such payments shall be made in
accordance with the Company's regular payroll cycle. If Employee resigns or
otherwise terminates his employment for any reason or for no reason, Employee
shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had remained employed by the Company through
the end of such fiscal year, and paid in such amounts, at such times, and in
such forms as are determined pursuant to Section 3(b) above and Exhibit A
attached hereto. Except as specified in the preceding two sentences, Employee
shall not be entitled
3
<PAGE>
to receive any incentive bonus compensation after the effective date of
termination of his employment. All other rights and obligations of USAF, the
Company, and Employee under this Agreement shall cease as of the effective date
of termination, except that Employee's obligations under Sections 7, 8, 9 and
10 below shall survive such termination in accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided that, in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment, except that no such reduction
shall be made for Employee's earnings from the companies referred to by name in
Section 7(b) hereof.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USAF on an "at will" basis, for the duration of such period, and thereafter
for a period equal to the longer of (x) two years, or (y) the period during
which Employee is receiving any severance pay from the Company, Employee shall
not, directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation, business, group, or other
entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or USAF,
within 100 miles of any location where the Company or USAF conducts business
(the "Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company or USAF for the purpose or with the intent of enticing
such employee away from or out of the employ of the Company or USAF;
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USAF within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USAF within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company or USAF was
either called upon by the Company or USAF as a prospective acquisition candidate
or was the subject of an acquisition analysis conducted by the Company or USAF.
4
<PAGE>
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent of the capital stock of a
competing business whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association or
owning or engaging in any business, acting in any capacity for, or otherwise
operating H&H Flowers, Inc., d/b/a LaFleurette, Flying High Venture, Floraltech,
Inc., Day One Fresh, LLC, Cultivitos Miramonte and its subsidiaries, C.I.
Colombiana De Bouquets or Agropecuaria Pamputik, S.A. and its subsidiaries.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USAF and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or USAF,
Employee shall not be chargeable with a violation of this Section 7 if the
Company or USAF subsequently enters the same (or a similar) competitive business
or activity or commences competitive operations within 100 miles of the
Employee's new business or activities. In addition, if Employee has no actual
knowledge that his actions violate the terms of this Section 7, Employee shall
not be deemed to have breached the restrictive covenants contained herein if,
promptly after being notified by the Company or USAF of such breach, Employee
ceases the prohibited actions.
(d) For purposes of this Section 7, references to "USAF" shall mean USA
Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USAF, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by USAF or the Company of such covenants; provided,
--------
that upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon 30 days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of two years stated at the
beginning of this Section 7, during which the agreements and covenants of
Employee made in this Section 7 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 7.
5
<PAGE>
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above. If Employee is subject to a restriction on
competitive activity as a party to that certain Amended and Restated Agreement
and Plan of Contribution, dated as of August 5, 1997, by and among USA Floral
Products, Inc., Floral Acquisition Corporation, CFX, Inc. and the Stockholders
of CFX, Inc. (the "Merger Agreement"), then Employee shall abide by, and in all
cases be subject to, the restrictive covenants (whether in this Section 7 or in
the Merger Agreement) that, in the aggregate, impose restrictions on Employee
for the longest duration and the broadest geographic scope (taking into account
the effect of any applicable court decisions limiting the scope or duration of
such restrictions), it being agreed that all such restrictive covenants are
supported by separate and distinct consideration. This Section 7(g) shall be
construed and interpreted in light of the duration of the applicable restrictive
covenants.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USAF, and their respective
officers, directors, employees, and stockholders. It is further agreed that the
Company and Employee intend that such covenants be construed and enforced in
accordance with the changing activities, business, and locations of the Company
and USAF throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USAF (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company and/or USAF because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USAF's business and trade, including, without limitation,
technologies, products, processes, plans, clients, personnel, operations, and
business activities. This restriction shall not apply to any Confidential
Information that (a) becomes known generally to the public through no fault of
the Employee; (b) is required by applicable law, legal process, or any order or
mandate of a court or other governmental authority to be disclosed; (c) is
reasonably believed by Employee, based upon the advice of legal counsel, to be
required to be disclosed in defense of a lawsuit or other legal or
administrative action brought against Employee; or (d) becomes known to Employee
through his affiliation with the entities set forth in Section 7(b); provided
--------
that, in the case of clauses (b) or (c), Employee shall give the Company
reasonable advance written notice of the Confidential Information intended to be
disclosed and the
6
<PAGE>
reasons and circumstances surrounding such disclosure, in order to permit the
Company to seek a protective order or other appropriate request for confidential
treatment of the applicable Confidential Information.
9. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USAF or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USAF, whether in paper, electronic, or other form; and (c) all keys,
credit cards, vehicles, and other property of the Company or USAF. Employee
shall not retain or cause to be retained any copies of the foregoing. Employee
hereby agrees that all of the foregoing shall be and remain the property of the
Company or USAF, as the case may be, and be subject at all times to their
discretion and control.
10. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
11. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USAF other than the Company, unless
Employee and his new employer agree otherwise in writing, this Agreement shall
automatically be deemed to have been assigned to such new employer (which shall
thereafter be an additional or substitute beneficiary of the covenants contained
herein, as appropriate), with the consent of Employee, such assignment shall be
considered a condition of employment by such new employer, and references to the
"Company" in this Agreement shall be deemed to refer to such new employer.
7
<PAGE>
If the Company is merged with or into another subsidiary or affiliate of USAF,
such action shall not be considered to cause an assignment of this Agreement,
and the surviving or successor entity shall become the beneficiary of this
Agreement and all references to the "Company" shall be deemed to refer to such
surviving or successor entity. It is intended that USAF will be a third-party
beneficiary of the rights of the Company under this Agreement. No other Person
shall be a third-party beneficiary.
12. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement together with the Merger Agreement, is the final,
complete, and exclusive statement and expression of the agreement between the
Company and Employee with respect to the subject matter hereof and thereof, and
cannot be varied, contradicted, or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by a writing signed by the party waiving the benefit of such term.
13. Notice. Whenever any notice is required hereunder, it shall be in
------
writing and shall be given by overnight courier service or by delivering the
same in person to an officer or agent of such party.
If to the Company: CFX, Inc.
1500 NW 95 Avenue
Miami, FL 33172
Attention: Dwight Haight
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
and a copy to: John S. Fletcher, Esq.
Morgan, Lewis & Bockius LLP
5300 First Union Financial Center
200 South Biscayne Boulevard
Miami, FL 33131-2339
8
<PAGE>
If to Employee: Dwight Haight
c/o CFX, Inc.
1500 N.W. 95 Avenue
Miami, FL 33172
and a copy to: William R. Nuernberg, Esq.
Eckert Seamans Cherin & Mellott, LC
Barnett Tower, 18th Floor
701 Brickell Avenue
Miami, FL 33131
Notice shall be deemed given and effective when actually received. Either party
may change the address for notice by notifying the other party of such change in
accordance with this Section 14.
15. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
16. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USAF as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USAF for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USAF at
law or in equity, the Company and USAF shall be entitled to specific performance
and any injunctive or other equitable relief as a remedy for any breach or
threatened breach of the aforementioned restrictive covenants.
17. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the Company is located.
Notwithstanding the foregoing, the Company and/or USAF shall be entitled to seek
injunctive or other equitable relief, as contemplated by Section 17 above, from
any court of competent jurisdiction, without the need to resort to arbitration.
9
<PAGE>
18. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
CFX, INC.
By: /s/ Dwight Haight
_______________________________
Name: Dwight Haight
Title: President
EMPLOYEE:
/s/ Dwight Haight
- -------------------------------------
Dwight Haight
10
<PAGE>
EXHIBIT A
---------
Under USAF's Incentive Bonus Plan, Employee will be eligible to earn up to 100%
of Employee's base salary in bonus compensation, payable out of a bonus pool
determined by the Board of Directors of USAF or a compensation committee
thereof, depending upon the achievement of specified criteria and payable in the
form of cash, stock options, or other non-cash awards, in such proportions, and
in such forms, as are determined by the Board of Directors of USAF or a
compensation committee thereof. Bonuses under the Incentive Bonus Plan will be
determined by measuring Employee's performance, the Company's performance and
USAF's performance based on the following criteria, weighted as indicated, and
measured against target performance levels established by the Board of Directors
of USAF or such compensation committee: (i) USAF's profit - 25%, (ii) the
profit of the Company - 50% and (iii) revenue growth of the Company due to
acquisitions -25%.
11
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 16th day of October, 1997, is
by and between Bay State Florist Supply, Inc., a Masschusetts corporation (the
"Company") and a wholly-owned subsidiary of U.S.A. Floral Products, Inc.
("USFloral"), a Delaware corporation, and William W. Rudolph ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term").
2. Position and Duties. The Company hereby employs Employee as President.
-------------------
As such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of the president of the Company. Employee will report
directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote all of his professional time, attention, and efforts to
promote and further the business of the Company. Employee shall faithfully
adhere to, execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof and through December 31,
1997, the base salary payable to Employee shall be Employee's current salary
with the Company. Commencing January 1, 1998, the base salary payable to
Employee shall be $150,000 per year. Base salary shall be payable on a regular
basis in accordance with the Company's standard payroll procedures, but not less
than monthly. On at least an annual basis, the Board will review Employee's
performance and may make increases to such base salary if, in its sole
discretion, any such increase is warranted.
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times, (i) for the portion of the Term commencing on the date
hereof and ending December 31, 1997, in accordance with the bonus structure
adopted by the Compensation Committee of the Company's Board of Directors on
February 25, 1997, and (ii) commencing January 1, 1998 as are specified in
Exhibit A attached hereto. The amount, manner of payment, and form of
consideration, if any, shall be determined by the Board, in its sole and
absolute
<PAGE>
discretion, and such determination shall be binding and final. To the extent
that such bonus is to be determined in light of financial performance during a
specified fiscal period and this Agreement commences on a date after the start
of such fiscal period, any bonus payable in respect of such fiscal period's
results may be prorated. In addition, if the period of Employee's employment
hereunder expires before the end of a fiscal period, and if Employee is eligible
to receive a bonus at such time (such eligibility being subject to the
restrictions set forth in Section 6 below), any bonus payable in respect of such
fiscal period's results may be prorated.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee understands that he may be requested by
--------------------
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will provide Employee with a relocation allowance, in an amount determined by
the Company, to assist Employee in covering the costs of moving himself, his
immediate family, and their personal property and effects. The total amount and
type of costs to be covered shall be determined by the Company, in light of
prevailing Company policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to resume his full-time
duties at the conclusion of such notice period. Subject to Section 6(f) below,
if Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee his base salary at the then-current rate
for the lesser of (i) three months from the effective date of termination, or
(ii) whatever time period is remaining under the then-current period of
2
<PAGE>
the Term (without regard to renewals thereof). Such payments shall be made in
accordance with the Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company or USFloral, and that in
the judgment of the Company or USFloral materially and adversely affects the
operations or reputation of the Company or USFloral; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for the lesser of (i) three months from the effective date of
termination, or (ii) whatever time period is remaining under the then-current
period of the Term (without regard to renewals thereof). Such payments shall be
made in accordance with the Company's regular payroll cycle. If Employee
resigns or otherwise terminates his employment for any reason or for no reason,
Employee shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had remained employed by the Company through
the end of such fiscal year, and paid in such amounts, at such times, and in
such forms as are determined pursuant to Section 3(b) above and Exhibit A
attached hereto. Except as specified in the preceding two sentences, Employee
shall not be entitled to receive any incentive bonus compensation after the
effective date of termination of his employment. All other rights and
obligations of USFloral, the Company, and Employee under this Agreement shall
cease as of the effective date of termination, except that Employee's
obligations under Sections 7, 8, 9 and 10 below shall survive such termination
in accordance with their terms.
3
<PAGE>
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USFloral on an "at will" basis, for the duration of such period, and
thereafter for a period equal to the longer of (x) two years, or (y) the period
during which Employee is receiving any severance pay from the Company, Employee
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, company, partnership, corporation, business, group, or
other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or
USFloral, within the United States (the "Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company or USFloral for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company or
USFloral;
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USFloral within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USFloral within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company or USFloral
was either called upon by the Company or USFloral as a prospective acquisition
candidate or was the subject of an acquisition analysis conducted by the Company
or USFloral.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USFloral and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or
USFloral, Employee shall not be chargeable with a violation of this Section 7 if
the Company or USFloral subsequently enters the same (or a similar) competitive
business or activity. In addition, if Employee has no actual knowledge that his
actions violate the terms of this Section 7, Employee shall not be deemed to
have breached the restrictive covenants contained herein if,
4
<PAGE>
promptly after being notified by the Company or USFloral of such breach,
Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "USFloral" shall mean
U.S.A. Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USFloral, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by USFloral or the Company of such
covenants; provided, that upon the failure of the Company to make any payments
--------
required under this Agreement, the Employee may, upon 30 days' prior written
notice to the Company, waive his right to receive any additional compensation
pursuant to this Agreement and engage in any activity prohibited by the
covenants of this Section 7. It is specifically agreed that the period of two
years stated at the beginning of this Section 7, during which the agreements and
covenants of Employee made in this Section 7 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this Section 7.
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USFloral, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company and USFloral throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USFloral (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential
5
<PAGE>
Information is confidential and proprietary to the Company and/or USFloral
because such Confidential Information encompasses technical know-how, trade
secrets, or technical, financial, organizational, sales, or other valuable
aspects of the Company's and USFloral's business and trade, including, without
limitation, technologies, products, processes, plans, clients, personnel,
operations, and business activities. This restriction shall not apply to any
Confidential Information that (a) becomes known generally to the public through
no fault of the Employee; (b) is required by applicable law, legal process, or
any order or mandate of a court or other governmental authority to be disclosed;
or (c) is reasonably believed by Employee, based upon the advice of legal
counsel, to be required to be disclosed in defense of a lawsuit or other legal
or administrative action brought against Employee; provided, that in the case of
--------
clauses (b) or (c), Employee shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons
and circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
9. Inventions. Employee shall disclose promptly to the Company and
----------
USFloral any and all significant conceptions and ideas for inventions,
improvements, and valuable discoveries, whether patentable or not, that are
conceived or made by Employee, solely or jointly with another, during the period
of employment or within one year thereafter, and that are directly related to
the business or activities of the Company or USFloral and that Employee
conceives as a result of his employment by the Company, regardless of whether or
not such ideas, inventions, or improvements qualify as "works for hire."
Employee hereby assigns and agrees to assign all his interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments, or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USFloral or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USFloral, whether in paper, electronic, or other form; and (c) all
keys, credit cards, vehicles, and other property of the Company or USFloral.
Employee shall not retain or cause to be retained any copies of the foregoing.
Employee hereby agrees that all of the foregoing shall be and remain the
property of the Company or USFloral, as the case may be, and be subject at all
times to their discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or
6
<PAGE>
written employment agreement or understanding with the Company, this Agreement
shall automatically supersede such agreement or understanding, and upon
execution of this Agreement by Employee and the Company, such prior agreement or
understanding automatically shall be deemed to have been terminated and shall be
null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USFloral other than the Company,
unless Employee and his new employer agree otherwise in writing, this Agreement
shall automatically be deemed to have been assigned to such new employer (which
shall thereafter be an additional or substitute beneficiary of the covenants
contained herein, as appropriate), with the consent of Employee, such assignment
shall be considered a condition of employment by such new employer, and
references to the "Company" in this Agreement shall be deemed to refer to such
new employer. If the Company is merged with or into another subsidiary or
affiliate of USFloral, such action shall not be considered to cause an
assignment of this Agreement, and the surviving or successor entity shall become
the beneficiary of this Agreement and all references to the "Company" shall be
deemed to refer to such surviving or successor entity. It is intended that
USFloral will be a third-party beneficiary of the rights of the Company under
this Agreement. No other Person shall be a third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: Bay State Florist Supply, Inc.
385 Bear Hill Road
Waltham, Massachusetts 02154
Attention: Clerk
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
Attention: Robert Poirier
7
<PAGE>
To Employee: William W. Rudolph
16 Point Dechene
Rockport, MA 01966
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USFloral as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USFloral for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USFloral
at law or in equity, the Company and USFloral shall be entitled to specific
performance and any injunctive or other equitable relief as a remedy for any
breach or threatened breach of the aforementioned restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the principal office of
the Company is located. Notwithstanding the foregoing, the Company and/or
USFloral shall be entitled to seek injunctive or other equitable relief, as
contemplated by Section 17 above, from any court of competent jurisdiction,
without the need to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the Commonwealth of Massachusetts, without regard to
its conflict of laws principles.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
BAY STATE FLORIST SUPPLY, INC.
By: /s/ Douglas H. Carey
-------------------------------------
Name: Douglas H. Carey
Title: Executive Vice President
EMPLOYEE:
/s/ William W. Rudolph
- --------------------------------------
William W. Rudolph
9
<PAGE>
EXHIBIT A
---------
Under USFloral's Incentive Bonus Plan, Employee will be eligible to earn up to
100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of Directors of USFloral or a compensation
committee thereof, depending upon the achievement of specified criteria and
payable in the form of cash, stock options, or other non-cash awards, in such
proportions, and in such forms, as are determined by the Board of Directors of
USFloral or a compensation committee thereof. Bonuses under the Incentive Bonus
Plan will be determined by measuring Employee's performance, the Company's
performance and USFloral's performance based on the following criteria, weighted
as indicated, and measured against target performance levels established by the
Board of Directors of USFloral or such compensation committee: (i) USFloral's
profit - 25%, (ii) the profit of the Company - 50% and (iii) revenue growth of
the Company due to acquisitions - 25%.
10
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of this 16th day of
October, 1997, is by and between Monterey Bay Bouquet, Inc., a California
corporation (the "Company") and a wholly-owned subsidiary of USA Floral
Products, Inc. ("USAF"), a Delaware corporation, and Jeffrey Brothers
("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term"). The Term of this Agreement shall be automatically
renewed for one one-year period, unless the Company or USAF gives notice to the
Employee at least six months prior to the expiration of the initial two-year
Term that this Agreement shall not be renewed.
2. Position and Duties. The Company hereby employs Employee as its
-------------------
President. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a President of the Company. Employee
will report directly to the Board of Directors of the Company (the "Board").
Employee hereby accepts this employment upon the terms and conditions herein
contained and agrees to devote all of his professional time, attention, and
efforts to promote and further the business of the Company. Employee shall
faithfully adhere to, execute, and fulfill all policies established by the
Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $170,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
<PAGE>
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times as are, specified in Exhibit A attached hereto. The
amount, manner of payment, and form of consideration, if any, shall be
determined by the Board of Directors of USAF, in its sole and absolute
discretion, and such determination shall be binding and final. To the extent
that such bonus is to be determined in light of financial performance during a
specified fiscal period and this Agreement commences on a date after the start
of such fiscal period, any bonus payable in respect of such fiscal period's
results may be prorated. In addition, if the period of Employee's employment
hereunder expires before the end of a fiscal period, and if Employee is eligible
to receive a bonus at such time (such eligibility being subject to the
restrictions set forth in Section 6 below), any bonus payable in respect of such
fiscal period's results may be prorated.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board. In addition, Employee shall receive options to purchase 50,000
shares of USAF stock (at the price at which such shares were sold in the initial
public offering of USAF stock), promptly after registration of the USA Floral
Products, Inc. 1997 Long-Term Incentive Plan ("Long-Term Incentive Plan"). The
Company shall cause the Long-Term Incentive Plan to be registered promptly after
the execution of this Agreement.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee understands that he may be requested by
--------------------
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will provide Employee with a relocation allowance, in an amount determined by
the Company, to assist Employee in covering the costs of moving himself, his
immediate family, and their personal property and effects. The total amount and
type of costs to be covered shall be determined by the Company, in light of
prevailing Company policy at the time. If Employee is requested to relocate to
an area more than thirty miles in any direction from his present residence and
Employee does not agree to relocate, Employee may terminate his employment
hereunder and Employee shall receive from the Company base salary at the rate
then in effect for the time remaining under the then-current period of the Term
and the one-year renewal term.
2
<PAGE>
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate. Any stock options
held by Employee at the time of his death shall be exercisable pursuant to their
terms by Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to resume his full-time
duties at the conclusion of such notice period. Subject to Section 6(f) below,
if Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee his base salary at the then-current rate
for the lesser of (i) 3 months from the effective date of termination, or (ii)
whatever time period is remaining under the then-current period of the Term
(without regard to renewals thereof). Such payments shall be made in accordance
with the Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, if any, or the Company's policies and procedures, which actions
continue for a period of at least 10 days after receipt by Employee of written
notice of the need to cure or cease; (iii) Employee's willful dishonesty, fraud,
or misconduct with respect to the business or affairs of the Company or USAF,
and that in the judgment of the Company or USAF materially and adversely affects
the operations or reputation of the Company or USAF; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after December 31, 1997, the Company may,
without cause, terminate the Term and Employee's employment, effective 30 days
after written notice is provided to the Employee. Should Employee be terminated
by the Company without cause, subject to Section 6(f) below, Employee shall
receive from the Company the base salary at the rate then in effect for whatever
time period is remaining under the then-current period of the Term (without
regard to renewals thereof). Such payments shall be made in accordance with the
3
<PAGE>
Company's regular payroll cycle. If Employee resigns or otherwise terminates
his employment for any reason or for no reason, Employee shall receive no
severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had remained employed by the Company through
the end of such fiscal year, and paid in such amounts, at such times, and in
such forms as are determined pursuant to Section 3(b) above and Exhibit A
attached hereto. Except as specified in the preceding two sentences, Employee
shall not be entitled to receive any incentive bonus compensation after the
effective date of termination of his employment. All other rights and
obligations of USAF, the Company, and Employee under this Agreement shall cease
as of the effective date of termination, except that Employee's obligations
under Sections 7, 8, 9 and 10 below shall survive such termination in
accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USAF on an "at will" basis, for the duration of such period, and thereafter
for a period equal to the longer of (x) two years, or (y) the period during
which Employee is receiving any severance pay from the Company, Employee shall
not, directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation, business, group, or other
entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or USAF
that involves the importing, brokerage, shipping or marketing of floral
4
<PAGE>
products or the manufacturing or mass marketing of bouquets, or any business
engaging in the consolidation of the floral industry, within the United States
(the "Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company or USAF for the purpose or with the intent of enticing
such employee away from or out of the employ of the Company or USAF;
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USAF within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USAF within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company or USAF was
either called upon by the Company or USAF as a prospective acquisition candidate
or was the subject of an acquisition analysis conducted by the Company or USAF.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
(i) acquiring as an investment not more than one percent of the capital stock of
a competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association or
(ii) engaging in the business of growing flowers in the United States.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USAF and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or USAF,
Employee shall not be chargeable with a violation of this Section 7 if the
Company or USAF subsequently enters the same (or a similar) competitive business
or activity or commences competitive operations within the Territory. In
addition, if Employee has no actual knowledge that his actions violate the terms
of this Section 7, Employee shall not be deemed to have breached the restrictive
covenants contained herein if, promptly after being notified by the Company or
USAF of such breach, Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "USAF" shall mean USA
Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this
5
<PAGE>
Agreement shall automatically be considered to have been amended and revised to
reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USAF, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by USAF or the Company of such covenants; provided,
--------
that upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon 30 days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the period of two years stated at the
beginning of this Section 7, during which the agreements and covenants of
Employee made in this Section 7 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 7.
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above. If Employee is subject to a restriction on
competitive activity as a party to that certain Amended and Restated Agreement
and Plan of Contribution, dated as of August 5, 1997, by and among Employee, the
Company, Bay Area Bouquets, Inc., USAF, Philip Buran and Douglas Anderson (the
"Merger Agreement"), then Employee shall abide by, and in all cases be subject
to, the restrictive covenants (whether in this Section 7 or in the Merger
Agreement) that, in the aggregate, impose restrictions on Employee for the
longest duration and the broadest geographic scope (taking into account the
effect of any applicable court decisions limiting the scope or duration of such
restrictions), it being agreed that all such restrictive covenants are supported
by separate and distinct consideration. This Section 7(g) shall be construed
and interpreted in light of the duration of the applicable restrictive
covenants.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USAF, and their respective
officers, directors, employees, and stockholders. It is further agreed that the
Company and Employee intend that such covenants be construed and enforced in
accordance with the changing activities, business, and locations of the Company
and USAF throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information
6
<PAGE>
relating to the Company and/or USAF (including all trade secrets), in whatever
form, whether oral, written, or electronic (collectively, the "Confidential
Information"), to which Employee has, or is given (or has had or been given),
access as a result of his employment by the Company. It is agreed that the
Confidential Information is confidential and proprietary to the Company and/or
USAF because such Confidential Information encompasses technical know-how, trade
secrets, or technical, financial, organizational, sales, or other valuable
aspects of the Company's and USAF's business and trade, including, without
limitation, technologies, products, processes, plans, clients, personnel,
operations, and business activities. This restriction shall not apply to any
Confidential Information that (a) becomes known generally to the public through
no fault of the Employee; (b) is required by applicable law, legal process, or
any order or mandate of a court or other governmental authority to be disclosed;
or (c) is reasonably believed by Employee, based upon the advice of legal
counsel, to be required to be disclosed in defense of a lawsuit or other legal
or administrative action brought against Employee; provided, that in the case of
--------
clauses (b) or (c), Employee shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons
and circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
9. Inventions. Employee shall disclose promptly to the Company and USAF
----------
any and all significant conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, that are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one year thereafter, and that are directly related to the business or
activities of the Company or USAF and that Employee conceives as a result of his
employment by the Company, regardless of whether or not such ideas, inventions,
or improvements qualify as "works for hire." Employee hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USAF or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USAF, whether in paper, electronic, or other form; and (c) all keys,
credit cards, vehicles, and other property of the Company or USAF. Employee
shall not retain or cause to be retained any copies of the foregoing. Employee
hereby agrees that all of the foregoing shall be and remain the property of the
Company or USAF, as the case may be, and be subject at all times to their
discretion and control.
7
<PAGE>
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USAF other than the Company, unless
Employee and his new employer agree otherwise in writing, this Agreement shall
automatically be deemed to have been assigned to such new employer (which shall
thereafter be an additional or substitute beneficiary of the covenants contained
herein, as appropriate), with the consent of Employee, such assignment shall be
considered a condition of employment by such new employer, and references to the
"Company" in this Agreement shall be deemed to refer to such new employer. If
the Company is merged with or into another subsidiary or affiliate of USAF, such
action shall not be considered to cause an assignment of this Agreement, and the
surviving or successor entity shall become the beneficiary of this Agreement and
all references to the "Company" shall be deemed to refer to such surviving or
successor entity. It is intended that USAF will be a third-party beneficiary of
the rights of the Company under this Agreement. No other Person shall be a
third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement together with the Merger Agreement, is the final,
complete, and exclusive statement and expression of the agreement between the
Company and Employee with respect to the subject matter hereof and thereof, and
cannot be varied, contradicted, or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly
8
<PAGE>
authorized officer of the Company and Employee, and no term of this Agreement
may be waived except by a writing signed by the party waiving the benefit of
such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: Monterey Bay Bouquet, Inc.
P. O. Box 1778
261 Coward Road
Watsonville, CA 95077
Attention: Robert J. Poirier, Vice President
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
To Employee: Jeffrey Brothers
P. O. Box 1778
261 Coward Road
Watsonville, CA 95077
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 14.
15. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
16. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USAF as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USAF for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or
9
<PAGE>
USAF at law or in equity, the Company and USAF shall be entitled to specific
performance and any injunctive or other equitable relief as a remedy for any
breach or threatened breach of the aforementioned restrictive covenants.
17. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the Company is located.
Notwithstanding the foregoing, the Company and/or USAF shall be entitled to seek
injunctive or other equitable relief, as contemplated by Section 16 above, from
any court of competent jurisdiction, without the need to resort to arbitration.
18. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of California, without regard to its conflict
of laws principles.
19. Attorneys' Fees. If any party to this Agreement shall bring any
---------------
action or proceeding for any relief against the other, declaratory or otherwise,
arising out of this Agreement, the losing party shall pay to the prevailing
party a reasonable sum for attorney fees and costs incurred in bringing or
defending such action or proceeding and/or enforcing any judgment granted
therein, all of which shall be deemed to have accrued upon the commencement of
such action or proceeding and shall be paid whether or not such action or
proceeding is prosecuted to final judgment. Any judgment or order entered in
such action or proceeding shall contain a specific provision providing for the
recovery of attorney fees and costs, separate from the judgment, incurred in
enforcing such judgment. The prevailing party shall be determined by the trier
of fact based upon an assessment of which party's major arguments or positions
taken in the proceedings could fairly be said to have prevailed over the other
party's major arguments or positions on major disputed issues. For the purposes
of this section, attorney fees shall include, without limitation, fees incurred
in the following: (1) post-judgment motions; (2) contempt proceedings; (3)
garnishment, levy, and debtor and third party examinations; (4) discovery; and
(5) bankruptcy litigation. This Section is intended to be expressly severable
from the other provisions of this Agreement, is intended to survive any judgment
and is not to be deemed merged into the judgment.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
MONTEREY BAY BOUQUET, INC.
By: /s/ Robert J. Poirier
________________________
Name: Robert J. Poirier
Title: Vice President
EMPLOYEE:
/s/ Jeffrey Brothers
- --------------------------------------
Jeffrey Brothers
11
<PAGE>
EXHIBIT A
---------
Under USAF's Incentive Bonus Plan, Employee will be eligible to earn up to 100%
of Employee's base salary in bonus compensation, payable out of a bonus pool
determined by the Board of Directors of USAF or a compensation committee
thereof, depending upon the achievement of specified criteria and payable in the
form of cash, stock options, or other non-cash awards, in such proportions, and
in such forms, as are determined by the Board of Directors of USAF or a
compensation committee thereof. Bonuses under the Incentive Bonus Plan will be
determined by measuring Employee's performance, the Company's performance and
USAF's performance based on the following criteria, weighted as indicated, and
measured against target performance levels established by the Board of Directors
of USAF or such compensation committee: (i) USAF's profit - 25%, (ii) the profit
of the Company - 50% and (iii) revenue growth of the Company due to acquisitions
- -25%.
12
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 16th day of October, 1997, is
by and between Alpine Gem Flower Shippers, Inc, a Montana corporation (the
"Company") and a wholly-owned subsidiary of U.S.A. Floral Products, Inc.
("USFloral"), a Delaware corporation, and John Q. Graham, Jr. ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term").
2. Position and Duties. The Company hereby employs Employee as President.
-------------------
As such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of the president of the Company. Employee will report
directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote all of his professional time, attention, and efforts to
promote and further the business of the Company. Employee shall faithfully
adhere to, execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $80,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times as are, specified in Exhibit A attached hereto. The
amount, manner of payment, and form of consideration, if any, shall be
determined by the Board, in its sole and absolute discretion, and such
determination shall be binding and final. To the extent that such bonus is to
be determined in light of financial performance during a specified fiscal period
and this Agreement commences on a date after the start of such fiscal
<PAGE>
period, any bonus payable in respect of such fiscal period's results may be
prorated. In addition, if the period of Employee's employment hereunder expires
before the end of a fiscal period, and if Employee is eligible to receive a
bonus at such time (such eligibility being subject to the restrictions set forth
in Section 6 below), any bonus payable in respect of such fiscal period's
results may be prorated.
(c) Stock Options. Upon execution of this Agreement, the Company shall
grant Employee options to purchase 50,000 shares of the Company's common stock,
which shall vest at the rate of 25% per year, commencing one year from the date
of grant. The options will have an exercise price equal to the initial public
offering price per share.
(d) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. The parties agree that Employee will not be
--------------------
required by the Company to relocate from his present residence to another
geographic location. However, if Employee agrees to relocate upon request by
the Company, the Company will provide Employee with a relocation allowance, in
an amount determined by the Company, to assist Employee in covering the costs of
moving himself, his immediate family, and their personal property and effects.
The total amount and type of costs to be covered shall be determined by the
Company, in light of prevailing Company policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable
2
<PAGE>
period), the Company may terminate Employee's employment hereunder if Employee
is unable to resume his full-time duties at the conclusion of such notice
period. Subject to Section 6(f) below, if Employee's employment is terminated
as a result of Employee's disability, the Company shall continue to pay Employee
his base salary at the then-current rate for the lesser of (i) twelve months
from the effective date of termination, or (ii) whatever time period is
remaining under the then-current period of the Term (without regard to renewals
thereof). Such payments shall be made in accordance with the Company's regular
payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company or USFloral, and that in
the judgment of the Company or USFloral materially and adversely affects the
operations or reputation of the Company or USFloral; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for whatever time period is remaining under the then-current period of
the Term (without regard to renewals thereof). Such payments shall be made in
accordance with the Company's regular payroll cycle. If Employee resigns or
otherwise terminates his employment for any reason or for no reason, Employee
shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had
3
<PAGE>
remained employed by the Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above and Exhibit A attached hereto. Except as specified in the
preceding two sentences, Employee shall not be entitled to receive any incentive
bonus compensation after the effective date of termination of his employment.
All other rights and obligations of USFloral, the Company, and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employee's obligations under Sections 7, 8, 9 and 10 below shall survive such
termination in accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USFloral on an "at will" basis, for the duration of such period, and
thereafter for a period equal to the longer of (x) two years, or (y) the period
during which Employee is receiving any severance pay from the Company, Employee
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, company, partnership, corporation, business, group, or
other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or
USFloral including without limitation the importing, brokerage, shipping or
marketing of floral products, or any business engaging in the consolidation of
the floral industry, within the United States (the "Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company or USFloral for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company or
USFloral;
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USFloral within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USFloral within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company or USFloral
was either called
4
<PAGE>
upon by the Company or USFloral as a prospective acquisition candidate or was
the subject of an acquisition analysis conducted by the Company or USFloral.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USFloral and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or
USFloral, Employee shall not be chargeable with a violation of this Section 7 if
the Company or USFloral subsequently enters the same (or a similar) competitive
business or activity or commences competitive operations within 100 miles of the
Employee's new business or activities. In addition, if Employee has no actual
knowledge that his actions violate the terms of this Section 7, Employee shall
not be deemed to have breached the restrictive covenants contained herein if,
promptly after being notified by the Company or USFloral of such breach,
Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "USFloral" shall mean
U.S.A. Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USFloral, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by USFloral or the Company of such
covenants; provided, that upon the failure of the Company to make any payments
--------
required under this Agreement, the Employee may, upon 30 days' prior written
notice to the Company, waive his right to receive any additional compensation
pursuant to this Agreement and engage in any activity prohibited by the
covenants of this Section 7. It is specifically agreed that the period of two
years stated at the beginning of this Section 7, during which the agreements and
covenants of Employee made in this Section 7 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this Section 7.
5
<PAGE>
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above. If Employee is subject to a restriction on
competitive activity as a party to that certain Agreement and Plan of
Contribution, dated as of July __, 1997, by and among USFloral, AGFS Acquisition
Corp., the Company, Employee and Diane L. Graham (the "Merger Agreement"), then
Employee shall abide by, and in all cases be subject to, the restrictive
covenants (whether in this Section 7 or in the Merger Agreement) that, in the
aggregate, impose restrictions on Employee for the longest duration and the
broadest geographic scope (taking into account the effect of any applicable
court decisions limiting the scope or duration of such restrictions), it being
agreed that all such restrictive covenants are supported by separate and
distinct consideration. This Section 7(g) shall be construed and interpreted in
light of the duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USFloral, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company and USFloral throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USFloral (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company and/or USFloral because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USFloral's business and trade, including, without limitation,
technologies, products, processes, plans, clients, personnel, operations, and
business activities. This restriction shall not apply to any Confidential
Information that (a) becomes known generally to the public through no fault of
the Employee; (b) is required by applicable law, legal process, or any order or
mandate of a court or other governmental authority to be disclosed; or (c) is
reasonably believed by Employee, based upon the advice of legal counsel, to be
required to be disclosed in defense of a lawsuit or other legal or
administrative action brought against Employee; provided, that in the case of
--------
clauses (b) or (c), Employee shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons
and circumstances surrounding such disclosure, in order to permit the Company to
seek a
6
<PAGE>
protective order or other appropriate request for confidential treatment of the
applicable Confidential Information.
9. Inventions. Employee shall disclose promptly to the Company and
----------
USFloral any and all significant conceptions and ideas for inventions,
improvements, and valuable discoveries, whether patentable or not, that are
conceived or made by Employee, solely or jointly with another, during the period
of employment or within one year thereafter, and that are directly related to
the business or activities of the Company or USFloral and that Employee
conceives as a result of his employment by the Company, regardless of whether or
not such ideas, inventions, or improvements qualify as "works for hire."
Employee hereby assigns and agrees to assign all his interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments, or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USFloral or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USFloral, whether in paper, electronic, or other form; and (c) all
keys, credit cards, vehicles, and other property of the Company or USFloral.
Employee shall not retain or cause to be retained any copies of the foregoing.
Employee hereby agrees that all of the foregoing shall be and remain the
property of the Company or USFloral, as the case may be, and be subject at all
times to their discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills.
7
<PAGE>
Employee agrees, therefore, that he cannot assign all or any portion of his
performance under this Agreement. This Agreement may not be assigned or
transferred by the Company without the prior written consent of Employee.
Subject to the preceding two sentences, this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors, and assigns.
Notwithstanding the foregoing, if Employee accepts employment with a subsidiary
or affiliate of USFloral other than the Company, unless Employee and his new
employer agree otherwise in writing, this Agreement shall automatically be
deemed to have been assigned to such new employer (which shall thereafter be an
additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer. If the Company
is merged with or into another subsidiary or affiliate of USFloral, such action
shall not be considered to cause an assignment of this Agreement, and the
surviving or successor entity shall become the beneficiary of this Agreement and
all references to the "Company" shall be deemed to refer to such surviving or
successor entity. It is intended that USFloral will be a third-party beneficiary
of the rights of the Company under this Agreement. No other Person shall be a
third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement together with the Merger Agreement, is the final,
complete, and exclusive statement and expression of the agreement between the
Company and Employee with respect to the subject matter hereof and thereof, and
cannot be varied, contradicted, or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by a writing signed by the party waiving the benefit of such term.
8
<PAGE>
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: Alpine Gem Flower Shippers, Inc.
P.O. Box 1058, 307 Madison
Thompson Falls, Montana 59873
Attention: Secretary
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
To Employee: John Q. Graham, Jr.
280 Childs Road
Trout Creek, Montana 59874
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USFloral as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USFloral for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USFloral
at law or in equity, the Company and USFloral shall be entitled to specific
performance and any injunctive or other equitable relief as a remedy for any
breach or threatened breach of the aforementioned restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the
9
<PAGE>
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. A decision by a majority of the
arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company. Each party shall bear its
own counsel fees. The arbitration proceeding shall be held in the city where
the Company is located. Notwithstanding the foregoing, the Company and/or
USFloral shall be entitled to seek injunctive or other equitable relief, as
contemplated by Section 17 above, from any court of competent jurisdiction,
without the need to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Montana, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
ALPINE GEM FLOWER SHIPPERS, INC.
By: /s/ John Q. Graham, Jr.
___________________________
Name: John Q. Graham, Jr.
Title: President
EMPLOYEE:
/s/ John Q. Graham, Jr.
- -----------------------------------
John Q. Graham, Jr.
10
<PAGE>
EXHIBIT A
---------
Under USFloral's Incentive Bonus Plan, Employee will be eligible to earn up to
100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of Directors of USFloral or a compensation
committee thereof, depending upon the achievement of specified criteria and
payable in the form of cash, stock options, or other non-cash awards, in such
proportions, and in such forms, as are determined by the Board of Directors of
USFloral or a compensation committee thereof. Bonuses under the Incentive Bonus
Plan will be determined by measuring Employee's performance, the Company's
performance and USFloral's performance based on the following criteria, weighted
as indicated, and measured against target performance levels established by the
Board of Directors of USFloral or such compensation committee: (i) USFloral's
profit - 25%, (ii) the profit of the Company - 50% and (iii) revenue growth of
the Company due to acquisitions -25%.
11
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 16th day of October, 1997, is
by and between United Wholesale Florists, Inc., an Arkansas corporation (the
"Company") and a wholly-owned subsidiary of U.S.A. Floral Products, Inc.
("USAF"), a Delaware corporation, and Raymond R. Ashmore ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term"), which Term shall be automatically renewed for an
additional one year period unless notice is given by the Company or USAF to
Employee of its desire not to renew this Employment Agreement no less than six
months prior to the end of the Term.
2. Position and Duties. The Company hereby employs Employee as President.
-------------------
As such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of the president of the Company. Employee will report
directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote all of his professional time, attention, and efforts to
promote and further the business of the Company. Employee shall faithfully
adhere to, execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
<PAGE>
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive bonus up to the amount, based upon the criteria, and
payable at such times as are, specified in Exhibit A attached hereto. The
amount, manner of payment, and form of consideration, if any, shall be
determined by the Board, in its sole and absolute discretion, and such
determination shall be binding and final. To the extent that such bonus is to
be determined in light of financial performance during a specified fiscal period
and this Agreement commences on a date after the start of such fiscal period,
any bonus payable in respect of such fiscal period's results may be prorated.
In addition, if the period of Employee's employment hereunder expires before the
end of a fiscal period, and if Employee is eligible to receive a bonus at such
time (such eligibility being subject to the restrictions set forth in Section 6
below), any bonus payable in respect of such fiscal period's results may be
prorated.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee understands that he may be requested by
--------------------
the Company to relocate from his present residence to another geographic
location in order to more efficiently carry out his duties and responsibilities
under this Agreement or as part of a promotion or a change in duties and
responsibilities. In such event, if Employee consents to relocate, which
consent may be given or withheld by Employee in his sole and absolute
discretion, the Company will provide Employee with a relocation allowance, in an
amount determined by the Company, to assist Employee in covering the costs of
moving himself, his immediate family, and their personal property and effects.
The total amount and type of costs to be covered shall be determined by the
Company, in light of prevailing Company policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
2
<PAGE>
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to resume his full-time
duties at the conclusion of such notice period. Subject to Section 6(f) below,
if Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee his base salary at the then-current rate
for the lesser of (i) twelve months from the effective date of termination, or
(ii) whatever time period is remaining under the then-current period of the Term
(without regard to renewals thereof). Such payments shall be made in accordance
with the Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company or USAF, and that in the
judgment of the Company or USAF materially and adversely affects the operations
or reputation of the Company or USAF; (iv) Employee's conviction of a felony or
other crime involving moral turpitude; or (v) Employee's abuse of alcohol or
drugs (legal or illegal) that, in the Company's judgment, materially impairs
Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for whatever time period is remaining under the then-current period of
the Term (without regard to renewals thereof). Such payments shall be made in
accordance with the Company's regular payroll cycle. If Employee resigns or
otherwise terminates his employment for any reason or for no reason, Employee
shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of
3
<PAGE>
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided above in this Section 6. With respect to incentive bonus compensation,
Employee shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had remained employed by the Company through
the end of such fiscal year, and paid in such amounts, at such times, and in
such forms as are determined pursuant to Section 3(b) above and Exhibit A
attached hereto. Except as specified in the preceding two sentences, Employee
shall not be entitled to receive any incentive bonus compensation after the
effective date of termination of his employment. All other rights and
obligations of USAF, the Company, and Employee under this Agreement shall cease
as of the effective date of termination, except that Employee's obligations
under Sections 7, 8, 9 and 10 below shall survive such termination in
accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USAF on an "at will" basis, for the duration of such period, and thereafter
for a period equal to the longer of (x) two years, or (y) the period during
which Employee is receiving any severance pay from the Company, Employee shall
not, directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation, business, group, or other
entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or USAF,
including without limitation the importing, brokerage, shipping or marketing of
floral products, or any business engaging in the consolidation of the floral
industry within the United States of America, within the United States (the
"Territory");
(ii) call upon any Person who is, at that time, within the Territory, an
employee of the Company or USAF for the purpose or with the intent of enticing
such employee away from or out of the employ of the Company or USAF;
4
<PAGE>
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USAF within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USAF within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call upon
any Person who or that, during Employee's employment by the Company or USAF was
either called upon by the Company or USAF as a prospective acquisition candidate
or was the subject of an acquisition analysis conducted by the Company or USAF.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USAF and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or USAF,
Employee shall not be chargeable with a violation of this Section 7 if the
Company or USAF subsequently enters the same (or a similar) competitive business
or activity. In addition, if Employee has no actual knowledge that his actions
violate the terms of this Section 7, Employee shall not be deemed to have
breached the restrictive covenants contained herein if, promptly after being
notified by the Company or USAF of such breach, Employee ceases the prohibited
actions.
(d) For purposes of this Section 7, references to "USAF" shall mean U.S.A.
Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USAF, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by USAF or the Company of such covenants; provided,
--------
that upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon 30 days' prior written notice to the Company,
waive
5
<PAGE>
his right to receive any additional compensation pursuant to this Agreement and
engage in any activity prohibited by the covenants of this Section 7. It is
specifically agreed that the period of two years stated at the beginning of this
Section 7, during which the agreements and covenants of Employee made in this
Section 7 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this Section 7.
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USAF, and their respective
officers, directors, employees, and stockholders. It is further agreed that the
Company and Employee intend that such covenants be construed and enforced in
accordance with the changing activities, business, and locations of the Company
and USAF throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USAF (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company and/or USAF because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USAF's business and trade, including, without limitation,
technologies, products, processes, plans, clients, personnel, operations, and
business activities. This restriction shall not apply to any Confidential
Information that (a) becomes known generally to the public through no fault of
the Employee; (b) is required by applicable law, legal process, or any order or
mandate of a court or other governmental authority to be disclosed; or (c) is
reasonably believed by Employee, based upon the advice of legal counsel, to be
required to be disclosed in defense of a lawsuit or other legal or
administrative action brought against Employee; provided, that in the case of
--------
clauses (b) or (c), Employee shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons
and circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment
of the applicable Confidential Information.
6
<PAGE>
9. Inventions. Employee shall disclose promptly to the Company and USAF
----------
any and all significant conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, that are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one year thereafter, and that are directly related to the business or
activities of the Company or USAF and that Employee conceives as a result of his
employment by the Company, regardless of whether or not such ideas, inventions,
or improvements qualify as "works for hire." Employee hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USAF or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USAF, whether in paper, electronic, or other form; and (c) all keys,
credit cards, vehicles, and other property of the Company or USAF. Employee
shall not retain or cause to be retained any copies of the foregoing. Employee
hereby agrees that all of the foregoing shall be and remain the property of the
Company or USAF, as the case may be, and be subject at all times to their
discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance
7
<PAGE>
under this Agreement. This Agreement may not be assigned or transferred by the
Company without the prior written consent of Employee. Subject to the preceding
two sentences, this Agreement shall be binding upon, inure to the benefit of,
and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors, and assigns. Notwithstanding the foregoing, if
Employee accepts employment with a subsidiary or affiliate of USAF other than
the Company, unless Employee and his new employer agree otherwise in writing,
this Agreement shall automatically be deemed to have been assigned to such new
employer (which shall thereafter be an additional or substitute beneficiary of
the covenants contained herein, as appropriate), with the consent of Employee,
such assignment shall be considered a condition of employment by such new
employer, and references to the "Company" in this Agreement shall be deemed to
refer to such new employer. If the Company is merged with or into another
subsidiary or affiliate of USAF, such action shall not be considered to cause an
assignment of this Agreement, and the surviving or successor entity shall become
the beneficiary of this Agreement and all references to the "Company" shall be
deemed to refer to such surviving or successor entity. It is intended that USAF
will be a third-party beneficiary of the rights of the Company under this
Agreement. No other Person shall be a third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: United Wholesale Florists, Inc.
3801 Woodland Heights Rd.
Suite 200
Little Rock, AR 72212
Attention: Secretary
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
Attention: Robert Poirier
8
<PAGE>
To Employee: Raymond R. Ashmore
29 Cascade Drive
Little Rock, AR 72212
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USAF as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USAF for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USAF at
law or in equity, the Company and USAF shall be entitled to specific performance
and any injunctive or other equitable relief as a remedy for any breach or
threatened breach of the aforementioned restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the principal office of
the Company is located. Notwithstanding the foregoing, the Company and/or USAF
shall be entitled to seek injunctive or other equitable relief, as contemplated
by Section 17 above, from any court of competent jurisdiction, without the need
to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Arkansas, without regard to its conflict
of laws principles.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
UNITED WHOLESALE FLORISTS, INC.
By: /s/ Raymond R. Ashmore
-------------------------------------
Name: Raymond R. Ashmore
Title: President
EMPLOYEE:
/s/ Raymond R. Ashmore
- -----------------------------------
Raymond R. Ashmore
10
<PAGE>
EXHIBIT A
---------
Under USAF's Incentive Bonus Plan, Employee will be eligible to earn up to 100%
of Employee's base salary in bonus compensation, payable out of a bonus pool
determined by the Board of Directors of USAF or a compensation committee
thereof, depending upon the achievement of specified criteria and payable in the
form of cash, stock options, or other non-cash awards, in such proportions, and
in such forms, as are determined by the Board of Directors of USAF or a
compensation committee thereof. Bonuses under the Incentive Bonus Plan will be
determined by measuring Employee's performance, the Company's performance and
USAF's performance based on the following criteria, weighted as indicated, and
measured against target performance levels established by the Board of Directors
of USAF or such compensation committee: (i) USAF's profit - 25%, (ii) the profit
of the Company - 50% and (iii) revenue growth of the Company due to acquisitions
- - 25%.
11
<PAGE>
EXHIBIT 20.01
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 16th day of October, 1997, is
by and between American Florist Supply, Inc., a Massachusetts corporation (the
"Company") and a wholly-owned subsidiary of U.S.A. Floral Products, Inc.
("USFloral"), a Delaware corporation, and John T. Dickinson ("Employee").
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Agreement and Plan of Contribution ("Agreement") of even date
herewith.
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term"), which Term shall be automatically renewed for an
additional one year period unless notice is given by the Company or USFloral to
Employee of its desire not to renew this Employment Agreement no less than six
months prior to the end of the Term.
2. Position and Duties. The Company hereby employs Employee as President.
-------------------
As such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of a president of the Company. Employee will report
directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote all of his professional time, attention, and efforts to
promote and further the business of the Company. Employee shall faithfully
adhere to, execute, and fulfill all policies established by the Company.
3. Compensation. For all services rendered by Employee, the Company shall
------------
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
(b) Incentive Bonus. During the Term, Employee shall be eligible to
receive an incentive
<PAGE>
bonus up to the amount, based upon the criteria, and payable at such times as
are, specified in Exhibit A attached hereto. The amount, manner of payment, and
form of consideration, if any, shall be determined by the Board of Directors of
USFloral or a compensation committee thereof in its sole and absolute
discretion, and such determination shall be binding and final. To the extent
that such bonus is to be determined in light of financial performance during a
specified fiscal period and this Agreement commences on a date after the start
of such fiscal period, any bonus payable in respect of such fiscal period's
results may be prorated. In addition, if the period of Employee's employment
hereunder expires before the end of a fiscal period, and if Employee is eligible
to receive a bonus at such time (such eligibility being subject to the
restrictions set forth in Section 6 below), any bonus payable in respect of such
fiscal period's results may be prorated.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board. In addition, Employee shall be entitled to receive the following
additional benefits and/or compensation:
i. Option Grant. Employee shall be granted options to purchase
------------
50,000 shares of USFloral Stock, to be exercisable at the price
at which the USFloral Stock is offered in the IPO. The stock
options shall be granted under the terms of USFloral's 1997 Long-
Term Incentive Plan, shall permit cashless exercise, and shall
vest over a four year period.
ii. Board Seat. Employee shall be offered a seat on the Board of
----------
Directors of USFloral on the same terms and conditions as apply
to all other founding companies of USFloral.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. The parties agree that Employee will not be
--------------------
required by the Company to relocate from his present residence to another
geographic location. However, if Employee agrees to relocate upon request by
the Company, the Company will provide Employee with a relocation allowance, in
an amount determined by the Company, to assist Employee in covering the costs of
moving himself, his immediate family, and their personal property and effects.
The total amount and type of costs to be covered shall be determined by the
Company, in light of prevailing Company policy at the time.
2
<PAGE>
6. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to resume his full-time
duties at the conclusion of such notice period. Subject to Section 6(f) below,
if Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee his base salary at the then-current rate
for the lesser of (i) twelve months from the effective date of termination, or
(ii) whatever time period is remaining under the then-current period of the Term
(without regard to renewals thereof). Such payments shall be made in accordance
with the Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
refusal to abide by or comply with the directives of the Board, his superior
officers, or the Company's policies and procedures, which actions continue for a
period of at least 10 days after receipt by Employee of written notice of the
need to cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct
with respect to the business or affairs of the Company or USFloral, and that in
the judgment of the Company or USFloral materially and adversely affects the
operations or reputation of the Company or USFloral; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 6(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for whatever time period is remaining under the then-current period of
the Term (without regard to renewals thereof). Such payments shall be made in
accordance with the Company's regular payroll cycle. If Employee resigns or
otherwise terminates his employment for any reason or for no reason, Employee
shall receive no severance compensation.
3
<PAGE>
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b) or 6(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Company's fiscal year in which termination
occurs, calculated as if Employee had remained employed by the Company through
the end of such fiscal year, and paid in such amounts, at such times, and in
such forms as are determined pursuant to Section 3(b) above and Exhibit A
attached hereto. Except as specified in the preceding two sentences, Employee
shall not be entitled to receive any incentive bonus compensation after the
effective date of termination of his employment. All other rights and
obligations of USFloral, the Company, and Employee under this Agreement shall
cease as of the effective date of termination, except that Employee's
obligations under Sections 7, 8, 9 and 10 below shall survive such termination
in accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 6, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment.
7. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USFloral on an "at will" basis, for the duration of such period, and
thereafter for a period equal to the longer of (x) two years, or (y) the period
during which Employee is receiving any severance pay from the Company, Employee
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, company, partnership, corporation, business, group, or
other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company or
USFloral, within the United States (the "Territory");
(ii) call upon any Person who is, at that time, within the Territory,
an employee of the Company or USFloral for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company or
USFloral;
4
<PAGE>
(iii) call upon any Person who or that is, at that time, or has been,
within one year prior to that time, a customer of the Company or USFloral within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company or USFloral within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor, call
upon any Person who or that, during Employee's employment by the Company or
USFloral was either called upon by the Company or USFloral as a prospective
acquisition candidate or was the subject of an acquisition analysis conducted by
the Company or USFloral.
(b) The foregoing covenants shall not be deemed to prohibit Employee from
(i) acquiring as an investment not more than one percent of the capital stock of
a competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association
(ii) engaging in any activity to which USFloral shall have provided its prior
written consent, or (iii) maintaining his directorship in the Meadow Flower,
S.A. rose farm, located in Ecuador.
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USFloral and enters into a business or pursues other
activities that, at such time, are not in competition with the Company or
USFloral, Employee shall not be chargeable with a violation of this Section 7 if
the Company or USFloral subsequently enters the same (or a similar) competitive
business or activity or commences competitive operations within 100 miles of the
Employee's new business or activities. In addition, if Employee has no actual
knowledge that his actions violate the terms of this Section 7, Employee shall
not be deemed to have breached the restrictive covenants contained herein if,
promptly after being notified by the Company or USFloral of such breach,
Employee ceases the prohibited actions.
(d) For purposes of this Section 7, references to "USFloral" shall mean USA
Floral Products, Inc., together with its subsidiaries and affiliates.
(e) The covenants in this Section 7 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 7 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that such court deems reasonable
and enforceable and this Agreement shall automatically be considered to have
been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USFloral, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by USFloral or the Company of such
covenants;
5
<PAGE>
provided, that upon the failure of the Company to make any payments required
- --------
under this Agreement, the Employee may, upon 30 days' prior written notice to
the Company, waive his right to receive any additional compensation pursuant to
this Agreement and engage in any activity prohibited by the covenants of this
Section 7. It is specifically agreed that the period of two years stated at the
beginning of this Section 7, during which the agreements and covenants of
Employee made in this Section 7 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 7.
(g) If the time period specified by this Section 7 shall be reduced by law
or court decision, then, notwithstanding the provisions of Section 6 above,
Employee shall be entitled to receive from the Company his base salary at the
rate then in effect solely for the longer of (i) the time period during which
the provisions of this Section 7 shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above. If Employee is subject to a restriction on
competitive activity as a party to that certain Amended and Restated Agreement
and Plan of Contribution, dated as of August 5, 1997, by and among USFloral, AFS
Acquisition Corp., the Company and the stockholders of the Company (the "Merger
Agreement"), then Employee shall abide by, and in all cases be subject to, the
restrictive covenants (whether in this Section 7 or in the Merger Agreement)
that, in the aggregate, impose restrictions on Employee for the longest duration
and the broadest geographic scope (taking into account the effect of any
applicable court decisions limiting the scope or duration of such restrictions),
it being agreed that all such restrictive covenants are supported by separate
and distinct consideration. This Section 7(g) shall be construed and
interpreted in light of the duration of the applicable restrictive covenants.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USFloral, and their
respective officers, directors, employees, and stockholders. It is further
agreed that the Company and Employee intend that such covenants be construed and
enforced in accordance with the changing activities, business, and locations of
the Company and USFloral throughout the term of these covenants.
8. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USFloral (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company and/or USFloral because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USFloral's business and trade, including, without limitation,
technologies, products, processes, plans, clients, personnel, operations, and
business activities. This restriction shall not apply to any Confidential
Information that (a)
6
<PAGE>
becomes known generally to the public through no fault of the Employee; (b) is
required by applicable law, legal process, or any order or mandate of a court or
other governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
--------
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. Inventions. Employee shall disclose promptly to the Company and
----------
USFloral any and all significant conceptions and ideas for inventions,
improvements, and valuable discoveries, whether patentable or not, that are
conceived or made by Employee, solely or jointly with another, during the period
of employment or within one year thereafter, and that are directly related to
the business or activities of the Company or USFloral and that Employee
conceives as a result of his employment by the Company, regardless of whether or
not such ideas, inventions, or improvements qualify as "works for hire."
Employee hereby assigns and agrees to assign all his interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments, or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USFloral or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USFloral, whether in paper, electronic, or other form; and (c) all
keys, credit cards, vehicles, and other property of the Company or USFloral.
Employee shall not retain or cause to be retained any copies of the foregoing.
Employee hereby agrees that all of the foregoing shall be and remain the
property of the Company or USFloral, as the case may be, and be subject at all
times to their discretion and control.
11. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent
7
<PAGE>
that Employee had any oral or written employment agreement or understanding with
the Company, this Agreement shall automatically supersede such agreement or
understanding, and upon execution of this Agreement by Employee and the Company,
such prior agreement or understanding automatically shall be deemed to have been
terminated and shall be null and void.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USFloral other than the Company,
unless Employee and his new employer agree otherwise in writing, this Agreement
shall automatically be deemed to have been assigned to such new employer (which
shall thereafter be an additional or substitute beneficiary of the covenants
contained herein, as appropriate), with the consent of Employee, such assignment
shall be considered a condition of employment by such new employer, and
references to the "Company" in this Agreement shall be deemed to refer to such
new employer. If the Company is merged with or into another subsidiary or
affiliate of USFloral, such action shall not be considered to cause an
assignment of this Agreement, and the surviving or successor entity shall become
the beneficiary of this Agreement and all references to the "Company" shall be
deemed to refer to such surviving or successor entity. It is intended that
USFloral will be a third-party beneficiary of the rights of the Company under
this Agreement. No other Person shall be a third-party beneficiary.
13. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement together with the Merger Agreement, is the final,
complete, and exclusive statement and expression of the agreement between the
Company and Employee with respect to the subject matter hereof and thereof, and
cannot be varied, contradicted, or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by a writing signed by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: American Florist Supply, Inc.
200 Wildwood Street
Woburn, Massachusetts 01801
Attention: Secretary
8
<PAGE>
with a copy to: U.S.A. Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
To Employee: John T. Dickinson
18 Wheeler Road
Lincoln, Massachusetts 01773
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USFloral as a result of a breach of the restrictive
covenants set forth in Sections 7, 8, 9 and 10, and because of the immediate and
irreparable damage that would be caused to the Company and/or USFloral for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USFloral
at law or in equity, the Company and USFloral shall be entitled to specific
performance and any injunctive or other equitable relief as a remedy for any
breach or threatened breach of the aforementioned restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the Company is located.
Notwithstanding the foregoing, the Company and/or USFloral shall be entitled to
seek injunctive or other equitable relief, as contemplated by Section 17 above,
from any court of competent jurisdiction, without the need to resort to
arbitration.
9
<PAGE>
19. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
AMERICAN FLORIST SUPPLY, INC.
By: /s/ John T. Dickinson
------------------------------------
Name: John T. Dickinson
Title: President
EMPLOYEE:
/s/ John T. Dickinson
- ----------------------------------
John T. Dickinson
10
<PAGE>
EXHIBIT A
---------
Under USFloral's Incentive Bonus Plan, Employee will be eligible to earn up to
100% of Employee's base salary in bonus compensation, payable out of a bonus
pool determined by the Board of Directors of USFloral or a compensation
committee thereof, depending upon the achievement of specified criteria and
payable in the form of cash, stock options, or other non-cash awards, in such
proportions, and in such forms, as are determined by the Board of Directors of
USFloral or a compensation committee thereof. Bonuses under the Incentive Bonus
Plan will be determined by measuring Employee's performance, the Company's
performance and USFloral's performance based on the following criteria, weighted
as indicated, and measured against target performance levels established by the
Board of Directors of USFloral or such compensation committee: (i) USFloral's
profit - 25%, (ii) the profit of the Company - 50% and (iii) revenue growth of
the Company due to acquisitions -25%.
11
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 16th day of October, 1997, is by
and between FLOWER TRADING CORPORATION, a Florida corporation (the "Company")
and a wholly owned subsidiary of U.S.A. Floral Products, Inc. ("USAF"), a
Delaware corporation, and Gustavo Moreno ("Employee").
RECITALS
The Company desires to continue to employ Employee and to have the benefit
of his skills and services, and Employee desires to continue employment with the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. The Company hereby employs Employee to perform the
----------------
duties described herein, and Employee hereby accepts employment with the
Company, for a term beginning on the date hereof and continuing for a period of
two years (the "Term").
2. Position and Duties. The Company hereby employs Employee as President
-------------------
and Chief Executive Officer. As such, Employee shall have responsibilities,
duties and authority reasonably accorded to and expected of a president and
chief executive officer of the Company. Employee will report directly to the
Board of Directors of the Company (the "Board"). All other employees and
officers of the Company will report to the Employee. Employee hereby accepts
this employment upon the terms and conditions herein contained and agrees to
devote a majority of his professional time, attention, and efforts to promote
and further the business of the Company. Employee shall faithfully adhere to,
execute, and fulfill all policies established by the Company. During the Term,
the Company's principal executive office shall be located in Dade County,
Florida and Employee shall not be required to be based in any other offices.
3. Compensation. For all services rendered by Employee (including the
------------
restriction on competition contained in Section 6 hereof and Section 14 of the
Agreement and Plan of Contribution dated August 4, 1997), the Company shall
compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary payable to
Employee shall be $270,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures, but not less than monthly. On
at least an annual basis, the Board will review Employee's performance and may
make increases to such base salary if, in its sole discretion, any such increase
is warranted.
<PAGE>
(b) Incentive Bonus. During the Term, Employee shall be a participant in
USAF's Incentive Bonus Plan and be eligible to receive an incentive bonus up to
the amount, based upon the criteria, and payable at such times as are, specified
in Exhibit A attached hereto. The amount, manner of payment, and form of
consideration, if any, shall be determined by the Board in its sole and absolute
discretion, and such determination shall be binding and final. To the extent
that such bonus is to be determined in light of financial performance during a
specified fiscal period and this Agreement commences on a date after the start
of such fiscal period, any bonus payable in respect of such fiscal period's
results may be prorated. In addition, if the period of Employee's employment
hereunder expires before the end of a fiscal period, Employee will be eligible
to receive a bonus in accordance with the terms of Section 6 hereof. Employee's
participation in USAF's Incentive Bonus Plan shall be on the same terms as all
the presidents of the other subsidiaries of USAF.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive all perquisites and benefits as are
customarily provided by the Company to its employees, subject to such changes,
additions, or deletions as the Company may make generally from time to time, as
well as such other perquisites or benefits as may be specified from time to time
by the Board. Employee shall be covered by a director and officer insurance
policy of either the Company or USAF. During the Term, the Company shall
continue to make all payments under the current automobile lease for the
Employee and shall lease a comparable automobile on his behalf upon the
expiration of such lease.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Termination; Rights on Termination. Employee's employment may be
----------------------------------
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the Term, and
no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been unable to perform the material
duties of his position on a full-time basis for a period of four consecutive
months, or for a total of four months in any six-month period, then 30 days
after written notice to the Employee (which notice may be given before or after
the end of the aforementioned periods, but which shall not be effective earlier
than the last day of the applicable period), the Company may terminate
Employee's employment hereunder if Employee is unable to resume his full-time
duties at the conclusion of such notice period. Subject to Section 5(f) below,
if Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee his base salary at the then-current rate
for the lesser of (i) 12 months from
2
<PAGE>
the effective date of termination, or (ii) whatever time period is remaining
under the then-current period of the Term. Such payments shall be made in
accordance with the Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may terminate the
Term 10 days after written notice to Employee "for cause," which shall be: (i)
Employee's material breach of this Agreement, which breach is not cured within
10 days of receipt by Employee of written notice from the Company specifying the
breach; (ii) Employee's gross negligence in the performance of his duties
hereunder, intentional nonperformance or mis-performance of such duties, or
intentional refusal to abide by or comply with the directives of the Board, or
the Company's policies and procedures, which actions continue for a period of at
least 10 days after receipt by Employee of written notice of the need to cure or
cease; (iii) Employee's willful dishonesty or fraud, with respect to the
business or affairs of the Company or USAF, and that in the reasonable judgment
of the Company or USAF materially and adversely affects the operations or
reputation of the Company or USAF; (iv) Employee's conviction of a felony or
other crime involving moral turpitude; or (v) Employee's abuse of alcohol or
drugs (legal or illegal) that, in the Company's reasonable judgment (confirmed
by a medical doctor), materially impairs Employee's ability to perform his
duties hereunder. In the event of a termination "for cause," as enumerated
above, Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment, the
Company may, without cause, terminate the Term and Employee's employment,
effective 30 days after written notice is provided to the Employee. Should
Employee be terminated by the Company without cause, subject to Section 5(f)
below, Employee shall receive from the Company the base salary at the rate then
in effect for whatever time period is remaining under the then-current period of
the Term. Such payments shall be made in accordance with the Company's regular
payroll cycle. If Employee resigns or otherwise terminates his employment for
any reason or for no reason, Employee shall receive no severance compensation.
(e) Payment Through Termination. Upon termination of Employee's employment
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 5. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 5(b) or 5(d), Employee shall be entitled to receive incentive bonus
compensation through the end of the Term, calculated as if Employee had remained
employed by the Company through the end of the Term, and paid in such amounts,
at such times, and in such forms as are determined pursuant to Section 3(b)
above and Exhibit A attached hereto. Except as specified in the preceding two
sentences, Employee shall not be entitled to receive any incentive bonus
compensation after the effective date of termination of his employment. All
other rights and obligations of USAF, the
3
<PAGE>
Company, and Employee under this Agreement shall cease as of the effective date
of termination, except that Employee's obligations under Sections 6, 7, 8 and 9
below shall survive such termination in accordance with their terms.
(f) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided that, in the event that Employee secures employment
--------
or any consulting or other similar arrangement during the period that any
payment is continuing pursuant to the provisions of this Section 5, the Company
shall have the right to reduce the amounts to be paid hereunder by the amount of
Employee's earnings from such other employment, except that no such reduction
shall be made for Employee's earnings from the companies referred to by name in
Section 6(b) hereof.
(g) Upon termination for disability or without cause, Employee shall
continue in all of the benefit plans of the Company for a period of twelve
months. Also, upon any termination, Employee will have the right to buy any
existing life insurance policy from the Company.
6. Restriction on Competition.
--------------------------
(a) During the Term, and thereafter, if Employee continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or USAF on an "at will" basis, for the duration of such period, and thereafter
for a period equal to the longer of (x) two years, or (y) the period during
which Employee is receiving any severance pay from the Company, Employee shall
not, directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation, business, group, or other
entity (each, a "Person"):
(i) except as otherwise provided in this Section 6, engage, as an
officer, director, shareholder, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in any business selling any products
or services in direct competition with the Company or USAF that involves the
importing, brokerage, shipping or marketing of floral products, or any business
engaging in the consolidation of the floral industry within the United States;
(ii) call upon any person who is, at that time within the United States,
an employee of USAF or any subsidiary of USAF in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of the
employ of USAF or such subsidiary;
(iii) except as otherwise provided in this Section 6, call upon any
person or entity which is, at that time, or which has been, within one year
prior to that time, a customer of the Company or USAF within the United States
for the purpose of soliciting or selling floral products within the United
States;
4
<PAGE>
(iv) call upon any prospective acquisition candidate, on Employee's own
behalf or on behalf of any competitor, which candidate was either called upon by
the Company or USAF or was the subject of an acquisition analysis conducted by
the Company or USAF; or
(v) disclose customers, whether in existence or proposed, of the Company
or USAF to any person, firm, partnership, corporation or business (other than
UltraFlora, Multiflora C.I., S.A. or Artistry in Bloom, Inc.) for any reason or
purpose whatsoever.
(b) Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from (i) acquiring as an investment not more than one
percent of the capital stock of a competing business, whose stock is traded on a
national securities exchange or in the over-the-counter market or (ii) engaging
in any activity to which USAF shall have provided its prior written consent. In
addition, this Section 6 shall not be deemed to prohibit Employee, if as of the
date hereof, he has an interest, as an owner, operator, creditor, employee or
otherwise, in (i) a retail floral business independent (except as a customer)
Company or (ii) in UltraFlora, Artistry in Bloom, Inc. (or a new entity which
replaces Artistry in Bloom, Inc. and conducts the same type of business as
Artistry in Bloom, Inc., herein called the "Replacer") and Multiflora, as
presently conducted (or to be conducted by the Replacer), from continuing to
maintain such interest. However, Employee may not maintain any interest in
UltraFlora, Artistry in Bloom, Inc. or Multiflora if any such company is in
direct competition with the COMPANIES in the importation of flowers into the
United States (other than UltraFlora's activities as an importer of record for
distribution to supermarkets, convenience stores and mass market retailers).
(c) It is further agreed that, in the event that Employee shall cease to be
employed by the Company or USAF and enters into a business or pursues other
activities that, at such time, are not a breach of this Section 6, Employee
shall not be chargeable with a violation of this Section 6 if the Company or
USAF subsequently enters the same (or a similar) competitive business or
activity or commences competitive operations within 100 miles of the Employee's
new business or activities. In addition, if Employee has no actual knowledge
that his actions violate the terms of this Section 6, Employee shall not be
deemed to have breached the restrictive covenants contained herein if, promptly
after being notified by the Company or USAF of such breach, Employee ceases the
prohibited actions.
(d) For purposes of this Section 6, references to "USAF" shall mean USA
Floral Products, Inc., together with its subsidiaries.
(e) The covenants in this Section 6 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any provision of this Section 6 relating to the time period
or geographic area of the restrictive covenants shall be declared by a court of
competent jurisdiction to exceed the maximum time period or geographic area, as
applicable, that such court deems reasonable and enforceable, said time period
or geographic area shall be deemed to be, and thereafter shall become, the
maximum time period or largest geographic
5
<PAGE>
area that such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 6 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
USAF, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by USAF or the Company of such covenants; provided,
--------
that upon the failure of the Company to make any payments required under this
Agreement, the Employee may, upon 30 days' prior written notice to the Company,
waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
6. It is specifically agreed that the period of two years stated at the
beginning of this Section 6, during which the agreements and covenants of
Employee made in this Section 6 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this Section 6.
(g) If Employee is subject to a restriction on competitive activity as a
party to that certain Agreement and Plan of Contribution, dated as of August 4,
1997, by and among USA Floral Products, Inc., FT Acquisition Corporation, Flower
Trading Corporation, Flowtrad Corporation N.V. and the Stockholders of Flowtrad
Corporation N.V. (the "Merger Agreement"), then Employee shall abide by, and in
all cases be subject to, the restrictive covenants (whether in this Section 6 or
in the Merger Agreement) that, in the aggregate, impose restrictions on Employee
for the longest duration and the broadest geographic scope (taking into account
the effect of any applicable court decisions limiting the scope or duration of
such restrictions), it being agreed that all such restrictive covenants are
supported by separate and distinct consideration. This Section 6(g) shall be
construed and interpreted in light of the duration of the applicable restrictive
covenants.
(h) Employee has carefully read and considered the provisions of this
Section 6 and, having done so, agrees that the restrictive covenants in this
Section 6 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and USAF, and their respective
officers, directors, employees, and stockholders. It is further agreed that the
Company and Employee intend that such covenants be construed and enforced in
accordance with the changing activities, business, and locations of the Company
and USAF throughout the term of these covenants.
7. Confidential Information. Employee hereby agrees to hold in strict
------------------------
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
and/or USAF (including all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Employee has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company and/or USAF because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales, or other valuable aspects of the
Company's and USAF's business and trade,
6
<PAGE>
including, without limitation, technologies, products, processes, plans,
clients, personnel, operations, and business activities. This restriction shall
not apply to any Confidential Information that (a) becomes known generally to
the public through no fault of the Employee; (b) is required by applicable law,
legal process, or any order or mandate of a court or other governmental
authority to be disclosed; (c) is reasonably believed by Employee, based upon
the advice of legal counsel, to be required to be disclosed in defense of a
lawsuit or other legal or administrative action brought against Employee; (d) is
authorized by the Company or USAF to be disclosed; or (e) becomes known to
Employee through his affiliation with the entities set forth in Section 6(b);
provided that, in the case of clauses (b) or (c), Employee shall give the
- --------
Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
8. Return of Company Property. Promptly upon termination of Employee's
--------------------------
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company, USAF or their respective
representatives, vendors, or customers that pertain to the business of the
Company or USAF, whether in paper, electronic, or other form; and (c) all keys,
credit cards, vehicles, and other property of the Company or USAF. Employee
shall not retain or cause to be retained any copies of the foregoing. Employee
hereby agrees that all of the foregoing shall be and remain the property of the
Company or USAF, as the case may be, and be subject at all times to their
discretion and control.
9. No Prior Agreements. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
10. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
7
<PAGE>
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of USAF other than the Company, unless
Employee and his new employer agree otherwise in writing, this Agreement shall
automatically be deemed to have been assigned to such new employer (which shall
thereafter be an additional or substitute beneficiary of the covenants contained
herein, as appropriate), with the consent of Employee, such assignment shall be
considered a condition of employment by such new employer, and references to the
"Company" in this Agreement shall be deemed to refer to such new employer. If
the Company is merged with or into another subsidiary or affiliate of USAF, such
action shall not be considered to cause an assignment of this Agreement, and the
surviving or successor entity shall become the beneficiary of this Agreement
and bound by its terms and all references to the "Company" shall be deemed to
refer to such surviving or successor entity. It is intended that USAF will be a
third-party beneficiary of the rights of the Company under this Agreement. No
other Person shall be a third-party beneficiary.
11. Complete Agreement; Waiver; Amendment. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
12. Notice. Whenever any notice is required hereunder, it shall be in
------
writing and shall be given by overnight courier service or by delivering the
same in person as follows:
If to the Company: Flower Trading Corporation
1950 N.W. 89th Place
Miami, Florida 33172
with a copy to: USA Floral Products, Inc.
3500 Whitehaven Parkway
Washington, DC 20007
and a copy to: John S. Fletcher, Esq.
Morgan, Lewis & Bockius LLP
5300 First Union Financial Center
200 South Biscayne Boulevard
Miami, FL 33131-2339
8
<PAGE>
If to Employee: Gustavo Moreno
c/o Flower Trading Corporation
1950 N.W. 89th Place
Miami, Florida 33172
and a copy to: Bernard Jacobson
Holland & Knight LLP
701 Brickell Avenue
Miami, Florida 33131
Notice shall be deemed given and effective when actually received. Either party
may change the address for notice by notifying the other party of such change in
accordance with this Section 12.
13. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 6(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
14. Equitable Remedy. Because of the difficulty of measuring economic
----------------
losses to the Company and/or USAF as a result of a breach of the restrictive
covenants set forth in Sections 6, 7, and 8, and because of the immediate and
irreparable damage that would be caused to the Company and/or USAF for which
monetary damages would not be a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to the Company or USAF at
law or in equity, the Company and USAF shall be entitled to specific performance
and any injunctive or other equitable relief as a remedy for any breach or
threatened breach of the aforementioned restrictive covenants.
15. Arbitration. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the Company is located.
Notwithstanding the foregoing, the Company and/or USAF shall be entitled to seek
injunctive or other equitable relief, as contemplated by Section 14 above, from
any court of competent jurisdiction, without the need to resort to arbitration.
9
<PAGE>
16. Governing Law. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Florida, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed as of the date first written above.
FLOWER TRADING CORPORATION
By: /s/ Robert J. Poirier
---------------------
Name: Robert J. Poirier
Title: Vice President
EMPLOYEE:
/s/ Gustavo Moreno
___________________________
Gustavo Moreno
10
<PAGE>
EXHIBIT A
---------
Under USAF's Incentive Bonus Plan, Employee will be eligible to earn up to 100%
of Employee's base salary in bonus compensation, payable out of a bonus pool
determined by the Board of Directors of USAF or a compensation committee
thereof, depending upon the achievement of specified criteria and payable in the
form of cash, stock options, or other non-cash awards, in such proportions, and
in such forms, as are determined by the Board of Directors of USAF or a
compensation committee thereof. Bonuses under the Incentive Bonus Plan will be
determined by measuring Employee's performance, the Company's performance and
USAF's performance based on the following criteria, weighted as indicated, and
measured against target performance levels established by the Board of Directors
of USAF or such compensation committee: (i) USAF's profit - 25%, (ii) the
profit of the Company - 50% and (iii) revenue growth of the Company due to
acquisitions -25%.
11
<PAGE>
Exhibit 10.23
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
U.S.A. FLORAL PRODUCTS, INC.,
VARIOUS LENDING INSTITUTIONS,
and
BANKERS TRUST COMPANY,
as AGENT
________________________________
Dated as of October 16, 1997
________________________________
$100,000,000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit..................................... 1
1.01 Commitments..................................................... 1
1.02 Minimum Borrowing Amounts, etc.................................. 3
1.03 Notice of Borrowing............................................. 3
1.04 Disbursement of Funds........................................... 4
1.05 Notes........................................................... 5
1.06 Conversions..................................................... 6
1.07 Pro Rata Borrowings............................................. 6
1.08 Interest........................................................ 6
1.09 Interest Periods................................................ 7
1.10 Increased Costs, Illegality, etc................................ 9
1.11 Compensation.................................................... 11
1.12 Change of Lending Office........................................ 11
1.13 Replacement of Banks............................................ 11
SECTION 2. Letters of Credit.............................................. 12
2.01 Letters of Credit............................................... 12
2.02 Letter of Credit Requests; Notices of Issuance.................. 13
2.03 Agreement to Repay Letter of Credit Drawings.................... 14
2.04 Letter of Credit Participations................................. 14
2.05 Increased Costs................................................. 17
SECTION 3. Fees; Commitments.............................................. 17
3.01 Fees............................................................ 17
3.02 Voluntary Reduction of Commitments.............................. 18
3.03 Mandatory Adjustments of Commitments, etc....................... 18
SECTION 4. Payments....................................................... 20
4.01 Voluntary Prepayments........................................... 20
4.02 Mandatory Prepayments........................................... 20
4.03 Method and Place of Payment..................................... 22
4.04 Net Payments.................................................... 22
SECTION 5. Conditions Precedent........................................... 24
5.01 Execution of Agreement.......................................... 24
5.02 Notes........................................................... 24
5.03 No Default; Representations and Warranties...................... 24
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.04 Officer's Certificate........................................... 25
5.05 Opinion of Counsel.............................................. 25
5.06 Corporate Proceedings........................................... 25
5.07 Consummation of the Transaction................................. 25
5.08 Adverse Change, etc............................................. 26
5.09 Litigation...................................................... 26
5.10 Subsidiary Guaranty............................................. 27
5.11 Pledge Agreement; Security Agreement............................ 27
5.12 Financial Statements; Pro Forma Balance Sheet; Projections...... 28
5.13 Solvency Certificate; Environmental Analyses; Insurance
Certificates.................................................. 28
5.14 Payment of Fees................................................. 28
5.15 Notice of Borrowing; Letter of Credit Request................... 28
SECTION 6. Representations, Warranties and Agreements..................... 29
6.01 Corporate Status ............................................... 29
6.02 Power and Authority............................................. 29
6.03 No Violation.................................................... 30
6.04 Litigation...................................................... 30
6.05 Use of Proceeds; Margin Regulations............................. 30
6.06 Approvals....................................................... 30
6.07 Investment Company Act.......................................... 31
6.08 Public Utility Holding Company Act.............................. 31
6.09 True and Complete Disclosure.................................... 31
6.10 Financial Condition; Financial Statements....................... 31
6.11 Security Interests.............................................. 33
6.12 Tax Returns and Payments........................................ 33
6.13 Compliance with ERISA........................................... 34
6.14 Ownership; Subsidiaries......................................... 35
6.15 Intellectual Property........................................... 35
6.16 Compliance with Statutes, etc................................... 35
6.17 Environmental Matters........................................... 35
6.18 Real Properties................................................. 36
6.19 Labor Relations................................................. 36
6.20 Indebtedness.................................................... 36
6.21 Other Documents................................................. 36
SECTION 7. Affirmative Covenants.......................................... 37
7.01 Information Covenants........................................... 37
7.02 Books, Records and Inspections.................................. 40
7.03 Maintenance of Property; Insurance.............................. 40
7.04 Payment of Taxes................................................ 41
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.05 Corporate Franchises............................................ 41
7.06 Compliance with Statutes, etc................................... 41
7.07 Good Repair..................................................... 41
7.08 Compliance with Environmental Laws.............................. 41
7.09 ERISA........................................................... 42
7.10 End of Fiscal Years; Fiscal Quarters............................ 44
7.11 Mortgages; Title Insurance; Survey; etc......................... 44
7.12 Additional Security; Further Assurances......................... 45
7.13 Foreign Subsidiaries Security................................... 46
SECTION 8. Negative Covenants............................................. 47
8.01 Changes in Business............................................. 47
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.......... 47
8.03 Liens........................................................... 50
8.04 Indebtedness.................................................... 52
8.05 Capital Expenditures............................................ 52
8.06 Advances, Investments and Loans................................. 53
8.07 Dividends, etc.................................................. 54
8.08 Transactions with Affiliates.................................... 55
8.09 Leverage Ratio.................................................. 56
8.10 Consolidated Interest Coverage Ratio............................ 56
8.11 Limitation on Modifications of Certificate of Corporation, By-
Laws; etc..................................................... 56
8.12 Limitation on the Creation of Subsidiaries...................... 56
SECTION 9. Events of Default.............................................. 57
9.01 Payments........................................................ 57
9.02 Representations, etc............................................ 57
9.03 Covenants....................................................... 57
9.04 Default Under Other Agreements.................................. 57
9.05 Bankruptcy, etc................................................. 57
9.06 ERISA........................................................... 58
9.07 Security Documents.............................................. 59
9.08 Subsidiary Guaranty............................................. 59
9.09 Judgments....................................................... 59
9.10 Change of Control............................................... 59
SECTION 10. Definitions................................................... 60
SECTION 11. The Agent..................................................... 83
11.01 Appointment.................................................... 83
11.02 Delegation of Duties........................................... 83
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.03 Exculpatory Provisions......................................... 83
11.04 Reliance by Agent.............................................. 84
11.05 Notice of Default.............................................. 84
11.06 Non-Reliance on Agent and Other Banks.......................... 85
11.07 Indemnification................................................ 85
11.08 Agent in its Individual Capacity............................... 86
11.09 Holders........................................................ 86
11.10 Resignation of the Agent; Successor Agent...................... 86
SECTION 12. Miscellaneous................................................. 87
12.01 Payment of Expenses, etc....................................... 87
12.02 Right of Setoff................................................ 88
12.03 Notices........................................................ 88
12.04 Benefit of Agreement........................................... 88
12.05 No Waiver; Remedies Cumulative................................. 90
12.06 Payments Pro Rata.............................................. 90
12.07 Calculations; Computations..................................... 91
12.08 Governing Law; Submission to Jurisdiction; Venue............... 91
12.09 Counterparts................................................... 92
12.10 Effectiveness.................................................. 92
12.11 Headings Descriptive........................................... 93
12.12 Amendment or Waiver............................................ 93
12.13 Survival....................................................... 94
12.14 Domicile of Loans.............................................. 94
12.15 Confidentiality................................................ 94
12.16 Waiver of Jury Trial........................................... 95
12.17 Register....................................................... 95
</TABLE>
ANNEX I List of Banks
ANNEX II Bank Addresses
ANNEX III Subsidiaries
ANNEX IV Real Property
ANNEX V Existing Debt
ANNEX VI Existing Liens
ANNEX VII Existing Investments
ANNEX VIII Indebtedness to be Refinanced
(iv)
<PAGE>
EXHIBIT A-1 - Form of Notice of Borrowing
EXHIBIT A-2 - Form of Letter of Credit Request
EXHIBIT B-1 - Form of Revolving Note
EXHIBIT B-2 - Form of Swingline Note
EXHIBIT C - Form of Section 4.04(b)(ii) Certificate
EXHIBIT D - Form of Opinion of Morgan, Lewis & Bockius
EXHIBIT E - Form of Officers' Certificate
EXHIBIT F - Form of Subsidiary Guaranty
EXHIBIT G - Form of Pledge Agreement
EXHIBIT H - Form of Security Agreement
EXHIBIT I - Form of Solvency Certificate
EXHIBIT J - Form of Assignment and Assumption Agreement
(v)
<PAGE>
CREDIT AGREEMENT, dated as of October 16, 1997, among U.S.A. FLORAL
PRODUCTS, INC., a Delaware corporation (the "Borrower"), the lenders from time
to time party hereto (each a "Bank" and, collectively, the "Banks"), and BANKERS
TRUST COMPANY, as Agent (in such capacity, the "Agent"). Unless otherwise
defined herein, all capitalized terms used herein and defined in Section 10 are
used herein as so defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Banks are willing to make available to the Borrower the credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 Commitments. (A) Subject to and upon the terms and conditions
-----------
herein set forth, each Bank severally agrees to make a loan or loans (each a
"Revolving Loan" and collectively, the "Revolving Loans") to the Borrower, which
Revolving Loans (i) shall be made at any time and from time to time on and after
the Effective Date and prior to the Maturity Date; (ii) except as hereinafter
provided, may, at the option of the Borrower, be incurred and maintained as
and/or converted into Base Rate Loans or Eurodollar Loans, provided, that (x)
all Revolving Loans made as part of the same Borrowing shall, unless otherwise
specifically provided herein, consist of Revolving Loans of the same Type and
(y) prior to the Syndication Date, Revolving Loans may only be incurred as
Eurodollar Loans on the first day of a PSD Interest Period; (iii) may be repaid
and reborrowed in accordance with the provisions hereof; and (iv) shall not
exceed for any Bank at any time outstanding that aggregate principal amount
which, when combined with such Bank's Percentage of all Swingline Loans then
outstanding and of the Letter of Credit Outstandings (exclusive of Swingline
Loans and Unpaid Drawings which are repaid with the proceeds of, and
simultaneously with the incurrence of, such Revolving Loans) at such time,
equals the Commitment of such Bank at such time. Notwithstanding anything to
the contrary contained in this Agreement, until the provisions of Section 7.11
have been satisfied, no more than $20,000,000 of Revolving Loans and Swingline
Loans in the aggregate may be incurred and outstanding hereunder at any time.
<PAGE>
(B) Revolving Loans may not be incurred as Acquisition Loans if after
giving effect thereto the aggregate outstanding principal amount of Acquisition
Loans would exceed the Acquisition Sub-Limit then in effect. Except to the
extent made pursuant to a Mandatory Borrowing, Revolving Loans may not be
incurred as Working Capital Loans if after giving effect thereto the aggregate
outstanding principal amount of Working Capital Loans would exceed the Working
Capital Sub-Limit then in effect.
(C) (a) Subject to and upon the terms and conditions herein set
forth, BTCo in its individual capacity agrees to make, at any time and from time
to time after the Effective Date and prior to the Swingline Expiry Date, a loan
or loans to the Borrower (each a "Swingline Loan" and, collectively, the
"Swingline Loans"), which Swingline Loans:
(i) shall be made and maintained as Base Rate Loans;
(ii) may be repaid and reborrowed in accordance with the
provisions hereof;
(iii) shall not exceed in aggregate principal amount at any time
outstand ing, when combined with the aggregate principal amount of all
Revolving Loans then outstanding and the Letter of Credit Outstandings
(exclusive of Revolving Loans and Unpaid Drawings which are repaid with the
proceeds of, and simultan eously with the incurrence of, such Swingline
Loans) at such time, an amount equal to the Total Commitment then in
effect; and
(iv) shall not exceed in aggregate principal amount at any time
outstand ing the Maximum Swingline Amount.
(b) BTCo shall not be obligated to make any Swingline Loans at a time
when a Bank Default exists unless BTCo has entered into arrangements
satisfactory to it and the Borrower to eliminate BTCo's risk with respect to the
Defaulting Bank's or Banks' participation in such Swingline Loans, including by
cash collateralizing each such Defaulting Bank's Percentage of the outstanding
Swingline Loans. BTCo will not make a Swingline Loan after it has received
written notice from the Borrower or the Required Banks stating that a Default or
an Event of Default exists until such time as BTCo shall have received a written
notice of (i) rescission of such notice from the party or parties originally
delivering the same or (ii) a waiver of such Default or Event of Default from
the Required Banks.
(c) On any Business Day, BTCo may, in its sole discretion, give
notice to the Banks that its outstanding Swingline Loans shall be funded with a
Borrowing of Revolving Loans (provided that each such notice shall be deemed to
have been automatic-
-2-
<PAGE>
ally given upon the occurrence of a Default or an Event of Default under Section
9.05), in which case a Borrowing or Borrowings of Revolving Loans, as the case
may be, constitut ing Base Rate Loans (each such Borrowing or Borrowings,
collectively, a "Mandatory Borrowing") shall be made on the immediately
succeeding Business Day by all Banks pro rata based on each Bank's Percentage,
--- ----
and the proceeds thereof shall be applied directly to repay BTCo for such
outstanding Swingline Loans. Each Bank hereby irrevocably agrees to make
Revolving Loans upon one Business Day's notice pursuant to each Mandatory
Borrowing in the amount and in the manner specified in the preceding sentence
and on the date specified in writing by BTCo notwithstanding (i) that the amount
of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount
otherwise required hereunder, (ii) whether any conditions specified in Section 5
are then satisfied, (iii) whether a Default or an Event of Default has occurred
and is continuing, (iv) the date of such Mandatory Borrowing and (v) any
reduction in the Total Commitment after any such Swingline Loans were made. In
the event that any Mandatory Borrowing cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code in respect of the
Borrower), each Bank (other than BTCo) hereby agrees that it shall forthwith
purchase from BTCo (without recourse or warranty) such assignment of the
outstanding Swingline Loans as shall be necessary to cause the Banks to share in
such Swingline Loans ratably based upon their respective Percentages, provided
that all interest payable on the Swingline Loans shall be for the account of
BTCo until the date the respective assignment is purchased and, to the extent
attributable to the purchased assignment, shall be payable to the Bank purchas
ing same from and after such date of purchase.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount
-------------------------------
of each Borrowing (other than a Mandatory Borrowing) shall not be less than the
Minimum Borrowing Amount. More than one Borrowing may be incurred on any day;
provided, that at no time shall there be outstanding more than ten Borrowings of
Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
-------------------
incur Revolving Loans (excluding Revolving Loans incurred pursuant to a
Mandatory Borrowing), the Borrower shall give the Agent at the Notice Office,
(x) prior to 12:00 Noon (New York time), at least three Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Eurodollar Loans and (y) prior to 11:00 A.M. (New York time), at
least one Business Day's prior written notice (or tele phonic notice promptly
confirmed in writing) of each Borrowing of Base Rate Loans. Each such notice
(each, a "Notice of Borrowing") shall, except as provided in Section 1.10(b), be
irrevocable, and, in the case of each written notice and each written
confirmation of tele phonic notice, shall be in the form of Exhibit A-1,
appropriately completed to specify: (i) the aggregate principal amount of the
Revolving Loans to be made pursuant to such Borrowing; (ii) the date of such
Borrowing (which shall be a Business Day); (iii) whether the respective
Borrowing shall consist of Base Rate Loans or, to the extent permitted
-3-
<PAGE>
hereunder, Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be
initially applicable thereto; and (iv) the respective portions of such Borrowing
to constitute Acquisition Loans and Working Capital Loans, as the case may be.
(b) (i) Whenever the Borrower desires to incur Swingline Loans, the
Borrower shall give BTCo no later than 12:00 Noon (New York time) on the day
such Swingline Loan is to be made, written notice (or telephonic notice promptly
confirmed in writing) of such Swingline Loan. Each such notice shall be
irrevocable and shall specify in each case (x) the date of such incurrence
(which shall be a Business Day) and (y) the aggregate principal amount of the
Swingline Loan requested to be made.
(ii) Mandatory Borrowings shall be made upon the notice specified in
Sec tion 1.01(C)(c), with the Borrower irrevocably agreeing, by its incurrence
of any Swingline Loan, to the making of Mandatory Borrowings as set forth in
such Section.
(c) The Agent shall promptly give each Bank written notice (or
telephonic notice promptly confirmed in writing) of each proposed Borrowing of
Revolving Loans, of such Bank's proportionate share thereof, and of the other
matters covered by the respective Notice of Borrowing.
(d) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent or BTCo (in the case of a Borrowing of Swingline Loans), as the case may
be, may prior to receipt of written confirmation act without liability upon the
basis of such telephonic notice, believed by the Agent or BTCo in good faith to
be from an Authorized Officer of the Borrower. In each such case, the Borrower
agrees that the Agent's or BTCo's record of the terms of such telephonic notice
shall constitute presumptive evidence of the facts so recorded.
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New York
---------------------
time) on the date specified in each Notice of Borrowing (or (x) in the case of
Swingline Loans, no later than 2:00 P.M. (New York time) on the date specified
in the notice deliv ered pursuant to Section 1.03(b) or (y) in the case of
Mandatory Borrowings, no later than 12:00 Noon (New York time) on the date
specified in Section 1.01(C)(c)), each Bank will make available its pro rata
--- ----
share, if any, of each Borrowing requested to be made on such date (or in the
case of Swingline Loans, BTCo shall make available the full amount thereof) in
the manner provided below. All amounts shall be made available to the Agent in
U.S. dollars and immediately available funds at the Payment Office and the Agent
promptly will make available to the Borrower by depositing to its account at the
Payment Office the aggregate of the amounts so made available in the type of
funds received. Unless the Agent shall have been notified by any Bank prior to
the date of Borrowing that such Bank does not intend to make available to the
Agent its portion of the Borrowing or Borrowings to be made on such date, the
Agent may assume that such Bank has made such amount available
-4-
<PAGE>
to the Agent on such date of Borrowing, and the Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the Bor rower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank and the Agent has
made available same to the Borrower, the Agent shall be entitled to recover such
corresponding amount from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
from such Bank or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to the Borrower to the date such
corresponding amount is recovered by the Agent, at a rate per annum equal to (x)
if paid by such Bank, the overnight Federal Funds Effective Rate or (y) if paid
by the Borrower, the then applicable rate of interest, calculated in accordance
with Section 1.08, for the respective Revolving Loans.
(b) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the Borrower may have against any Bank as a result of any default by such Bank
hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
-----
and interest on, all the Loans made to it by each Bank shall be evidenced (i) if
Revolving Loans, by a promissory note substantially in the form of Exhibit B-1
with blanks appropriately completed in conformity herewith (each a "Revolving
Note" and, collectively, the "Revolving Notes") and (ii) if Swingline Loans, by
a promissory note substantially in the form of Exhibit B-2 with blanks
appropriately completed in conformity herewith (the "Swingline Note").
(b) The Revolving Note issued to each Bank shall (i) be executed by
the Borrower, (ii) be payable to the order of such Bank and be dated the
Effective Date (or, if issued thereafter, be dated the date of issuance
thereof), (iii) be in a stated principal amount equal to the Commitment of such
Bank and be payable in the outstanding principal amount of the Revolving Loans
evidenced thereby, (iv) mature on the Maturity Date, (v) bear interest as
provided in the appropriate clause of Section 1.08 in respect of the Base Rate
Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 4.01, and mandatory
repayment as provided in Section 4.02, and (vii) be entitled to the benefits of
this Agreement and the other Credit Documents.
(c) The Swingline Note issued to BTCo shall (i) be executed by the
Borrower, (ii) be payable to the order of BTCo and be dated the Effective Date,
(iii) be in a stated principal amount equal to the Maximum Swingline Amount and
be payable in the outstanding principal amount of the Swingline Loans evidenced
thereby, (iv) mature on the
-5-
<PAGE>
Swingline Expiry Date, (v) bear interest as provided in Section 1.08 in respect
of the Base Rate Loans evidenced thereby, (vi) be subject to voluntary
prepayment as provided in Section 4.01, and mandatory repayment as provided in
Section 4.02, and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(d) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
shall not affect the Borrower's obli gations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to convert on
-----------
any Business Day all or a portion at least equal to the applicable Minimum
Borrowing Amount of the outstanding principal amount of Revolving Loans of one
Type into a Borrowing of the other Type, provided that (i) no conversion of Base
Rate Loans into Eurodollar Loans may be made prior to the Syndication Date
except for a conversion made on the first day of a PSD Interest Period, (ii) no
partial conversion of a Borrowing of Eurodollar Loans shall reduce the
outstanding principal amount of the Eurodollar Loans made pursuant to such
Borrowing to less than the Minimum Borrowing Amount applicable thereto, (iii)
Base Rate Loans may only be converted into Eurodollar Loans if no Default under
Section 9.01 or Event of Default is in existence on the date of the conversion
and (iv) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall
be limited in number as provided in Section 1.02. Each such conversion shall be
effected by the Borrower by giving the Agent at the Notice Office, prior to
12:00 Noon (New York time), at least three Business Days' (or one Business Day's
in the case of a conversion into Base Rate Loans) prior writ ten notice (or
telephonic notice promptly confirmed in writing) (each a "Notice of Conver
sion") specifying the Revolving Loans to be so converted, the Type of Revolving
Loans to be converted into and, if to be converted into a Borrowing of
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Agent shall give each Bank prompt notice of any such proposed conversion
affecting any of such Bank's Revolving Loans.
1.07 Pro Rata Borrowings. All Borrowings of Revolving Loans under
-------------------
this Agreement shall be made by the Banks pro rata on the basis of their
--- ----
Commitments. It is understood that no Bank shall be responsible for any default
by any other Bank of its obli gation to make Loans hereunder and that each Bank
shall be obligated to make the Loans to be made by it hereunder, regardless of
the failure of any other Bank to fulfill its commit ments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base Rate
--------
Loan shall bear interest from the date of the Borrowing thereof until the
conversion or maturity (whether by acceleration or otherwise) of such Base Rate
Loan, at a rate per annum which
-6-
<PAGE>
shall at all times be the Applicable Base Rate Margin plus the Base Rate in
effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until the conversion or maturity
(whether by acceleration or otherwise) of such Eurodollar Loan at a rate per
annum which shall, at all times during each Interest Period applicable thereto,
be the Applicable Eurodollar Margin plus the relevant Eurodollar Rate for such
Interest Period.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum equal
to the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the
Applicable Base Rate Margin, provided that overdue principal in respect of
Eurodollar Loans shall bear interest from the date the same becomes due (whether
by acceleration or otherwise) until the end of the Interest Period applicable to
such Eurodollar Loan at a rate per annum equal to 2% in excess of the rate of
interest applicable to such Eurodollar Loans.
(d) Interest shall accrue from and including the date of any
Borrowing of any Loan to but excluding the date of any repayment thereof and
shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on
the last Business Day of each March, June, September and December, (ii) in
respect of each Eurodollar Loan, on the last day of each Interest Period
applicable thereto and, in the case of an Interest Period of six months, on the
date occurring three months after the first day of such Interest Period and
(iii) in respect of each Loan, on any prepayment or conversion (on the amount
prepaid or converted), at maturity (whether by acceleration or otherwise) and,
after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Agent, upon determining the interest rate for any Borrowing
of Eurodollar Loans for any Interest Period, shall promptly notify the Borrower
and the Banks thereof.
1.09 Interest Periods. At the time the Borrower gives a Notice of
----------------
Borrow ing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower shall have the right to elect, by
giving the Agent written notice (or telephonic notice promptly confirmed in
writing), the Interest Period applicable to such Borrowing, which Interest
Period shall,
-7-
<PAGE>
at the option of the Borrower, be a one, two, three or six month period.
Notwithstanding anything to the contrary contained above:
(i) all Eurodollar Loans comprising a Borrowing shall have the
same Interest Period;
(ii) the initial Interest Period for any Borrowing of Eurodollar
Loans shall commence on the date of such Borrowing (including the date of
any conver sion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on
the day on which the next preceding Interest Period expires;
(iii) if any Interest Period begins on a day for which there is
no numeric ally corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(v) subject to the foregoing clauses (i) through (iv), only a one
month Interest Period shall be available to be selected prior to the
Syndication Date, with all Revolving Loans constituting Eurodollar Loans
during such period to be out standing pursuant to a single Borrowing, with
all such Borrowings to commence and end on the same day;
(vi) no Interest Period may be elected if it would extend beyond
the Maturity Date; and
(vii) no Interest Period may be elected at any time when a
Default under Section 9.01 or an Event of Default is then in existence.
If upon the expiration of any Interest Period, the Borrower has failed to, or is
not permitted to, elect a new Interest Period to be applicable to the respective
Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to
have elected to convert such Borrowing into a Borrowing of Base Rate Loans
effective as of the expiration date of such current Interest Period.
-8-
<PAGE>
1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in
---------------------------------
the case of clause (i) below, the Agent or (y) in the case of clauses (ii) and
(iii) below, any Bank, shall have determined (which determination shall, absent
manifest error, be final and con clusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the date of
this Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans (other than any increased cost or reduction in the
amount received or receiv able resulting from the imposition of or a change
in the rate of income taxes or similar charges) because of (x) any change
since the date of this Agreement in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the force of
law), or in the interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation, guide line,
order or request (such as, for example, but not limited to, a change in
official reserve requirements, but, in all events, excluding reserves
required under Regula tion D to the extent included in the computation of
the Eurodollar Rate) and/or (y) other circumstances affecting the interbank
Eurodollar market; or
(iii) at any time since the date of this Agreement, that the
making or con tinuance of any Eurodollar Loan has become unlawful by
compliance by such Bank in good faith with any law, governmental rule,
regulation, guideline or order (or would conflict with any such
governmental rule, regulation, guideline or order not having the force of
law but with which such Bank customarily complies even though the failure
to comply therewith would not be unlawful), or has become impracti cable as
a result of a contingency occurring after the date of this Agreement which
materially and adversely affects the interbank Eurodollar market;
then, and in any such event, the Agent (in the case of clause (i) above) or such
Bank shall give notice (by telephone confirmed in writing) to the Borrower and
(except in the case of clause (i)) to the Agent of such determination (which
notice the Agent shall promptly trans mit to each of the other Banks).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer
be available until such time as the Agent notifies the Borrower and the Banks
that the circumstances giving rise to such notice by the Agent no longer exist,
and any Notice of Borrowing or Notice of Conversion given by the Borrower with
respect to Eurodollar Loans which have not yet been incurred shall be deemed
rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower
agrees to pay to such Bank,
-9-
<PAGE>
upon written demand therefor (accompanied by the written notice referred to
below), such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Bank in its sole
discretion shall determine) as shall be required to compensate such Bank for
such increased costs or reductions in amounts received or re ceivable hereunder
(a written notice as to the additional amounts owed to such Bank, show ing the
itemized basis for the calculation thereof, submitted to the Borrower by such
Bank shall, absent manifest error, be final and conclusive and binding upon all
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall
take one of the actions specified in Section 1.10(b) as promptly as possible
and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, cancel said Borrowing by giving the Agent telephonic
notice (confirmed promptly in writing) thereof on the same date that the
Borrower was notified by a Bank pursuant to Section 1.10(a)(ii) or (iii)), or
(ii) if the affected Eurodollar Loan is then outstanding, upon at least three
Business Days' notice to the Agent, require the affected Bank to convert each
such Eurodollar Loan into a Base Rate Loan (which conversion, in the case of the
circumstances described in Section 1.10(a)(iii), shall occur no later than the
last day of the Interest Period then applicable to such Eurodollar Loan (or such
earlier date as shall be required by applicable law)); provided, that if more
than one Bank is affected at any time, then all affected Banks must be treated
the same pursuant to this Section 1.10(b). Each Bank, upon determining in good
faith that any additional amounts will be payable pursuant to this Section
1.10(b), will give prompt written notice thereof to the Borrower, which notice
shall set forth the itemized basis of the calculation of such additional
amounts, although the failure to give any such notice shall not release or
diminish the Borrower's obligations to pay additional amounts pursuant to this
Section 1.10(b) upon the subsequent receipt of such notice.
(c) If any Bank shall have determined that after the date hereof, the
adop tion or effectiveness of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Bank with any request or directive regard ing capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Bank could have achieved
but for such adoption, effective ness, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy), then from
time to time, upon written demand by such Bank (with a copy to the Agent), the
Borrower shall pay to such Bank such additional amount or amounts as
-10-
<PAGE>
will compensate such Bank for such reduction. Each Bank, upon determining in
good faith that any additional amounts will be payable pursuant to this Section
1.10(c), will give prompt written notice thereof to the Borrower, which notice
shall set forth the itemized basis of the calculation of such additional
amounts, although the failure to give any such notice shall not release or
diminish the Borrower's obligations to pay additional amounts pursuant to this
Section 1.10(c) upon the subsequent receipt of such notice.
1.11 Compensation. The Borrower agrees to compensate each Bank, upon
------------
its written request (which request shall set forth the itemized basis for
requesting such com pensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Eurodollar Loans but excluding loss of
anticipated profit with respect to any Loans) which such Bank may sustain: (i)
if for any reason (other than a default by such Bank or the Agent) a Borrowing
of Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a) or (b)); (ii) if any repayment or
conversion of any Eurodollar Loans occurs on a date which is not the last day of
an Interest Period applicable thereto; (iii) if any pre payment of any
Eurodollar Loans is not made on any date specified in a notice of prepay ment
given by the Borrower; or (iv) as a consequence of (x) any other default by the
Bor rower to repay its Eurodollar Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that, upon the occur
------------------------
rence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii),
1.10(c), 2.05 or 4.04 with respect to such Bank, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank) to designate another lending office for any Loans or Letters of
Credit affected by such event; provided, that such desig nation is made on such
terms that, in the sole judgment of such Bank, such Bank and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequences of the event giving rise to the operation of any such
Section. Nothing in this Section 1.12 shall affect or postpone any of the
obligations of the Borrower or the right of any Bank provided in Section 1.10,
2.05 or 4.04.
1.13 Replacement of Banks. (a) (i) If any Bank becomes a Defaulting
--------------------
Bank or otherwise defaults in its obligations to make Loans or fund Unpaid
Drawings, (ii) if any Bank refuses to consent to certain proposed changes,
waivers, discharges or termina tions with respect to this Agreement which have
been approved by the Required Banks as provided in Section 12.12(b) or (iii)
upon the occurrence of any event giving rise to the operation of Section
1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect
to any Bank which results in such Bank charging to the Borrower increased costs
in excess of those being generally charged by the other Banks, the Borrower
shall have the
-11-
<PAGE>
right, in accordance with the requirements of Section 12.04(b), if no Event of
Default will exist after giving effect to such replacement, to replace such Bank
(the "Replaced Bank") with an Eligible Transferee or Transferees, none of which
shall constitute a Defaulting Bank at the time of such replacement
(collectively, the "Replacement Bank"), and each of whom shall be reasonably
acceptable to the Agent and the Letter of Credit Issuer, provided that (i) at
the time of any replacement pursuant to this Section 1.13, the Replacement Bank
shall enter into one or more Assignment and Assumption Agreements pursuant to
Section 12.04(b) (and with the assignment fee payable pursuant to said Section
12.04(b) to be paid by the Replacement Bank) pursuant to which the Replacement
Bank shall acquire all of the Commitment and outstanding Revolving Loans of, and
in each case participations in Swingline Loans and Letters of Credit by, the
Replaced Bank and, in connection therewith, shall pay (x) to the Replaced Bank
in respect thereof an amount equal to the sum of (A) an amount equal to the
principal of, and all accrued interest on, all outstanding Revolving Loans of
the Replaced Bank, (B) an amount equal to all Unpaid Drawings that have been
funded by (and not reimbursed to) such Replaced Bank, together with all then
unpaid inter est with respect thereto at such time and (C) an amount equal to
all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant to
Section 3.01, (y) to the Letter of Credit Issuer an amount equal to such
Replaced Bank's Percentage of any Unpaid Drawing (which at such time remains an
Unpaid Drawing) to the extent such amount was not thereto fore funded by such
Replaced Bank and (z) to BTCo an amount equal to such Replaced Bank's Percentage
of any Mandatory Borrowing to the extent such amount was not theretofore funded
by such Replaced Bank and (ii) all obligations of the Borrower owing to the
Replaced Bank (other than those specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is concurrently
being, paid) shall be paid in full to such Replaced Bank concurrently with such
replacement.
(b) Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (i) and (ii) of
Section 1.13(a) and, if so requested by the Replacement Bank, delivery to the
Replacement Bank of the appropriate Revolving Note executed by the Borrower, the
Replacement Bank shall become a Bank hereunder and the Replaced Bank shall cease
to constitute a Bank hereunder, except with respect to indemnification
provisions applicable to the Replaced Bank under this Agreement (including,
without limitation, Sections 1.10, 1.11, 2.05, 4.04, 12.01 and 12.06), which
shall survive as to such Replaced Bank.
SECTION 2. Letters of Credit.
------------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions herein set forth, the Borrower may request the Letter of Credit
Issuer at any time and from time to time on or after the Effective Date and
prior to the 30th day prior to the Maturity Date to issue, for the account of
the Borrower and in support of (x) trade obligations and
-12-
<PAGE>
other obligations of the Borrower or any of its Subsidiaries incurred in the
ordinary course of business and (y) such other obligations of the Borrower or
any of its Subsidiaries to any other Person that are reasonably acceptable to
the Agent and the Letter of Credit Issuer, and subject to and upon the terms and
conditions herein set forth, the Letter of Credit Issuer agrees to issue from
time to time, irrevocable letters of credit in such form as may be approved by
the Letter of Credit Issuer and the Agent (each such letter of credit, a "Letter
of Credit" and, collectively, the "Letters of Credit").
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings at such time, would exceed either (x) $10,000,000 or (y) when added
to the aggregate principal amount of all Loans then outstanding, the Total
Commitment at such time, (ii) each Letter of Credit shall have an expiry date
occurring not later than the earlier of (x) one year after such Letter of
Credit's date of issuance, provided that any standby Letter of Credit may be
automatically extendable for periods of up to one year so long as such standby
Letter of Credit provides that the Letter of Credit Issuer retains an option,
satisfactory to the Letter of Credit Issuer, to terminate such standby Letter of
Credit within a specified period of time prior to each scheduled extension date
and (y) the fifth Business Day (or the 30th day in the case of trade Letters of
Credit) prior to the Maturity Date, (iii) each Letter of Credit shall be
denominated in U.S. dollars and issued on a sight basis, and (iv) the Letter of
Credit Issuer will not issue any Letter of Credit after it has received written
notice from the Borrower or the Required Banks stating that a Default or an
Event of Default exists until such time as the Letter of Credit Issuer shall
have received a written notice of (x) rescission of such notice from the party
or parties originally delivering same or (y) a waiver of such Default or Event
of Default by the Required Banks.
(c) Notwithstanding the foregoing, in the event a Bank Default
exists, the Letter of Credit Issuer shall not be required to issue any Letter of
Credit unless the Letter of Credit Issuer has entered into arrangements
satisfactory to it and the Borrower to eliminate the Letter of Credit Issuer's
risk with respect to the participation in Letters of Credit of any Defaulting
Bank or Banks, including by cash collateralizing any such Defaulting Bank's or
Banks' Percentage of the Letter of Credit Outstandings.
2.02 Letter of Credit Requests; Notices of Issuance. (a) Whenever
----------------------------------------------
the Borrower desires that a Letter of Credit be issued, the Borrower shall give
the Agent and the Letter of Credit Issuer written notice thereof prior to 12:00
Noon (New York time) at least five Business Days (or such shorter period as may
be acceptable to the Letter of Credit Issuer) prior to the proposed date of
issuance (which shall be a Business Day), which written notice or written
confirmation of each telephonic notice shall be in the form of Exhibit A-2
appropriately completed (each a "Letter of Credit Request"). Each Letter of
Credit Request shall include any other documents as the Letter of Credit Issuer
customarily requires in connection therewith.
-13-
<PAGE>
(b) The Letter of Credit Issuer shall, promptly upon its issuance of
(x) a standby Letter of Credit, give the Agent, each Bank and the Borrower
written notice thereof and (y) a trade Letter of Credit, give the Agent and the
Borrower written notice thereof in either case accompanied by a copy to the
Agent of the Letter of Credit or Letters of Credit issued by the Letter of
Credit Issuer.
2.03 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
--------------------------------------------
hereby agrees to reimburse the Letter of Credit Issuer, by making payment to the
Agent in immediately available funds at the Payment Office, for any payment or
disbursement made by the Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or dis bursed until reimbursed, an "Unpaid Drawing")
promptly upon but no later than two Business Days after the Letter of Credit
Issuer notifies the Borrower that such payment or disbursement has occurred
(provided that no such notice shall be required to be given if a Default or an
Event of Default under Section 9.05 shall have occurred and be continuing, in
which case the Unpaid Drawing shall be due and payable immediately without
presentment, demand, protest or notice of any kind (all of which are hereby
waived by the Borrower)), with interest on the amount so paid or disbursed by
the Letter of Credit Issuer, to the extent not reimbursed prior to 1:00 P.M.
(New York time) on the date of such pay ment or disbursement, from and including
the date paid or disbursed to but not including the date the Letter of Credit
Issuer is reimbursed therefor at a rate per annum which shall be the Applicable
Base Rate Margin plus the Base Rate as in effect from time to time (plus an
additional 2% per annum if not reimbursed by the third Business Day after the
date of such notice of such payment or disbursement or following the occurrence
of a Default or an Event of Default under Section 9.05), such interest also to
be payable on demand.
(b) The Borrower's obligation under this Section 2.03 to reimburse
the Letter of Credit Issuer with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespec tive of any setoff, counterclaim or defense to
payment which the Borrower or any of its Subsidiaries may have or have had
against the Letter of Credit Issuer, the Agent or any Bank, including, without
limitation, any defense based upon the failure of any drawing under a Letter of
Credit to conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such drawing provided that
the Borrower shall not be obligated to reimburse the Letter of Credit Issuer for
any wrongful payment made by the Letter of Credit Issuer under a Letter of
Credit as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of the Letter of Credit Issuer.
2.04 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by the Letter of Credit Issuer of any Letter of Credit, the Letter of
Credit Issuer shall be deemed to have sold and transferred to each other Bank,
and each such Bank (each a "Participant") shall be deemed irrevocably and
unconditionally to have purchased and re-
-14-
<PAGE>
ceived from the Letter of Credit Issuer, without recourse or warranty, an
undivided interest and participation, to the extent of such Bank's Percentage,
in such Letter of Credit, each substitute letter of credit, each drawing made
thereunder and the obligations of the Bor rower under this Agreement with
respect thereto (although Letter of Credit Fees shall be payable directly to the
Agent for the account of the Banks as provided in Section 3.01(b) and the
Participants shall have no right to receive any portion of any Facing Fees) and
any security therefor or guaranty pertaining thereto. Upon any change in the
Commitments of the Banks pursuant to Section 1.13 and/or 12.04(b), it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic ad justment to the participations pursuant
to this Section 2.04 to reflect the new Percentages of the assigning and
assignee Bank.
(b) In determining whether to pay under any Letter of Credit, the
Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to deter mine that any documents required to be
delivered under such Letter of Credit have been delivered and that they appear
to substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by the Letter of Credit Issuer
under or in connection with any Letter of Credit, if taken or omitted in the
absence of gross negligence or willful misconduct, shall not create for the
Letter of Credit Issuer any resulting liability.
(c) In the event that the Letter of Credit Issuer makes any payment
under any Letter of Credit and the Borrower shall not have reimbursed such
amount in full to the Letter of Credit Issuer pursuant to Section 2.03(a), the
Letter of Credit Issuer shall promptly notify the Agent, and the Agent shall
promptly notify each Participant of such failure, and each Participant shall
promptly and unconditionally pay to the Agent for the account of the Letter of
Credit Issuer, the amount of such Participant's Percentage of such payment in
U.S. dollars and in same day funds, provided that no Participant shall be obli
gated to pay to the Agent its Percentage of such unreimbursed amount for any
wrongful payment made by the Letter of Credit Issuer under a Letter of Credit as
a result of acts or omissions constituting willful misconduct or gross
negligence on the part of the Letter of Credit Issuer. If the Agent so notifies
any Participant required to fund a payment under a Letter of Credit prior to
11:00 A.M. (New York time) on any Business Day, such Participant shall make
available to the Agent for the account of the Letter of Credit Issuer such
Participant's Percentage of the amount of such payment on such Business Day in
same day funds. If and to the extent such Participant shall not have so made
its Percentage of the amount of such payment available to the Agent for the
account of the Letter of Credit Issuer, such Participant agrees to pay to the
Agent for the account of the Letter of Credit Issuer, forthwith on demand such
amount, together with interest thereon, for each day from such date until the
date such amount is paid to the Agent for the account of the Letter of Credit
Issuer at the overnight Federal Funds rate. The failure of any Participant to
make available to the Agent for the account of the Letter of Credit Issuer its
Percentage of any
-15-
<PAGE>
payment under any Letter of Credit shall not relieve any other Participant of
its obligation hereunder to make available to the Agent for the account of the
Letter of Credit Issuer its Percentage of any payment under any Letter of Credit
on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to the
Agent for the account of the Letter of Credit Issuer such other Participant's
Percentage of any such payment.
(d) Whenever the Letter of Credit Issuer receives a payment of a
reimburse ment obligation as to which the Agent has received for the account of
the Letter of Credit Issuer any payments from the Participants pursuant to
clause (c) above, the Letter of Credit Issuer shall pay to the Agent and the
Agent shall promptly pay to each Participant which has paid its Percentage
thereof, in U.S. dollars and in same day funds, an amount equal to such
Participant's Percentage of the principal amount thereof and interest thereon
accruing after the actual funding of the respective participations.
(e) The obligations of the Participants to make payments to the Agent
for the account of the Letter of Credit Issuer with respect to Letters of Credit
shall be irre vocable and not subject to counterclaim, set-off or other defense
or any other qualification or exception whatsoever and shall be made in
accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit, any Bank, or
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Borrower and the
beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
-16-
<PAGE>
2.05 Increased Costs. If after the date hereof, the adoption or
---------------
effectiveness of any applicable law, rule or regulation, or any change therein,
or any change in the inter pretation or administration thereof by any
governmental authority, central bank or compar able agency charged with the
interpretation or administration thereof, or compliance by the Letter of Credit
Issuer or any Participant with any request or directive (whether or not hav ing
the force of law) by any such authority, central bank or comparable agency shall
either (i) impose, modify or make applicable any reserve, deposit, capital
adequacy or similar re quirement against Letters of Credit issued by the Letter
of Credit Issuer or such Partici pant's participation therein, or (ii) impose on
the Letter of Credit Issuer or any Participant any other conditions affecting
this Agreement, any Letter of Credit or such Participant's participation
therein; and the result of any of the foregoing is to increase the cost to the
Letter of Credit Issuer or such Participant of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by the Letter of Credit Issuer or such Participant
hereunder or reduce the rate of return on its capital with respect to Letters of
Credit, then, upon written demand to the Borrower by the Letter of Credit Issuer
or such Participant (a copy of which demand shall be sent by the Letter of
Credit Issuer or such Participant to the Agent), the Borrower shall pay to the
Letter of Credit Issuer or such Participant such additional amount or amounts as
will compensate the Letter of Credit Issuer or such Participant for such
increased cost or reduction. A certifi cate submitted to the Borrower by the
Letter of Credit Issuer or such Participant, as the case may be (a copy of which
certificate shall be sent by the Letter of Credit Issuer or such Participant to
the Agent), setting forth the basis for the determination of such additional
amount or amounts necessary to compensate the Letter of Credit Issuer or such
Participant as aforesaid shall be final and conclusive and binding on the
Borrower absent manifest error, although the failure to deliver any such
certificate shall not release or diminish the Borrower's obligations to pay
additional amounts pursuant to this Section 2.05 upon subse quent receipt of
such certificate.
SECTION 3. Fees; Commitments.
------------------
3.01 Fees. (a) The Borrower agrees to pay to the Agent for
----
distribution to each Non-Defaulting Bank a commitment fee (the "Commitment Fee")
for the period from the Effective Date to but not including the date the Total
Commitment has been ter minated, computed for each day at the rate equal to the
Applicable Commitment Fee Percentage for such day multiplied by the Unutilized
Commitment of such Bank on such day. Accrued Commitment Fees shall be due and
payable quarterly in arrears on the last Business Day of March, June, September
and December and the date upon which the Total Commitment is terminated.
(b) The Borrower shall pay to the Agent for the account of the Banks
pro rata on the basis of their Percentages, a fee in respect of each Letter of
- --- ----
Credit (the "Letter
-17-
<PAGE>
of Credit Fee") computed for each day at a rate equal to the Applicable
Eurodollar Margin for such day multiplied by the then Stated Amount of such
Letter of Credit. Accrued Letter of Credit Fees shall be due and payable
quarterly in arrears on the last Business Day of each March, June, September and
December of each year and on the date upon which the Total Commitment shall be
terminated.
(c) The Borrower shall pay to the Agent for the account of the Letter
of Credit Issuer a fee in respect of each Letter of Credit issued by it (the
"Facing Fee") com puted for each day at the rate of 1/4 of 1% per annum on the
then Stated Amount of such Letter of Credit. Accrued Facing Fees shall be due
and payable quarterly in arrears on the last Business Day of each March, June,
September and December of each year and on the date upon which the Total
Commitment shall be terminated.
(d) The Borrower hereby agrees to pay directly to the Letter of
Credit Issuer upon each issuance of, payment under, and/or amendment of, a
Letter of Credit issued by it such amount as shall at the time of such issuance,
payment or amendment be the administrative charge which the Letter of Credit
Issuer is customarily charging for issuances of, payments under or amendments of
comparable letters of credit issued by it.
(e) The Borrower shall pay to the Agent, for its own account, such
fees as have been agreed to in writing by the Borrower and the Agent and such
other fees and expenses as may be agreed to from time to time between the
Borrower and the Agent, when and as due.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 Voluntary Reduction of Commitments. Upon at least three
----------------------------------
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) to the Agent at the Notice Office (which notice the Agent shall
promptly transmit to each of the Banks), the Borrower shall have the right,
without premium or penalty, to terminate or partially reduce the Unutilized
Total Commitment, which notice shall specify the portion of the specified
reduction which shall apply to the Unutilized Acquisition Sub-Limit and the
Unutilized Working Capital Sub-Limit, respectively, provided that (x) any such
termination or partial reduction shall apply to proportionately and permanently
reduce the Commitment of each of the Banks and (y) any partial reduction
pursuant to this Section 3.02 shall be in the amount of at least $1,000,000 or
any integral of $500,000 in excess thereof.
3.03 Mandatory Adjustments of Commitments, etc. (a) The Total
------------------------------------------
Commitment shall terminate on the Commitment Expiration Date unless the
Effective Date has occurred on or before such date.
-18-
<PAGE>
(b) The Total Commitment shall terminate on the earlier of (i) the
date on which a Change of Control occurs and (ii) the Maturity Date.
(c) On the Business Day following the date of receipt by the Borrower
and/or any of its Subsidiaries of Cash Proceeds from any Asset Sale, the Total
Commitment shall be reduced by an amount equal to the Net Cash Proceeds from
such Asset Sale, provided that such reduction shall not be required to the
extent the Borrower elects, as hereinafter provided, to cause such Net Cash
Proceeds to be reinvested in Reinvestment Assets (such election, together with
any election made pursuant to Section 3.03(d), a "Reinvestment Election"). The
Borrower may exercise its Reinvestment Election with respect to an Asset Sale if
(x) no Default or Event of Default exists and (y) the Borrower delivers a
Reinvestment Notice to the Agent on the Business Day following the date of the
consummation of the respective Asset Sale, with such Reinvestment Election being
effective with respect to the Net Cash Proceeds from such Asset Sale equal to
the Anticipated Reinvestment Amount specified in such Reinvestment Notice.
(d) On the Business Day following the date of receipt by the Borrower
and/or any of its Subsidiaries of Cash Proceeds from any Recovery Event, the
Total Commitment shall be reduced by an amount equal to the Net Insurance
Proceeds from such Recovery Event, provided that such reduction shall not be
required to the extent the Borrower elects, as hereinafter provided, to cause
such Net Insurance Proceeds to be reinvested in Reinvestment Assets. The
Borrower may exercise its Reinvestment Election with respect to a Recovery Event
if (x) no Default or Event of Default exists and (y) the Borrower delivers a
Reinvestment Notice to the Agent on the Business Day following the date of the
Borrower's receipt of the proceeds from the respective Recovery Event, with such
Reinvestment Election being effective with respect to the Net Insurance Proceeds
from such Recovery Event equal to the Anticipated Reinvestment Amount specified
in such Reinvestment Notice.
(e) The Total Commitment shall be reduced on the Reinvestment
Reduction Date with respect to a Reinvestment Election, in an amount equal to
the Reinvestment Reduction Amount, if any, with respect to such Reinvestment
Election.
(f) On the date of the receipt by the Borrower and/or any of its
Subsidiaries of cash proceeds from the incurrence of Indebtedness for borrowed
money by the Borrower and/or any of its Subsidiaries (other than Indebtedness
permitted by Section 8.04 as in effect on the Effective Date), the Total
Commitment shall be reduced by an amount equal to the cash proceeds from such
incurrence of Indebtedness (net of underwriting discounts and commissions and
other reasonable costs associated therewith).
(g) Each reduction of the Total Commitment pursuant to this Section
3.03 shall apply to proportionally and permanently reduce the Commitment of each
Bank.
-19-
<PAGE>
SECTION 4. Payments.
--------
4.01 Voluntary Prepayments. The Borrower shall have the right to
---------------------
prepay the Loans, in whole or in part, without premium or penalty except as
otherwise provided in this Agreement, from time to time on the following terms
and conditions:
(i) the Borrower shall give the Agent at the Notice Office
written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay the Loans, the amount of such prepayment and (in the case
of Eurodollar Loans) the specific Borrowing(s) pursuant to which made,
which notice shall be given by the Borrower prior to 12:00 Noon (New York
time) at least three Business Days prior to the date of such prepayment
(or, in the case of Base Rate Loans, on the same day) which notice shall,
except in the case of Swingline Loans, promptly be trans mitted by the
Agent to each of the Banks;
(ii) each prepayment shall be in an aggregate principal amount of
at least $1,000,000 (or $100,000 in the case of Swingline Loans), provided
that no partial prepayment of Eurodollar Loans made pursuant to a Borrowing
shall reduce the aggregate principal amount of the Eurodollar Loans
outstanding pursuant to such Borrowing to an amount less than the Minimum
Borrowing Amount applicable thereto;
(iii) each prepayment in respect of any Revolving Loans made
pursuant to a Borrowing shall be applied pro rata among such Revolving
--- ----
Loans; and
(iv) with respect to each prepayment in respect of any Revolving
Loans made pursuant to this Section 4.01, such prepayment shall, unless
otherwise directed by the Borrower at the time of prepayment, first be
deemed to be applied to any outstanding Working Capital Loans and then to
any outstanding Acquisition Loans.
4.02 Mandatory Prepayments.
---------------------
(A) Requirements:
------------
(a) (i) If on any date the sum of (x) the aggregate outstanding
principal amount of Loans (after giving effect to all other repayments thereof
on such date) plus (y) the Letter of Credit Outstandings on such date exceeds
the Total Commitment as then in effect, the Borrower shall repay on such date
the aggregate principal amount of Loans in an amount equal to such excess. If,
after giving effect to the prepayment of all outstanding Loans, the aggregate
amount of Letter of Credit Outstandings exceeds the Total
-20-
<PAGE>
Commitment then in effect, the Borrower agrees to pay to the Agent on such date
an amount in cash and/or Cash Equivalents equal to such excess and the Agent
shall hold such payment as security for the obligations of the Borrower
hereunder pursuant to a cash collateral agreement to be entered into in form and
substance satisfactory to the Agent (which shall permit certain investments in
Cash Equivalents satisfactory to the Agent, until the proceeds are applied to
the secured obligations). All repayments of Loans pursuant to this Section
4.02(a)(i) shall be applied first to outstanding Swingline Loans, to the extent
thereof, and thereafter to Revolving Loans, with Acquisition Loans and Working
Capital Loans to be repaid in proportion to their respective outstanding amounts
except to the extent that such repayment would result in the outstanding
principal amount of (x) Acquisition Loans exceeding the Acquisition Sub-Limit
then in effect or (y) Working Capital Loans exceeding the Working Capital Sub-
Limit then in effect, in which case such repayment will be applied to
Acquisition Loans and/or Working Capital Loans in such allocation as will best
result in the respective Sub-Limit not being exceeded.
(ii) If, after giving effect to any repayment then being made pursuant
to Section 4.02(A)(a)(i), on any date the aggregate principal amount of Working
Capital Loans exceeds the Working Capital Sub-Limit then in effect, the Borrower
shall repay on such date the principal of Working Capital Loans in an aggregate
amount equal to such excess.
(iii) If, after giving effect to any repayment then being made
pursuant to Section 4.02(A)(a)(i), on any date the aggregate principal amount of
Acquisition Loans exceeds the Acquisition Sub-Limit then in effect, the Borrower
shall repay on such date the principal of Acquisition Loans in an aggregate
amount equal to such excess.
(b) All Swingline Loans shall be repaid in full on the Swingline
Expiry Date.
(c) All Revolving Loans shall be repaid in full on the Maturity Date.
(d) All Loans shall be repaid in full on the date on which a Change
of Control occurs.
(B) Application:
-----------
With respect to each prepayment of Loans required by this Section
4.02, the Borrower may designate the specific Borrowing(s) pursuant to which
such Loans were made and, with respect to each prepayment of Revolving Loans,
the Types of Loans which are to be prepaid, provided that (i) if any prepayment
of Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Revolving Loans made pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount applicable thereto, such Borrowing shall be
immediately converted into Base Rate Loans, and (ii) each prepayment
-21-
<PAGE>
of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata
--- ----
among such Revolving Loans. In the absence of a designation by the Borrower as
described in the preceding sentence, the Agent shall, subject to the above, make
such designation in its sole discretion with a view, but no obligation, to
minimize breakage costs owing under Section 1.11.
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
pro vided herein, all payments under this Agreement or under any Note shall be
made to the Agent for the ratable account of the Banks entitled thereto, not
later than 1:00 P.M. (New York time) on the date when due and shall be made in
immediately available funds and in lawful money of the United States of America
at the Payment Office, it being understood that written, telex or facsimile
transmission notice by the Borrower to the Agent to make a payment from the
funds in the Borrower's account at the Payment Office shall constitute the
making of such payment to the extent of such funds held in such account. Any
pay ments under this Agreement which are made later than 1:00 P.M. (New York
time) on any Business Day shall be deemed to have been made on the next
succeeding Business Day. Whenever any payment to be made hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such exten sion at the
applicable rate in effect immediately prior to such extension.
4.04 Net Payments. (a) All payments made by the Borrower hereunder
------------
or under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdic tion or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax imposed
on or measured by the net income or net profits of a Bank pursuant to the laws
of the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Bank is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every pay ment of all amounts due under this Agreement or
under any Note, after withholding or de duction for or on account of any Taxes,
will not be less than the amount provided for here in or in such Note. If any
amounts are payable in respect of Taxes pursuant to the preced ing sentence, the
Borrower agrees to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or net profits of such Bank
pur suant to the laws of the jurisdiction in which such Bank is organized or in
which the
-22-
<PAGE>
principal office or applicable lending office of such Bank is located or under
the laws of any political subdivision or taxing authority of any such
jurisdiction in which such Bank is organized or in which the principal office or
applicable lending office of such Bank is located and for any withholding of
taxes as such Bank shall determine are payable by, or withheld from, such Bank,
in each case in respect of such amounts so paid to or on behalf of such Bank
pursuant to the preceding sentence and in respect of any amounts paid to or on
behalf of such Bank pursuant to this sentence. The Borrower will furnish to the
Agent within 30 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by the
Borrower. The Borrower agrees to indemnify and hold harmless each Bank, and
reimburse such Bank upon its writ ten request, for the amount of any Taxes so
levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for United States federal income tax
purposes agrees to deliver to the Borrower and the Agent on or prior to the
Effective Date, or in the case of a Bank that is an assignee or transferee of an
interest under this Agreement pursuant to Sec tion 12.04 (unless the respective
Bank was already a Bank hereunder immediately prior to such assignment or
transfer), on the date of such assignment or transfer to such Bank, (i) two
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001 (or successor forms) certifying to such Bank's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agree ment and under any Note, or (ii) if the Bank is not
a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i)
above, (x) a certificate substantially in the form of Exhibit C (any such
certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Bank's entitlement to a complete exemption
from United States withholding tax with respect to payments of interest to be
made under this Agreement and under any Note. In addition, each Bank agrees
that from time to time after the Effective Date, when a lapse in time or change
in circumstances renders the previous certification obsolete or inaccurate in
any material respect, it will deliver to the Borrower and the Agent two new
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may
be, and such other forms as may be required in order to confirm or establish the
entitlement of such Bank to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Note, or it shall immediately notify the Borrower and the Agent of its inability
to deliver any such Form or Certificate in which case such Bank shall not be
required to deliver any such Form or Certificate pursuant to this Section
4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a),
but subject to Sec tion 12.04(b) and the immediately succeeding sentence, (x)
the Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or
-23-
<PAGE>
therein) from interest, Fees or other amounts payable hereunder for the account
of any Bank which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for United States federal income tax purposes
to the extent that such Bank has not provided to the Borrower United States
Internal Revenue Service Forms that establish a complete exemption from such
deduction or withholding and (y) the Borrower shall not be obligated pursuant to
Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect of
income or similar taxes imposed by the United States if (I) such Bank is not a
United States person (defined as provided above) and has not provided to the
Borrower the Internal Revenue Service Forms provided for in the foregoing
provisions of this Section 4.04(b) or (II) in the case of a payment, other than
interest, to a Bank described in clause (ii) above, to the extent that such
Forms do not establish a complete exemption from with holding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 12.04(b), the
Borrower agrees to pay any additional amounts and to indemnify each Bank in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of such Taxes.
SECTION 5. Conditions Precedent. The obligation of each Bank to make
--------------------
each Loan and the obligation of the Letter of Credit Issuer to issue each Letter
of Credit hereunder are subject, at the time of such Credit Event (except as
otherwise hereinafter indicated), to the satisfaction of the following
conditions:
5.01 Execution of Agreement. On or prior to the Effective Date, this
----------------------
Agreement shall have been executed and delivered in accordance with Section
12.10.
5.02 Notes. On the Effective Date, there shall have been delivered to
-----
the Agent for the account of each Bank the appropriate Note or Notes, as the
case may be, executed by the Borrower in the amount, maturity and as otherwise
provided herein.
5.03 No Default; Representations and Warranties. At the time of each
------------------------------------------
Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents in effect at such time shall
be true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
-24-
<PAGE>
5.04 Officer's Certificate. On the Effective Date, the Agent shall
---------------------
have received a certificate dated such date signed by an Authorized Officer of
the Borrower stat ing that all of the applicable conditions set forth in
Sections 5.03, 5.07 and 5.08 exist as of such date.
5.05 Opinion of Counsel. On the Effective Date, the Agent shall have
------------------
received an opinion, addressed to the Agent and each of the Banks and dated the
Effective Date, from Morgan, Lewis & Bockius LLP, special counsel to the
Borrower, which opinion shall cover the matters contained in Exhibit D and such
other matters incident to the trans actions contemplated herein as the Agent may
reasonably request.
5.06 Corporate Proceedings. (a) On the Effective Date, the Agent
---------------------
shall have received from each Credit Party a certificate, dated the Effective
Date, signed by the chairman, a vice chairman, the president or any vice-
president of such Credit Party, and attested to by the secretary or any
assistant secretary of such Credit Party, in the form of Exhibit E with
appropriate insertions, together with copies of the Certificate of Incorpora
tion and By-Laws, or other organizational documents, of such Credit Party, the
resolutions of such Credit Party and each of the other documents referred to in
such certificate and all of the foregoing (including each such Certificate of
Incorporation, By-Laws, resolutions and other documents) shall be reasonably
satisfactory to the Agent.
(b) On the Effective Date, all corporate and legal proceedings and all
instru ments and agreements in connection with the transactions contemplated by
this Agreement and the other Documents shall be reasonably satisfactory in form
and substance to the Agent, and the Agent shall have received all information
and copies of all certificates, documents and papers, including good standing
certificates and any other records of corpor ate proceedings and governmental
approvals, if any, which the Agent reasonably may have requested in connection
therewith, such documents and papers, where appropriate, to be certified by
proper corporate or governmental authorities.
5.07 Consummation of the Transaction. (a) On the Effective Date, each
-------------------------------
Merger shall have been consummated in accordance with the Merger Documents
applicable thereto and all applicable laws, and each of the material conditions
precedent to the consummation of each such Merger shall have been satisfied and
not waived except with the consent of the Agent and the Required Banks to the
satisfaction of the Agent and the Required Banks.
(b) On the Effective Date, (i) the Borrower shall have received gross
cash proceeds of at least $40,000,000 in connection with the Borrower's
registered initial public offering of its common stock (the "IPO") and (ii) the
Borrower shall have used the full amount of such proceeds to make payments owing
in connection with the Transaction prior to utilizing any proceeds of Revolving
Loans for such purpose.
-25-
<PAGE>
(c) On the Effective Date, (x) the total commitments in respect of the
Indebtedness to be Refinanced shall have been terminated, all loans with respect
thereto shall have been repaid in full, together with interest thereon, all
letters of credit issued thereunder shall have been terminated and all other
amounts owing with respect thereto shall have been repaid in full and (y) the
creditors in respect of the Indebtedness to be Refinanced shall have terminated
and released all security interests in and Liens on the capital stock of and
assets owned by the Founding Companies or any of their Subsidiaries.
(d) On or prior to the Effective Date, there shall have been delivered
to the Agent and the Banks true and correct copies of all Merger Documents and
all IPO Documents, and all of the terms and conditions of such Documents shall
be in the form previously delivered to the Agent.
(e) On the Effective Date, the Agent shall have received evidence, in
form, scope and substance reasonably satisfactory to it, that the matters set
forth in this Section 5.07 have been satisfied as of such date.
5.08 Adverse Change, etc. (a) On the Effective Date, nothing shall
--------------------
have occurred (and neither the Required Banks nor the Agent shall have become
aware of any facts or conditions not previously known) which the Required Banks
or the Agent shall determine (i) has had, or is reasonably likely to have, a
material adverse effect on the rights or remedies of the Banks or the Agent
under the Credit Documents or on the ability of the Borrower and/or the other
Credit Parties to perform their respective obligations under the Credit
Documents or (ii) has had, or could reasonably be expected to have, a Material
Adverse Effect.
(b) On or prior to the Effective Date, all necessary governmental
(domestic and foreign) and third party approvals and/or consents in connection
with the Transaction and the other transactions contemplated by the Documents
and otherwise referred to herein or therein shall have been obtained and remain
in effect, and all applicable waiting periods with respect thereto shall have
expired without any action being taken by any competent authority which
restrains, prevents or imposes materially adverse conditions upon, the
consummation of the Transaction or the other transactions contemplated by the
Documents or otherwise referred to herein or therein. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunctive relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the Transaction or
the other transactions contemplated by the Documents.
5.09 Litigation. On the Effective Date, there shall be no actions,
----------
suits or proceedings pending or threatened (a) with respect to the Transaction,
this Agreement or any other Document or (b) which the Agent or the Required
Banks shall determine has or could reasonably be expected to have, (i) a
Material Adverse Effect or (ii) a material
-26-
<PAGE>
adverse effect on the rights or remedies of the Banks or the Agent under the
Credit Documents or on the ability of the Borrower and/or the other Credit
Parties taken as a whole to perform their respective obligations under the
Credit Documents.
5.10 Subsidiary Guaranty. On the Effective Date, each Subsidiary
-------------------
Guarantor shall have duly authorized, executed and delivered a Guaranty in the
form of Exhibit F (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "Subsidiary Guaranty"), and
the Subsidiary Guaranty shall be in full force and effect.
5.11 Pledge Agreement; Security Agreement. (a) On the Effective Date,
------------------------------------
each Credit Party shall have duly authorized, executed and delivered a Pledge
Agreement in the form of Exhibit G (as modified, amended or supplemented from
time to time in accordance with the terms thereof and hereof, the "Pledge
Agreement") and shall have delivered to the Collateral Agent, as pledgee
thereunder, all of the Pledged Securities refer red to therein, endorsed in
blank or accompanied by executed and undated stock powers, and the Pledge
Agreement shall be in full force and effect.
(b) On the Effective Date, each Credit Party shall have duly
authorized, executed and delivered a Security Agreement in the form of Exhibit H
(as modified, supplemented or amended from time to time in accordance with the
terms thereof and hereof, the "Security Agreement") covering all of such Credit
Party's present and future Security Agreement Collateral, in each case together
with:
(i) proper Financing Statements (Form UCC-1 or the equivalent)
fully executed for filing under the UCC or other appropriate filing offices
of each juris diction as may be necessary or, in the reasonable opinion of
the Collateral Agent, desirable to perfect the security interests purported
to be created by the Security Agreement;
(ii) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, listing all effective financing statements
that name any Credit Party (including any Founding Company) or any of its
Subsidiaries as debtor and that are filed in the jurisdictions referred to
in clause (i) above, together with copies of such other financing
statements that name any Credit Party (including any Founding Company) or
any of its Subsidiaries as debtor (none of which shall cover the Collateral
except to the extent evidencing Permitted Liens or in respect of which the
Collateral Agent shall have received termination statements (Form UCC-3) or
such other termination statements as shall be required by local law fully
executed for filing);
-27-
<PAGE>
(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be necessary
or, in the reasonable opinion of the Collateral Agent, desirable to perfect
the security interests intended to be created by the Security Agreement;
and
(iv) evidence that all other actions necessary or, in the
reasonable opin ion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security
Agreement have been taken;
and the Security Agreement shall be in full force and effect.
5.12 Financial Statements; Pro Forma Balance Sheet; Projections. On
----------------------------------------------------------
or prior to the Effective Date, the Agent shall have received true and correct
copies of the historical financial statements, the pro forma balance sheet and
--- -----
the projections referred to in Sections 6.09 and 6.10(b), which historical
financial statements, pro forma balance sheet and projections shall be in form
--- -----
and substance reasonably satisfactory to the Agent and the Required Banks.
5.13 Solvency Certificate; Environmental Analyses; Insurance
-------------------------------------------------------
Certificates. On the Effective Date, the Borrower shall have delivered to the
- ------------
Agent:
(i) a solvency certificate from the Chief Financial Officer of
the Borrower in the form of Exhibit I;
(ii) environmental and hazardous substance assessments and
analyses in scope, and in form and substance, reasonably satisfactory to
the Agent and the Required Banks; and
(iii) certificates of insurance complying with the requirements
of Section 7.03 for the business and properties of the Borrower and its
Subsidiaries, and nam ing the Collateral Agent as an additional insured and
as loss payee, and stating that such insurance shall not be cancelled
without at least 30 days prior written notice by the respective insurer to
the Collateral Agent (or such shorter period of time as a particular
insurance company generally provides).
5.14 Payment of Fees. On the Effective Date, all costs, fees and
---------------
expenses, and all other compensation contemplated by this Agreement, in each
case due to the Agent or the Banks (including, without limitation, legal fees
and expenses) shall have been paid to the extent due.
5.15 Notice of Borrowing; Letter of Credit Request. The Agent shall
---------------------------------------------
have received a Notice of Borrowing satisfying the requirements of Section
1.03(a) with respect
-28-
<PAGE>
to each incurrence of Revolving Loans. BTCo shall have received the notice
satisfying the requirements of Section 1.03(b)(i) with respect to each
incurrence of Swingline Loans. The Agent and the Letter of Credit Issuer shall
have received a Letter of Credit Request satisfying the requirements of Section
2.02 with respect to each issuance of a Letter of Credit.
The occurrence of the Effective Date and the acceptance of the
benefits of each Credit Event shall constitute a representation and warranty by
the Borrower to the Agent and each of the Banks that all of the applicable
conditions specified above exist as of the date of such Credit Event. All of
the certificates, legal opinions and other documents and papers referred to in
Section 5, unless otherwise specified, shall be delivered to the Agent at the
Notice Office for the account of each of the Banks and, except for the Notes, in
sufficient counterparts for each of the Banks and shall be reasonably
satisfactory in form and substance to the Agent.
SECTION 6. Representations, Warranties and Agreements. In order to
------------------------------------------
induce the Banks to enter into this Agreement and to make the Loans and issue
and/or parti cipate in the Letters of Credit provided for herein, the Borrower
makes the following repre sentations, warranties and agreements as to itself and
as to each of its Subsidiaries (to the extent provided therein) with the Banks,
in each case after giving effect to the Transaction and all of which shall
survive the execution and delivery of this Agreement, the making of the Loans
and the issuance of the Letters of Credit.
6.01 Corporate Status. Each of the Credit Parties (i) is a duly
----------------
organized and validly existing corporation and is in good standing, in each case
under the laws of the jurisdiction of its organization, and has the corporate
power and authority to own its property and assets and to transact the business
in which it is engaged and presently pro poses to engage and (ii) is duly
qualified and is authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified and where the failure to
be so qualified would have a Material Adverse Effect.
6.02 Power and Authority. Each Credit Party has the corporate power
-------------------
and authority to execute, deliver and carry out the terms and provisions of each
of the Documents to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of each of the
Documents to which it is a party. Each Credit Party has duly executed and
delivered each Document to which it is a party and each such Document
constitutes the legal, valid and binding obligation of such Credit Party
enforceable in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting creditors' rights
and by equitable principles (regardless of whether enforcement is sought in
equity or at law).
-29-
<PAGE>
6.03 No Violation. Neither the execution, delivery or performance by
------------
any Credit Party of the Documents to which it is a party nor compliance by them
with the terms and provisions thereof, nor the consummation of the transactions
contemplated therein, (i) will contravene any applicable provision of any law,
statute, rule or regulation, or any order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will con flict or be inconsistent
with or result in any breach of, any of the terms, covenants, condi tions or
provisions of, or constitute a default under, or (other than pursuant to the
Security Documents) result in the creation or imposition of (or the obligation
to create or impose) any Lien upon any of the property or assets of such Credit
Party pursuant to the terms of any material indenture, mortgage, deed of trust,
agreement or other instrument to which such Credit Party is a party or by which
it or any of its property or assets are bound or to which it may be subject or
(iii) will violate any provision of the Certificate of Incorporation or By-Laws
(or other organizational document), as the case may be, of such Credit Party.
6.04 Litigation. There are no actions, suits or proceedings pending
----------
or threatened, with respect to the Borrower or any of its Subsidiaries (i) that
have, or that are reasonably likely to have, a Material Adverse Effect or (ii)
that have, or that are reasonably likely to have, a material adverse effect on
the rights or remedies of the Banks or on the ability of the Borrower and/or the
other Credit Parties to perform their respective obliga tions to the Banks under
the Credit Documents.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all
------------------------------------
Working Capital Loans and Swingline Loans shall be utilized for the general
corporate and working capital purposes of the Borrower and its Subsidiaries (it
being understood and agreed that such purposes shall include payments to effect
the Refinancing and the repayment of working capital indebtedness of entities
that become Subsidiaries of the Borrower that is outstanding at the time of the
acquisition thereof pursuant to a Permitted Acquisition).
(b) The proceeds of all Acquisition Loans shall be utilized to make
Permitted Acquisitions, including to make payments owing in connection with the
Mergers.
(c) No part of any Credit Event (or the proceeds thereof) will be
used to purchase or carry any Margin Stock or to extend credit for the purpose
of purchasing or carrying any Margin Stock. Neither the making of any Loan
hereunder, nor the use of the proceeds thereof, nor the occurrence of any other
Credit Event, will violate or be inconsistent with the provisions of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System.
6.06 Approvals. Except as have been obtained or made and which
---------
remain in full force and effect, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic
-30-
<PAGE>
governmental or public body or authority, or any subdivision thereof or any
other Person, is required to authorize or is required in connection with (i) the
execution, delivery and performance of any Document and the consummation of the
transactions contemplated therein or (ii) the legality, validity, binding effect
or enforceability of any Document.
6.07 Investment Company Act. Neither the Borrower nor any of its Sub
----------------------
sidiaries is an "investment company" or a company "controlled" by an "investment
com pany," within the meaning of the Investment Company Act of 1940, as amended.
6.08 Public Utility Holding Company Act. Neither the Borrower nor
----------------------------------
any of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding com pany," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) heretofore or contemporaneously furnished by or on behalf of any Credit
Party in writing to the Agent or any Bank (including, without limitation, all
information contained in the Documents) for purposes of or in connection with
this Agreement or any transaction contemplated herein (including the
Transaction) is, and all other such factual information (taken as a whole)
hereafter furnished by or on behalf of any such Persons in writing to the Agent
or any Bank will be, true and accurate in all material respects on the date as
of which such information is dated or certified and not incomplete by omitting
to state any material fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances under which such
information was provided. The pro jections (including those delivered to the
Agent on September 17, 1997) and pro forma financial information contained in
--- -----
such materials are based on good faith estimates and assumptions believed by
such Persons to be reasonable at the time made, it being recognized by the Banks
that such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results. There is no fact known to the Borrower or
any of its Subsidiaries which would have a Material Adverse Effect, which has
not been disclosed herein or in such other documents, certificates and
statements furnished to the Agent for use in connection with the transactions
contemplated hereby.
6.10 Financial Condition; Financial Statements. (a) On and as of
-----------------------------------------
the Effective Date, on a pro forma basis after giving effect to the execution,
--- -----
delivery and performance of this Agreement and the other Documents and the
consummation of the transactions contemplated herein and therein and to all
Indebtedness incurred, and to be incurred, and Liens created, and to be created,
by each Credit Party in connection there with, and with respect to the Borrower
and its Subsidiaries taken as a whole (x) the sum of their assets, at a fair
valuation, will exceed their debts, (y) they have not incurred nor
-31-
<PAGE>
intend to, nor believe that they will, incur debts beyond their ability to pay
such debts as such debts mature and (z) they will have sufficient capital with
which to conduct their busi ness. For purposes of this Section 6.10, "debt"
means any liability on a claim, and "claim" means (i) right to payment whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unse cured.
(b) The consolidated balance sheets of each Founding Company as at
the close of each Founding Company's most recently ended fiscal year and most
recently reported fiscal quarter, as the case may be, and the related
consolidated statements of operations and cash flows of each Founding Company
for each such Founding Company's most recently ended fiscal year and most
recently reported fiscal quarter, as the case may be, as of said dates, which,
in the case of the year end financial statements, have (for each Founding
Company) been examined by independent certified public accountants reasonably
satisfactory to the Agent, and the pro forma (after giving effect to the
--- -----
Transaction and the other transactions contemplated hereby) consolidated balance
sheet of the Borrower and its Subsidiaries as at June 30, 1997 and the related
consolidated statements of operations and cash flows for the six-month period
ended June 30, 1997, copies of which have heretofore been furnished to each
Bank, present fairly the financial position of the Borrower and its Subsidiaries
at the dates of said statements and the results for the periods covered thereby
(or, in the case of the pro forma financial statements, present a good faith
--- -----
estimate of the consolidated pro forma financial condition and results of the
--- -----
Borrower and its Subsidiaries at the date thereof and/or for the period covered
thereby). All such financial statements (other than the aforesaid pro forma
--- -----
financial statements) have been prepared in accordance with GAAP consistently
applied except to the extent provided in the notes to said financial statements.
(c) After giving effect to the Transaction (and assuming that same
occurred prior to December 31, 1996), nothing has occurred since December 31,
1996 that has had or could reasonably be expected to have a Material Adverse
Effect.
(d) Except as fully reflected in the financial statements described
in Section 6.10(b) or in the footnotes thereto and the Indebtedness incurred
under this Agreement, there were as of the Effective Date (and after giving
effect to any Loans made on such date), no material Contingent Obligation,
contingent liability or liability for taxes or any long-term lease or unusual
forward or long-term commitment, including interest rate or currency swap or
exchange transactions, with respect to the Borrower or any of its Subsidiaries
which either individually or in the aggregate would be material to the Borrower
-32-
<PAGE>
or to the Borrower and its Subsidiaries taken as a whole, except as incurred in
the ordinary course of business consistent with past practices subsequent to
June 30, 1997.
6.11 Security Interests. On and after the Effective Date, each of
------------------
the Security Documents creates, as security for the obligations purported to be
secured thereby, a valid and enforceable perfected security interest in and Lien
on all of the Collateral subject thereto, superior to and prior to the rights of
all third Persons and subject to no other Liens (except that the Security
Agreement Collateral may be subject to the security interests evidenced by
Permitted Liens relating thereto and each Mortgaged Property may be subject to
the Permitted Encumbrances relating thereto) in favor of the Collateral Agent
(or such other trustee as may be required and desired under local law), and the
Collateral Agent, for the benefit of the Secured Creditors, has a fully
perfected lien on, and security interest in, all Collateral. No filings or
recordings are required in order to perfect (or maintain the perfection or
priority of) the security interests created under the Pledge Agreement.
6.12 Tax Returns and Payments. Each of the Borrower and each of its
------------------------
Subsidiaries has filed all United States federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by it
(giving effect to any filing extension obtained in connection therewith) and has
paid all material taxes and assessments payable by it which have become due,
except for those contested in good faith and adequately disclosed and fully
provided for on the financial statements of the Borrower and its Subsidiaries in
accordance with GAAP. The Borrower and each of its Subsidiaries have at all
times paid, or have provided adequate reserves (in the good faith judgment of
the management of the Borrower) for the payment of, all United States federal,
state and foreign income taxes applicable for all prior fiscal years and for the
current fiscal year to date. There is no material action, suit, proceeding,
investigation, audit or claim now pending or, to the knowledge of the Borrower,
threatened by any authority regarding any taxes relating to the Borrower or any
of its Subsidiaries. As of the Effective Date, neither the Borrower nor any of
its Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of the Borrower or any of its
Subsidiaries, or is aware of any circumstances that would cause the taxable
years or other taxable periods of the Borrower or any of its Subsidiaries not to
be subject to the normally applicable statute of limitations. Neither the
Borrower nor any of its Subsidiaries will incur any Taxes in connection with the
Transaction. Prior to the Effective Date, each of CFX, Inc., Alpine Gem Flower
Shippers, Inc., The Roy Houff Company, Bay State Florist Supply, Inc., United
Wholesale Florists of America, Inc., and American Florist Supply, Inc. made a
valid S election under Section 1361 of the Code, and each also made all such
elections required under any analogous provisions of state or local law; and
each will continue to be a valid S corporation through the Effective Date.
-33-
<PAGE>
6.13 Compliance with ERISA. Each Plan (and each related trust,
---------------------
insurance contract or fund) is in substantial compliance with its terms and with
all applicable laws, including, without limitation, ERISA and the Code; each
Plan (and each related trust, if any) which is intended to be qualified under
Section 401(a) of the Code has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Sections 401(a)
and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or
in reorganization; no Plan has an Unfunded Current Liability; no Plan which is
subject to Section 412 of the Code or Section 302 of ERISA has an accumulated
funding deficiency, within the meaning of such sections of the Code or ERISA,
or has applied for or received a waiver of an accumulated funding deficiency or
an extension of any amortization period, within the meaning of Section 412 of
the Code or Section 303 or 304 of ERISA; all contributions required to be made
with respect to a Plan have been timely made; neither the Borrower nor any
Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material
liability (including any indirect, contingent or secondary liability) to or on
account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of
the Code or expects to incur any material liability under any of the foregoing
sections with respect to any Plan; no condition exists which presents a material
risk to the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of
incurring a material liability to or on account of a Plan pursuant to the
foregoing provisions of ERISA and the Code; no proceedings have been instituted
to terminate or appoint a trustee to administer any Plan which is subject to
Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation
with respect to the administration, operation or the investment of assets of any
Plan (other than routine claims for benefits) is pending, expected or
threatened; using actuarial assumptions and computation methods consistent with
Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the
Borrower and its Subsidiaries and its ERISA Affiliates to all Plans which are
multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of
a complete withdrawal therefrom, as of the close of the most recent fiscal year
of each such Plan ended prior to the date of the most recent Credit Event, could
not result in a Material Adverse Effect; each group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has
covered employees or former employees of the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate has at all times been operated in compliance
with the provisions of Part 6 of subtitle B of Title I of ERISA and Section
4980B of the Code; no lien imposed under the Code or ERISA on the assets of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate exists or is
likely to arise on account of any Plan; and the Borrower and its Subsidiaries do
not maintain or contribute to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any
employee pension benefit plan (as defined in Section 3(2) of ERISA) the
obligations with respect to which could result in a Material Adverse Effect.
-34-
<PAGE>
6.14 Ownership; Subsidiaries. On the Effective Date, the
-----------------------
corporations listed on Annex III are all of the Subsidiaries of the Borrower.
Annex III correctly sets forth, as of the Effective Date, the percentage
ownership (direct and indirect) of the Borrower in each class of capital stock
of each of its Subsidiaries and also identifies the direct owner thereof.
6.15 Intellectual Property. The Borrower and each of its
---------------------
Subsidiaries owns or holds a valid license to use all the patents, trademarks,
permits, service marks, trade names, technology, know-how, copyrights, licenses,
franchises and formulas or rights with respect to the foregoing, that are used
in the operation of the business of the Borrower and each of its Subsidiaries as
presently conducted and as proposed to be conducted and are material to such
business.
6.16 Compliance with Statutes, etc. The Borrower and each of its
------------------------------
Subsidiaries are in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in aggregate, reasonably be
expected to have a Material Adverse Effect.
6.17 Environmental Matters. (a) The Borrower and each of its
---------------------
Subsidi aries have complied with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws. There are no
pending or, to the best knowledge of the Borrower, past or threatened
Environmental Claims against the Borrower or any of its Subsidiaries or any Real
Property at any time owned, leased or operated by the Borrower or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences
concerning the business or operations of the Borrower or any of its Subsidiaries
or any Real Property at any time owned, leased or operated by the Borrower or
any of its Subsidiaries or, to the best knowledge of the Borrower, any property
adjoining or in the vicinity of any such Real Property that could reasonably be
expected (i) to form the basis of an Environmental Claim against the Borrower or
any of its Subsidiaries or any currently owned Real Property of the Borrower or
any of its Subsidiaries or (ii) to cause any such currently owned Real Property
to be subject to any material restrictions on the ownership, occupancy, use or
transferability of such Real Property by the Borrower or any of its Subsidiaries
under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported to or from, any Real Property at any time
owned, leased or operated by the Borrower or any of its Subsidiaries where such
generation, use, treatment or storage has violated or could reasonably be
expected to violate any Environmental Law. Hazardous Materials have not at any
time been Released on or from any Real Property at
-35-
<PAGE>
any time owned, leased or operated by the Borrower or any of its Subsidiaries.
There are not now any underground storage tanks located on any Real Property
owned, leased or operated by the Borrower or any of its Subsidiaries.
(c) Notwithstanding anything to the contrary in this Section 6.17,
the representations made in this Section 6.17 shall only be untrue if the
aggregate effect of all failures, noncompliances, Environmental Claims,
Hazardous Materials, Releases and presence of underground storage tanks, in each
case of the types described above, could reasonably be expected to have a
Material Adverse Effect.
6.18 Real Properties. All Real Property owned or leased by the
---------------
Borrower or any of its Subsidiaries as of the Effective Date, and the nature of
the interest therein, is correctly set forth in Annex IV. The Borrower and each
of its Subsidiaries have good and marketable title to, or a validly subsisting
leasehold interest in, all material properties owned or leased by it, including
all Real Property reflected in Annex IV and in the financial statements referred
to in Section 6.10(b), free and clear of all Liens, other than Permitted Liens.
6.19 Labor Relations. Neither the Borrower nor any of its
---------------
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against the Borrower or any of its Subsidiaries or,
to the best knowledge of the Borrower, threatened against any of them, before
the National Labor Relations Board, and no grievance or arbitra tion proceeding
arising out of or under any collective bargaining agreement is so pending
against the Borrower or any of its Subsidiaries or, to the best knowledge of the
Borrower, threatened against any of them, (ii) no strike, labor dispute,
slowdown or stoppage pending against the Borrower or any of its Subsidiaries or,
to the best knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries and (iii) to the best knowledge of the Borrower, no union
representation question existing with respect to the employees of the Borrower
or any of its Subsidiaries and, to the best knowledge of the Borrower, no union
organizing activities are taking place, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as could not rea sonably be expected to have a Material Adverse
Effect.
6.20 Indebtedness. Schedule V sets forth a true and complete list of
------------
all Indebtedness of the Borrower and its Subsidiaries as of the Effective Date
and which is to remain outstanding after giving effect to the Transaction
(excluding the Loans, the "Existing Debt"), in each case showing the aggregate
principal amount thereof and the name of the respective borrower and any other
entity which directly or indirectly guaranteed such debt.
6.21 Other Documents. All representations and warranties set forth
---------------
in the IPO Documents and in the Merger Documents were true and correct in all
material respects
-36-
<PAGE>
on the date on which such representations and warranties were made (or deemed
made) and shall be true and correct in all material respects on and as of the
Effective Date as if such representations and warranties were made on and as of
such date.
SECTION 7. Affirmative Covenants. The Borrower hereby covenants and
---------------------
agrees that as of the Effective Date and, thereafter for so long as this
Agreement is in effect and until the Commitments have terminated, no Letters of
Credit or Notes are outstanding and the Loans and Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder, are paid in full:
7.01 Information Covenants. The Borrower will furnish to each Bank:
---------------------
(a) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of the Borrower, the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such fiscal year and the
related consolidated statements of operations and stockholders' equity and
of cash flows for such fiscal year and setting forth comparative figures
for the preceding fiscal year and comparable bud geted figures for such
fiscal year and certified by the chief financial officer or other
Authorized Officer of the Borrower that such statements fairly present the
financial condition of the Borrower and its Subsidiaries, as of the dates
indicated and the re sults of their operations and changes in their cash
flows for the periods indicated and examined by independent certified
public accountants of recognized national standing as shall be acceptable
to the Agent, whose opinion shall not be qualified as to the scope of audit
or as to the status of the Borrower and its Subsidiaries as a going
concern, together with a certificate of such accounting firm stating that
in the course of its regular audit of the business of the Borrower and its
Subsidiaries, which audit was conducted in accordance with generally
accepted auditing standards, no Default or Event of Default which has
occurred and is continuing has come to their attention or, if such a
Default or Event of Default has come to their attention a statement as to
the nature thereof (it being understood that delivery of the Borrower's
annual report, as filed with the SEC on Form 10-K, shall be adequate to
comply with the requirements of this Section 7.01(a)).
(b) Quarterly Financial Statements. Within 45 days after the close
------------------------------
of each of the first three quarterly accounting periods in each fiscal year
of the Borrower, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly accounting period and the
related consolidated statements of operations and stockholders' equity and
of cash flows for such quarterly accounting period, and for the elapsed
portion of the fiscal year ended with the last day of such quarterly
accounting period, all of which shall be in reasonable detail and certified
by the chief financial officer or other Authorized Officer of the Borrower
that they
-37-
<PAGE>
fairly present the financial condition of the Borrower and its Subsidiaries
as of the dates indicated and the results of their operations and changes
in their cash flows for the periods indicated, subject to normal year-end
audit adjustments (it being understood that delivery of the Borrower's
quarterly financial statements, as filed with the SEC on Form 10-Q, shall
be adequate to comply with the requirements of this Section 7.01(b)).
(c) Budgets, etc. Not more than 60 days after the commencement of
-------------
each fiscal year of the Borrower, budgets in form reasonably satisfactory
to the Agent (including, in any event, budgeted statements of income and
sources and uses of cash and balance sheets) for (x) such fiscal year
prepared in detail and (y) each of the five years immediately following
such fiscal year prepared in summary form, of the Borrower and its
Subsidiaries, in each case as customarily prepared by management for its
internal use setting forth, with appropriate discussion, the prin cipal
assumptions upon which such budgets are based. Together with each delivery
of financial statements pursuant to Sections 7.01(a) and (b), a comparison
of the current year to date financial results (other than in respect of the
balance sheets included therein) against the budgets required to be
submitted pursuant to clause (x) of this Section 7.01(c) shall be
presented.
(d) Officer's Certificates. At the time of the delivery of the
----------------------
financial state ments provided for in Sections 7.01(a) and (b), a
certificate of the chief financial officer, controller or chief accounting
officer of the Borrower to the effect that no Default or Event of Default
exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof, which certificate shall set forth (x) the
calculations required to establish whether the Borrower and its
Subsidiaries were in compliance with the provisions of Sections 8.05, 8.09
and 8.10, as at the end of such fiscal quarter or year, as the case may be
and (y) the Leverage Ratio (with detailed computation thereof) as at the
end of such fiscal quarter or year, as the case may be.
(e) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within five Business Days after any officer of the Borrower or any of its
Subsidiaries obtains knowledge thereof, notice of (x) the occurrence of any
event which constitutes a Default or an Event of Default, which notice
shall specify the nature thereof, the period of existence thereof and what
action the Borrower proposes to take with re spect thereto and (y) the
commencement of, or threat of, or any significant development in, any
litigation or governmental proceeding pending against the Borrower or any
of its Subsidiaries which is reasonably likely to have a Material Adverse
Effect.
-38-
<PAGE>
(f) Auditors' Reports. Promptly upon receipt thereof, a copy of each
-----------------
report or "management letter" submitted to the Borrower or any of its
Subsidiaries by its independent accountants in connection with any annual,
interim or special audit made by them of the books of the Borrower or any
of its Subsidiaries.
(g) Environmental Matters. Promptly after obtaining knowledge of any
---------------------
of the following, written notice of:
(i) any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Property owned,
operated or leased by the Borrower or any of its Subsidiaries which, if
successful, would be reasonably likely to have a Material Adverse
Effect;
(ii) any condition or occurrence that (x) results in material
noncom pliance by the Borrower or any of its Subsidiaries with any
applicable Environmental Law, or (y) could reasonably be anticipated to
form the basis of a material Environmental Claim against the Borrower
or any of its Subsidiaries or any Real Property owned, operated or
leased by the Borrower or any of its Subsidiaries with respect to, in
the case of both clauses (x) and (y) above, (A) any Mortgaged Property
or (B) to the extent such noncompliance or Environmental Claim is
material to the Borrower or to any other Credit Party, any other Real
Property;
(iii) any condition or occurrence on any Real Property
owned, operated or leased by the Borrower or any of its Subsidiaries
that could rea sonably be anticipated to cause such Real Property to be
subject to any restrictions on the ownership, occupancy, use or
transferability by the Borrower or its Subsidiary, as the case may be,
of its interest in such Real Property under any Environmental Law in
the event such restrictions apply with respect to a Mortgaged Property
or, to the extent such restrictions are material to the Borrower or any
other Credit Party, with respect to any other Real Property; and
(iv) the taking of any material removal or remedial action in
response to the actual or alleged presence of any Hazardous Material on
any Real Property owned, operated or leased by the Borrower or any of
its Subsidiaries.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and the Borrower's response thereto. In addition, the Borrower agrees to
provide the Banks with copies of all material communications with any
government or governmental
-39-
<PAGE>
agency relating to Environmental Laws, all material communications with any
person relating to Environmental Claims, and such detailed reports of any
Environ mental Claim as may reasonably be requested by the Agent or the
Required Banks.
(h) Permitted Acquisition Reports. Within 90 days after the date of
-----------------------------
the consummation of a Permitted Acquisition in which the Acquired Business
had annual revenues of $10,000,000 or more for the most recently ended
fiscal year of such Acquired Business, an audit of such Acquired Business
prepared by the Borrower's independent certified public accountants.
(i) Other Information. Promptly upon transmission thereof, copies of
-----------------
any filings and registrations with, and reports to, the SEC by the Borrower
or any of its Subsidiaries and copies of all financial statements, proxy
statements, notices and reports as the Borrower or any of its Subsidiaries
shall send to the holders of their publicly held capital stock (in each
case to the extent not theretofore delivered to the Banks pursuant to this
Agreement) and, with reasonable promptness, such other information or
documents (financial or otherwise) as the Agent on its own behalf or on
behalf of the Required Banks may reasonably request from time to time.
7.02 Books, Records and Inspections. The Borrower will, and will
------------------------------
cause each of its Subsidiaries to, permit, upon notice to the chief financial
officer or other Authorized Officer of the Borrower, officers and designated
representatives of the Agent or the Required Banks to visit and inspect any of
the properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession, and to examine the books of account of the Borrower and
any of its Subsidiaries and discuss the affairs, finances and accounts of the
Borrower and of any of its Subsidiaries with, and be advised as to the same by,
their officers and independent accountants, all at such reasonable times and
intervals and to such reasonable extent as the Agent or the Required Banks may
desire.
7.03 Maintenance of Property; Insurance. (a) The Borrower will, and
----------------------------------
will cause each of its Subsidiaries to, at all times maintain in full force and
effect insurance with reputable and solvent insurers in such amounts, covering
such risks and liabilities and with such deductibles or self-insured retentions
as are in accordance with normal industry practice. The Borrower will furnish
on the Effective Date and annually thereafter to the Agent a summary of the
insurance carried in respect of the Borrower and its Subsidiaries and the assets
of the Borrower and its Subsidiaries together with certificates of insurance and
other evidence of such insurance, if any, naming the Collateral Agent as an
additional insured (in the case of liability policies) and/or loss payee (in the
case of casualty policies), to the extent of its interests therein.
(b) If the Borrower or any of its Subsidiaries shall fail to maintain
all insurance in accordance with this Section 7.03, or if the Borrower or any of
its Subsidiaries
-40-
<PAGE>
shall fail to so endorse and deposit all policies or certificates with respect
thereto, the Agent and/or the Collateral Agent shall have the right (but shall
be under no obligation) to procure such insurance and the Borrower agrees to
reimburse the Agent or the Collateral Agent as the case may be, for all costs
and expenses of procuring such insurance.
7.04 Payment of Taxes. The Borrower will pay and discharge, and will
----------------
cause each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which material
penalties attach thereto, and all lawful claims for sums that have become due
and payable which, if unpaid, might become a Lien not otherwise permitted under
Section 8.03(a) or charge upon any properties of the Borrower or any of its
Subsidiaries provided that neither the Borrower nor any of its Sub sidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate re serves with respect thereto in accordance with GAAP.
7.05 Corporate Franchises. The Borrower will do, and will cause each
--------------------
of its Subsidiaries to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its rights, franchises and
authority to do business to the extent material to any Credit Party or to the
Borrower and the other Credit Parties taken as a whole provided that any
transaction permitted by Section 8.02 will not constitute a breach of this
Section 7.05.
7.06 Compliance with Statutes, etc. The Borrower will, and will
------------------------------
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property other than those the non-compliance
with which could not have a Material Adverse Effect or a material adverse effect
on the ability of the Credit Parties, in the aggregate, to perform their obli
gations under the Credit Documents.
7.07 Good Repair. The Borrower will, and will cause each of its
-----------
Subsidiaries to, ensure that its material properties and equipment used or
useful in its bus iness are kept in good repair, working order and condition,
normal wear and tear excepted, and, subject to Section 8.05, that from time to
time there are made in such properties and equipment all needful and proper
repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto, to the extent and in the manner useful or customary for
companies in similar businesses.
7.08 Compliance with Environmental Laws. (a) Except where the
----------------------------------
failure to do so could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, the Borrower: (i) will comply,
and will cause each of its
-41-
<PAGE>
Subsidiaries to comply, with all Environmental Laws applicable to the operation
of their business and the ownership of use of any Real Property; (ii) will pay,
and will cause each of its Subsidiaries to pay, all costs and expenses incurred
in such compliance; (iii) will keep or cause to be kept all Real Properties
owned, operated or leased by the Borrower or any of its Subsidiaries free and
clear of any material Liens imposed pursuant to such Environ mental Laws; and
(iv) neither the Borrower nor any of its Subsidiaries will generate, use, treat,
store, release or dispose of, or permit the generation, use, treatment, storage,
release or disposal of, Hazardous Materials on any Real Property, or transport
or permit the transportation of Hazardous Materials to or from any such Real
Property except in compliance with applicable law. If the Borrower or any of
its Subsidiaries, or any tenant or occupant of any Real Property, causes or
permits any intentional or unintentional act or omission resulting in the
material presence or release of any Hazardous Material (except in compliance
with applicable Environmental Laws), the Borrower agrees to undertake, and/or to
cause any of its Subsidiaries, tenants or occupants to undertake, at their sole
expense, any clean up, removal, remedial or other action required pursuant to
Environmental Laws to remove and clean up any Hazardous Materials from any Real
Prop erty provided that neither the Borrower nor any of its Subsidiaries shall
be required to comply with any such order or directive which is being contested
in good faith and by proper proceedings so long as it has maintained adequate
reserves with respect to such compliance to the extent required in accordance
with GAAP.
(b) At the written request of the Agent, at any time when the
Borrower is required to give the Agent notice under Section 7.01(g) of any event
specified in Section 7.01(g), the Borrower will provide, at the Borrower's sole
cost and expense, an environmental site assessment report concerning any Real
Property the subject of such notice, prepared by an environmental consulting
firm approved by the Agent, indicating the presence or absence of Hazardous
Materials and the potential cost of any removal or remedial action in connection
with any Hazardous Materials on such Real Property. If the Borrower fails to
provide the same 90 days after such request was made, the Agent may order the
same, and the Borrower shall grant and hereby grants to the Agent and its agents
access to such Real Property and specifically grants the Agent an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment, all at the Borrower's expense.
7.09 ERISA. As soon as possible and, in any event, within 10 days
-----
after the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following events, the
Borrower will deliver to each of the Banks a certificate of the chief financial
officer or other Authorized Officer of the Borrower setting forth the full
details as to such occurrence and the action, if any, that the Borrower, such
Subsidiary or such ERISA Affiliate is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by the
Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or
the Plan administrator
-42-
<PAGE>
with respect thereto: that a Reportable Event has occurred (except to the
extent that the Borrower has previously delivered to the Banks a certificate and
notices (if any) concerning such event pursuant to the next clause hereof); that
a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA is subject to the advance reporting requirement of
PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof),
and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC
Regulation Section 4043 is reasonably expected to occur with respect to such
Plan within the following 30 days; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code or Section 302 of ERISA, has been
incurred or an application may be or has been made for a waiver or modification
of the minimum funding standard (including any required installment payments) or
an extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; that any contribution required to be
made with respect to a Plan or Foreign Pension Plan has not been timely made;
that a Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current
Liability; that proceedings may be or have been instituted to terminate or
appoint a trustee to administer a Plan which is subject to Title IV of ERISA;
that a proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan; that the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate will or may incur any material liability
(including any indirect, contingent or secondary liability) to or on account of
the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of
ERISA or with respect to a group health plan (as defined in Section 607(1) of
ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or
that the Borrower or any Subsidiary of the Borrower may incur any material
liability pursuant to any employee welfare benefit plan (as defined in Section
3(1) of ERISA) that provides benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or any Plan or any
Foreign Pension Plan. At the request of any Bank, the Borrower will deliver to
such Bank (i) a complete copy of the annual report (on Internal Revenue Service
Form 5500-series) of each Plan (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information) required to be filed with the
Internal Revenue Service. In addition to any certificates or notices delivered
to the Banks pursuant to the first sentence hereof, copies of any records,
documents or other information required to be furnished to the PBGC, and any
material notices received by the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be
delivered to the Banks no later than 10 days after the date such records,
documents and/or information has been furnished to the PBGC or such notice has
been received by the Borrower, the Subsid iary or the ERISA Affiliate, as
applicable.
-43-
<PAGE>
7.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for
------------------------------------
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 31, and December 31 of each year.
7.11 Mortgages; Title Insurance; Survey; etc. (a) Within 90 days
----------------------------------------
following the Effective Date, the Collateral Agent shall have received:
(i) fully executed counterparts of Mortgages, in form and
substance rea sonably satisfactory to the Agent, which Mortgages shall
cover the Mortgaged Properties owned by the Credit Parties on the Effective
Date as designated on Annex IV, together with evidence that counterparts of
such Mortgages have been delivered to the title insurance company insuring
the Lien of such Mortgages for recording in all places to the extent
necessary or, in the reasonable opinion of the Collateral Agent, desirable,
to effectively create a valid and enforceable first priority mortgage lien
on each such Mortgaged Property in favor of the Collateral Agent (or such
other trustee as may be required or advisable under local law) for the
benefit of the Secured Creditors;
(ii) a mortgagee title insurance policy (or a binding commitment
with respect thereto) on each such Mortgaged Property (the "Mortgage
Policies") issued by a title insurer reasonably satisfactory to the Agent
in amounts satisfactory to the Agent assuring the Collateral Agent that the
Mortgages on such Mortgaged Properties are valid and enforceable first
priority mortgage liens on the respective Mortgaged Properties, free and
clear of all defects and encumbrances except Per mitted Encumbrances and
such Mortgage Policies shall otherwise be in form and substance reasonably
satisfactory to the Agent, and shall include, as appropriate, an
endorsement for future advances under this Agreement and the Notes, shall
not include an exception for mechanics' liens, shall provide for
affirmative insurance and such reinsurance as the Agent may reasonably
request and shall provide for any other matter that the Agent may
reasonably request;
(iii) a recent survey, in form and substance reasonably
satisfactory to the Agent, of each such Mortgaged Property, certified by a
licensed professional surveyor reasonably satisfactory to the Agent; and
(iv) one or more opinions of counsel reasonably satisfactory to
the Agent, addressed to the Agent, the Collateral Agent and each of the
Banks, from such counsel reasonably satisfactory to the Agent as the Agent
may reasonably request, which opinions shall cover certain of the matters
(but not title or lien priority) relating to the security interests granted
pursuant to the Security
-44-
<PAGE>
Documents and such other matters incident to the transactions contemplated
herein as the Agent may reasonably request.
(b) To the extent not delivered by the Borrower to the Agent pursuant
to Section 5.07 on the Effective Date, within 45 days following the Effective
Date, the Borrower shall have delivered to the Agent such additional releases of
security interests (including, without limitation, Form UCC-3 termination
statements) in and Liens on the assets owned by the Borrower and its
Subsidiaries as the Agent may reasonably request, which releases shall be in
form and substance reasonably satisfactory to the Agent and shall evidence the
Refinancing that occurred on the Effective Date.
(c) Within 60 days following the Effective Date, the Administrative
Agent shall have received:
(i) one or more additional opinions of counsel reasonably
satisfactory to the Agent, addressed to the Agent and each of the Banks,
from such counsel reasonably satisfactory to the Agent as the Agent may
reasonably request, which opinions shall cover certain of the matters
relating to the execution, delivery and performance of the Credit Documents
by Bay State Florist Supply, Inc., United Wholesale Florists, Inc., United
Wholesale Florists of America, Inc., Alpine Gem Flower Shippers, Inc.,
American Florist Supply, Inc. and The Roy Houff Company;
(ii) a certified copy of an amendment to the articles of organization
and by-laws of Bay State Florist Supply, Inc., which amendment shall delete
or otherwise modify on terms satisfactory to the Agent the provisions
thereof which require any Person who forecloses on the capital stock of
such company to first offer such capital stock back to such company; and
(iii) a certified copy of an amendment to the by-laws of each of
United Wholesale Florists of America, Inc., and United Wholesale Florists,
Inc., which amendment shall delete the provisions of Section 6 of Article
VI thereof.
7.12 Additional Security; Further Assurances. (a) At the time the
---------------------------------------
Borrower or any Subsidiary Guarantor shall acquire after the Effective Date an
ownership interest in any Material Real Property (or at the time of the
acquisition or creation, after the Effective Date, of any Subsidiary Guarantor
having an ownership interest in any Material Real Property), the Borrower shall
give prompt notice thereof to the Agent and the Banks. Upon the request of the
Agent or the Required Banks, the Borrower shall, or shall cause such Subsidiary
Guarantor to, execute a mortgage, deed to secure debt or similar document with
respect to such Material Real Property (all such mortgages, deeds and similar
documents, "Additional Mortgages") reasonably satisfactory in form and substance
to the Agent and such Additional Mortgages shall constitute valid and
enforceable
-45-
<PAGE>
perfected mortgages superior to and prior to the rights of all third Persons and
subject to no other Liens except for Permitted Liens. The Additional Mortgages
or instruments related thereto shall have been duly recorded or filed in such
manner and in such places as are required by law to establish, perfect, preserve
and protect the Liens in favor of the Collateral Agent required to be granted
pursuant to the Additional Mortgages and all taxes, fees and other charges
payable in connection therewith shall have been paid in full.
(b) The Borrower will, and will cause each Subsidiary Guarantor to,
at the expense of the Borrower, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such vouchers, invoices,
schedules, confirmatory assign ments, conveyances, financing statements,
transfer endorsements, powers of attorney, certi ficates, real property surveys,
reports and other assurances or instruments and take such further steps relating
to the collateral covered by any of the Security Documents as the Collateral
Agent may reasonably require. Furthermore, the Borrower shall cause to be
delivered to the Collateral Agent such opinions of counsel, real estate
appraisals satisfying the requirements of applicable law, mortgage policies,
title insurance and other related documents as may be reasonably requested by
the Collateral Agent to assure itself that this Section 7.12 has been complied
with.
(c) The Borrower agrees that each action required above by Sections
7.12(a) and (b) shall be completed as soon as possible, but in no event later
than 75 days after such action is requested to be taken by the Agent or the
Required Banks.
7.13 Foreign Subsidiaries Security. If following a change in the
-----------------------------
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronounce ments issued or promulgated thereunder, counsel for the
Borrower reasonably acceptable to the Agent does not within 30 days after a
request from the Agent or the Required Banks deliver evidence, in form and
substance mutually satisfactory to the Agent and the Borrower, with respect to
any Foreign Subsidiary which has not already had all of its stock pledged
pursuant to the Pledge Agreement that (i) a pledge of 66-2/3% or more of the
total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary
of a security agreement in sub stantially the form of the Security Agreement and
(iii) the entering into by such Foreign Subsidiary of a guaranty in
substantially the form of the Subsidiary Guaranty, in any such case could
reasonably be expected to cause (I) the undistributed earnings of such Foreign
Subsidiary as determined for United States federal income tax purposes to be
treated as a deemed dividend to such Foreign Subsidiary's United States parent
for United States federal income tax purposes which would not be substantially
offset by a foreign tax credit or other similar benefit of such United States
parent or (II) other material adverse United States federal income tax
consequences to the Credit Parties, then in the case of a failure to deliver the
evidence described in clause (i) above, that portion of such Foreign
Subsidiary's outstanding capital stock so issued by such Foreign Subsidiary not
theretofore pledged pur-
-46-
<PAGE>
suant to the Pledge Agreement shall be pledged to the Collateral Agent for the
benefit of the Secured Creditors pursuant to the Pledge Agreement (or another
pledge agreement in substantially similar form, if needed), and in the case of a
failure to deliver the evidence described in clause (ii) above, such Foreign
Subsidiary shall execute and deliver the Security Agreement (or another security
agreement in substantially similar form, if needed), granting the Collateral
Agent for the benefit of the Secured Creditors a security interest in all of
such Foreign Subsidiary's assets and securing the Obligations of the Borrower
under the Credit Documents and under any Interest Rate Protection Agreement or
Other Hedging Agreement and, in the event the Subsidiary Guaranty shall have
been executed by such Foreign Subsidiary, the obligations of such Foreign
Subsidiary thereunder, and in the case of a failure to deliver the evidence
described in clause (iii) above, such Foreign Subsidiary shall execute and
deliver the Subsidiary Guaranty (or another guaranty in substantially similar
form, if needed), guaranteeing the Obligations of the Borrower under the Credit
Documents and under any Interest Rate Protection Agreement, in each case to the
extent that the entering into such Security Agreement or Subsidiary Guaranty is
permitted by the laws of the respective foreign jurisdiction and with all
documents delivered pursuant to this Section 7.13 to be in form and substance
reasonably satisfactory to the Agent.
SECTION 8. Negative Covenants. The Borrower hereby covenants and
------------------
agrees that as of the Effective Date, and thereafter for so long as this
Agreement is in effect and until the Commitments have terminated, no Letters of
Credit or Notes are outstanding and the Loans, together with interest, Fees and
all other Obligations incurred hereunder, are paid in full:
8.01 Changes in Business. The Borrower will not permit at any time
-------------------
the business activities conducted by the Borrower and its Subsidiaries (other
than immaterial activities) to include activities other than those currently
conducted on the Effective Date and any additional businesses relating to the
provision of products and services (including delivery and transport services)
for florists and activities incidental to the foregoing.
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The
-------------------------------------------------------
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dis solve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets (other than inventory, obsolete or worn-out equipment or excess
equipment, in each case in the ordinary course of business), or enter into any
partnerships, joint ventures or sale-leaseback transactions, or purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) of any Person,
except that the following shall be permitted:
-47-
<PAGE>
(a) Consolidated Capital Expenditures by the Borrower and its
Subsidiaries to the extent not in violation of Section 8.05, and the
Borrower and its Subsidiaries may enter into operating leases as lessee
with respect to real or personal property in the ordinary course of
business and otherwise in compliance with this Agreement;
(b)(i) the Borrower and the Subsidiary Guarantors (other than
Specified Subsidiaries) may transfer assets among themselves and (ii)
Foreign Subsidiaries may transfer assets among themselves;
(c) the advances, investments and loans permitted pursuant to Section
8.06;
(d) the Borrower and its Subsidiaries may sell or discount, in each
case without recourse, accounts receivables arising in the ordinary course
of business, but only in connection with the compromise or collection
thereof;
(e) the Borrower and its Subsidiaries may sell or otherwise dispose
of assets for cash, provided that the aggregate net cash proceeds from all
such sales pursuant to this clause (e) shall not exceed $3,000,000 in any
fiscal year of the Borrower;
(f) the Borrower and the Subsidiary Guarantors may acquire assets or
the capital stock of any Person, including by merger of the Acquired
Business with a Subsidiary Guarantor so long as the survivor of such merger
is, or becomes at such time, a Subsidiary Guarantor (any such acquisition,
a "Permitted Acquisition" and the date of consummation of any such
Permitted Acquisition, an "Acquisition Date"), provided that (i) the sum of
the aggregate cash and Cash Equivalents plus the aggregate market value of
all other consideration paid by Borrower and its Subsidiaries (including
any Indebtedness assumed by the Borrower or any Subsidiary of the Borrower
and any stock issued by the Borrower) in connection with any Acquired
Business acquired in such Permitted Acquisition shall not exceed
$25,000,000 (or, in the case where the total consideration exceeds
$25,000,000, at least 90% of the total consideration (including any
Indebtedness assumed by the Borrower and/or any Subsidiary) paid for an
Acquired Business consists of non-redeemable common stock of the Borrower,
provided that in no event shall the total consideration paid by the
Borrower or any Subsidiary of the Borrower in connection with any such
Permitted Acquisition exceed $250,000,000); (ii) at least one-third of the
sum of the aggregate cash and Cash Equivalents plus the aggregate market
value of all other consideration paid in respect of all Permitted
Acquisitions consummated during any six month period shall have been paid
in the form of non-redeemable common stock of the Borrower; (iii) no
Default or Event of Default exists at the time of such acquisition or will
exist as a result thereof; (iv) all of the representations and warranties
set forth in this Agreement are true and correct in
-48-
<PAGE>
all material respects, both before and after giving effect to any such
Permitted Acquisition, (v) in respect of each Permitted Acquisition (or of
all Permitted Acquisitions closing on the same date), the Borrower shall
have delivered to the Agent an officer's certificate executed by an
Authorized Officer of the Borrower demonstrating (in reasonable detail)
that (A) the Acquired Business the subject of such Permitted Acquisition
(or Acquisitions), when combined with all other Acquired Businesses the
subject of Permitted Acquisitions consummated during the six month period
ending on the respective Acquisition Date, would have been in compliance
with Sections 8.09 and 8.10 as applicable to such Acquired Businesses on a
combined basis, in each case, for the Test Period of the Borrower then most
recently ended and (B) on a pro forma basis determined as if such Permitted
--- -----
Acquisition (or Acquisitions) had been consummated on the first day of the
last Test Period of the Borrower then ended, the Borrower would have been
in compliance with Sections 8.09 and 8.10 for such Test Period; (vi) the
Borrower's independent certified public accountants shall have prepared,
and the Required Banks shall be reasonably satisfied with, an unaudited
report of such Acquired Business (with such report to be in form and detail
as is reasonably acceptable to the Agent), (vii) each such Acquired
Business shall be in a line of business permitted under Section 8.01, and
(viii) each such Acquired Business shall be located in the United States or
an Approved Country, provided that in no event shall the total
--------
consideration paid in respect of all Permitted Acquisitions of Acquired
Businesses located in Approved Countries exceed $10,000,000 in the
aggregate;
(g) the Borrower and the Subsidiary Guarantors may acquire assets of
or the capital stock of or other ownership interest in any Person engaged
in a line of business permitted under Section 8.01 so long as the aggregate
cash and Cash Equivalents plus the aggregate market value of all other
consideration paid in connection with all such acquisitions consummated
after the Effective Date shall not exceed $1,000,000;
(h)(x) any Subsidiary (other than a Specified Subsidiary) of the
Borrower may be merged with or into, or be dissolved or liquidated into the
Borrower or any Subsidiary Guarantor (other than a Specified Subsidiary),
provided that (i) the resulting entity must be a Subsidiary Guarantor and
(ii) a Specified Subsidiary may be merged with or into, or be dissolved or
liquidated into, a Subsidiary Guarantor so long as the Indebtedness (if
any) of, and/or Liens (if any) on the property of, such Specified
Subsidiary would be permitted to be incurred by such Subsidiary Guarantor
under the provisions hereof at the time of such merger, dissolution or
consolidation and (y) any Foreign Subsidiary may be merged with or into, or
be dissolved or liquidated into, any other Foreign Subsidiary provided that
if any stock of any Foreign Subsidiary involved in such merger, dissolution
or liquidation was pledged under the Pledge Agreement prior to such merger,
dissolution or
-49-
<PAGE>
consolidation, at least 65% of each class of capital stock of the surviving
Foreign Subsidiary shall be pledged pursuant to the Pledge Agreement; and
(i) (x) each of the Mergers shall be permitted and (y) the
acquisition by CFX, Inc. of all of the capital stock of Floraltech, Inc.
shall be permitted, in each case pursuant to the respective Merger
Agreements.
To the extent the Required Banks waive the provisions of this Section 8.02 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by
this Section 8.02 (and such Collateral is released (or permitted to be released)
from the Liens created by the respective Security Document), such Collateral in
each case shall be sold free and clear of the Liens created by the Security
Documents and the Agent shall take such actions (including, without limitation,
directing the Collateral Agent to take such actions) as the Agent deems
appropriate, or as the Borrower may reasonably request, in connection therewith.
8.03 Liens. The Borrower will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes) or assign any right
to receive income, except:
(a) Liens for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves have
been estab lished in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower and its
Subsidiaries imposed by law which were incurred in the ordinary course of
business and which have not arisen to secure Indebtedness for borrowed
money, such as carriers', warehousemen's and mechanics' Liens, statutory
landlord's Liens, and other similar Liens arising in the ordinary course of
business, and which either (x) do not in the aggregate materially detract
from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Borrower or any of its
Subsidiaries or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the Security
Documents;
-50-
<PAGE>
(d) Liens in existence on the Effective Date, and which are to
continue in effect after the Effective Date which are listed, and the
property subject thereto described, in Annex VI, without giving effect to
any extensions or renewals thereof ("Permitted Liens");
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.09;
(f) Liens incurred or deposits made (x) in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security obligations, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of busi ness (exclusive of
obligations in respect of the payment for borrowed money) and (y) to secure
the performance of leases of Real Property to the extent incurred or made
in the ordinary course of business consistent with past practices;
(g) licenses, leases or subleases granted to third Persons not
interfering in any material respect with the business of the Borrower or
any of its Subsidiaries;
(h) Liens arising from precautionary UCC financing statements
regarding operating leases permitted by this Agreement;
(i) Liens created pursuant to Capital Leases permitted pursuant to
Section 8.04(b);
(j) Liens arising pursuant to purchase money mortgages or security
interests securing Indebtedness representing the purchase price (or
financing of the purchase price within 90 days after the respective
purchase) of assets acquired after the Effective Date, provided, that (i)
any such Liens attach only to the assets so purchased, (ii) the
Indebtedness secured by any such Lien does not exceed 100%, nor is less
than 80%, of the lesser of the fair market value or the purchase price of
the property being purchased at the time of the incurrence of such
Indebtedness, and (iii) the Indebtedness secured thereby is permitted to be
incurred pursuant to Section 8.04(b);
(k) Liens existing with respect to specific assets at the time
acquired pursuant to a Permitted Acquisition in compliance with Section
8.02(f) (and not to all such assets generally), provided that (x) any such
Liens, and the Indebtedness secured thereby, were not created at the time
of or in contemplation of the acquisition of such assets by the Borrower or
its Subsidiaries, (y) the Indebtedness secured by any such Lien does not
exceed 100% of the fair market value of the
-51-
<PAGE>
asset to which such Lien relates, determined at the time of the acquisition
of such asset, and (z) the Indebtedness secured thereby is permitted by
Section 8.04(e);
(l) Permitted Encumbrances; and
(m) Liens arising in the ordinary course of business in favor of
customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods.
8.04 Indebtedness. The Borrower will not, and will not permit any of
------------
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Capitalized Lease Obligations and Indebtedness incurred pursuant
to purchase money Liens permitted by Section 8.03(j), provided, that the
sum of all such Capitalized Lease Obligations outstanding at any time plus
the aggregate principal amount of all such purchase money Indebtedness
outstanding at such time shall not exceed $10,000,000;
(c) Existing Debt listed on Annex V, but only to the respective date,
if any, set forth on such Annex V with respect to any particular issue of
Existing Debt, without giving effect to any subsequent extension, renewal
or refinancing thereof;
(d) Indebtedness (i) between and among the Borrower and Subsidiary
Guarantors (other than Specified Subsidiaries) and (ii) among Foreign
Subsidiaries;
(e) Indebtedness of a Person outstanding at the time it is first
acquired by the Borrower or any of its Subsidiaries in a Permitted
Acquisition pursuant to Section 8.02(f), provided that (A) any such
Indebtedness was not created at the time of or in contemplation of such
acquisition and (B) the aggregate principal amount of Indebtedness
permitted pursuant to this clause (e) shall not exceed $7,500,000 at any
time outstanding; and
(f) unsecured Indebtedness of the Borrower not otherwise permitted by
the foregoing clauses (a) through (e), provided that the aggregate
principal amount of Indebtedness incurred pursuant to this clause (f) shall
not exceed $5,000,000 at any time outstanding.
8.05 Capital Expenditures. (a) The Borrower will not, and will not
--------------------
permit any of its Subsidiaries to, make Consolidated Capital Expenditures,
provided that the
-52-
<PAGE>
Borrower and its Subsidiaries may make Consolidated Capital Expenditures so long
as the aggregate amount of Consolidated Capital Expenditures made during (x) the
period (taken as one accounting period) commencing on the Effective Date and
ending on December 31, 1998 does not exceed $3,250,000 and (y) each fiscal year
(taken as one accounting period) thereafter commencing with the fiscal year
ending December, 1999, does not exceed the Capital Expenditure Amount for such
fiscal year.
(b) In addition to the foregoing, to the extent that the amount of
Consolidated Capital Expenditures made by the Borrower and its Subsidiaries
during any period set forth in clause (a) of this Section 8.05 is less than the
maximum amount permitted to be made for such period pursuant to such clause (a)
(without taking into account any increase in the amount permitted during such
period as a result of this clause (b)), the lesser of (x) such unused amount and
(y) $1,500,000 may be carried forward to the immediately succeeding fiscal year
and utilized to make Consolidated Capital Expenditures in excess of the amount
permitted above in such following fiscal year.
(c) In addition to the foregoing, during the period beginning on the
Effective Date and ending on December 31, 2001, the Borrower and its
Subsidiaries may make up to $3,000,000 of Consolidated Capital Expenditures for
an integrated order entry, distribution and inventory control system.
(d) In addition to the foregoing, the Borrower and the Subsidiary
Guarantors may make Consolidated Capital Expenditures to the extent that same
constitute a Permitted Acquisition or an acquisition pursuant to Section
8.02(g).
(e) In addition to the foregoing, the Borrower and its Subsidiaries
may make Consolidated Capital Expenditures with the Net Cash Proceeds of Asset
Sales to the extent such proceeds are not required to be applied to reduce the
Total Commitment pursuant to Section 3.03(c).
(f) In addition to the foregoing, the Borrower and its Subsidiaries
may make Consolidated Capital Expenditures with the Net Insurance Proceeds
received by the Borrower or any of its Subsidiaries from any Recovery Event so
long as such Consolidated Capital Expenditures are to replace or restore any
properties or assets in respect of which such proceeds were paid within one year
following the date of the receipt of such insurance proceeds to the extent such
Net Insurance Proceeds are not required to be applied to reduce the Total
Commitment pursuant to Section 3.03(d).
8.06 Advances, Investments and Loans. The Borrower will not, and
-------------------------------
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
-53-
<PAGE>
(a) the Borrower and its Subsidiaries may invest in cash and Cash
Equivalents and Foreign Subsidiaries also may invest in Foreign Cash
Equivalents;
(b) the Borrower and its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms of the Borrower or such Subsidiary, as the case may be;
(c) the Borrower and its Subsidiaries may acquire and own investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(d) transactions permitted by Sections 8.02(b) and/or 8.04(d) shall
be permitted;
(e) advances, loans and investments in existence on the Effective
Date and listed on Annex VII shall be permitted, without giving effect to
any additions thereto or replacements thereof;
(f) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases shall be permitted;
(g) loans and advances to employees for moving and travel expenses
and other similar expenses, in each case incurred in the ordinary course of
business, in an aggregate outstanding principal amount not to exceed
$250,000 at any time, shall be permitted;
(h) Permitted Acquisitions and acquisitions otherwise allowed
pursuant to Section 8.02(g) shall be permitted; and
(i) investments not otherwise permitted by the foregoing clauses (a)
through (h), inclusive, provided that the aggregate amount of the
investments made pursuant to this clause (i) shall not exceed $5,000,000 at
any time.
8.07 Dividends, etc. (a) The Borrower will not, and will not
---------------
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock of the Borrower or any such Subsidiary,
as the case may be) or return any capital to, its stockholders or authorize or
make any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire, directly
or indirectly, for a consideration, any shares of any class of its capital
-54-
<PAGE>
stock (other than the issuance of common stock of the Borrower upon conversion
of any convertible preferred stock that may be issued by the Borrower), now or
hereafter outstand ing (or any warrants for or options or stock appreciation
rights in respect of any of such shares), or set aside any funds for any of the
foregoing purposes, and the Borrower will not permit any of its Subsidiaries to
purchase or otherwise acquire for consideration any shares of any class of the
capital stock of the Borrower or any other Subsidiary, as the case may be, now
or hereafter outstanding (or any options or warrants or stock appreciation
rights issued by such Person with respect to its capital stock) (all of the
foregoing "Dividends"), except that: (x) any Subsidiary of the Borrower may pay
Dividends to the Borrower or any other Subsidiary of the Borrower and (y)
repurchases may be made by the Borrower of its capital stock and/or options or
warrants to purchase its capital stock from management or directors of the
Borrower and its Subsidiaries so long as (i) no Default under Section 9.01 or
Event of Default exists at the time of such purchase and (ii) the aggregate
amount paid by the Borrower in connection with all such repurchases does not
exceed $100,000 in any fiscal year of the Borrower.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or otherwise restricts (A) the ability of any such
Subsidiary to (a) pay dividends or make other distributions or pay any
Indebtedness owed to the Borrower or any Subsidiary Guarantor, (b) make loans or
advances to the Borrower or any Subsidiary Guarantor, (c) transfer any of its
properties or assets to the Borrower or any Subsidiary Guarantor, or (B) the
ability of the Borrower or any Subsidiary Guarantor, to create, incur, assume or
suffer to exist any Lien upon its property or assets to secure the Obligations,
other than prohibi tions or restrictions existing under or by reason of: (i)
this Agreement and the other Credit Documents; (ii) applicable law; (iii)
customary non-assignment provisions entered into in the ordinary course of
business and consistent with past practices and (iv) Liens permitted under
Sections 8.03(i) and (j), and any documents or instruments governing the terms
of any Indebtedness or other obligations secured by any such Liens, provided
that such prohibitions or restrictions apply only to the assets subject to such
Liens.
8.08 Transactions with Affiliates. The Borrower will not, and will
----------------------------
not permit any of its Subsidiaries to, enter into any transaction or series of
transactions with any Affiliate of the Borrower or any such Subsidiary other
than in the ordinary course of business and on terms and conditions
substantially as favorable to the Borrower or such Subsidiary as would be
obtainable by the Borrower or such Subsidiary at the time in a comparable arm's-
length transaction with a Person other than an Affiliate, provided that (i)
Dividends may be paid to the extent permitted by Section 8.03 and (ii)
transactions between or among the Borrower and its Subsidiaries pursuant to (and
in accordance with the terms of) Sections 8.02, 8.04 and 8.06 shall be
permitted.
-55-
<PAGE>
8.09 Leverage Ratio. The Borrower will not permit the Leverage Ratio
--------------
of the Borrower at any time to be greater than 4.25:1.00.
8.10 Consolidated Interest Coverage Ratio. The Borrower will not
------------------------------------
permit the Consolidated Interest Coverage Ratio of the Borrower for any Test
Period ending on the last day of a fiscal quarter of the Borrower to be less
than 2.00:1.00.
8.11 Limitation on Modifications of Certificate of Corporation, By-
-------------------------------------------------------------
Laws; etc. The Borrower will not, and will not permit any of its Subsidiaries
- ----------
to:
(i) amend, modify or change in any manner adverse to the
interests of the Banks, the Certificate of Incorporation (including,
without limitation, by the filing of any certificate of designation) or By-
Laws of the Borrower or any of its Subsidiaries, as the case may be, or any
other agreement entered into by the Borrower or any of its Subsidiaries
with respect to its capital stock, or enter into any new agreement with
respect to the capital stock of the Borrower (to the extent adverse to the
interests of the Banks) or any of its Subsidiaries; or
(ii) issue any class of capital stock other than (x) issuances of
non-redeemable common stock and (y) issuances by the Borrower of preferred
stock provided that any such preferred stock does not contain provisions
adverse to the interests of the Banks.
8.12 Limitation on the Creation of Subsidiaries. Notwithstanding
------------------------------------------
anything to the contrary contained in this Agreement, the Borrower will not, and
will not permit any of its Subsidiaries to, establish, create or acquire any
Subsidiary; provided that Wholly-Owned Subsidiaries may be established, created
or acquired in connection with a Permitted Acquisition or an acquisition
pursuant to Section 8.02(g) so long as (i) in the case of a Wholly-Owned
Subsidiary created in order to effect a Permitted Acquisition or an acquisition
pursuant to Section 8.02(g), such Subsidiary has no assets except those
contributed substantially contemporaneously with such Permitted Acquisition or
such other acquisition, (ii) the capital stock of each such new Subsidiary is
promptly pledged pursuant to, and to the extent required by, the Pledge
Agreement and the certificates representing such stock, together with stock
powers duly executed in blank, are delivered to the Collateral Agent, (iii) such
new Subsidiary, to the extent that it is a Domestic Subsidiary and, to the
extent required by Section 7.13, in the case of a Foreign Subsidiary, promptly
executes a counterpart of the Subsidiary Guaranty, the Pledge Agreement and the
Security Agreement, in each case on the same basis (and to the same extent) as
such Subsidiary would have executed such Credit Documents if it were a Credit
Party on the Effective Date, and (iv) to the extent requested by the Agent or
the Required Banks, any such new Domestic Subsidiary (and Foreign Subsidiary to
the extent required by Section 7.13) takes all actions required pursuant to
Section 7.12.
-56-
<PAGE>
SECTION 9. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of the Loans or (ii) default, and such default shall
continue for three or more days, in the payment when due of any Unpaid Drawing,
any interest on the Loans or any Fees or any other amounts owing hereunder or
under any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or statement
---------------------
made or deemed made by the Borrower or any other Credit Party herein or in any
other Credit Document or in any statement or certificate delivered pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
9.03 Covenants. Any Credit Party shall (a) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 7.11, 7.12 or 8, or (b) default in the due performance or observance by
it of any term, covenant or agree ment (other than those referred to in Section
9.01, 9.02 or clause (a) of this Section 9.03) contained in this Agreement and
such default shall continue unremedied for a period of at least 30 days after
notice to the defaulting party by the Agent or the Required Banks; or
9.04 Default Under Other Agreements. (a) The Borrower or any of its
------------------------------
Subsidiaries shall (i) default in any payment with respect to any Indebtedness
(other than the Obligations) beyond the period of grace, if any, provided in the
instrument or agree ment under which Indebtedness was created or (ii) default in
the observance or performance of any agreement or condition relating to any such
Indebtedness or contained in any instru ment or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause any such Indebtedness to become due prior to
its stated maturity; or (b) any Indebtedness (other than the Obligations) of the
Borrower or any of its Subsidiaries shall be declared to be due and payable, or
shall be required to be prepaid other than by a regularly scheduled required
prepayment or as a mandatory prepayment (un less such required prepayment or
mandatory prepayment results from a default thereunder or an event of the type
that constitutes an Event of Default), prior to the stated maturity thereof,
provided that it shall not constitute an Event of Default pursuant to clause (a)
or (b) of this Section 9.04 unless the principal amount of all such Indebtedness
referred to in clauses (a) and (b) above exceeds $1,000,000 at any one time; or
9.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall
----------------
com mence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy
-57-
<PAGE>
Code"); or an involuntary case is commenced against the Borrower or any of its
Subsidiaries and the petition is not controverted within 10 days, or is not
dismissed within 60 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of the Borrower or any of its Subsidiaries; or
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any of its Subsidiaries; or there is commenced against the Borrower
or any of its Subsidiaries any such proceeding which remains undismissed for a
period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated
insolvent or bankrupt; or an order for relief or other order approving any such
case or proceeding is entered; or the Borrower or any of its Subsidiaries
suffers any appointment of any custodian or the like for it or any substantial
part of its property to continue undischarged or unstayed for a period of 60
days; or the Borrower or any of its Subsidiaries makes a general assignment for
the benefit of creditors; or any corporate action is taken by the Borrower or
any of its Subsidiaries for the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
-----
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to sub paragraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan or a
Foreign Pension Plan has not been timely made, the Borrower or any Subsidiary of
the Borrower or any ERISA Affiliate has incurred or is likely to incur any
liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971
or 4975 of the Code or on account of a group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the
Code, or the Borrower or any Subsidiary of the Borrower has incurred or is
likely to incur liabilities pursuant to one or more employee welfare benefit
plans (as defined in Section 3(1) of ERISA) that provide benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or Plans or Foreign Pension Plans; (b) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a
-58-
<PAGE>
liability; and (c) such lien, security interest or liability, individually
and/or in the aggregate, in the opinion of the Required Banks, has had, or could
reasonably be expected to have, a Material Adverse Effect;
9.07 Security Documents. (a) Except in each case to the extent
------------------
resulting from the negligent or willful failure of the Collateral Agent to
retain possession of the applicable Pledged Securities, any Security Document
shall cease to be, in any material respect, in full force and effect, or shall
cease, in any material respect, to give the Col lateral Agent the Liens, rights,
powers and privileges purported to be created thereby in favor of the Collateral
Agent (or such other trustee as may be required and desired under local law), or
(b) any Credit Party shall default in the due performance or observance of any
material term, covenant or agreement on its part to be performed or observed
pursuant to any such Security Document; or
9.08 Subsidiary Guaranty. The Subsidiary Guaranty or any material
-------------------
provision thereof shall cease to be in full force and effect, or any Subsidiary
Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor
shall deny or disaffirm such Subsidiary Guarantor's obligations under the
Subsidiary Guaranty; or
9.09 Judgments. One or more judgments or decrees shall be entered
---------
against the Borrower or any of its Subsidiaries involving a liability (to the
extent not paid or covered by insurance) in excess of $1,000,000 for all such
judgments and decrees and all such judgments or decrees shall not have been
vacated, paid, discharged or stayed or bonded pending appeal within 60 days from
the entry thereof; or
9.10 Change of Control. A Change of Control shall occur;
-----------------
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent shall, upon the written request of the
Required Banks, by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Agent or any Bank to
enforce its claims against any Subsidiary Guarantor or the Borrower, except as
otherwise specifically provided for in this Agreement (provided, that if an
Event of Default specified in Section 9.05 shall occur with respect to the Bor
rower, the result which would occur upon the giving of written notice by the
Agent as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Commitment
terminated, whereupon the Commitment of each Bank shall forthwith terminate
immediately and any accrued Commitment Fees shall forthwith become due and
payable without any other notice of any kind; (ii) declare the principal of and
any accrued interest in respect of all Loans and all other obligations owing
hereunder (including Unpaid Drawings) to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower; (iii) enforce, as
Collateral Agent (or direct the
-59-
<PAGE>
Collateral Agent to enforce), any or all of the Liens and security interests
created pursuant to the Security Documents; (iv) terminate any Letter of Credit
which may be terminated in accordance with its terms; and (v) direct the
Borrower to pay (and the Borrower hereby agrees upon receipt of such notice, or
upon the occurrence of any Event of Default specified in Section 9.05, to pay)
to the Collateral Agent at the Payment Office such addi tional amounts of cash,
to be held as security for the Borrower's reimbursement obligations in respect
of Letters of Credit then outstanding, equal to the aggregate Stated Amount of
all Letters of Credit then outstanding.
SECTION 10. Definitions. As used herein, the following terms shall
-----------
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquired Business" shall mean each individual set of assets and/or
Person acquired pursuant to a Permitted Acquisition.
"Acquisition Date" shall have the meaning provided in Section 8.02(f).
"Acquisition Loan" shall mean any Revolving Loan incurred by the
Borrower to finance a Permitted Acquisition.
"Acquisition Sub-Limit" shall mean, at any time, (x) $75,000,000 less
(y)(i) except as otherwise provided in clause (ii) below, 75% of the aggregate
reductions to the Total Commitment theretofore effected or (ii) with respect to
reductions effected pursuant to Section 3.02, such other amount as may be
specified by the Borrower pursuant to such Section.
"Additional Mortgages" shall have the meaning provided in
Section 7.12(a).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or in directly, the power (i) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Agent" shall have the meaning provided in the first paragraph of this
Agreement and shall include any successor to the Agent appointed pursuant to
Section 11.10.
-60-
<PAGE>
"Agreement" shall mean this Credit Agreement, as the same may be from
time to time modified, amended and/or supplemented.
"Anticipated Reinvestment Amount" shall mean, with respect to any
Reinvestment Election, the amount specified in the Reinvestment Notice delivered
by the Borrower in connection therewith as (x) the amount of the Net Cash
Proceeds from the related Asset Sale that the Borrower and/or its Subsidiaries
intend to use to purchase, construct or otherwise acquire Reinvestment Assets or
(y) the amount of the Net Insurance Proceeds from the related Recovery Event
that the Borrower and/or its Subsidiaries intend to use to purchase or construct
Reinvestment Assets in respect of the asset subject to such Recovery Event.
"Applicable Base Rate Margin" shall mean the margin determined in
accord ance with the below schedule based on the Leverage Ratio of the Borrower
for the Test Period then last ended and as determined from the most recent
financial statements of the Borrower (and related compliance certificate) timely
delivered to the Banks pursuant to Sec tion 7.01(a) or (b), as the case may be,
provided that (x) so long as any Default or Event of Default then exists, the
Applicable Base Rate Margin shall be equal to the highest percentage set forth
in the table below and (y) to the extent that, on the date of the consummation
by the Borrower or any of its Subsidiaries of any Permitted Acquisition, the
Leverage Ratio of the Borrower is increased (after giving effect to such
Permitted Acquisition) and such increase would result in a higher Applicable
Base Rate Margin in accordance with the below schedule, such increase in the
Applicable Base Rate Margin shall take effect from such date until the next date
upon which the financial statements referred to above are required to be
delivered to the Banks:
Applicable
Leverage Ratio Base Rate Margin
-------------- ----------------
Greater than or equal to 4.0:1 .625%
Less than 4.0:1 but greater
than or equal to 3.5:1 .375%
Less than 3.5:1 but greater
than or equal to 3.0:1 .125%
Less than 3.0:1 0%
; provided further, that, notwithstanding the foregoing, (i) for the period from
----------------
the Effective Date through (but not including) the date of delivery of the first
set of financial statements pursuant to Section 7.01(a), the Applicable Base
Rate Margin shall be .375% (as such
-61-
<PAGE>
percentage may be increased as a result of clause (x) or (y) of the preceding
proviso) and (ii) at no time during the period beginning on the Effective Date
and ending with the delivery of the financial statements pursuant to Section
7.01(b) in respect of the Borrower's fiscal quarter ending on September 30,
1998, shall the Applicable Base Rate Margin be less than .375%
"Applicable Commitment Fee Percentage" shall mean the percentage
determined in accordance with the below schedule based on the Leverage Ratio of
the Borrower for the Test Period then last ended and as determined from the most
recent financial statements of the Borrower (and related compliance certificate)
timely delivered to the Banks pursuant to Section 7.01(a) or (b), as the case
may be, provided that (x) so long as any Default or Event of Default then
exists, the Applicable Commitment Fee Percentage shall be equal to the highest
percentage set forth in the table below and (y) to the extent that, on the date
of the consummation by the Borrower or any of its Subsidiaries of any Permitted
Acquisition, the Leverage Ratio of the Borrower is increased (after giving
effect to such Permitted Acquisition) and such increase would result in a higher
Applicable Commitment Fee Percentage in accordance with the below schedule, such
increase in the Applicable Commitment Fee Percentage shall take effect from such
date until the next date upon which the financial statements referred to above
are required to be delivered to the Banks:
Applicable
Leverage Ratio Commitment Fee Percentage
-------------- -------------------------
Greater than or equal to 3.50:1 .500%
Less than 3.50:1 but greater
than or equal to 2.50:1 .375%
Less than 2.50:1 .250%
; provided further, that, notwithstanding the foregoing, for the period from the
----------------
Effective Date through (but not including) the date of delivery of the first set
of financial statements pursuant to Section 7.01(a), the Applicable Commitment
Fee Percentage shall be .250% (as such percentage may be increased as a result
of clause (x) or (y) of the preceding proviso).
"Applicable Eurodollar Margin" shall mean the margin determined in
accor dance with the below schedule based on the Leverage Ratio for the Test
Period then last ended and as determined from the most recent financial
statements of the Borrower (and related compliance certificate) timely delivered
to the Banks pursuant to Section 7.01(a) or (b), as the case may be, provided
that (x) so long as any Default or Event of Default then exists, the Applicable
Eurodollar Margin shall be equal to the highest percentage set forth
-62-
<PAGE>
in the table below and (y) to the extent that, on the date of the consummation
by the Borrower or any of its Subsidiaries of any Permitted Acquisition, the
Leverage Ratio of the Borrower is increased (after giving effect to such
Permitted Acquisition) and such increase would result in a higher Applicable
Eurodollar Margin in accordance with the below schedule, such increase in the
Applicable Eurodollar Margin shall take effect from such date until the next
date upon which the financial statements referred to above are required to be
delivered to the Banks:
Applicable
Eurodollar
Leverage Ratio Rate Margin
-------------- -----------
Greater than or equal to 4.0:1 1.875%
Less than 4.0:1 but greater
than or equal to 3.5:1 1.625%
Less than 3.5:1 but greater
than or equal to 3.0:1 1.375%
Less than 3.0:1 but greater
than or equal to 2.5:1 1.125%
Less than 2.5:1 .875%
; provided further, that, notwithstanding the foregoing, (i) for the period from
----------------
the Effective Date through (but not including) the date of delivery of the first
set of financial statements pursuant to Section 7.01(a), the Applicable
Eurodollar Margin, shall be 1.625% (as such percentage may be increased as a
result of clause (x) or (y) of the preceding proviso) and (ii) at no time during
the period beginning on the Effective Date and ending with the delivery of the
financial statements pursuant to Section 7.01(b) in respect of the Borrower's
fiscal quarter ending September 30, 1998, shall the Applicable Eurodollar Margin
be less than 1.625%.
"Approved Country" shall mean and include Canada, Mexico, Columbia,
Costa Rica, Ecuador, Germany, The Netherlands and Denmark.
"Asset Sale" shall mean the sale, transfer or other disposition (or
series of related sales, transfers or dispositions) by the Borrower or any
Subsidiary of the Borrower after the Effective Date to any Person other than the
Borrower or any Subsidiary of the Borrower of any asset of the Borrower or such
Subsidiary (other than sales, transfers or
-63-
<PAGE>
other dispositions (x) in the ordinary course of business of inventory and/or
obsolete or excess equipment or (y) the proceeds of which do not exceed $750,000
in any fiscal year).
"Assignment and Assumption Agreement" shall have the meaning provided
in Section 12.04(b).
"Authorized Officer" shall mean the Chairman, President, any Vice
President or the Treasurer of the Borrower.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any incurrence of Loans or
to fund its portion of any unreimbursed payment under Section 2.04(c) or (ii) a
Bank having notified the Agent and/or the Borrower that it does not intend to
comply with the obligations under Section 1.01 or under Section 2.04(c), in the
case of either (i) or (ii) as a result of the appointment of a receiver or
conservator with respect to such Bank at the direction or request of any
regulatory agency or authority.
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Base Rate" at any time shall mean the higher of (x) the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the Prime
Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrowing" shall mean and include (i) the incurrence of Swingline
Loans from BTCo on a certain date and (ii) the incurrence of one Type of
Revolving Loan by the Borrower from all of the Banks on a pro rata basis on a
--- ----
given date (or resulting from conversions on a given date), having in the case
of Eurodollar Loans the same Interest Period; provided, that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be con sidered part of any related
Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company and any successor corporation
thereto by merger, consolidation or otherwise.
-64-
<PAGE>
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which shall
be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determina tions in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) above and which is also a day for trading
by and between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capex Adjustment Factor" shall mean, for any period listed in Section
8.05(a)(y), a fraction (x) the numerator of which is equal to the Consolidated
EBITDA of the Borrower and its Subsidiaries (calculated without regard to the
Consolidated EBITDA of any Acquired Business for any period prior to the
acquisition thereof by the Borrower or a Subsidiary Guarantor pursuant to a
Permitted Acquisition) for the twelve month period last ended (or for the
purposes of a calculation under the proviso contained in the definition of
Capital Expenditure Amount, the Consolidated EBITDA of the Acquired Business or
Businesses acquired in such Significant Permitted Acquisition for the 12-month
period last ended) and (y) the denominator of which is equal to the Reference
EBITDA Amount.
"Capital Expenditure Amount" shall mean, for any period listed in
Section 8.05(a)(y), the product of (x) $2,000,000 multiplied by (y) the Capex
Adjustment Factor for such period, provided that the Capital Expenditure Amount
for any such period shall be increased on each date during such period on which
a Significant Permitted Acquisition is consummated by an amount equal to the
product of (x) $2,000,000 multiplied by (y) the Capex Adjustment Factor with
respect to the Acquired Business or Businesses the subject of such Significant
Permitted Acquisition.
"Capital Lease," as applied to any Person, shall mean any lease of any
prop erty (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Borrower or any of its Subsidiaries in each case taken at
the amount thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided, that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than six months from the date of acquisi tion, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Bank or (y)
any bank whose short-term commercial paper rating from Standard & Poor's Ratings
Service ("S&P") is at least A-1 or the equivalent thereof or from Moody's
Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent
-65-
<PAGE>
thereof (any such bank or Bank, an "Approved Bank"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing within six months after
the date of acquisition, (iv) 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 six months from the date
of acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's, and (v) investments in
money market funds substantially all the assets of which are comprised of
securities of the types described in clauses (i) through (iv) above.
"Cash Proceeds" shall mean, (i) with respect to any Asset Sale, the
aggregate cash payments (including any cash as and when received by way of
deferred payment pursuant to a note receivable issued in connection with such
Asset Sale) received by the Borrower and/or any Subsidiary of the Borrower from
such Asset Sale and (ii) with respect to any Recovery Event, the aggregate cash
payments received by the Borrower and/or any Subsidiary of the Borrower from
such Recovery Event.
"Change of Control" shall mean (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one
more Permitted Holders, (i) is or shall become the "beneficial owner" (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of 20% or more on a fully diluted basis of the voting and economic
interests of the Borrower or (ii) shall have obtained the power (whether or not
exercised) to elect a majority of the Borrower's directors or (b) the Board of
Directors of the Borrower shall cease to consist of a majority of Continuing
Directors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in each of
the Security Documents.
"Collateral Agent" shall mean the Agent acting as collateral agent for
the Secured Creditors.
-66-
<PAGE>
"Commitment" shall mean, at any time and with respect to each Bank,
the amount set forth opposite such Bank's name in Annex I directly under the
column entitled "Commitment," as the same may be reduced from time to time
pursuant to Section 3.02, 3.03 or 9 or adjusted from time to time as a result of
assignments to or from such Bank as provided for in Sections 1.13 and 12.04.
"Commitment Expiration Date" shall mean November 30, 1997.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Consolidated Capital Expenditures" shall mean, for any period, the
aggre gate of all expenditures (whether paid in cash or accrued as liabilities
and including in all events all amounts expended or capitalized under Capital
Leases but excluding any amount representing capitalized interest) by the
Borrower and its Subsidiaries during that period that, in conformity with GAAP,
are or are required to be included in the property, plant or equipment reflected
in the consolidated balance sheet of the Borrower and its Subsidiaries, provided
that Consolidated Capital Expenditures shall in any event include the purchase
price paid in connection with the acquisition of any Person (including through
the purchase of all of the capital stock or other ownership interests of such
Person or through merger or consolidation) to the extent allocable to property,
plant and equipment.
"Consolidated EBIT" shall mean, for any period with respect to any
Person, Consolidated Net Income of such Person, before (i) interest income, (ii)
Consolidated Interest Expense, and (iii) provision for taxes and without giving
effect to any extraordinary gains or extraordinary losses or gains from sales of
assets (other than sales of inventory in the ordinary course of business).
"Consolidated EBITDA" shall mean, for any period with respect to any
Person, Consolidated EBIT of such Person for such period, adjusted by adding
thereto the amount of all depreciation expense and amortization expense deducted
in determining such Consolidated EBIT, provided that there shall be included in
determining Consolidated EBITDA of the Borrower and its Subsidiaries for any
period, the Consolidated EBITDA for each Acquired Business acquired by the
Borrower or any Subsidiary of the Borrower during such period for the portion of
such period prior to such acquisition but excluding, in a manner and to the
extent satisfactory to the Agent, (i) any non-recurring charges (as determined
pursuant to GAAP) incurred in connection with the Transaction otherwise included
in the computation of Consolidated EBITDA and (ii) from the computation of
Consolidated EBITDA of such Acquired Business, any non-recurring charges (as
determined pursuant to GAAP) otherwise included in such computation. In
determining the Consolidated EBITDA of any Acquired Business for the period
prior to the acquisition thereof by the Borrower or any Subsidiary thereof,
there shall be added back to such Consolidated EBITDA for such period the amount
by which any salary expense, lease
-67-
<PAGE>
expense or any fringe benefit expense paid to the shareholder or shareholders of
such Acquired Business or any Affiliate thereof exceeded an amount that would
customarily be paid in an arm's-length transaction under then current market
conditions for similarly situated businesses, with such amounts to be documented
in a manner satisfactory to the Agent.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
ratio of Consolidated EBITDA to Consolidated Interest Expense for such period.
"Consolidated Interest Expense" shall mean, for any period with
respect to any Person, the total interest expense (including that attributable
to Capital Leases in accordance with GAAP) of such Person determined on a
consolidated basis with respect to all outstanding Indebtedness of such Person,
including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, but excluding, however, amortization of deferred financing costs to
the extent included in total interest expense, provided that there shall be
included in determining Consolidated Interest Expense of the Borrower and its
Subsidiaries for any period, (x) the Consolidated Interest Expense for each
Acquired Business acquired by the Borrower or any Subsidiary of the Borrower
during such period for the portion of such period prior to such acquisition and
(y) the additional interest that would have been paid on all Indebtedness
incurred by the Borrower and its Subsidiaries to finance each Permitted
Acquisition effected during such period if, in each such case, such Indebtedness
had been incurred on the first day of such period, as reasonably determined by
the Borrower in a manner satisfactory to the Agent.
"Consolidated Net Income" shall mean, for any period with respect to
any Person, the net income (or loss), after provision for taxes, of such Person
on a consolidated basis for such period taken as a single accounting period.
"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any man ner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any prop erty constituting direct
or indirect security therefor, (b) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include endorsements of instruments
-68-
<PAGE>
for deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Directors" shall mean the directors of the Borrower on the
Effective Date and each other director thereof if such director's nomination for
the election to the Board of Directors of the Borrower is recommended by a
majority of the Continuing Directors (which for this purpose shall include
Persons theretofore elected as directors as contemplated by this definition).
"Credit Documents" shall mean this Agreement, the Notes, the
Subsidiary Guaranty and each Security Document.
"Credit Event" shall mean (i) the occurrence of the Effective Date and
(ii) the making of a Loan or the issuance of a Letter of Credit.
"Credit Party" shall mean the Borrower and each Subsidiary Guarantor.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
"Dividends" shall have the meaning provided in Section 8.07.
"Documents" shall mean the IPO Documents, the Merger Documents, the
Credit Documents and the Refinancing Documents.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower which
is not a Foreign Subsidiary.
"Effective Date" shall have the meaning provided in Section 12.10.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in SEC
Regulation D).
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance
-69-
<PAGE>
or violation, investigations or proceedings relating in any way to any
Environmental Law (hereafter "Claims") or any permit issued under any such law,
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, con tribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" shall mean any federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy or rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et seq.; the Toxic
-- ----
Substances Control Act, 15 U.S.C. (S) 7401 et seq.; the Clean Air Act, 42 U.S.C.
-- ----
(S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S) 3808 et seq.; the
-- ---- -- ----
Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq.; and any applicable state
-- ----
and local or foreign counterparts or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would
be deemed to be a "single employer" (i) within the meaning of Section 414(b),
(c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary
of the Borrower being or having been a general partner of such person.
"Eurodollar Loans" shall mean each Revolving Loan bearing interest at
the rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest Period for
a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest 1/100 of
1%) of the offered quotations to first-class banks in the interbank Eurodollar
market by the Agent for U.S. dollar deposits of amounts in same day funds
comparable to the outstanding principal amount of the Eurodollar Loan of the
Agent for which an interest rate is then being deter mined with maturities
comparable to the Interest Period to be applicable to such Eurodollar Loan,
determined as of 10:00 A.M. (New York time) on the date which is two Business
-70-
<PAGE>
Days prior to the commencement of such Interest Period divided (and rounded
upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to
100% minus the then stated maximum rate of all reserve requirements (including,
without limitation, any mar ginal, emergency, supplemental, special or other
reserves) applicable to any member bank of the Federal Reserve System in respect
of Eurocurrency liabilities as defined in Regulation D (or any successor
category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section 9.
"Existing Debt" shall have the meaning provided in Section 6.20.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quota tions for such day
on such transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Foreign Cash Equivalents" shall mean certificates of deposit or
bankers acceptances of any bank organized under the laws of any Approved Country
whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent thereof, in
each case with maturities of not more than six months from the date of
acquisition.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the Borrower or any one or
more of its Subsidiaries primarily for the benefit of employees of the Borrower
or such Subsidiaries residing outside the United States of America, which plan,
fund or other similar program provides, or results in, retirement income, a
deferral of income in contemplation of retirement or payments to be made upon
termination of employment, and which plan is not subject to ERISA or the Code.
-71-
<PAGE>
"Foreign Subsidiary" shall mean each Subsidiary of the Borrower that
is incorporated under the laws of any jurisdiction other than the United States
of America, any State thereof, or any territory thereof.
"Founding Companies" shall mean and include each of the Roy Houff
Company, CFX, Inc., Bay State Florist Supply, Inc., Flowtrad Corporation N.V.,
United Wholesale Florist, Inc., American Florist Supply, Inc., Monterey Bay
Bouquet, Inc., Bay Area Bouquets, Inc., Alpine Gem Flower Shippers, Inc. and
each of their Subsidiaries to the extent acquired pursuant to the Merger
Agreements.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood and
agreed that deter minations in accordance with GAAP for purposes of Section 8,
including defined terms as used therein, are subject (to the extent provided
therein) to Section 12.07(a).
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law.
"Indebtedness" of any Person shall mean without duplication (i) all
indebted ness of such Person for borrowed money, (ii) the deferred purchase
price of assets or ser vices payable to the sellers thereof or any of such
seller's assignees which in accordance with GAAP would be shown on the liability
side of the balance sheet of such Person, (iii) the face amount of all letters
of credit issued and outstanding for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such Indebtedness has been assumed (provided that if such Indebtedness
has not been assumed, such amount shall be equal to the fair market value of the
property subject to such Lien), (v) all Capitalized Lease Obligations of such
Person, (vi) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted, i.e., take-or-pay
----
and similar obligations, (vii) all net obligations of such Person under Interest
Rate Protection Agreements but not under hedging activities entered into in the
normal course of business and constituting bona fide operational hedging
arrangements and (viii) all Contingent Obligations of such Person, provided,
that Indebtedness shall not include trade payables and accrued expenses, in each
case arising in the ordinary course of business.
-72-
<PAGE>
"Indebtedness to be Refinanced" shall mean all Indebtedness set forth
on Annex VIII.
"Interest Period," with respect to any Eurodollar Loan, shall mean the
interest period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"IPO" shall have the meaning provided in Section 5.07(b).
"IPO Documents" shall mean the Registration Statement relating to the
registration of the Borrower's common stock, and all other documents or
agreements related to the consummation of the IPO, including, without
limitation, all underwriting or similar agreements and all documents related
thereto filed with the SEC.
"Leasehold" of any Person shall mean all of the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Issuer" shall mean BTCo.
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"Leverage Ratio" shall mean, as at any date with respect to any
Person, the ratio of Total Indebtedness at such date to Consolidated EBITDA for
the Test Period then last ended (including on such date), in each case of such
Person; it being understood and agreed that for any determination of the
Leverage Ratio of the Borrower made on or prior to September 30, 1998,
Consolidated EBITDA of the Borrower for the fiscal quarter ending (I) March 31,
1997 shall be $4,502,000, (II) June 30, 1997 shall be $4,048,000, and (III)
September 30, 1997 shall be $1,300,000 (with such amounts representing the pro
---
forma
- -----
-73-
<PAGE>
Consolidated EBITDA of the Borrower as if the Transaction had occurred on
January 1, 1997).
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any con ditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording or notice statute, and any lease having sub stantially the same effect
as the foregoing).
"Loans" shall mean Revolving Loans and Swingline Loans.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(C)(c).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, assets, properties, operations, condition (financial or otherwise),
liabilities or prospects of the Borrower and its Subsidiaries taken as a whole.
"Material Real Property" shall mean any Real Property owned by the
Borrower or any Subsidiary Guarantor having a fair market value of $500,000 or
more.
"Maturity Date" shall mean October 16, 2002.
"Maximum Swingline Amount" shall mean $5,000,000.
"Merger Agreements" shall mean each of (i) the Amended and Restated
Agreement and Plan of Contribution, dated as of August 5, 1997, by and among
U.S.A. Floral Products, Inc., AGFS Acquisition Corp., Alpine Gem Flower
Shippers, Inc., and John Q. Graham Jr. and Diane Lizotte-Graham; (ii) the
Agreement and Plan of Contribution, dated as of August 4, 1997, by and among
U.S.A. Floral Products, Inc., UWF Acquisition Corp., UWFA Acquisition Corp.,
United Wholesale Florists, Inc., United Wholesale Florists of America, Inc., and
K. Wersen Stephenson and Raymond R. Ashmore; (iii) the Agreement and Plan of
Contribution, dated as of August 4, 1997, by and among U.S.A. Floral Products,
Inc., FT Acquisition Corporation, Flowtrad Corporation N.V., and the
Stockholders of Flowtrad Corporation N.V.; (iv) the Amended and Restated
Agreement and Plan of Contribution, dated as of August 5, 1997, by and among
U.S.A. Floral Products, Inc., AFS Acquisition Corp., American Florist Supply,
Inc., and John T. Dickerson; (v) the Amended and Restated Agreement and Plan of
Contribution, dated as of August 5, 1997, by and among U.S.A. Floral Products,
Inc., Floral Acquisition Corporation, CFX, Inc., and the stockholders of CFX,
Inc.; (vi) the Amended and Restated
-74-
<PAGE>
Agreement and Plan of Contribution, dated as of August 5, 1997, by and among
U.S.A. Floral Products, Inc., U.S.A. Floral Acquisition Co., Monterey Bay
Bouquet, Inc. and Jeffrey Brothers, Philip Bauar and Douglas Anderson; (vii) the
Amended and Restated Agreement and Plan of Contribution, dated as of August 6,
1997, by and among U.S.A. Floral Products, Inc., BSF Acquisition Corp., and Bay
State Florist Supply, Inc.; and (viii) the Amended and Restated Agreement and
Plan of Contribution, dated as of August 5, 1997, by and among U.S.A. Floral
Products, Inc., RHI Acquisition Corp., The Roy Houff Company and Roy Houff.
"Merger Documents" shall mean the Merger Agreements and all other
agreements and documents related to the Mergers.
"Mergers" shall mean and include each of the mergers between each
Founding Company and a separate newly-formed Wholly-Owned Subsidiary of the
Borrower pursuant to which each such Founding Company (x) is the surviving
corporation, in each case pursuant to the applicable Merger Documents and (y)
shall become a Wholly-Owned Subsidiary of the Borrower.
"Minimum Borrowing Amount" shall mean (i) for Revolving Loans that are
maintained as Base Rate Loans, $1,000,000, (ii) for Revolving Loans that are
maintained as Eurodollar Loans, $2,500,000, and (iii) for Swingline Loans,
$250,000.
"Mortgage" shall mean each mortgage, deed to secure debt or deed of
trust pursuant to which any Credit Party shall have granted to the Collateral
Agent a mortgage lien on such Credit Party's Mortgaged Property.
"Mortgage Policies" shall have the meaning provided in Section
7.11(ii) and, after the execution and delivery of any Additional Mortgage, shall
include the title insurance policy or other arrangement entered into with
respect to such Additional Mortgage.
"Mortgaged Property" shall mean each parcel of Real Property owned by
any Credit Party which is encumbered by a Mortgage (including any Additional
Mortgage).
"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the
Cash Proceeds resulting therefrom net of expenses of sale (including payment of
principal, premium and interest of other Indebtedness secured by the assets the
subject of such Asset Sale and required to be, and which is, repaid under the
terms thereof as a result of such Asset Sale), and incremental taxes paid or
payable as a result thereof.
"Net Insurance Proceeds" shall mean, with respect to any Recovery
Event, the cash proceeds (net of reasonable costs and taxes incurred in
connection with such Recovery Event) received in connection with the respective
Recovery Event.
-75-
<PAGE>
"Non-Defaulting Bank" shall mean each Bank other than a Defaulting
Bank.
"Note" shall mean each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Agent located at 130
Liberty Street, Commercial Loan Division, 14th Floor, New York, New York 10006,
Attention: Stuart Levy, or such other office as the Agent may designate to the
Borrower and the Banks from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Agent, the Collateral Agent, the Letter of Credit Issuer or any Bank
pursuant to the terms of this Agreement or any other Credit Document.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Agent located at 130
Liberty Street, New York, New York, ABA Number: 021001033, Account Name:
Commercial Loan Division, Account Number: 99-401-268, Reference: U.S.A. Floral
Products, or such other office as the Agent may designate to the Borrower and
the Banks from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" shall mean, at any time for each Bank, the percentage
obtained by dividing its Commitment at such time by the Total Commitment at such
time (or if the Total Commitment has terminated, the percentage obtained by
dividing its Loans at such time by the aggregate principal amount of Loans of
all Banks at such time).
"Permitted Acquisition" shall have the meaning provided in Section
8.02(f).
"Permitted Encumbrance" shall mean, with respect to any Mortgaged
Property, such exceptions to title as are set forth in the Mortgage Policy
delivered with respect thereto, all of which exceptions must be acceptable, on
the date of delivery of such Mortgage Policy, to the Agent.
-76-
<PAGE>
"Permitted Holders" shall mean the current Chairman of the Borrower,
the current Non-Executive Chairman of the Borrower or a group led by any of the
foregoing persons.
"Permitted Liens" shall have the meaning provided in Section 8.03(d).
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section 5.11(a).
"Pledged Securities" shall mean all the Pledged Securities as defined
in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make com mercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"PSD Interest Period" shall mean an Interest Period commenced prior to
the Syndication Date, each of which Interest Periods must satisfy the
requirements of Section 1.09(v).
"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by the Borrower or any of its
Subsidiaries of any cash insurance proceeds or condemnation awards payable (i)
by reason of theft, loss, physical destruction, damage, taking or any other
similar event with respect to any property or assets of the Borrower or any of
its Subsidiaries and (ii) under any policy of insurance required to be
maintained under Section 7.03.
"Reference EBITDA Amount" shall mean $10,000,000.
-77-
<PAGE>
"Refinancing" shall mean the refinancing and repayment in full of all
amounts under, and the termination in full of all commitments and letters of
credit in respect of, the Indebtedness to be Refinanced.
"Refinancing Documents" shall mean all documents and agreements
entered into in connection with the Refinancing"
"Register" shall have the meaning provided in Section 12.17.
"Registration Statement" shall mean the Borrower's Registration
Statement on Form S-1 in the form delivered to the Banks pursuant to Section
5.07 as amended.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.
"Reinvestment Assets" shall mean (i) in the case of any Asset Sale,
any assets to be employed in, and/or the capital stock of any Person engaged in,
the business of the Borrower and its Subsidiaries and (ii) in the case of any
Recovery Event, any assets purchased or constructed in replacement of the assets
subject to such Recovery Event.
"Reinvestment Election" shall have the meaning provided in Section
3.03(c).
"Reinvestment Notice" shall mean a written notice signed by an
Authorized Officer of the Borrower stating that the Borrower, in good faith,
intends and expects to use all or a specified portion of (i) the Net Cash
Proceeds of an Asset Sale to purchase, construct or otherwise acquire
Reinvestment Assets or (ii) the Net Insurance Proceeds of a Recovery Event to
purchase or construct Reinvestment Assets, which Reinvestment Notice also shall
set forth (in each case) in reasonable detail the approximate amount of the
transaction costs and incremental taxes incurred or payable in connection with
any such Asset Sale or Recovery Event.
.
"Reinvestment Reduction Amount" shall mean, with respect to any
Reinvestment Election, the amount, if any, on the Reinvestment Reduction Date
relating thereto by which (a) the Anticipated Reinvestment Amount in respect of
such Reinvestment
-78-
<PAGE>
Election exceeds (b) the aggregate amount thereof expended by the Borrower and
its Subsidiaries to acquire or construct Reinvestment Assets.
"Reinvestment Reduction Date" shall mean, with respect to any Reinvest
ment Election, the earliest of (i) the date, if any, upon which a Default or an
Event of Default shall have occurred, (ii) the date occurring one year after the
making of such Reinvestment Election and (iii) the date on which the Borrower
shall have determined not to, or shall have otherwise ceased to, proceed with
the purchase, construction or other acquisition of Reinvestment Assets with the
related Anticipated Reinvestment Amount.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks the sum of whose
Percentages exceeds 50% of the Percentages of all Non-Defaulting Banks.
"Revolving Loan" shall have the meaning provided in Section 1.01(A).
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b).
"Secured Creditors" shall have the meaning assigned in the Security
Documents.
"Security Agreement" shall have the meaning provided in Section
5.11(b).
-79-
<PAGE>
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the Security Agreement.
"Security Documents" shall mean and include the Security Agreement,
the Mortgages, the Pledge Agreement and to the extent delivered pursuant to
Section 7.12, each Additional Mortgage.
"Significant Permitted Acquisition" shall mean any Permitted
Acquisition or group of Permitted Acquisitions that are consummated on the same
Acquisition Date in which the Acquired Business or Businesses being acquired
have Consolidated EBITDA for the Test Period of the Borrower then most recently
ended equal to or more than $1,500,000.
"Specified Subsidiaries" shall mean each Subsidiary of the Borrower
acquired after the Effective Date as permitted pursuant to this Agreement,
which, at the time of the acquisition thereof, was the obligor with respect to
Indebtedness and/or the property of which was subject to Liens securing
Indebtedness, in each case, incurred other than pursuant to this Agreement and
the other Credit Documents and that will remain out standing after giving effect
to such acquisition.
"Stated Amount" of each Letter of Credit shall mean the maximum amount
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Sub-Limit" shall mean and include each of the Acquisition Sub-Limit
and the Working Capital Sub-Limit.
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary vot ing power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time.
"Subsidiary Guarantor" shall mean, at any time, each Domestic
Subsidiary of the Borrower, and to the extent required by Section 7.13, each
Foreign Subsidiary of the Borrower, in each case which executes and delivers the
Subsidiary Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in Section 5.10.
-80-
<PAGE>
"Swingline Expiry Date" shall mean the date which is five Business
Days prior to the Maturity Date.
"Swingline Loan" shall have the meaning provided in Section 1.01(C).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Syndication Date" shall mean the earlier of (x) the date which is 90
days after the Effective Date and (y) the date upon which the Agent determines
in its sole discre tion (and notifies the Borrower) that the primary syndication
(and the resulting addition of institutions as Banks pursuant to Section 12.04)
has been completed.
"Taxes" shall have the meaning provided in Section 4.04.
"Test Period" shall mean, with respect to any Person, (i) for any
determination of the Consolidated Interest Coverage Ratio of the Borrower made
on or prior to September 30, 1998, the period from October 1, 1997 through and
including the last day of the Borrower's most recently ended fiscal quarter (in
each case taken as one accounting period and assuming that the Transaction had
occurred on October 1, 1997) and (ii) for any period thereafter and for any
determination of the Leverage Ratio of the Borrower, a period of four
consecutive fiscal quarters of such Person ended on the last day of the then
most recently ended fiscal quarter of such Person.
"Total Commitment" shall mean the sum of the Commitments of each of
the Banks.
"Total Indebtedness" shall mean, at any time with respect to any
Person, all (i) indebtedness of such Person for borrowed money at such time,
(ii) all Indebtedness of the type described in clauses (iii) and (v) of the
definition of Indebtedness at such time and (iii) all Contingent Obligations in
respect of Indebtedness of the type described in preceding clauses (i) and (ii)
at such time, in each case determined on a consolidated basis.
"Transaction" shall mean and include (i) the IPO, (ii) the Mergers,
(iii) the Refinancing and (iv) the occurrence of the Effective Date.
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan.
----
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of New York.
-81-
<PAGE>
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with actuarial assumptions at such time consistent with Statement of Financial
Accounting Standards No. 87, exceeds the market value of the assets allocable
thereto.
"Unpaid Drawing" shall have the meaning provided in Section 2.03(a).
"Unutilized Acquisition Sub-Limit" shall mean, at any time, (i) the
Acquisition Sub-Limit at such time less (ii) the sum of the aggregate
outstanding principal amount of all Acquisition Loans at such time.
"Unutilized Commitment" shall mean for each Bank at any time (i) the
Commitment of such Bank at such time less (ii) the sum of the aggregate
principal amount of all Revolving Loans made by such Bank and outstanding at
such time plus an amount equal to such Bank's Percentage of the Letter of Credit
Outstandings at such time.
"Unutilized Total Commitment" shall mean, at any time, (i) the Total
Commitment at such time less (ii) the sum of the aggregate outstanding principal
amount of all Loans at such time plus the Letter of Credit Outstandings at such
time.
"Unutilized Working Capital Sub-Limit" shall mean, at any time, (i)
the Working Capital Sub-Limit at such time less (ii) the sum of the aggregate
principal amount of all Working Capital Loans at such time.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corpora tion 100% of whose capital stock (other than directors qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
"Working Capital Loan" shall mean each Revolving Loan incurred by the
Borrower hereunder which does not constitute an Acquisition Loan.
"Working Capital Sub-Limit" shall mean, at any time, (x) $25,000,000
less (y)(i) except as otherwise provided in clause (ii) below, 25% of the
aggregate reduction to the Total Commitment theretofore effected or (ii) with
respect to reductions effected pursu ant to Section 3.02, such other amount as
may be specified by the Borrower pursuant to such Section, it being understood
and agreed that in no event may the Borrower elect a reduction of the Working
Capital Sub-Limit pursuant to Section 3.02 to an amount less than $7,500,000.
-82-
<PAGE>
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile device, telegraph or cable.
SECTION 11. The Agent.
---------
11.01 Appointment. Each Bank hereby irrevocably designates and
-----------
appoints BTCo as Agent of such Bank (such term to include for purposes of this
Section 11, BTCo acting as Collateral Agent) to act as specified herein and in
the other Credit Documents, and each such Bank hereby irrevocably authorizes
BTCo as the Agent to take such action on its behalf under the provisions of this
Agreement and the other Credit Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. The Agent agrees to act as such upon the express
conditions contained in this Section 11. Notwithstanding any provision to the
con trary elsewhere in this Agreement or in any other Credit Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein or in the other Credit Documents, or any fiduciary relationship with any
Bank, and no implied covenants, functions, responsibilities, duties, obligations
or liabilities shall be read into this Agreement or otherwise exist against the
Agent. The provisions of this Section 11 are solely for the benefit of the
Agent and the Banks, and neither the Borrower nor any of its Subsidiaries shall
have any rights as a third party beneficiary of any of the provisions hereof.
In performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and the Agent does not assume and shall not be
deemed to have assumed any obligation or relationship of agency or trust with or
for the Borrower or any of its Subsidiaries.
11.02 Delegation of Duties. The Agent may execute any of its duties
--------------------
under this Agreement or any other Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care except to the extent otherwise required by Section 11.03.
11.03 Exculpatory Provisions. Neither the Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Credit Documents
(except for its or such Person's own gross negli gence or willful misconduct) or
(ii) responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrower, any of its Subsidi aries or
any of their respective officers contained in this Agreement or the other Credit
Documents or in any certificate, report, statement or other document referred to
or pro-
-83-
<PAGE>
vided for in, or received by the Agent under or in connection with, this
Agreement or any other Credit Document or for any failure of the Borrower or any
of its Subsidiaries or any of their respective officers to perform its
obligations hereunder or thereunder. The Agent shall not be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or the other Credit Documents, or to inspect the properties, books or
records of the Borrower or any of its Subsidiaries. The Agent shall not be
responsible to any Bank for the effective ness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any other
Credit Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by the Agent to
the Banks or by or on behalf of the Bor rower or any of its Subsidiaries to the
Agent or any Bank or be required to ascertain or inquire as to the performance
or observance of any of the terms, conditions, provisions, covenants or
agreements contained herein or therein or as to the use of the proceeds of the
Loans or of the existence or possible existence of any Default or Event of
Default.
11.04 Reliance by Agent. The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex
or teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower or any of its Sub
sidiaries), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Credit Document unless it shall first receive
such advice or concurrence of the Required Banks as it deems appropriate or it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully pro
tected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Banks, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks.
11.05 Notice of Default. The Agent shall not be deemed to have knowl
-----------------
edge or notice of the occurrence of any Default or Event of Default hereunder
unless the Agent has actually received notice from a Bank or the Borrower
referring to this Agree ment, describing such Default or Event of Default and
stating that such notice is a "notice of default." In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the Banks.
The Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Banks; provided, that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not
-84-
<PAGE>
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks.
11.06 Non-Reliance on Agent and Other Banks. Each Bank expressly
-------------------------------------
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower or any of its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent to any Bank. Each Bank represents to the Agent that it has, inde
pendently and without reliance upon the Agent or any other Bank, and based on
such docu ments and information as it has deemed appropriate, made its own
appraisal of and investi gation into the business, assets, operations, property,
financial and other condition, pros pects and creditworthiness of the Borrower
and its Subsidiaries and made its own decision to make its Loans hereunder and
enter into this Agreement. Each Bank also represents that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement, and to make such investigation as it
deems necessary to inform itself as to the business, assets, operations,
property, financial and other condition, prospects and cred itworthiness of the
Borrower and its Subsidiaries. The Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, assets, property, financial and other
condition, prospects or credit worthiness of the Borrower or any of its
Subsidiaries which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
11.07 Indemnification. The Banks agree to indemnify the Agent in its
---------------
capacity as such ratably according to their respective "percentages" as used in
determining the Required Banks at such time, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or dis bursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the Agent in its
capacity as such in any way relating to or arising out of this Agreement or any
other Credit Document, or any documents contemplated by or re ferred to herein
or the transactions contemplated hereby or any action taken or omitted to be
taken by the Agent under or in connection with any of the foregoing, but only to
the extent that any of the foregoing is not paid by the Borrower or any of its
Subsidiaries; provided, that no Bank shall be liable to the Agent for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the gross negligence or willful misconduct of the Agent. To the
extent any Bank would be required to indemnify the Agent pursuant to the
immediately preceding sentence but for the fact that it is a Defaulting Bank,
such Defaulting
-85-
<PAGE>
Bank shall not be entitled to receive any portion of any payment or other
distribution here under until each other Bank shall have been reimbursed for the
excess, if any, of the aggre gate amount paid by such Bank under this Section
11.07 over the aggregate amount such Bank would have been obligated to pay had
such first Bank not been a Defaulting Bank. If any indemnity furnished to the
Agent for any purpose shall, in the opinion of the Agent be insufficient or
become impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furn ished. The agreements in this Section 11.07 shall survive the payment of
all Obligations.
11.08 Agent in its Individual Capacity. The Agent and its affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower and its Subsidiaries and Affiliates as though the
Agent were not the Agent here under. With respect to the Loans made by it and
all Obligations owing to it, the Agent shall have the same rights and powers
under this Agreement as any Bank and may exercise the same as though it were not
the Agent and the terms "Bank" and "Banks" shall include the Agent in its
individual capacity.
11.09 Holders. The Agent may deem and treat the payee of any Note as
-------
the owner thereof for all purposes hereof unless and until a written notice of
the assignment, transfer or endorsement thereof, as the case may be, shall have
been filed with the Agent. Any request, authority or consent of any Person or
entity who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
11.10 Resignation of the Agent; Successor Agent. The Agent may
-----------------------------------------
resign as the Agent upon 20 days' notice to the Banks. Upon the resignation of
the Agent, the Required Banks shall appoint from among the Banks a successor
Agent which is a bank or a trust company for the Banks subject to prior approval
by the Borrower (such approval not to be unreasonably withheld or delayed),
whereupon such successor agent shall succeed to the rights, powers and duties of
the Agent, and the term "Agent" shall include such succes sor agent effective
upon its appointment, and the resigning Agent's rights, powers and duties as the
Agent shall be terminated, without any other or further act or deed on the part
of such former Agent or any of the parties to this Agreement. After the
resignation of the Agent hereunder, the provisions of this Section 11 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
-86-
<PAGE>
SECTION 12. Miscellaneous.
-------------
12.01 Payment of Expenses, etc. The Borrower agrees to: (i)
-------------------------
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agent (including, without
limitation, the reasonable fees and disbursements of White & Case) in connection
with the negotiation, preparation, execu tion and delivery of the Credit
Documents and the documents and instruments referred to therein and any
amendment, waiver or consent relating thereto and in connection with the Agent's
syndication efforts with respect to this Agreement; (ii) pay all reasonable out-
of-pocket costs and expenses of the Agent and each of the Banks in connection
with the enforcement of the Credit Documents and the documents and instruments
referred to therein and, after an Event of Default shall have occurred and be
continuing, the protection of the rights of the Agent and each of the Banks
thereunder (including, without limitation, the rea sonable fees and
disbursements of counsel (including in-house counsel) for the Agent and for each
of the Banks); (iii) pay and hold each of the Banks harmless from and against
any and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Banks harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Bank) to pay such taxes; and (iv)
indemnify the Agent, the Collateral Agent and each Bank, its officers,
directors, employees, representatives and agents (each an "Indemnitee") from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of (a) any investigation, litigation or
other proceeding (whether or not the Agent, the Collateral Agent or any Bank is
a party thereto) related to the entering into and/or performance of this
Agreement or any other Credit Document or the use of the proceeds of any Loans
hereunder or the consummation of any other transactions contem plated in any
Credit Document, or (b) the actual or alleged presence of Hazardous Materials in
the air, surface water or groundwater or on the surface or subsurface of any
Real Property owned, leased or at any time operated by the Borrower or any of
its Subsidiaries, the release, generation, storage, transportation, handling or
disposal of Hazardous Materials at any location, whether or not owned or
operated by the Borrower or any of its Subsidiaries, the non-compliance by the
Borrower or any of its Subsidiaries of any Real Property with foreign, federal,
state and local laws, regulations, ordinances or Environmental Laws (including
applicable permits thereunder) applicable to any Real Property, or any
Environmental Claim relating to the Borrower or any of its Subsidiaries or any
Real Property owned, leased or at any time operated by the Borrower or any of
its Subsidiaries, including, in each case, without limitation, the reasonable
fees and disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding (but excluding any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified or of any
other Indemnitee who is such Person or an affiliate of such Person). To the
extent that the undertaking to indemnify, pay or hold harmless any Person
-87-
<PAGE>
set forth in the preceding sentence may be unenforceable because it is violative
of any law or public policy, the Borrower shall make the maximum contribution to
the payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.
12.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the Borrower
or any of its Subsidiaries or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all deposits
(general or special) and any other Indebtedness at any time held or owing by
such Bank (including, without limitation, by branches and agencies of such Bank
wherever located) to or for the credit or the account of the Borrower or any
Subsidiary Guarantor against and on account of the Obligations and liabilities
of the Borrower or any of its Subsidiaries to such Bank under this Agreement or
under any of the other Credit Documents, including, without limitation, all
interests in Obligations of the Borrower or any of its Subsidiaries purchased by
such Bank pursuant to Section 12.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. Notwithstanding anything to the contrary
contained in this Section 12.02, no Bank shall exercise any such right of set-
off without the prior consent of the Agent or the Required Banks so long as the
Obligations shall be secured by any Real Property located in the State of
California, it being understood and agreed, however, that this sentence is for
the sole benefit of the Banks and may be amended, modified or waived in any
respect by the Required Banks without the requirement of prior notice to or
consent by any Credit Party and does not constitute a waiver of any rights
against any Credit Party or against any Collateral.
12.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to any Credit Party,
at the address specified opposite its signature below or in the other relevant
Credit Documents, as the case may be; if to any Bank, at its address specified
for such Bank on Annex II; or, at such other address as shall be desig nated by
any party in a written notice to the other parties hereto. All such notices and
communications shall be mailed, telegraphed, telexed, telecopied or cabled or
sent by overnight courier, and shall be effective when received.
12.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, that no Credit Party may assign or
transfer any of its rights
-88-
<PAGE>
or obligations hereunder without the prior written consent of the Banks and,
provided further, that, although any Bank may transfer, assign or grant
participations in its rights hereunder, such Bank shall remain a "Bank" for all
purposes hereunder and the transferee, assignee or participant, as the case may
be, shall not constitute a "Bank" hereunder and, provided further, that no Bank
shall transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan or Letter of Credit (unless such Letter
of Credit is not extended beyond the Maturity Date) in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees (except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of Default or
of a mandatory reduction in the Total Commitment shall not constitute a change
in the terms of such participation, and that an increase in any Commitment or
Loan shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof), (ii) consent
to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement to the extent relating to such participation or
(iii) release all or substantially all of the Collateral under all of the
Security Documents (except as expressly provided in the Credit Documents). In
the case of any such participation, the participant shall not have any rights
under this Agreement or any of the other Credit Documents (the participant's
rights against such Bank in respect of such participation to be those set forth
in the agreement executed by such Bank in favor of the participant relating
thereto) and all amounts payable by the Borrower hereunder shall be determined
as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank may (x) assign all or a
portion of its Commitment (and related outstanding Obligations hereunder) to any
Affiliate of such Bank or to one or more Banks or (y) assign all, or if less
than all, a portion equal to at least $5,000,000 in the aggregate for the
assigning Bank, of its Commitment (and related outstanding Obligations
hereunder) to one or more Eligible Transferees, provided that (i) at such time
Annex I shall be deemed modified to reflect the Commitments of such new Bank and
of the existing Banks, (ii) upon surrender of the old Notes, new Notes will be
issued, at the Borrower's expense, to such new Bank and to the assigning Bank
upon the request of such new Bank and such new Notes to be in conformity with
the requirements of Section 1.05 to the extent needed to reflect the revised
Commitments, (iii) the consent of the Borrower (so long as no Default or Event
of Default then exists) and the Agent shall be required in connection with any
such assignment pursuant to clause (y) above (each of which consents shall not
be unreasonably withheld or delayed), (iv) the Agent shall receive at the time
of each such assignment, from the assigning or assignee Bank, the payment of a
non-refundable assignment fee of $3,500 and (v) no assignment shall be effective
until recorded by the Agent on the Register pursuant to Section 12.17. If any
Bank so sells or
-89-
<PAGE>
assigns all or a part of its rights hereunder or under the Notes, any reference
in this Agreement or the Notes to such assigning Bank shall thereafter refer to
such Bank and to the respective assignee to the extent of their respective
interests and the respective assignee shall have, to the extent of such
assignment (unless otherwise provided therein), the same rights and benefits as
it would if it were such assigning Bank. Each assignment pursuant to this
Section 12.04(b) shall be effected by the assigning Bank and the assignee Bank
executing an Assignment and Assumption Agreement substantially in the form of
Exhibit J, appropriately completed (each, an "Assignment and Assumption
Agreement"). To the extent of any assignment pursuant to this Section 12.04(b),
the assigning Bank shall be relieved of its obligations hereunder with respect
to its assigned Commitment. At the time of each assignment pursuant to this
Section 12.04(b) to a Person which is not already a Bank hereunder and which is
not a United States person (as such term is defined in Sec tion 7701(a)(30) of
the Code) for United States federal income tax purposes, the respective assignee
Bank shall provide to the Borrower and the Agent the appropriate Internal
Revenue Service Forms (and, if applicable a Section 4.04(b)(ii) Certificate)
described in Section 4.04(b).
(c) Nothing in this Agreement shall prevent or prohibit any Bank from
pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Agent or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Credit Party and the Agent or any Bank shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Credit Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Agent or any
Bank would otherwise have. No notice to or demand on any Credit Party in any
case shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or consti tute a waiver of the rights of the
Agent or the Banks to any other or further action in any circumstances without
notice or demand.
12.06 Payments Pro Rata. (a) The Agent agrees that promptly after
-----------------
its receipt of each payment from or on behalf of any Credit Party in respect of
any Obligations of such Credit Party, it shall, except as otherwise provided in
this Agreement, distribute such payment to the Banks (other than any Bank that
has consented in writing to waive its pro rata share of such payment) pro rata
--- ---- --- ----
based upon their respective shares, if any, of the Obligations with respect to
which such payment was received.
-90-
<PAGE>
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the princi pal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount; provided, that if
all or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Borrower to the Banks); provided, that except as otherwise specifically
provided herein, all computations determining compliance with Section 8,
including definitions used therein, shall utilize accounting principles and
policies in effect at the time of the preparation of, and in conformity with
those used to pre pare, the year end financial statements delivered to the Banks
pursuant to Section 6.10(b).
(b) All computations of interest on Base Rate Loans and Fees (other
than Letter of Credit Fees and Facing Fees) hereunder shall be made on the basis
of the actual number of days elapsed over a year of 365/366 days, and all
computations of interest on Eurodollar Loans, Letter of Credit Fees and Facing
Fees shall be made on the basis of actual number of days elapsed over a year of
360 days.
12.08 Governing Law; Submission to Jurisdiction; Venue. (A) This
------------------------------------------------
Agreement and the other Credit Documents and the rights and obligations of the
parties hereunder and thereunder shall be construed in accordance with and be
governed by the law of the State of New York. Any legal action or proceeding
with respect to this Agreement or any other Credit Document may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, the
Borrower hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower hereby further irrevocably waives any claim that any such courts lack
personal jurisdiction over it, and agrees not to plead or claim, in any legal
action proceeding with respect to this Agreement or any other Credit Documents
brought in any of the aforementioned courts, that such courts lack personal
jurisdiction over it. The Borrower
-91-
<PAGE>
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Borrower, at its address
for notices pursuant to Section 12.03, such service to become effective 30 days
after such mailing. The Borrower hereby irrevocably waives any objection to
such service of process and further irrevocably waives and agrees not to plead
or claim in any action or proceeding commenced hereunder or under any other
Credit Document that service of process was in any way invalid or ineffective.
Nothing herein shall affect the right of the Agent, any Bank or the holder of
any Note to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against the Borrower in any other
jurisdiction.
(B) The Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (A) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
12.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together consti tute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Agent.
12.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which (i) the Borrower, the Agent and each of the
Banks shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered the same to the Agent at the Notice
Office or, in the case of the Banks, shall have given to the Agent telephonic
(confirmed in writing), written or telex notice (actually received) at such
office that the same has been signed and mailed to it and (ii) the conditions
set forth in Section 5 are met to the satisfaction of the Agent and the Required
Banks. Unless the Agent has received actual notice from any Bank that the
conditions contained in Section 5 have not been met to its satisfaction, upon
the satisfaction of the condition described in clause (i) of the immediately
preceding sentence and upon the Agent's good faith determination that the
conditions described in clause (ii) of the immediately preceding sentence have
been met, then the Effective Date shall have been deemed to have occurred,
regardless of any subsequent determination that one or more of the conditions
thereto had not been met. The Agent will give the Borrower and each Bank prompt
written notice of the occurrence of the Effective Date.
-92-
<PAGE>
12.11 Headings Descriptive. The headings of the several sections and
--------------------
sub sections of this Agreement are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Agreement.
12.12 Amendment or Waiver. (a) Neither this Agreement nor any other
-------------------
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Required Banks and the Borrower; provided, that no such
change, waiver, discharge or termination shall, without the consent of each Bank
(other than a Defaulting Bank) being directly affected thereby, (i) extend the
Maturity Date (it being understood that any waiver of any prepayment of the
Loans shall not constitute any such extension), or reduce the rate or extend the
time of payment of interest thereon (other than as a result of waiving the
applicability of any post-default increase in interest rates) or Fees, or reduce
the principal amount thereof (it being understood that any amendment or
modification to the financial definitions in this Agreement or to Section
12.07(a) shall not constitute a reduction in the rate of interest or Fees for
the purposes of this clause (i)), (ii) release all or substantially all of the
Collateral (except as expressly provided in the Credit Documents), or release
any Subsidiary Guarantor from its obligations thereunder (except as expressly
provided in the Credit Documents), (iii) amend, modify or waive any provision of
this Section 12.12, (iv) reduce the percentage specified in the definition of
Required Banks (it being understood that, with the consent of the Required
Banks, additional extensions of credit pursuant to this Agreement may be
included in the determination of the Required Banks on substantially the same
basis as the extensions of Commitments are included on the Effective Date) or
(v) consent to the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement or any other Credit Document except in
accordance with the terms hereof or thereof; provided further, that no such
change, waiver, discharge or termination shall (w) increase the Commitments of
any Bank over the amount thereof then in effect without the consent of such Bank
(it being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction in the
Total Commitment shall not constitute an increase of the Commitment of any Bank,
and that an increase in the available portion of any Commitment of any Bank
shall not constitute an increase in the Commitments of such Bank), (x) without
the consent of the Letter of Credit Issuer, amend, modify or waive any provision
of Section 2 or alter its rights or obligations with respect to Letters of
Credit, (y) without the consent of BTCo, amend or modify the obligation of BTCo
to make Swingline Loans, the terms of any such Swingline Loans or the
obligations of the Banks to fund Mandatory Borrowings, or (z) without the
consent of the Agent, amend, modify or waive any provision of Section 11 as same
applies to the Agent or any other provision as same relates to the rights or
obligations of the Agent.
(b) If, in connection with any proposed change, waiver, discharge or
termination with respect to any of the provisions of this Agreement as
contemplated by
-93-
<PAGE>
clauses (i) through (v), inclusive, of the first proviso to Section 12.12(a),
the consent of the Required Banks is obtained but the consent of one or more of
such other Banks whose consent is required is not obtained, then the Borrower
shall have the right, to replace each such non-consenting Bank or Banks (so long
as all non-consenting Banks are so replaced) with one or more Replacement Banks
pursuant to Section 1.13 so long as at the time of such replacement, each such
Replacement Bank consents to the proposed change, waiver, discharge or
termination, provided that the Borrower shall not have the right to replace a
Bank solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to the second proviso
to Section 12.12(a).
12.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Section 1.10, 1.11, 4.04, 11.07 or 12.01, shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.
12.14 Domicile of Loans. Each Bank may transfer and carry its Loans
-----------------
at, to or for the account of any branch office, subsidiary or affiliate of such
Bank provided that the Borrower shall not be responsible for costs arising under
Section 1.10, 2.05 or 4.04 resulting from any such transfer (other than a
transfer pursuant to Section 1.12) to the extent such costs would not otherwise
be applicable to such Bank in the absence of such transfer.
12.15 Confidentiality. Each of the Banks agrees that it will use its
---------------
best efforts not to disclose without the prior consent of the Borrower (other
than to its employees, auditors, counsel or other professional advisors, to
affiliates or to another Bank if the Bank or such Bank's holding or parent
company in its sole discretion determines that any such party should have access
to such information) any information with respect to the Borrower or any of its
Subsidiaries which is furnished pursuant to this Agreement and which is
designated by the Borrower to the Banks in writing as confidential provided that
any Bank may disclose any such information (a) as has become generally available
to the public, (b) as may be required or appropriate in any report, statement or
testimony submit ted to any municipal, state or Federal regulatory body having
or claiming to have jurisdic tion over such Bank or to the Federal Reserve Board
or the Federal Deposit Insurance Corporation or similar organizations (whether
in the United States or elsewhere) or their successors, (c) as may be required
or appropriate in response to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to such Bank, and (e) to any prospective transferee in connection
with any contemplated transfer of any of the Notes or any interest therein by
such Bank provided
-94-
<PAGE>
that such prospective transferee agrees to be bound by the provisions of this
Section. No Bank shall be obligated or required to return any materials
furnished by the Borrower or any Subsidiary. The Borrower hereby agrees that
the failure of a Bank to comply with the provisions of this Section 12.15 shall
not relieve the Borrower of any of its obligations to such Bank under this
Agreement and the other Credit Documents.
12.16 Waiver of Jury Trial. Each of the parties to this Agreement
--------------------
hereby irrevocably waives all right to a trial by jury in any action, proceeding
or counterclaim arising out of or relating to this Agreement, the other Credit
Documents or the transactions contemplated hereby or thereby.
12.17 Register. The Borrower hereby designates the Agent to serve as
--------
the Borrower's agent, solely for purposes of this Section 12.17, to maintain a
register (the "Register") on which it will record the Commitments from time to
time of each of the Banks, the Loans made by each of the Banks and each
repayment in respect of the principal amount of the Loans of each Bank. Failure
to make any such recordation, or any error in such recordation, shall not affect
the Borrower's obligations in respect of such Loans. With respect to any Bank,
the transfer of the Commitments of such Bank and the rights to the principal of,
and interest on, any Loan made pursuant to such Commitments shall not be
effective until such transfer is recorded on the Register maintained by the
Agent with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such Commitments
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Commitments and Loans shall be recorded by the
Agent on the Register only upon the acceptance by the Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
12.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Bank shall surrender the Note evidencing such Loan, and thereupon one
or more new Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Bank and/or the new Bank. The Borrower agrees to
indemnify the Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Agent in performing its duties under this Section 12.17.
* * *
-95-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counter part of
this Agreement to be duly executed and delivered as of the date first above
written.
Address: U.S.A. FLORAL PRODUCTS, INC.
3500 Whitehaven Parkway
Washington, D.C. 20007
Attention: President
Telephone No: (202) 333-0800 By /s/ Raymond Anderson
Fax No: (202) 333-0803 ----------------------------
Title: Chief Financial Officer
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ David Bell
-----------------------------
Title: Vice President
BANKBOSTON, N.A.
By /s/ Pamela Kuong
-----------------------------
Title: Vice President
CORESTATES BANK, N.A.
By /s/ Mark S. Supple
-----------------------------
Title: Vice President
<PAGE>
LA SALLE NATIONAL BANK
By /s/ Todd Lanscioni
-------------------
Title: First Vice President
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports relating to the respective
financial statements which appear in such Prospectus.
<TABLE>
<CAPTION>
Financial Statements Date
-------------------- ----
<S> <C>
USA Floral Products, Inc. July 30, 1997
The Roy Houff Company June 25, 1997
CFX, Inc. June 20, 1997
Bay State Florist Supply, Inc. June 27, 1997
Flowtrad Corporation, N.V. d/b/a
Flower Trading Corporation August 1, 1997
United Wholesale Florists, Inc. and
United Wholesale Florists of
America, Inc. July 15, 1997
American Florist Supply, Inc. July 11, 1997
Monterey Bay Bouquet, Inc.
and Bay Area Bouquet, Inc. June 20, 1997
Alpine Gem Flower Shippers, Inc. June 20, 1997
</TABLE>
We also consent to the reference to us under the heading "Experts".
/s/ PRICE WATERHOUSE LLP
November 7, 1997
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 8, 1996, relating
to the financial statements of CFX, Inc., which appear in such Prospectus. We
also consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that Madsen,
Snapp, Mena, Rodriguez & Co., P.A. has not prepared or certified such "Selected
Financial Data."
/s/ Madsen, Snapp, Mena, Rodriguez & Co., P.A
Madsen, Snapp, Mena, Rodriguez & Co., P.A
Plantation, Florida
November 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 317
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 455
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 772
<CURRENT-LIABILITIES> 400
<BONDS> 0
0
0
<COMMON> 402
<OTHER-SE> (30)
<TOTAL-LIABILITY-AND-EQUITY> 772
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.01
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Roy O. Houff, hereby consent to the use, in the Registration Statement
on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation (the
"Company"), to which this consent is filed as an exhibit included therein, of my
name as a person about to become a Director of the Company.
/s/ Roy O. Houff
-----------------------------------------
Roy O. Houff
November 5, 1997
<PAGE>
EXHIBIT 99.02
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Dwight Haight, hereby consent to the use, in the Registration Statement
on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation (the
"Company"), to which this consent is filed as an exhibit included therein, of my
name as a person about to become a Director of the Company.
/s/ Dwight Haight
-------------------------------------
Dwight Haight
November 5, 1997
<PAGE>
EXHIBIT 99.03
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, William W. Rudolph, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ William W. Rudolph
--------------------------------------
William W. Rudolph
November 5, 1997
<PAGE>
EXHIBIT 99.04
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Jeffrey Brothers, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Jeffrey Brothers
-----------------------------------------
Jeffrey Brothers
November 5, 1997
<PAGE>
EXHIBIT 99.05
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, John Q. Graham, Jr., hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ John Q. Graham, Jr.
-------------------------------------
John Q. Graham, Jr.
November 10, 1997
<PAGE>
EXHIBIT 99.06
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Raymond R. Ashmore, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ Raymond R. Ashmore
---------------------------------------
Raymond R. Ashmore
November 5, 1997
<PAGE>
EXHIBIT 99.07
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, John T. Dickinson, hereby consent to the use, in the Registration
Statement on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
/s/ John T. Dickinson
-----------------------------------------
John T. Dickinson
November 5, 1997
<PAGE>
EXHIBIT 99.08
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Gustavo Moreno, hereby consent to the use, in the Registration Statement
on Form S-1 of U.S.A. Floral Products, Inc., a Delaware corporation (the
"Company"), to which this consent is filed as an exhibit included therein, of my
name as a person about to become a Director of the Company.
/s/ Gustavo Moreno
---------------------------------
GUSTAVO MORENO
November 5, 1997
