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REGISTRATION NO. 333-39969
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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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. [_]
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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.
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PROSPECTUS
12,500,000 SHARES
U.S.A. FLORAL PRODUCTS, INC.
COMMON STOCK
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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. Between
the initial filing on November 18, 1997 of the registration statement of which
this Prospectus forms a part and the date of this Prospectus, the Company
issued 4,437,044 shares of Common Stock covered by the registration statement,
and accordingly 8,062,956 shares of Common Stock remain available pursuant to
this registration statement as of the date of this Prospectus. 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 May 7 1998, 14,350,028 shares of Common Stock were outstanding.
On May 7, 1998, the closing price of the Common Stock on the Nasdaq National
Market was $19.75 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 ("Commission"). See "Additional
Information."
All expenses of this offering will be paid by the Company.
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SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES 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.
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The date of this Prospectus is May 8, 1998.
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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.
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TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements........ 2
Prospectus Summary................ 3
Risk Factors...................... 7
Businesses of the Company......... 15
Price Range of Common Stock....... 20
Dividend Policy................... 20
Capitalization.................... 21
Selected Financial Data........... 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 23
Selected Financial Data of the
Founding Companies............... 28
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PAGE
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Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Founding
Companies.......................... 31
Business............................ 46
Management.......................... 56
Certain Relationships and Related-
Party Transactions................. 63
Principal Stockholders.............. 70
Description of Capital Stock........ 71
Shares Eligible for Future Sale..... 73
Plan of Distribution................ 73
Restrictions on Resale.............. 74
Legal Matters....................... 74
Experts............................. 74
Additional Information.............. 75
Index to Financial Statements....... F-1
</TABLE>
1
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements generally can be identified by the use of forward-
looking terminology such as "may," "will," "intend," "estimate," "anticipate,"
"believe," or "continue" or the negative thereof or variations thereon or
similar terminology. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from possible future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; changes
in political, social and economic conditions and local regulations,
particularly in Central America and South America; changes in, or failure to
comply with, government regulations; demographic changes; changes in sales
mix; ability to obtain floral products during periods of peak demand due to
unusual circumstances or otherwise; changes in, or the failure to maintain,
current pricing levels; any reduction in sales to or loss of any significant
customers; competition; changes in business strategy or development plans;
availability of capital sufficient to meet the Company's need for capital or
on terms or at times acceptable to the Company; availability of qualified
personnel; and various other factors referenced in this Prospectus. The
Company assumes no obligation to update any forward-looking statements to
reflect actual results or changes in the factors affecting such forward-
looking statements.
Forward-looking statements contained in this Prospectus address, among other
things: (a) absence of combined operating history; (b) expectations regarding
the Company's acquisition strategy, including the integration of acquired
businesses; (c) the availability of resources to carry out the Company's
planned acquisition program; (d) the availability of trained management
personnel at the Operating Company (as defined herein) level; and (e)
expectations regarding capital expenditures. See "Risk Factors" beginning on
page 7 for a more detailed discussion of these and other factors which could
cause actual results to differ materially from those expressed or implied by
any forward-looking statements.
2
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PROSPECTUS SUMMARY
Simultaneously with the consummation of its initial public offering (the
"IPO") on October 16, 1997, USA Floral acquired, in eight separate
transactions, eight floral products businesses (collectively, the "Founding
Companies") and in January (the "January Acquisitions") and April (the "April
Acquisitions") 1998 acquired, in fourteen separate transactions, fourteen
additional floral products businesses (collectively, the "Subsequent
Acquisitions"). The Founding Companies and the Subsequent Acquisitions
collectively are referred to in this Prospectus as the "Operating Companies."
See "Businesses of the Company." Unless otherwise indicated, all references to
the "Company" include the Operating Companies. 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.
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
acquisition of the Founding Companies, and in January and April 1998
consummated the acquisitions of the Subsequent Acquisitions. The Company
engages primarily in the importing and distribution of perishable floral
products (including fresh-cut flowers, greens and potted plants) and the
wholesale distribution of floral-related hardgoods (including vases and
glassware, foam for flower arranging, tools and other supplies), 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 its
management, that it is one of the largest integrated distributors of floral
products in the United States. The Company has approximately 2,100 employees
and serves thousands of customers nationwide from 56 facilities in 21 states
and the District of Columbia, and also serves customers in the western
provinces of Canada from four facilities.
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 its management,
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:
3
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Pursue Strategic Acquisitions. The Company seeks to capitalize upon
consolidation opportunities in the United States floral products industry by
pursuing selective acquisitions in the distribution segment of the industry. To
build upon and enhance its nationwide presence, the Company focuses 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 continue 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 has considerable experience consolidating private businesses into
publicly-held entities. Mr. Ledecky has founded or co-founded two other
publicly-held companies, U.S. Office Products Company and Consolidation Capital
Corporation, each of which has implemented a consolidation strategy.
Operate with Decentralized Management. The Company conducts its operations
with a decentralized management approach through which individual management
teams are responsible for the day-to-day operations of the Operating Companies
as well as for helping to identify additional acquisition candidates in their
respective locales. At the same time, the Company is building a Company-wide
team of senior management to provide the Operating Companies with strategic
oversight and guidance with respect to acquisitions, financing, marketing and
operations. As part of this strategy, the Company seeks 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-related hardgoods and, to a lesser
extent, realize savings on transportation and handling costs of fresh flowers.
To date, the Company has achieved certain operating efficiencies in the cost of
certain insurance coverages and in its communications systems. Further, the
Operating Companies have realized some reductions in the costs of floral-
related hardgoods purchases. There can be no assurance that such operating
efficiencies or favorable impact will continue.
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
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THE OPERATING COMPANIES
USA Floral acquired the Founding Companies contemporaneously with the
consummation of the IPO by utilizing proceeds of the IPO and through the
issuance of its Common Stock. In January and April 1998, the Company
consummated the acquisitions of the Subsequent Acquisitions by utilizing
working capital, including borrowings under its Credit Facility, as defined
herein, and through the issuance of its Common Stock. The Company has conducted
operations on a combined basis since October 16, 1997. The Operating Companies
consist of the following companies: The Roy Houff Company ("Houff"); CFX, Inc.
("CFX"); Bay State Florist Supply, Inc. ("Bay State"); Flower Trading
Corporation ("Flower Trading"); United Wholesale Florists, Inc. and United
Wholesale Florists of America, Inc. ("United Wholesale"); American Florist
Supply, Inc. ("American Florist"); Monterey Bay Bouquet, Inc. and Bay Area
Bouquets, Inc. ("Monterey Bay"); Alpine Gem Flower Shippers, Inc. ("Alpine
Gem"); Continental Farms Limited ("Continental Farms") and Atlantic Bouquet
Company Limited ("Atlantic Bouquet"); XL Group, Inc. ("XL Group"); Koehler &
Dramm, Inc. ("Koehler & Dramm"); Everflora, Inc. ("Everflora") and Everflora
Miami, Inc. ("Everflora Miami"); UltraFlora Corporation ("UltraFlora"); H&H
Flowers, Inc. d/b/a La Fleurette ("La Fleurette"); Maxima Farms, Inc.
("Maxima"); Edfrancar, Inc. d/b/a Florafresh International ("Florafresh");
Elite Farms, Talent, Inc., and Anvacu, Inc. ("Elite"); David L. Jones
Wholesale, Ltd. ("David L. Jones"); Selecta Farms, Inc. and Saint Ann Trading
Corporation ("Selecta"); AFB Marketing, Inc. d/b/a Allan Stanley Greenhouses
("Allan Stanley"); Master Flowers Inc. d/b/a Sabana Farms ("Sabana"); and
Pacific Floral Wholesale, Inc. ("Pacific") and Rose City Floral, Inc. ("Rose
City" and together with Pacific, "Pacific Floral"). See "Business--The
Operating Companies".
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 for any substantial period of time; (ii) management of growth
and operating strategies; (iii) the Company's aggressive acquisition strategy;
(iv) the financing of acquisitions through the issuance of its Common Stock and
incurrence of indebtedness; (v) internal growth strategy; (vi) seasonality and
cyclicality, and expected fluctuations in quarterly operating results; (vii)
weather and other factors; (viii) competition; (ix) dependence upon key
personnel; (x) the valuations of the Operating Companies; (xi) the amortization
of intangible assets; (xii) imported products and anti-dumping liability; and
(xiii) Year 2000 compliance.
THE ACQUISITIONS
The Company consummated the acquisitions of the Operating Companies (the
"Acquisitions" and each, an "Acquisition") pursuant to agreements that the
Company entered into with the Operating Companies and their stockholders (or
partners, as the case may be) (the "Acquisition Agreements" and each, an
"Acquisition Agreement"). The aggregate consideration paid by the Company
through May 6, 1998 to consummate the Acquisitions was approximately $218.5
million, which consisted of: (i) $116.2 million in cash paid to the
stockholders (or partners, as the case may be) of the Operating Companies; and
(ii) $102.3 million fair value (based upon the prices of the Common Stock
issued in the Acquisitions) of 6,090,028 shares of Common Stock issued to the
stockholders (or partners, as the case may be) of the Operating Companies. The
Company may be required to pay additional earn-out consideration pursuant to
certain of the Acquisition Agreements. For the consideration paid to each
Operating Company, see "Businesses of the Company--The Acquisitions."
5
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SUMMARY FINANCIAL DATA
Effective October 16, 1997, the Company acquired the Founding Companies
simultaneously with the consummation of its IPO. Additionally, in January and
April 1998 the Company consummated the acquisitions of the Subsequent
Acquisitions. Audited financial statements for the January Acquisitions and
Elite appear elsewhere in this Prospectus and these Acquisitions are referred
to collectively as the "Audited Subsequent Acquisitions." The following summary
financial data represent (i) the actual historical financial data for the
Company and (ii) Pro Forma financial data which give effect to the consummation
of the acquisitions of the Founding Companies and the Audited Subsequent
Acquisitions as if they had been acquired and the IPO had occurred on January
1, 1997. The 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 on such dates 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 Company, the Founding Companies and the
Audited Subsequent Acquisitions and the notes thereto included elsewhere in
this Prospectus.
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ACTUAL
USA FLORAL(1) PRO FORMA(2)
--------------------------- ------------------------------
APRIL 22, 1997 THREE MONTHS THREE MONTHS
THROUGH ENDED YEAR ENDED ENDED MARCH 31,
DECEMBER 31, MARCH 31, DECEMBER 31, -----------------
1997 1998 1997 1997 1998
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STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS EXCEPT PER SHARE DATA)
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Net sales............... $37,380 $100,520 $ 372,258 $112,397 $112,958
Gross profit............ 10,695 26,464 102,957 29,470 29,696
Selling, general and
administrative expense. 9,791 18,540 79,721 20,159 21,681
Goodwill amortization... 275 746 3,733 933 933
Operating income........ 629 7,178 19,503 8,378 7,082
Interest and other
(income) expense, net.. (277) 96 2,450 578 396
Income before income
taxes.................. 906 7,082 17,053 7,800 6,686
Net income.............. $ 416 $ 3,952 $ 9,299 $ 4,447 $ 3,696
======= ======== =========== ======== ========
Net income per share--
Diluted................ $ .09 $ .31 $ .69 $ .33 $ .26
======= ======== =========== ======== ========
Net income per share--
Basic.................. $ .09 $ .32 $ .69 $ .33 $ .27
======= ======== =========== ======== ========
Shares used in computing
net income per share
Diluted (3)............ 4,824 12,928 13,568 13,518 14,037
Basic (3).............. 4,734 12,360 13,470 13,470 13,470
</TABLE>
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AS OF MARCH 31, 1998
----------------------
PRO FORMA
ACTUAL(1) COMBINED(4)
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BALANCE SHEET DATA: (IN THOUSANDS)
Working capital (deficit)................................ $(23,618) $(26,558)
Total assets............................................. 232,557 241,236
Short-term debt.......................................... 47,915 51,622
Total long-term debt..................................... 383 383
Stockholders' equity..................................... 139,969 143,669
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(1) Represents the historical statement of operations data from April 1997
(inception) to December 31, 1997 and for the three months ended March 31,
1998 and the financial position as of March 31, 1998 for the Company, which
includes the Founding Companies subsequent to their acquisition on October
16, 1997 and the January Acquisitions subsequent to their respective
acquisition dates.
(2) Represents statement of operations data for the Company as if the IPO and
the acquisitions of the Founding Companies and the Audited Subsequent
Acquisitions had been consummated as of January 1, 1997.
(3) For calculation of the shares used in computing pro forma net income per
share see Note 5 to the Unaudited Pro Forma Combined Financial Statements
included herein.
(4) Pro Forma Combined Balance Sheet Data assume that the Elite Acquisition was
consummated on March 31, 1998.
6
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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. The Company acquired the Founding Companies simultaneously
with the consummation of the IPO and consummated the acquisition of the
Subsequent Acquisitions in January and April 1998. Prior to the Acquisitions,
the Operating Companies were run independently, and the Company may not be
able to integrate these businesses, or any future acquisitions, 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 the Company and the
Operating Companies cover periods when the Company and the Operating 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
Operating Companies will remain at the Operating Company level, in accordance
with the Company's decentralized management philosophy. Currently, the full-
time management 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, a
Vice President of Marketing and a Controller; 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 "Businesses of the Company," "Business--The
Operating Companies" and "Management."
RISKS RELATED TO MANAGEMENT OF GROWTH AND OPERATING STRATEGIES
The Company has experienced extremely rapid growth, primarily as a result of
the consummation of the Acquisitions. Rapid growth has placed and will
continue to place a severe strain on the Company's resources. Specifically,
although the Company's pro forma combined 1997 revenues are more than twice
those of the eight Founding Companies on a pro forma combined 1997 basis, the
Company's management team at the USA Floral level has not materially increased
in size since the IPO, nor has the Company yet implemented uniform Company-
wide accounting and management information systems. De-emphasis on management
at the USA Floral level parallels a key component of the Company's strategy,
which 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, however,
this decentralized operating strategy could result in inconsistent, inadequate
or incorrect operating and financial practices at the Operating Companies and
subsequently acquired businesses, which could materially and adversely affect
the Company's business, financial condition and results of operations. See
"Business--Strategy."
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.
On October 16, 1997, the Company entered into an agreement with various
lenders, for whom Bankers Trust Company ("BT") is agent, which agreement
establishes a $100.0 million revolving credit facility (the "Credit Facility"
and such agreement, the "Credit Agreement"). The Credit Agreement contains
certain covenants
7
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which will restrict the ability of the Company to engage in certain mergers,
acquisitions and dispositions. Among other things, the Credit Agreement
provides that: (i) the total consideration for any acquisition may not exceed
$25.0 million unless not more than 10% of such amount is in cash (which
covenant was waived in order to effect the Continental Farms Acquisition); 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. The Credit Agreement also contains various customary financial
covenants, including ratios of total debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA") and EBITDA to fixed charges, each of
which may limit the ability of the Company to pursue future acquisitions. As
of May 6, 1998, the Company had outstanding indebtedness of $72.5 million
under the Credit Facility. The Company is currently in discussions to increase
the Credit Facility from $100.0 million to $150.0 million to fund future
acquisitions and to modify certain provisions of the Credit Agreement. There
can be no assurance that such increase will be obtained or that, if obtained,
it will be on terms as favorable as those existing under the present Credit
Agreement. In addition, the Company may also undertake other debt or equity
financings in the future to meet its cash needs to fund acquisitions. There
can be no assurance that either debt or equity financings will be undertaken
in the future. See "Management's Discussion and Analysis of Financial
Condition and 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 Common
Stock, cash or a combination of Common Stock and cash. If the Common Stock
does not maintain a sufficient per share market value, or if potential
acquisition candidates are 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 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 stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
RISKS RELATED TO INTERNAL GROWTH STRATEGY
Key elements of the Company's strategy are to improve the profitability and
to continue to expand the net sales of the Operating Companies and any
subsequently acquired businesses. The Company's ability to increase net sales
will be affected by various factors, including demand for and 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.
8
<PAGE>
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, although
in 1998 the Company's sales were marginally higher than pro forma 1997 sales.
In 1999 Valentine's Day will be on a Sunday, which may result in lower sales
than would otherwise be expected were the holiday to fall on a weekday. 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 Operating 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 by certain of the Operating
Companies, 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
an oversupply of, or diminishing price of, commodity floral products, 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 Financial Condition and
Results of Operations--Seasonality and Cyclicality; Fluctuations in Quarterly
Operating Results."
WEATHER AND OTHER FACTORS
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. In addition, aberrations in weather patterns, such as those
attributed to El Nino, and other factors, such as widespread disease affecting
plants, may also have an effect on the available supply of flowers. 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 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. The Company may depend in part upon a trend
toward consolidation in the floral products industry in order to execute
9
<PAGE>
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. The Company is aware of one other publicly traded company
which engages in a similar line of business and which the Company believes has
a similar acquisition and vertical integration strategy. The existence of such
a competitor may result in increased competition for suitable acquisition
candidates and thereby increase the purchase prices required to be paid for
such candidates.
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 Operating 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 (the "Board") 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 Operating 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.
VALUATIONS OF THE OPERATING COMPANIES UNRELATED TO APPRAISALS OR ASSET VALUES
Valuations of the Operating Companies were not established by independent
appraisals but were determined through negotiations between the Company and
representatives of each of the Operating Companies. The consideration paid for
each of the Operating Companies, including Operating Companies whose
stockholders or partners became affiliates of the Company, was based
exclusively on these private negotiations between the Company and the
representatives of each Operating Company, in which a variety of factors--
including, but not limited to, the financial performance of each Operating
Company, its markets, its management and the interest of its owners in
reaching agreement upon a possible transaction--played roles; the
consideration paid does not necessarily bear any relationship to the net book
value of the acquired assets. For example, valuations of the Operating
Companies determined solely by appraisals of the acquired assets would have
been less than the consideration paid by the Company for the Operating
Companies. In particular, the aggregate purchase price paid in the
acquisitions of the Operating Companies was approximately $148 million greater
than the amount of that purchase price allocated to the tangible assets
acquired for purposes of the Company's pro forma combined balance sheet as of
March 31, 1998 reflecting the Elite Acquisition. The future performance of the
Operating Companies may not be commensurate with the consideration paid to
acquire the Operating Companies. See "--Amortization of Intangible Assets" and
"Businesses of the Company--The Acquisitions."
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $142 million, or 61%, of the Company's total assets as of
March 31, 1998 consist of goodwill (and $148 million, or 61%, of the Company's
pro forma total assets reflecting the Elite Acquisition). Goodwill is an
intangible asset that represents the difference between the aggregate purchase
price for the net 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 Acquisitions
over a period of time, with the amount amortized in a particular period
constituting an expense that reduces the Company's net income for that period.
In most cases, however, the amount amortized will not give rise to a deduction
for
10
<PAGE>
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 Common Stock.
The Company plans to amortize goodwill associated with the acquisitions of
the Operating 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 entity's operations and comparing these amounts with the
carrying value of the associated goodwill.
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 Central America and South America, including Colombia, Ecuador, Costa Rica
and Mexico. Floral product purchases from Central American and South American
countries are denominated in U.S. Dollars and therefore the Company believes
that any devaluation in foreign currencies would not adversely impact the cost
of its floral product purchases. Notwithstanding the above, any civil or
political unrest in such economies, to the extent that they negatively affect
exports, could impact the Company's ability to obtain floral products at
periods of peak demand or to obtain such products at favorable prices. 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 Operating 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
flowers' home market value. The U.S. Commerce Department investigates claims
of dumping made by domestic growers. If the U.S. Commerce Department
determines that an importer sold flowers for a price less than the home market
value, then the U.S. Commerce Department will impose an anti-dumping duty upon
the importer. The U.S. Commerce Department is currently conducting anti-
dumping reviews related to the sales of certain flowers imported from
Colombia. The U.S. Commerce Department has undertaken eleven reviews, the most
recent being for the period ended February 28, 1998. As a result of such
reviews, certain of the Operating Companies that import flowers have been
subject to anti-dumping duties. Certain of the Operating Companies that import
flowers impose a surcharge upon sales of flowers and maintain accruals 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. Because any liability will ultimately be paid by the
importers, the Operating Companies maintain accruals for the 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 balance may not be adequate to satisfy
any duty that is assessed. In addition, the U.S. 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 accruals.
HOLDING COMPANY STRUCTURE
The Company is a holding company, the principal assets of which are the
shares of the capital stock or partnership interests of its subsidiaries, the
Operating Companies. As a holding company without independent means of
generating operating revenues, the Company depends on dividends and other
payments from the Operating Companies 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 Operating Companies may not make
sufficient dividend or other payments to permit the
11
<PAGE>
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 directors
of the Company or officers of the Operating Companies and related third-party
entities with which the Operating Companies conduct business transactions.
Dwight Haight, President of CFX and a director, owns a 25% interest in two
farms, Miramonte and Mocari, located in Colombia, from which CFX purchases
floral products. Mr. Haight also owned a 50% interest in La Fleurette, which
was recently acquired by the Company. John T. Dickinson, President of American
Florist and a director, has an ownership interest in a rose farm, Meadow
Flowers, located in Ecuador, from which American Florist purchases roses.
John Vaughan, a director, has an ownership interest in certain Colombian farms
from which Continental Farms purchases floral products.
Jonathan J. Ledecky, the Non-Executive Chairman of the Board and a director
of the Company, is also a director of Consolidation Capital Corporation, a
company formed by Mr. Ledecky to pursue consolidation opportunities in a
variety of industries. Vincent Eades, a director of the Company, is also a
director of Consolidation Capital Corporation. As a director of the Company
and Consolidation Capital Corporation. Mr. Ledecky and Mr. Eades each owes a
duty of loyalty and a duty of care under Delaware law to both companies. These
duties obligate each such individual to present certain business opportunities
to the company to which he owes the duties before pursuing such opportunities
himself. Mr. Ledecky and Mr. Eades may thus have conflicts of interest in
determining to which of these entities, if any, a particular relevant business
opportunity should be presented. In addition, Mr. Ledecky and John A. Quelch,
each of whom is a director of both the Company and U.S. Office Products
Company, may each face similar conflicts of interest between or among their
respective potentially conflicting duties and obligations.
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 such persons in their capacities with related
third-party entities may come into conflict with the interests of such persons
in their capacities with the Company. The Company believes that it is likely
that additional related-party transactions will arise in the future as a
result of future acquisitions.
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDERS
As of May 7, 1998, the Company's executive officers and directors
beneficially own an aggregate of approximately 21.4% of the outstanding shares
of Common Stock. The Company's officers and directors if acting together may
be able to exercise significant control over 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."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of May 7, 1998, 14,350,028 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. In addition,
approximately 4,437,044 shares issued to non-affiliates in the Subsequent
Acquisitions under this Prospectus may be sold in accordance with the
provisions of Rule 145 promulgated under the Securities Act subject to
contractual lock-up periods contained in the Acquisition Agreements for the
acquisitions of the Subsequent Acquisitions. Further, 4,162,984 shares of
Common Stock issued to the co-founders and initial investors of USA Floral and
to the stockholders of the Founding Companies will be available for resale
subject to compliance with Rule 144 as the holding provisions of Rule 144 are
satisfied. Of those shares, 3,862,984 may be included in certain registration
statements that may be filed by the Company, in accordance with piggyback
registration rights granted pursuant to the Acquisition Agreements or pursuant
to such rights granted to Mr. Ledecky and Mr. Poirier. Further, 2,290,537
shares of Common Stock are issuable upon the exercise of stock options that
have been granted as of the date of this Prospectus, of which options to
purchase 191,500 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 certain of such options. In addition, the
8,062,956 shares of Common Stock which remain available to be offered by this
Prospectus generally will be freely tradeable after their issuance by persons
not affiliated with the Company, subject to compliance with Rule 145 under the
Securities Act and any contractual lock-up restrictions. 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.
DETERMINATION OF OFFERING PRICE
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.
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Common Stock could be subject to significant
fluctuations in response to activities of the Company or its competitors,
variations in quarterly operating results, changes in market conditions and
other events or factors. Such other factors may include, without limitation,
the public markets' reaction (favorable or unfavorable) to announcements by
the Company of a proposed acquisition or series of acquisitions. 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.
DILUTION TO NEW INVESTORS; VOTING POWER
If the Company issues additional shares of Common Stock in the future,
including shares which may be issued pursuant to option grants, earn-out
arrangements and future acquisitions, purchasers of Common Stock may
experience dilution in the net tangible book values per share of the Common
Stock. In addition, because the stockholders do not have any preemptive right
to purchase additional shares in the future, their voting power will be
diluted by future issuance of shares.
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<PAGE>
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
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."
YEAR 2000 COMPLIANCE
As a result of certain existing computer programs having been written using
two digits rather than four digits to define the applicable year, date-
sensitive software may be unable to process date information from and after
January 1, 2000, or between years ending prior to December 31, 1999 and years
commencing on or after January 1, 2000. For example, such date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar ordinary business
activities. The Company is in the process of converting its computer systems
to make them "Year 2000 compliant." Such conversion is being undertaken by
internal personnel and through third-party consultants. The Company is
currently unable to predict the extent to which its inability, in whole or in
part, to make its date-sensitive software Year 2000 compliant, or to deal with
vendors or customers whose date-sensitive software is not Year 2000 compliant,
will affect its operations if such conversion is not timely completed or
accurately completed. The failure of the Company or any significant vendor or
customer to convert its systems timely or accurately may have a material
adverse effect on the Company.
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BUSINESSES 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 IPO, the
Company 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 the Company,
and Mr. Ledecky is its co-founder and Non-Executive Chairman of the Board. As
of May 7, 1998, the co-founders of the Company owned beneficially in the
aggregate approximately 16.3% of the outstanding Common Stock. See "Certain
Relationships and Related-Party Transactions--Organization of USA Floral" and
"Principal Stockholders."
THE ACQUISITIONS
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, and in January and April, 1998 the Company
consummated the Subsequent Acquisitions in fourteen separate transactions. The
aggregate consideration paid for the Operating Companies was $218.5 million,
which consisted of: (i) $116.2 million in cash paid to the stockholders (or
partners, as the case may be) of the Operating Companies; and (ii) $102.3
million fair value (based upon the prices of the Common Stock issued in the
Acquisitions) of 6,090,028 shares of Common Stock issued to the stockholders
(or partners, as the case may be) of the Operating Companies. The Company may
be required to pay additional earn-out consideration pursuant to the
Acquisition Agreements with XL Group, La Fleurette, Maxima, David L. Jones,
Allan Stanley, Sabana and Pacific Floral. The Company paid additional earn-out
consideration in the form of 359,487 shares of Common Stock valued at $5.9
million pursuant to the UltraFlora Acquisition Agreement. The Company also
assumed an estimated tax liability of Flower Trading of approximately $0.5
million and established, along with certain sellers in the Continental Farms
and Atlantic Bouquet Acquisition, a $7.0 million escrow account (to which the
Company contributed $3.5 million) to provide security against potential claims
that may be asserted under the Continental Farms and Atlantic Bouquet
Acquisition Agreement, which contribution will be returned to the Company to
the extent (if any) that indemnifiable claims under the escrow are not made
prior to its expiration. The purchase price for each Operating Company was
determined based on negotiations between the Company and that Operating
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 Operating Companies. With the
exception of the consideration paid to the stockholders (or partners, as the
case may be) of each of the Operating 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, and
the acquisition of each Subsequent Acquisition was subject to substantially
the same terms and conditions as those to which the acquisition of each other
Subsequent Acquisition was subject. The following table contains information
concerning the aggregate cash paid and Common Stock issued in connection with
the Acquisitions:
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<TABLE>
<CAPTION>
SHARES OF VALUE OF SHARES OF TOTAL
OPERATING COMPANY CASH COMMON STOCK COMMON STOCK CONSIDERATION
- ----------------- ------ ------------ ------------------ -------------
(IN MILLIONS, EXCEPT SHARES)
<S> <C> <C> <C> <C>
Houff................... $ 11.0 -- $ -- $ 11.0
CFX..................... 6.5 250,000 3.2 9.7
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........ 4.8 141,749 2.4 7.2
Monterey Bay............ 3.0 177,185 3.0 6.0
Alpine Gem.............. 1.6 160,000 2.1 3.7
Continental Farms and
Atlantic Bouquet....... 27.5 1,642,672 27.5 55.0(2)
XL Group................ 11.3 660,938 11.0 22.3(3)
Koehler & Dramm......... 5.0 298,596 5.0 10.0
Everflora and Everflora 4.0 246,654 4.0 8.0
Miami..................
UltraFlora.............. 2.8 522,768(4) 8.6 11.4
La Fleurette............ 1.6 -- -- 1.6(5)
Maxima.................. 5.3 233,418 5.3 10.6(6)
Florafresh.............. 3.9 172,928 3.9 7.8
Elite................... 3.7 184,907 3.7 7.4
David L. Jones.......... 2.2 179,020(7) 4.0 6.2(8)
Selecta................. 2.5 112,007 2.5 5.0
Allan Stanley........... 1.9 84,638 1.9 3.8(9)
Sabana.................. 0.7 87,864 2.0 2.7(10)
Pacific Floral.......... 0.2 10,634 0.2 0.4(11)
------ --------- ------ ------
Total................. $116.2 6,090,028 $102.3 $218.5
====== ========= ====== ======
</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.
(2) Does not reflect $3.5 million deposited by the Company into an escrow
account for potential contingent liabilities, which deposit will be
returned to the Company to the extent (if any) that indemnifiable claims
under the escrow are not made prior to its expiration.
(3) The seller of XL Group entered into an earn-out arrangement pursuant to
which he may receive additional consideration consisting of shares of
Common Stock. The earn-out is based upon XL Group's earnings before
interest and taxes for the year ending December 31, 1998 and in no event
will be greater than $4.0 million. This amount is not included in the
table above.
(4) Of the 522,768 shares of Common Stock, 359,487 were issued pursuant to an
earn-out arrangement based upon UltraFlora's earnings before interest and
taxes for the year ended December 31, 1997.
(5) The sellers of La Fleurette entered into an earn-out arrangement pursuant
to which they may receive additional consideration consisting of shares
of Common Stock. The earn-out is based upon La Fleurette's earnings
before interest and taxes for the year ending June 30, 1998. This amount
is not included in the table above.
(6) The stockholder of Maxima entered into an earn-out arrangement pursuant
to which it may receive additional consideration consisting of shares of
Common Stock. The earn-out is based upon Maxima's earnings before
interest and taxes for the year ending December 31, 1998 and in no event
will be greater than $6.0 million. This amount is not included in the
table above.
(7) The issuance of shares of Common Stock is contingent upon receipt of
favorable rulings from the securities commission of British Columbia,
Alberta and Manitoba in response to applications filed by the Company
16
<PAGE>
requesting relief from certain provisions of the securities laws of the
above provinces. In the event such relief is not granted, the Company will
pay cash in lieu of issuing shares of Common Stock in the amount of $4.0
million, plus interest at the rate of 10% per annum from April 6, 1998.
(8) The stockholders of David L. Jones entered into an earn-out arrangement
pursuant to which they may receive additional consideration consisting of
shares of Common Stock. The earn-out is based upon David L. Jones'
earnings before interest and taxes for the year ending February 28, 1999
and in no event will be greater than $3.8 million. This amount is not
included in the table above.
(9) The stockholders of Allan Stanley entered into an earn-out arrangement
pursuant to which they may receive additional consideration consisting of
shares of Common Stock and cash. The earn-out is based upon Allan
Stanley's earnings before interest and taxes for the year ending March
31, 1999 and in no event will be greater than $6.0 million. This amount
is not included in the table above.
(10) The stockholders of Sabana entered into an earn-out arrangement pursuant
to which they may receive additional consideration consisting of shares
of Common Stock. The earn-out is based upon Sabana's earnings before
interest and taxes for the year ending May 31, 1998 and in no event will
be greater than $2.5 million. This amount is not included in the table
above.
(11) The stockholder of Pacific Floral entered into an earn-out arrangement
pursuant to which he may receive additional consideration consisting of
shares of Common Stock. The earn-out is based upon Pacific Floral's
earnings before interest and taxes for the year ending December 31, 1998
and in no event will be greater than $0.9 million. This amount is not
included in the table above.
The consummation of each Acquisition was contingent upon the satisfaction of
customary closing conditions, including the absence of material adverse
changes in the business, operations and financial condition of the Operating
Companies and the Company and certification by the parties to each Acquisition
Agreement that the representations and warranties made by such party in the
Acquisition Agreement were true and correct as of the consummation of the
Acquisition and that such party had performed its obligations under the
Acquisition Agreement. The Acquisition Agreements further provided that the
sellers of the Operating Companies will indemnify USA Floral against certain
liabilities that may arise in connection with the Acquisitions. A portion of
the consideration payable to the sellers of each of the Operating Companies
has been 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 underlying
Acquisition, as security for the sellers' indemnification obligations.
Pursuant to the Acquisition Agreements, options to purchase a number of
shares of Common Stock, equal to a percentage, ranging from 4.5% to 6.25%, of
the cash and Common Stock portion of the Acquisition consideration, were made
available to certain employees of the Operating Companies. Pursuant to the La
Fleurette Acquisition Agreement, Dwight Haight, a director of the Company,
received options to purchase an additional 25,000 shares of Common Stock upon
consummation of the La Fleurette Acquisition. In addition, the UltraFlora
Acquisition Agreement provided that options to purchase a number of shares of
Common Stock, equal to 6.25% of any earn-out consideration, shall be made
available to employees of the subsidiary operating the UltraFlora operation.
The options granted in conjunction with the acquisition of the Founding
Companies have an exercise price of $13.00 per share. The options granted in
conjunction with the acquisition of the Subsequent Acquisitions have varying
exercise prices equal to the last sale price per share of the Common Stock on
the closing date of each Acquisition. All options vest ratably over a four-
year period, beginning on the anniversary of the date of the grant.
With respect to the Founding Companies, the Acquisition Agreements provided
that the stockholders of the Founding Companies will have the right, to the
extent and under the circumstances specified in the Acquisition Agreements, to
request that the Company register the shares of Common Stock received by the
stockholders. See "Risk Factors--Shares Eligible for Future Sale."
FOUNDING COMPANIES
Houff. USA Floral acquired all of the outstanding stock of Houff in a
reverse subsidiary merger for $11.0 million in cash.
17
<PAGE>
CFX. USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger for $9.7 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
Acquisition) and 250,000 shares of Common Stock.
Bay State. 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.
Flower Trading. 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.
United Wholesale. 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.
American Florist. USA Floral acquired all of the outstanding stock of
American Florist in a reverse subsidiary merger for $4.8 million in cash and a
contingent payment of $2.4 million, based on American Florist's earnings
before interest and taxes for the year ended December 31, 1997. The contingent
payment was paid through the issuance of 141,749 shares of Common Stock.
Monterey Bay. USA Floral acquired all of the outstanding stock of Monterey
Bay in a reverse subsidiary merger for $2.5 million in cash and a contingent
payment of $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 was paid in cash and $3.0 million was paid through the issuance of
177,185 shares of Common Stock.
Alpine Gem. USA Floral acquired all of the outstanding stock of Alpine Gem
in a reverse subsidiary 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 Acquisition; and (iii) 160,000 shares of
Common Stock.
SUBSEQUENT ACQUISITIONS
Continental Farms and Atlantic Bouquet. The Company acquired all of the
partnership interests in each of Continental Farms and Atlantic Bouquet for
$27.5 million in cash and 1,642,672 shares of Common Stock. The Company also
deposited $3.5 million into an escrow account to provide security against
potential claims that may be asserted under the Continental Farms and Atlantic
Bouquet Acquisition Agreement, which deposit will be returned to the Company
to the extent (if any) that indemnifiable claims under the escrow are not made
prior to its expiration.
XL Group. The Company acquired all of the outstanding stock of XL Group in a
forward subsidiary merger for $11.3 million in cash and 660,938 shares of
Common Stock. In addition, the former stockholder of XL Group may receive a
contingent payment of up to an additional $4.0 million based upon XL Group's
earnings before interest and taxes for the year ending December 31, 1998. The
contingent payment is payable in shares of Common Stock.
Koehler & Dramm. The Company acquired all of the outstanding stock of
Koehler & Dramm in a forward subsidiary merger for $5.0 million in cash and
298,596 shares of Common Stock.
Everflora and Everflora Miami. The Company acquired all of the outstanding
stock of Everflora and Everflora Miami in a forward subsidiary merger for $4.0
million in cash and 246,654 shares of Common Stock.
UltraFlora. The Company acquired all of the outstanding stock of UltraFlora
in a reverse subsidiary merger for $2.8 million in cash and 163,281 shares of
Common Stock and additional consideration consisting of 359,487 shares of
Common Stock valued at $5.9 million pursuant to the earn-out provision
contained in the UltraFlora Acquisition Agreement.
18
<PAGE>
La Fleurette. The Company acquired all of the outstanding stock of La
Fleurette in a reverse subsidiary merger for $1.6 million in cash. In
addition, the former stockholders of La Fleurette may receive a contingent
payment, based on La Fleurette's earnings before interest and taxes for the
fiscal year ending June 30, 1998. The contingent payment is payable in shares
of Common Stock.
Maxima. The Company acquired all of the outstanding stock of Maxima for $5.3
million in cash and 233,418 shares of Common Stock. In addition, the former
stockholder of Maxima may receive a contingent payment of up to $6.0 million,
based on Maxima's earnings before interest and taxes for the fiscal year
ending December 31, 1998. The contingent payment is payable in shares of
Common Stock.
Florafresh. The Company acquired all of the outstanding stock of Florafresh
in a forward subsidiary merger for $3.9 million in cash and 172,928 shares of
Common Stock.
Elite. The Company acquired all of the partnership interests in Elite in a
forward subsidiary merger for $3.7 million in cash and 184,907 shares of
Common Stock.
David L. Jones. The Company acquired all of the outstanding stock of David
L. Jones for $2.2 million in cash and 179,020 shares of Common Stock, subject
to receipt of orders from certain Canadian securities commissions that the
Common Stock will be freely tradeable. In the event such orders are not
obtained by October 1998, the Company will pay the former stockholders of
David L. Jones $4.0 million in cash, plus interest thereon at the annual rate
of ten percent from April 6, 1998. In addition, the former stockholders of
David L. Jones may receive a contingent payment of up to $3.8 million, based
on David L. Jones' earnings before interest and taxes for the year ending
February 28, 1999. The contingent payment is payable in shares of Common
Stock.
Selecta. The Company acquired all of the outstanding stock of Selecta for
$2.5 million in cash and 112,007 shares of Common Stock.
Allan Stanley. The Company acquired all of the outstanding stock of Allan
Stanley in a forward subsidiary merger for $1.9 million in cash and 84,638
shares of Common Stock. In addition to the consideration set forth above, the
former stockholders of Allan Stanley may receive a contingent payment of up to
$6.0 million, based on Allan Stanley's earnings before interest and taxes for
the fiscal year ending March 31, 1999. The contingent payment is payable in
shares of Common Stock and cash.
Sabana. The Company acquired all of the outstanding stock of Sabana in a
forward subsidiary merger for $0.7 million in cash and 87,864 shares of Common
Stock. In addition to the consideration set forth above, the former
stockholders of Sabana may receive a contingent payment of up to $2.5 million,
based on Sabana's earnings before interest and taxes for the fiscal year
ending May 31, 1998. The contingent payment is payable in shares of Common
Stock.
Pacific Floral. The Company acquired all of the outstanding stock of each of
Pacific and Rose City in a forward subsidiary merger for $0.2 million in cash
and 10,634 shares of Common Stock. In addition to the consideration set forth
above, the former stockholder of Pacific Floral may receive a contingent
payment of up to $0.9 million, based on Pacific Floral's earnings before
interest and taxes for the fiscal year ending December 31, 1998. The
contingent payment is payable in shares of Common Stock.
19
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market since October
10, 1997. On May 7, 1998, the last sale price of the Common Stock was $19.75
per share. As of May 7, 1998, there were approximately 133 holders of record
of the Common Stock. The following table sets forth the range of high and low
bid prices for the Common Stock for the periods indicated. Such over-the-
counter market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
Fourth Quarter (October 10, 1997 to December 31, 1997)... $21.250 $13.125
1998
First Quarter............................................ $24.563 $15.125
Second Quarter (April 1, 1998 to May 7, 1998)............ $23.813 $18.000
</TABLE>
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 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 Board deems relevant. In addition, the Company's Credit Agreement
includes restrictions on the ability of the Company to pay dividends without
the consent of BT.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998, on an actual basis (which includes the Founding Companies and the
January Acquisitions) and on a pro forma basis to reflect the consummation of
the Elite Acquisition and the issuance of 184,907 shares of Common Stock in
connection therewith. See "Selected Financial Data of the Operating
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 MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term debt.. $ 47,915 $ 51,622
Long-term debt and capital lease obligations, less
current portion....................................... 383 383
Stockholders' equity:
Common stock, $.001 par value per share, 100,000,000
shares authorized; 12,606,191 shares issued and
outstanding actual; 12,791,098 shares issued and
outstanding pro forma as adjusted..................... 13 13
Additional paid-in capital............................. 135,588 139,288
Retained earnings...................................... 4,368 4,368
-------- --------
Total stockholders' equity.......................... 139,969 143,669
-------- --------
Total capitalization............................ $188,267 $195,674
======== ========
</TABLE>
- --------
(1) Does not include: (i) 880,509 shares issued in connection with the
acquisitions of the April Acquisitions (other than Elite) and other
consideration which may be granted pursuant to earn-out arrangements, to
be calculated with reference to the performance of certain of the April
Acquisitions. See "Businesses of the Company--The Acquisitions,"
"Management--1997 Long-Term Incentive Plan," "Management--1997 Non-
Employee Directors' Stock Plan," "Principal Stockholders" and Note 4 to
the Consolidated Financial Statements of the Company; (ii) shares which
may be issued to the stockholders of two of the Operating Companies
pursuant to earn-out arrangements, to be calculated with reference to the
performance of those Operating Companies through June 30, 1998 and
December 31, 1998; (iii) 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 (a) 1,977,922 shares of Common Stock were granted as
of March 31, 1998 and 99,615 shares of Common Stock were granted in
conjunction with the acquisitions of the April Acquisitions; (iv) 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 are
outstanding as of March 31, 1998; (v) 1,000,000 shares of Common Stock
reserved for issuance under the Company's 1997 Employee Stock Purchase
Plan; (vi) 150,000 shares of Common Stock reserved for issuance pursuant
to agreements with employees of the Operating Companies; and (vii) 678,421
shares issued subsequent to March 31, 1998 pursuant to earn-out
arrangements with the former owners of American Florist, Monterey Bay and
UltraFlora.
21
<PAGE>
SELECTED FINANCIAL DATA
Effective October 16, 1997, the Company acquired the Founding Companies
simultaneously with the consummation of its IPO. Additionally, in January and
April 1998 the Company consummated the acquisitions of the Subsequent
Acquisitions. Audited financial statements for the Audited Subsequent
Acquisitions appear elsewhere in this Prospectus. The following summary
financial data represent (i) the actual historical financial data for the
Company, and (ii) Pro Forma financial data which give effect to the
consummation of the acquisitions of the Founding Companies and the Audited
Subsequent Acquisitions as if they had been acquired and the IPO had occurred
on January 1, 1997. The 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 on such dates 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 Company, the Founding
Companies and the Audited Subsequent Acquisitions and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL
USA FLORAL(1) PRO FORMA(2)
--------------------------- -------------------------------
APRIL 22, 1997 THREE MONTHS THREE MONTHS ENDED
THROUGH ENDED YEAR ENDED MARCH 31,
DECEMBER 31, MARCH 31, DECEMBER 31, ------------------
1997 1998 1997 1997 1998
-------------- ------------ ------------ -------- ---------
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $37,380 $100,520 $ 372,258 $112,397 $ 112,958
Gross profit............ 10,695 26,464 102,957 29,470 29,696
Selling, general and
administrative expense. 9,791 18,540 79,721 20,159 21,681
Goodwill amortization... 275 746 3,733 933 933
Operating income........ 629 7,178 19,503 8,378 7,082
Interest and other
(income) expense, net.. (277) 96 2,450 578 396
Income before income
taxes.................. 906 7,082 17,053 7,806 6,686
Net income.............. $ 416 $ 3,952 $ 9,299 $ 4,447 $ 3,696
======= ======== =========== ======== =========
Net income per share--
Diluted................ $ .09 $ .31 $ .69 $ .33 $ .26
======= ======== =========== ======== =========
Net income per share--
Basic.................. $ .09 $ .32 $ .69 $ .33 $ .27
======= ======== =========== ======== =========
Shares used in computing
net income per share
Diluted (3)............ 4,824 12,928 13,568 13,518 14,037
Basic (3).............. 4,734 12,360 13,470 13,470 13,470
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------
PRO FORMA
ACTUAL COMBINED(4)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital (deficit)................................. $(23,618) $(26,558)
Total assets.............................................. 232,557 241,236
Short-term debt........................................... 47,915 51,622
Total long-term debt...................................... 383 383
Stockholders' equity...................................... 139,969 143,669
</TABLE>
- --------
(1) Represents the historical statement of operations data from April 1997
(inception) to December 31, 1997 and for the three months ended March 31,
1998 and the financial position as of March 31, 1998 for the Company,
which includes the Founding Companies subsequent to their acquisition on
October 16, 1997 and the January Acquisitions subsequent to their
respective acquisition dates.
(2) Represents statement of operations data for the Company as if the IPO and
the acquisitions of the Founding Companies and the Audited Subsequent
Acquisitions had been consummated as of January 1, 1997.
(3) For calculation of the shares used in computing pro forma net income per
share see Note 5 to the Unaudited Pro Forma Combined Financial Statements
included herein.
(4) Pro Forma Combined Balance Sheet Data assume that the Elite Acquisition
was consummated on March 31, 1998.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND 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 importing and distribution of perishable floral products
(including fresh-cut flowers, greens and potted plants) and the wholesale
distribution of floral-related hardgoods, including vases and glassware, foam
for flower arranging, tools and other supplies, 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 acquisition of the Founding Companies in eight
separate transactions. In January and April 1998 the Company consummated the
acquisitions of the Subsequent Acquisitions in fourteen separate transactions.
Prior to the acquisition of each Operating Company, each Operating Company was
run 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 1997. Sales of floral-related
hardgoods, which include vases and glassware, foam for flower arranging, tools
and other supplies, accounted for approximately 10% of the Company's pro forma
combined revenues in 1997.
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. In addition, the cost of sales
for bouquet companies also includes production costs. 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 Operating 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 Operating Companies operated historically as independent, privately-
owned entities, and their results of operations reflect varying tax
structures, including S and C corporations and partnerships, which have
influenced the historical level of the sellers' compensation. As a result of
varying practices regarding compensation to employee-sellers among the
Operating Companies, the comparison of operating margins among the Operating
Companies and from period to period in respect of a particular Operating
Company would not be meaningful. Effective upon consummation of the
Acquisitions, certain employee-sellers entered into employment agreements, and
the aggregate compensation paid to the sellers of the Operating Companies was
reduced. See "Pro Forma Results of Operations of the Operating Companies."
This compensation differential has been reflected in the Unaudited Pro Forma
Combined Statement of Operations.
23
<PAGE>
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements for the Company and the related notes thereto appearing
elsewhere in this Prospectus.
Inception (April 22, 1997) through December 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net Sales........................................ $ 37,380 100.0%
Cost of Sales.................................... 26,685 71.4
Selling, General and Administrative Expenses..... 9,791 26.2
Goodwill Amortization............................ 275 0.7
------------ ----------
Operating Income................................. $ 629 1.7%
============ ==========
</TABLE>
Net Sales. Net sales for the period from inception (April 22, 1997) through
December 31, 1997 were $37.4 million. The Company had no significant revenues
until October 16, 1997, the date of the Founding Company Acquisitions.
Cost of Sales. Cost of sales for the period from inception through December
31, 1997 was $26.7 million. Cost of sales as a percentage of net sales was
71.4%, resulting in a gross profit margin of 28.6%.
Selling, General and Administrative. Selling, general and administrative
expenses were $9.8 million for the period from inception through December 31,
1997. Selling, general and administrative expenses for the period were 26.2%
as a percentage of net sales.
Operating Income. Operating income was $0.6 million for the period from
inception through December 31, 1997. Operating income was negatively impacted
by the additional expense of being a public company.
Net Income. The Company had net income of $0.4 million for the period from
inception through December 31, 1997, or $0.09 per share based upon 4,734,198
weighted average shares (basic) outstanding. The Company believes that net
income for the period is not meaningful because the Company had no significant
revenues until October 16, 1997. The Company believes that net income per
share data for the period is also not meaningful as it reflects a weighted
average of shares outstanding over the period which is significantly less than
the number of shares outstanding on December 31, 1997.
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net Sales......................................... $ 100,520 100.0%
Cost of Sales..................................... 74,056 73.7
Selling, General and Administrative Expenses...... 18,540 18.4
Goodwill Amortization............................. 746 0.7
------------ ---------
Operating Income.................................. $ 7,178 7.1%
============ =========
</TABLE>
Net Sales. Net sales for the three months ended March 31, 1998 were $100.5
million.
Cost of Sales. Cost of sales for the three months ended March 31, 1998 were
$74.1 million. Cost of sales as a percentage of net sales was 73.7%, resulting
in a gross profit margin of 26.3%.
Selling, General and Administrative. Selling, general and administrative
expenses were $18.5 million for the three months ended March 31, 1998.
Selling, general and administrative expenses for the period were 18.4% as a
percentage of net sales.
24
<PAGE>
Operating Income. Operating income was $7.2 million for the three months
ended March 31, 1998.
Net Income. The Company had a net income of $4.0 million for the three
months ended March 31, 1998, or $0.32 per share based upon 12,360,000 weighted
average shares (basic) outstanding and $0.31 per share based upon 12,928,000
weighted average shares (diluted) outstanding.
PRO FORMA RESULTS OF OPERATIONS INCLUDING THE AUDITED SUBSEQUENT ACQUISITIONS
In January and April 1998 the Company consummated the acquisitions of the
Subsequent Acquisitions.
The following unaudited pro forma information presents the combined results
of operations of the Company, the Audited Subsequent Acquisitions and the
Founding Companies, as if they and the IPO occurred on January 1, 1997. The
pro forma amounts give effect to certain adjustments, including amortization
of intangible assets, reduction in salary, bonuses and benefits in connection
with the transactions, anticipated compensation of the Company's management
and associated costs of being a public company, and income taxes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED ------------------------------
DECEMBER 31, 1997 1997 1998
------------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 372,258 100.0% $112,397 100.0% $112,958 100.0%
Cost of Sales........... 269,301 72.4 82,927 73.8 83,262 73.7
Selling, General and
Administrative
Expenses............... 79,721 21.4 20,159 17.9 21,681 19.2
Goodwill amortization... 3,733 1.0 933 0.8 933 0.8
---------- ------- -------- ----- -------- -----
Operating Income........ $ 19,503 5.2% $ 8,378 7.5% $ 7,082 6.3%
========== ======= ======== ===== ======== =====
</TABLE>
The pro forma information does not purport to represent what the Company's
results of operations actually would have been if such transactions had
occurred on January 1, 1997 and is not necessarily representative of the
Company's results of operations for any future period. Because the Audited
Subsequent Acquisitions and the Founding Companies were not under common
control or management, historical combined results may not be comparable to,
or indicative of, future performance. See the Unaudited Pro Forma Combined
Financial Statements and the related notes thereto, the historical financial
statements of the Founding Companies, the Audited Subsequent Acquisition and
the related notes thereto, and Note 14 to the historical financial statements
of the Company, all of which appear elsewhere in this Prospectus.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net Sales. Net sales increased to $113.0 million in the three months ended
March 31, 1998 from $112.4 million in the three months ended March 31, 1997,
an increase of $0.6 million, or 0.5%. The increase in sales was attributable
to an increased volume of flowers sold during the Valentine's Day holiday
primarily at the Operating Companies involved in bouquet manufacturing and
distribution. The increased sales were partially offset by the absence of
revenues associated with the shift of the Easter holiday from the first
quarter 1997 to the second quarter 1998.
Cost of Sales. Cost of sales increased to $83.3 million in the three months
ended March 31, 1998 from $82.9 million in the three months ended March 31,
1997, an increase of $0.4 million, or 0.5%, primarily as a result of the
increased sales. As a percentage of net sales, cost of sales remained
relatively unchanged in the three months ended March 31, 1998 and 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $21.7 million in the three months ended March 31, 1998
from $20.2 million in the three months ended March 31, 1997, an increase of
$1.5 million, or 7.4%. The increase is the result of increased selling,
commissions and other costs associated with the increased sales at the
Operating Companies involved in bouquet manufacturing and distribution, as
well as increased expenses incurred at the Company.
25
<PAGE>
Operating Income. As a result of the factors discussed above, operating
income decreased to $7.1 million in the three months ended March 31, 1998 from
$8.4 million in the three months ended March 31, 1997, a decrease of $1.3
million, or 15.5%. As a percentage of net sales, operating income decreased to
6.3% in the three months ended March 31, 1998 from 7.5% in the three months
ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Companies' principal sources of liquidity have historically
been cash flows from operating activities and, to a lesser extent, borrowings.
To date, approximately $116.2 million has been used to fund the cash portion
of the consideration paid in connection with the Acquisitions. As of March 31,
1998, the Company had cash and cash equivalents (on a pro forma combined
basis, including Elite) of approximately $13.8 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.
On October 16, 1997, the Company entered into the Credit Agreement, which
establishes the $100.0 million Credit Facility, with a $85.0 million sub-limit
for permitted acquisitions and a $15.0 million sub-limit for working capital
purposes and 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%. As of May 7, 1998, the interest rate on outstanding
indebtedness was approximately 7.5%. The Company's obligations under the
Credit Agreement 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 Agreement 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 Agreement 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, which limit was waived by BT in order
to effect the Continental Farms Acquisition), 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 EBITDA and EBITDA to fixed charges. To establish the
Credit Facility, 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% 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 May 7, 1998, the Company had
outstanding indebtedness of $72.5 million under the Credit Facility. The
Company is in discussions to increase the Credit Facility from $100.0 million
to $150.0 million to fund future acquisitions and to modify certain provisions
of the Credit Agreement. There can be no assurance that such increase will be
obtained, or that, if obtained, it will be on terms as favorable as those
existing under the present Credit Agreement. In addition, the Company may also
undertake other debt or equity financings in the future to meet its cash needs
and/or to fund acquisitions. There can be no assurance that either debt or
equity financings will be undertaken in the future. See "Risk Factors--Risks
Associated with Acquisition Strategy."
The pro forma capital expenditures of the Company (excluding the Subsequent
Acquisitions) for the twelve months ended December 31, 1997 were approximately
$0.5 million. 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. Excluding capital requirements for
future acquisitions, if any, which the Company cannot currently predict, the
Company believes that funds generated from operations, together with the
proceeds from the IPO and from borrowings under the Credit Facility, will be
sufficient to finance its current operations and planned capital expenditure
26
<PAGE>
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 is 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, although in 1998 the Company's sales were marginally higher than Pro
Forma 1997 sales. In 1999 Valentine's Day will be on a Sunday, which may
result in lower sales than would otherwise be expected were the holiday to
fall on a weekday. 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 Operating 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 by certain of the Operating
Companies, 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
an oversupply of, or diminishing price of, commodity floral products, 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 (including the Audited Subsequent Acquisitions) on a quarterly basis
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
1997 QUARTER
---------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................ $112,397 $99,362 $72,700 $87,799 $372,258
Percentage of annual net sales... 30.2% 26.7% 19.5% 23.6% 100.0%
</TABLE>
27
<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 and for
the period January 1, 1997 through October 15, 1997, for Houff, CFX, Bay State
and Flower Trading have been derived from audited financial statements. 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 and for the period January 1, 1997 through October 15, 1997 for American
Florist, Monterey Bay and Alpine Gem have been derived from audited financial
statements. 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 and for the period July 1, 1997 through October 15, 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 the year 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 as of
September 30, 1997, and for the nine months ended September 30, 1996 and 1997,
and for the three months ended September 30, 1996 and 1997 for United
Wholesale have been derived from unaudited financial statements.
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.
28
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 1,
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30, THROUGH
------------------------------- ------------------ OCTOBER 15,
1993 1994 1995 1996 1996 1997 1997
------- ------- ------- ------- -------- -------- -----------
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
HOUFF
Net sales.............. $32,406 $39,098 $41,531 $39,090 $ 30,068 $ 27,774 $29,373
Cost of sales.......... 21,707 26,683 27,899 25,537 19,839 18,003 19,017
Selling, general and 10,091 11,617 12,695 12,789 9,478 8,559 9,192
administrative
expenses..............
Operating income....... 608 798 937 764 751 1,212 1,164
Net income............. 784 991 1,068 775 892 1,264 1,123
CFX
Net sales.............. $26,736 $30,590 $32,096 $35,684 $ 27,695 $ 29,972 $31,436
Cost of sales.......... 19,976 23,839 24,328 28,190 21,469 23,222 24,378
Selling, general and 6,137 6,266 6,773 8,956 6,991 5,210 6,517
administrative
expenses..............
Operating income 623 485 995 (1,462) (792) 1,540 541
(loss)................
Net income (loss)...... 721 355 1,538 (1,247) (620) 1,626 600
BAY STATE
Net sales.............. $17,979 $19,203 $25,592 $30,563 $ 22,545 $ 22,373 $23,587
Cost of sales.......... 12,040 12,807 17,068 20,722 15,333 15,057 15,924
Selling, general and 5,126 5,529 7,579 8,976 6,666 6,665 7,154
administrative
expenses..............
Operating income....... 813 867 945 865 546 651 509
Net income............. 938 958 1,119 1,033 670 703 719
FLOWER TRADING
Net sales.............. $17,246 $18,478 $20,335 $20,313 $ 15,163 $ 16,838 $17,509
Cost of sales.......... 13,676 14,452 15,921 15,914 11,854 13,031 13,602
Selling, general and 3,292 3,605 4,068 4,142 2,826 2,889 3,240
administrative
expenses..............
Operating income....... 278 421 346 257 483 918 667
Net income............. 196 301 130 62 294 464 397
AMERICAN FLORIST (1)
Net sales.............. -- $ 6,293 $10,783 $11,679 $ 8,759 $ 9,563 $10,051
Cost of sales.......... -- 4,579 7,788 8,268 6,128 6,535 6,845
Selling, general and -- 1,545 2,531 2,723 2,065 2,290 2,490
administrative
expenses..............
Operating income....... -- 169 464 688 566 738 716
Net income............. -- 132 423 683 557 791 699
MONTEREY BAY (2)
Net sales.............. $ 2,615 $ 4,253 $ 6,903 $ 9,477 $ 6,797 $ 9,714 $10,175
Cost of sales.......... 2,259 3,773 5,959 8,285 5,851 7,895 8,384
Selling, general and 301 458 910 1,113 760 896 875
administrative
expenses..............
Operating income....... 55 22 34 79 186 923 916
Net income............. 38 19 20 48 115 520 496
ALPINE GEM
Net sales.............. $ 4,547 $ 7,252 $ 8,139 $ 9,334 $ 7,192 $ 8,136 $ 8,692
Cost of sales.......... 3,448 5,438 6,287 7,132 5,503 6,090 6,540
Selling, general and 813 1,320 1,526 1,868 1,243 1,670 1,793
administrative
expenses..............
Operating income....... 286 494 326 334 446 376 359
Net income............. 315 524 373 388 476 421 406
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JULY 1, 1997
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30, THROUGH
--------------------------------------- ------------- OCTOBER 15,
1993 1994 1995 1996 1997 1996 1997 1997
------- ------- ------- ------- ------- ------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED WHOLESALE (3)
Net sales.............. $18,508 $18,541 $17,985 $19,030 $19,673 $3,860 $4,213 $5,024
Cost of sales.......... 12,250 12,042 11,556 12,563 12,862 2,532 2,760 3,173
Selling, general and 5,401 6,162 5,926 6,101 6,046 1,296 1,434 1,827
administrative
expenses..............
Operating income....... 286 337 503 366 765 32 19 24
Net income............. 6 54 187 144 482 4 (15) (43)
</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.
29
<PAGE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END DECEMBER 31,
----------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
HOUFF
Total assets................................ $5,874 $6,243 $8,169 $8,125 $7,276
Debt........................................ -- -- 76 -- 450
Equity...................................... 2,095 2,159 2,285 1,974 2,006
CFX
Total assets................................ $5,903 $5,826 $7,519 $7,342 $6,474
Debt........................................ 159 81 -- -- 21
Equity...................................... 3,474 3,428 3,783 5,280 3,737
BAY STATE
Total assets................................ $5,826 $6,076 $6,727 $7,657 $8,511
Debt........................................ -- -- -- 412 358
Equity...................................... 4,309 4,504 4,697 5,032 5,466
FLOWER TRADING
Total assets................................ $3,232 $3,483 $3,662 $3,615 $3,651
Debt........................................ -- 126 51 8 391
Equity...................................... 1,456 1,693 1,994 2,124 1,470
AMERICAN FLORIST (1)
Total assets................................ -- -- $1,878 $2,136 $2,438
Debt........................................ -- -- -- 598 598
Equity...................................... -- -- 532 650 628
MONTEREY BAY (2)
Total assets................................ -- $ 547 $ 797 $1,101 $1,321
Debt........................................ -- 13 23 30 24
Equity...................................... -- 116 135 181 229
ALPINE GEM
Total assets................................ $ 686 $ 872 $1,110 $1,269 $1,260
Debt........................................ -- -- -- -- --
Equity...................................... 420 488 668 749 609
<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.
30
<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. Comparisons for interim periods also include
discussions of significant or unusual fluctuations for the period from October
1, 1997 to October 15, 1997 (except for United Wholesale, where the applicable
period is July 1, 1997 to October 15, 1997).
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. Upon consummation of
the Acquisitions, 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.
HOUFF
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 280 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, NINE MONTHS ENDED SEPTEMBER 30, JANUARY 1, 1997
---------------------------- --------------------------------- THROUGH
1995 1996 1996 1997 OCTOBER 15, 1997
------------- ------------- ---------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $41,531 100.0% $39,090 100.0% $30,068 100.0% $27,774 100.0% $ 29,373 100.0%
Cost of sales........... 27,899 67.2 25,537 65.3 19,839 66.0 18,003 64.8 19,017 64.7
Selling, general and
administrative
expenses............... 12,695 30.6 12,789 32.7 9,478 31.5 8,559 30.8 9,192 31.3
------- ----- ------- ----- -------- ------ -------- ------ --------- -------
Operating income........ $ 937 2.3% $ 764 2.0% $ 751 2.5% $ 1,212 4.4% $ 1,164 4.0%
======= ===== ======= ===== ======== ====== ======== ====== ========= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales decreased to $27.8 million in the nine months ended
September 30, 1997 from $30.1 million in the nine months ended September 30,
1996, a decrease of $2.3 million or 7.6%. This decrease
31
<PAGE>
primarily resulted from the closing of Houff's wholesale distribution facility
in Atlanta, Georgia in October 1996, which accounted for $2.5 million in net
sales in the nine months ended September 30, 1996, as well as decreased sales
at the Oak Park, Illinois facility partially offset by increased sales in
other locations.
Cost of Sales. Cost of sales, which consists of perishable and hardgood
products and in-bound freight costs, decreased to $18.0 million in the nine
months ended September 30, 1997 from $19.8 million in the nine months ended
September 30, 1996, a decrease of $1.8 million, or 9.3%. As a percentage of
net sales, costs of sales decreased to 64.8% in the nine months ended
September 30, 1997 from 66.0% in the nine months ended September 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 $8.6 million in the nine months ended September 30, 1997
from $9.5 million in the nine months ended September 30, 1996, a decrease of
$0.9 million, or 9.7%. As a percentage of net sales, selling general and
administrative expenses decreased to 30.8% in the nine months ended September
30, 1997 from 31.5% in the nine months ended September 30, 1996. This decrease
resulted from the closing of Houff's wholesale distribution facility in
Atlanta, Georgia in October 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.
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.
32
<PAGE>
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.
CFX
Founded in 1974, CFX is an importer and distributor of perishable floral
products which are imported from approximately 45 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 La Fleurette, a wholesale distributor then
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 Acquisition hold ownership interests.
Neither the operations of La Fleurette nor the Colombian farms were acquired
in connection with the CFX Acquisition, although the operations of La
Fleurette subsequently were acquired by the Company in the Subsequent
Acquisitions. The Company renegotiated, 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 114 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.
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, NINE MONTHS ENDED SEPTEMBER 30, JANUARY 1, 1997
----------------------------- ---------------------------------- THROUGH
1995 1996 1996 1997 OCTOBER 15, 1997
------------- -------------- ----------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $32,096 100.0% $35,684 100.0% $27,695 100.0% $29,972 100.0% $31,436 100.0%
Cost of sales........... 24,328 75.8 28,190 79.0 21,496 77.6 23,222 77.5 24,378 77.6
Selling, general and
administrative
expenses............... 6,773 21.1 8,956 25.1 6,991 25.2 5,210 17.4 6,517 20.7
------- ----- ------- ----- -------- ------ -------- ------ --------- -------
Operating income........ $ 995 3.1% $(1,462) (4.1)% $ (792) (2.8)% $ 1,540 5.1% $ 541 1.7%
======= ===== ======= ===== ======== ====== ======== ====== ========= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $30.0 million in the nine months ended
September 30, 1997 from $27.7 million in the nine months ended September 30,
1996, an increase of $2.3 million, or 8.2%. This increase resulted
33
<PAGE>
primarily from obtaining higher prices for certain products 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 $23.2 million in the nine months ended September 30,
1997 from $21.5 million in the nine months ended September 30, 1996, an
increase of $1.7 million, or 8.0%, 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 77.5% in the nine months ended September 30, 1997
from 77.6% in the nine months ended September 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $5.2 million in the nine months ended September 30, 1997
from $7.0 million in the nine months ended September 30, 1996, a decrease of
$1.8 million, or 25.5%. This decrease resulted from decreased compensation to
employee-stockholders, partially offset by increases in personnel costs. As a
percentage of net sales, selling, general and administrative expenses
decreased to 17.4% in the nine months ended September 30, 1997 from 25.2% in
the nine months ended September 30, 1996. For the period October 1, 1997
through October 15, 1997 selling, general and administrative expenses were
$1.3 million of which $1.0 million was a result of non-recurring bonuses paid
to stockholders of the Company and $0.1 million was a result of one-time legal
costs associated with the consummation of the CFX Acquisition.
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.
34
<PAGE>
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 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.
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, brokers, importers and
shippers 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 213
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, NINE MONTHS ENDED SEPTEMBER 30, JANUARY 1, 1997
---------------------------- --------------------------------- THROUGH
1995 1996 1996 1997 OCTOBER 15, 1997
------------- ------------- ---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $25,592 100.0% $30,563 100.0% $22,545 100.0% $22,373 100.0% $ 23,587 100.0%
Cost of sales........... 17,068 66.7 20,722 67.8 15,333 68.0 15,057 67.3 15,924 67.5
Selling, general and
administrative
expenses............... 7,579 29.6 8,976 29.4 6,666 29.6 6,665 29.8 7,154 30.3
------- ----- ------- ----- -------- ------ -------- ------ --------- -------
Operating income........ $ 945 3.7% $ 865 2.8% $ 546 2.4% $ 651 2.9% $ 509 2.2%
======= ===== ======= ===== ======== ====== ======== ====== ========= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales decreased to $22.4 million in the nine months ended
September 30, 1997 from $22.5 million in the nine months ended September 30,
1996, a decrease of $0.2 million, or 0.8%, due to a reduction in sales to a
supermarket chain in the nine months ended September 30, 1997. The supermarket
chain, which accounted for $0.7 million of net sales in the nine months ended
September 30, 1997 and $2.3 million of net sales in the nine months ended
September 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.
35
<PAGE>
Cost of Sales. Cost of sales, which consists of the cost of perishable and
hardgood products and in-bound freight costs, decreased to $15.1 million in
the nine months ended September 30, 1997 from $15.3 million in the nine months
ended September 30, 1996, a decrease of $0.3 million, or 1.8%. As a percentage
of net sales, cost of sales decreased to 67.3% in the nine months ended
September 30, 1997 from 68.0% in the nine months ended September 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 remained consistent at $6.7 million in the nine months ended
September 30, 1997 and 1996. As a percentage of net sales, selling, general
and administrative expenses increased to 29.8% in the nine months ended
September 30, 1997 from 29.6% in the nine months ended September 30, 1996.
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 to $0.9 million 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
36
<PAGE>
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 increased by $78,000 to $0.9 million 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.
FLOWER TRADING
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
400 wholesale distributors. Flower Trading has approximately 47 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 Acquisition. 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, JANUARY 1, 1997
---------------------------- ---------------------------- THROUGH
1995 1996 1996 1997 OCTOBER 31, 1997
------------- ------------- ------------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $20,335 100.0% $20,313 100.0% $15,163 100.0% $16,838 100.0% $ 17,509 100.0%
Cost of sales........... 15,921 78.3 15,914 78.3 11,854 78.2 13,031 77.4 13,602 77.7
Selling, general and
administrative
expenses............... 4,068 20.0 4,142 20.4 2,826 18.6 2,889 17.1 3,240 18.5
------- ----- ------- ----- ------- ----- ------- ----- --------- -------
Operating Income........ $ 346 1.7% $ 257 1.3% $ 483 3.2% $ 918 5.5% $ 667 3.8%
======= ===== ======= ===== ======= ===== ======= ===== ========= =======
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $16.8 million in the nine months ended
September 30, 1997 from $15.2 million in the nine months ended September 30,
1996, an increase of $1.7 million, or 11.0%. 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 $13.0 million in the nine months
ended September 30, 1997 from $11.9 million in the nine months ended September
30, 1996, an increase of $1.2 million, or 9.9%. The increase resulted from the
imposition of a fuel
37
<PAGE>
surcharge related to airline shipments that was imposed by airlines beginning
in April 1996, and increases in direct purchase costs, sales commission and
freight costs associated with the increased sales. As a percentage of net
sales, cost of sales decreased to 77.4% in the nine months ended September 30,
1997 from 78.2% in the nine months ended September 30, 1996, due to
management's efforts to obtain more favorable prices.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.9 million in the nine months ended September 30, 1997
from $2.8 million in the nine months ended September 30, 1996, an increase of
$0.1 million, or 2.2%. As a percentage of net sales, selling, general and
administrative expenses decreased to 17.1% in the nine months ended September
30, 1997 from 18.6% in the nine months ended September 30, 1996. This decrease
resulted primarily from spreading fixed costs over increased sales. For the
period October 1, 1997 through October 15, 1997 selling, general and
administrative costs were $0.4 million of which $0.2 million were one-time
legal and other costs and expenses associated with the consummation of the
Flower Trading Acquisition.
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.
38
<PAGE>
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.
UNITED WHOLESALE
Founded in 1947, United Wholesale is a wholesale distributor of perishable
floral products and floral-related hardgoods operating from thirteen 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 3,500 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 180 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>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30, JULY 1, 1997
------------------------------------------- -------------------------- THROUGH
1995 1996 1997 1996 1997 OCTOBER 15, 1997
------------- ------------- ------------- ------------ ------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $17,985 100.0% $19,030 100.0% $19,673 100.0% $3,860 100.0% $4,213 100.0% $ 5,024 100.0%
Cost of Sales........... 11,556 64.3 12,563 66.0 12,862 65.4 2,532 65.6 2,760 65.5 3,173 63.2
Selling, General and
Administrative
Expenses............... 5,926 32.9 6,101 32.1 6,046 30.7 1,296 33.6 1,434 34.0 1,827 36.4
------- ----- ------- ----- ------- ----- ------ ----- ------ ----- -------- -------
Operating Income........ $ 503 2.8% $ 366 1.9% $ 765 3.9% $ 32 0.8% $ 19 0.5% $ 24 0.4%
======= ===== ======= ===== ======= ===== ====== ===== ====== ===== ======== =======
</TABLE>
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net Sales. Net sales increased to $4.2 million in the three months ended
September 30, 1997 from $3.9 million in the year ended September 30, 1996, an
increase of $0.4 million, or 9.1%, 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 $2.8 million in the
three months ended September 30, 1997 from $2.5 million in the three months
ended September 30, 1996, an increase of $0.2 million, or 9.0%, primarily as a
result of increased sales. As a percentage of net sales, cost of sales
decreased to 65.5% in the three months ended September 30, 1997 from 65.6% in
the three months ended September 30, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.4 million in the three months ended September 30,
1997 from $1.3 million in the three months ended September 30, 1996, an
increase of $0.1 million, or 10.6%. As a percentage of net sales, selling,
general and administrative expenses increased to 34.0% in the three months
ended September 30, 1997 from 33.6% in the three months ended September 30,
1996.
39
<PAGE>
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.
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.
AMERICAN FLORIST
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
40
<PAGE>
domestic growers, importers, brokers and shippers 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 75 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>
NINE MONTHS ENDED JANUARY 1,
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1997 THROUGH
---------------------------- -------------------------- OCTOBER 15,
1995 1996 1996 1997 1997
------------- ------------- ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $10,783 100.0% $11,679 100.0% $8,759 100.0% $9,563 100.0% $10,051 100.0%
Cost of sales........... 7,788 72.2 8,268 70.8 6,128 70.0 6,535 68.3 6,845 68.1
Selling, general and
administrative
expenses............... 2,531 23.5 2,723 23.3 2,065 23.6 2,290 23.9 2,490 24.8
------- ----- ------- ----- ------ ----- ------ ----- ------- -----
Operating income........ $ 464 4.3% $ 688 5.9% $ 566 6.4% $ 738 7.7% $ 716 7.1%
======= ===== ======= ===== ====== ===== ====== ===== ======= =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $9.6 million in the nine months ended
September 30, 1997 from $8.8 million in the nine months ended September 30,
1996, an increase of $0.8 million, or 9.2%. 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 $6.5 million in the
nine months ended September 30, 1997 from $6.1 million in the nine months
ended September 30, 1996, an increase of $0.4 million, or 6.6%, primarily as a
result of increased sales. As a percentage of net sales, cost of sales
decreased to 68.3% in the nine months ended September 30, 1997 from 70.0% in
the nine months ended September 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 $2.3 million in the nine months ended September 30, 1997
from $2.1 million in the nine months ended September 30, 1996, an increase of
$0.2 million, or 10.9%. As a percentage of net sales, selling, general and
administrative expenses increased to 23.9% in the nine months ended September
30, 1997 from 23.6% in the nine months ended September 30, 1996, primarily as
a result of additional personnel costs.
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 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
41
<PAGE>
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.
MONTEREY BAY
Founded in 1993, Monterey Bay, located in Watsonville, California, is a
manufacturer and wholesale distributor of fresh-cut flower bouquets,
consisting of specialty California grown and imported flowers. Monterey Bay
purchases flowers from nearly 150 domestic growers and 12 importers and
distributes them to a supermarket and a discount retailer, each of which 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 75 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>
NINE MONTHS ENDED JANUARY 1,
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1997 THROUGH
-------------------------- -------------------------- OCTOBER 15,
1995 1996 1996 1997 1997
------------ ------------ ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $6,903 100.0% $9,477 100.0% $6,797 100.0% $9,714 100.0% $10,175 100.0%
Cost of sales........... 5,959 86.3 8,285 87.4 5,851 86.1 7,895 81.3 8,384 82.4
Selling, general and
administrative
expenses............... 910 13.2 1,113 11.7 760 11.2 896 9.2 875 8.6
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Operating income........ $ 34 0.5% $ 79 0.8% $ 186 2.7% $ 923 9.5% $ 916 9.0%
====== ===== ====== ===== ====== ===== ====== ===== ======= =====
</TABLE>
42
<PAGE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $9.7 million in the nine months ended
September 30, 1997 from $6.8 million in the nine months ended September 30,
1996, an increase of $2.9 million, or 42.9%. 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 $7.9 million in the
nine months ended September 30, 1997 from $5.9 million in the nine months
ended September 30, 1996, an increase of $2.0 million, or 34.9%, primarily as
a result of the increased sales. As a percentage of net sales, cost of sales
decreased to 81.3% in the nine months ended September 30, 1997 from 86.1% in
the nine months ended September 30, 1996. This decreased 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 $0.9 million in the nine months ended September 30, 1997
from $0.8 million in the nine months ended September 30, 1996, an increase of
$0.1 million, or 17.9%. The increase was attributable to increased sales. As a
percentage of net sales, selling, general and administrative expenses
decreased to 9.2% in the nine months ended September 30, 1997 from 11.2% in
the nine months ended September 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.
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.
43
<PAGE>
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.
ALPINE GEM
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 location 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>
JANUARY 1,
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, 1997 THROUGH
-------------------------- ---------------------------------- OCTOBER 15,
1995 1996 1996 1997 1997
------------ ------------ ---------------- ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $8,139 100.0% $9,334 100.0% $7,192 100.0% $8,136 100.0% $8,692 100.0%
Cost of sales........... 6,287 77.2 7,132 76.4 5,503 76.5 6,090 74.7 6,540 75.2
Selling, general and
administrative
expenses............... 1,526 18.7 1,868 20.0 1,243 17.3 1,670 20.5 1,793 20.6
------ ----- ------ ----- -------- ------- -------- ------- ------ -----
Operating income........ $ 326 4.0% $ 334 3.6% $ 446 6.2% $ 376 4.6% $ 359 4.2%
====== ===== ====== ===== ======== ======= ======== ======= ====== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased to $8.2 million in the nine months ended
September 30, 1997 from $7.2 million in the nine months ended September 30,
1996, an increase of $1.0 million, or 13.3%, 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, increased to $6.1 million in the nine months ended September 30,
1997 from $5.5 million in the nine months ended September 30, 1996, an
increase of $0.6 million, or 10.7%, primarily as a result of increased sales.
As a percentage of net sales, cost of sales decreased to 74.7% in the nine
months ended September 30, 1997 from 76.5% in the nine months ended September
30, 1996.
44
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.7 million in the nine months ended September 30, 1997
from $1.2 million in the nine months ended September 30, 1996, an increase of
$0.4 million, or 34.4%, primarily as a result of increased sales, marketing
and lease expenses. As a percentage of net sales, selling, general and
administrative expenses increased to 20.5% in the nine months ended September
30, 1997 from 17.3% the nine months ended September 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 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.
45
<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 acquisition of the Founding Companies. In January and April 1998, the
Company consummated the acquisition of the Subsequent Acquisitions. The
Company engages primarily in the importing and distribution of perishable
floral products (including fresh-cut flowers, greens and potted plants) and
the wholesale distribution of floral-related hardgoods (including vases and
glassware, foam for flower arranging, tools, and other supplies), 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 its management, that it is one of the largest
integrated distributors of floral products in the United States. The Company
has approximately 2,100 employees and serves thousands of customers nationwide
from 56 facilities in 21 states and the District of Columbia, and also serves
customers in the western provinces of Canada from four facilities.
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 Central America, Holland in
Europe, and to a lesser extent Australia and New Zealand in the Pacific Rim.
Central 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, chrysanthemums and alstromeria, each
of which is imported in a number of varieties. Importers of floral products
receive these flowers, generally on consignment, and facilitate their passage
through United States 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. Shipments of perishable floral products are broken down into lots sized
to meet customer requirements, and then sent 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.
46
<PAGE>
Bouquet manufacturers, 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 manufacturers 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 supermarkets and discount retailers and
chain stores.
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. Because 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 its management, 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 were 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 seeks 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
focuses 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 has begun 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 continue 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
47
<PAGE>
the Board. Mr. Ledecky has considerable experience consolidating private
businesses into publicly-held entities. Mr. Ledecky has founded or co-founded
two other publicly-held companies, U.S. Office Products Company and
Consolidation Capital Corporation, each of which has implemented a
consolidation strategy.
Operate with Decentralized Management. The Company conducts its operations
through a decentralized management approach through which individual
management teams are responsible for the day-to-day operations of the
Operating Companies as well as for helping to identify additional acquisition
candidates in their respective locales. At the same time, the Company is
building a Company-wide team of senior management to provide the Operating
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-related hardgoods and,
to a lesser extent, realize savings on transportation and handling costs of
fresh flowers. To date, the Company has achieved certain operating
efficiencies in the cost of its property and casualty insurance coverage and
in its communications systems. Further, the Operating Companies have realized
some reductions in the costs of the floral-related hardgoods purchases. There
can be no assurance that such operating efficiencies or favorable impact will
continue.
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 OPERATING COMPANIES
The Company acquired the Founding Companies contemporaneously with the
consummation of the IPO, through the application of a portion of the proceeds
therefrom and the issuance of Common Stock. In January and April 1998, the
Company consummated the acquisition of the Subsequent Acquisitions by
utilizing cash, including borrowings under the Credit Facility and the
issuance of Common Stock. The Company has conducted operations on a combined
basis since October 16, 1997.
FOUNDING COMPANIES
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
domestic growers, importers, brokers and shippers and sells them to
approximately 3,000 customers, including retail florists and mass-market
retailers. Houff has approximately 280 employees. Houff's revenues for the
period January 1, 1997 to October 15, 1997 were $29.4 million.
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CFX. Founded in 1974, CFX is an importer and distributor of perishable
floral products located in Miami, Florida. CFX imports flowers from
approximately 45 farms located primarily in Colombia and Ecuador, and
distributes them throughout the United States to approximately 475 customers,
including wholesale distributors and mass-market retailers. CFX has
approximately 114 employees. CFX's revenues for the period January 1, 1997 to
October 15, 1997 were $31.4 million.
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 213 employees. Bay State's revenues for the period January 1,
1997 to October 15, 1997 were $23.6 million.
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 140 wholesale distributors. Flower Trading has approximately 47
employees. Flower Trading's revenues for the period January 1, 1997 to October
15, 1997 were $17.5 million.
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 3,500
customers, including retail florists and mass- marketers. United Wholesale has
approximately 180 employees. United Wholesale's revenues for the period July
1, 1997 to October 15, 1997 were $5.0 million.
American Florist. Founded in 1994, American Florist, which does business
under the name "Johnson's Roses," 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, importers, brokers and shippers and sells them to
approximately 520 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 75 employees.
American Florist's revenues for the period January 1, 1997 to October 15, 1997
were $10.1 million.
Monterey Bay. Founded in 1993, Monterey Bay, located in Watsonville,
California, is a manufacturer of fresh-cut flower bouquets, consisting of
specialty California-grown and imported flowers. Monterey Bay purchases
flowers from 10 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 75
employees. Monterey Bay's revenues for the period January 1, 1997 to October
15, 1997 were $10.1 million.
Alpine Gem. Founded in 1978, Alpine Gem is a broker of perishable floral
products, operating from one location in Montana and one location in
California. Alpine Gem purchases flowers from approximately 250 growers,
principally located in the United States, and sells flowers on consignment for
approximately 15 growers. Alpine Gem distributes flowers to nearly 750
customers, primarily wholesalers, located throughout the United States. Alpine
Gem has approximately 20 employees. Alpine Gem's revenues for the period
January 1, 1997 to October 15, 1997 were $8.7 million.
SUBSEQUENT ACQUISITIONS
Continental Farms and Atlantic Bouquet. Continental Farms and Atlantic
Bouquet were under common ownership prior to their acquisition. Founded in
1987, Continental Farms is an importer and broker of perishable floral
products from Central and South America. Continental Farms is located in
Miami, Florida and sells fresh-
49
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cut floral products on consignment to approximately 600 customers, including
retail florists and mass-market retailers. Continental Farms has approximately
100 employees. Founded in 1994, Atlantic Bouquet is a bouquet manufacturer
located in Miami, Florida. Atlantic Bouquet receives fresh-cut floral products
from several importers, including Continental Farms, and uses them to
manufacture bouquets and arrangements. Atlantic Bouquet distributes bouquets
and arrangements throughout the United States to approximately 25 supermarket
chains. Atlantic Bouquet has approximately 170 employees. Continental Farms
and Atlantic Bouquet's combined revenues in 1997 were $62.5 million.
XL Group. Founded in 1986, XL Group is an importer and distributor of fresh-
cut floral products located in Miami, Florida. XL Group imports fresh-cut
floral products from farms located primarily in Costa Rica, Ecuador and
Colombia and distributes them throughout the United States to approximately
350 wholesale distributors and supermarkets. XL Group has approximately 95
employees. XL Group's annual revenues in 1997 were $32.3 million.
Koehler & Dramm. Founded in 1955, Koehler & Dramm is a regional floral
products wholesaler serving retailers throughout the upper Midwest United
States. Koehler & Dramm purchases floral products from domestic growers and
importers, brokers and shippers and sells them to approximately 3,000
customers. Koehler & Dramm is headquartered in Minneapolis, Minnesota and has
a branch operation in Kansas City, Missouri. Koehler & Dramm has approximately
120 employees. Koehler & Dramm's revenues for the fiscal year ended July 31,
1997 were $21.2 million.
Everflora and Everflora Miami. Everflora and Everflora Miami are both
importers and brokers of perishable floral products. Everflora and Everflora
Miami were both founded by Peter Unverdorben in 1985 and 1986, respectively.
Everflora, headquartered in Creskill, New Jersey, purchases the majority of
its products from suppliers in Europe and sells various types of flowers to
wholesalers across the United States along with accompanying hard goods.
Everflora Miami, headquartered in Miami, Florida, sells various types of
flowers primarily imported from Central America and South America. Everflora
and Everflora Miami employ approximately 86 people. Their combined revenues in
1997 were $20.3 million.
UltraFlora. Founded in 1986, UltraFlora, headquartered in Miami, Florida,
imports fresh-cut floral products primarily from Colombia and distributes them
to approximately 35 mass-market retailers throughout the United States and
Canada. UltraFlora has approximately 31 employees. UltraFlora's annual
revenues in 1997 were $17.1 million.
La Fleurette. Founded in 1982, La Fleurette assembles and sells floral
bouquets and other arrangements to supermarkets. La Fleurette purchases the
majority of the fresh-cut flowers used in its bouquets from importers and
sells them to approximately 26 supermarkets. La Fleurette currently employs
approximately 76 people at its headquarters in Miami, Florida. La Fleurette's
annual revenues in 1997 were $17.7 million.
Maxima. Founded in 1991, Maxima is an importer, distributor and broker of
fresh-cut flowers throughout the United States, Europe and Canada. Maxima,
headquartered in Miami, Florida, purchases the majority of its products from
suppliers in Colombia and distributes them to its 350 customers. Maxima has
approximately 36 employees. Maxima's annual revenues in 1997 were $14.4
million.
Florafresh. Founded in 1986, Florafresh, headquartered in Miami, Florida,
imports and distributes fresh-cut floral products primarily from growers in
Colombia and distributes them throughout the United States primarily to major
supermarket chains and other mass-market retailers. Florafresh has
approximately 44 employees. Florafresh's annual revenues in 1997 were $15.9
million.
Elite. Founded in 1992, Elite is an importer and distributor of perishable
floral products located in Miami, Florida. Elite imports flowers from Costa
Rica, Ecuador and Colombia and distributes them throughout the
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United States to approximately 225 customers. Elite has approximately 23
employees. Elite's annual revenues in 1997 were $12.0 million.
David L. Jones. Founded in 1939, David L. Jones is a regional floral
products wholesaler servings its 8,000 customers located throughout western
Canada. David L. Jones is headquartered in Vancouver, British Columbia and has
branch operations in Calgary and Edmonton, Alberta and Winnigpeg, Manitoba.
David L. Jones has approximately 240 employees at its four locations. David L.
Jones' annual revenues in 1997 were Cdn. $31.5 million.
Selecta. Founded in 1982, Selecta is an importer and distributor of
perishable floral products. Operating from its headquarters in Miami, Florida
and its branch office in Colombia, Selecta purchases its products primarily
from farms located in Colombia and Ecuador and serves over 450 customers
nationwide. Selecta has approximately 26 employees. Selecta's annual revenues
in 1997 were $14.5 million.
Allan Stanley. Founded in 1992, Allan Stanley is a wholesale distributor and
manufacturer of floral bouquets and other arrangements, located in Carlsbad,
California. Allan Stanley purchases solely from vendors located in the United
States and sells its goods to two primary customers located in California but
also sells to customers located in Nevada, Arizona, New Mexico and Colorado.
Allan Stanley employs approximately 77 people. Allan Stanley's annual revenues
for the fiscal year ended August 31, 1997 were $10.9 million.
Sabana. Founded in 1973, Sabana is an importer and distributor of fresh-cut
flowers, located in Miami, Florida. Sabana imports fresh-cut floral products
from farms located in Bogota, Colombia and distributes them throughout the
United States to over 300 wholesale accounts. Sabana has approximately 14
employees. Sabana's annual revenues in 1997 were $8.8 million.
Pacific Floral. Pacific and Rose City were under common ownership prior to
their acquisition. Pacific and Rose City are both regional floral products
wholesalers serving retailers in and around Portland, Oregon. Pacific and Rose
City were founded in 1990 and 1992, respectively. Pacific sells its products
primarily to florists while Rose City's customers base consists solely of
grocery store chains. Pacific and Rose City have approximately 44 employees at
their headquarters in Portland, Oregon. Pacific and Rose City's combined
annual revenues in 1997 were $3.2 million.
COMPANY PRODUCTS AND SERVICES
Through the Operating Companies, the Company provides a full range of
interrelated floral products and services, including importing, brokerage,
wholesaling and bouquet manufacturing.
Importing. Through CFX, Flower Trading, Continental Farms, XL Group,
Everflora, Everflora Miami UltraFlora, Maxima, Elite, Selecta, Sabana and
Florafresh, the Company imports fresh flowers, including roses, carnations,
chrysanthemums and alstromeria, from abroad, principally from Colombia and
Ecuador. The Company imports flowers daily principally through the United
States port of entry in Miami, Florida. These Operating Companies assist in
clearing each shipment through United States customs, transferring the flowers
to their own facilities for pre-cooling and then acting 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 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,
Flower Trading, Continental Farms, Everflora Miami and Maxima also serve as
brokers.
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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 as a wholesaler 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;
in Massachusetts, Vermont, New Hampshire and Maine through American Florist;
in Minnesota, Missouri, Wisconsin, Iowa, North Dakota, South Dakota, Kansas
and Nebraska through Koehler & Dramm; in California, Nevada, Arizona, New
Mexico and Colorado through Allan Stanley; in Portland, Oregon through Pacific
Floral and in the western provinces of Canada through David L. Jones. Certain
of the Operating Companies 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 and Distribution. Through Monterey Bay, American
Florist, Atlantic Bouquet, La Fleurette, Florafresh and Allan Stanley, 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. Ultraflora and Florafresh also distribute bouquets.
SALES AND MARKETING
The Operating 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 Operating Companies employ an aggregate of
approximately 460 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
The Company primarily imports fresh flowers from abroad, principally from
Colombia and Ecuador; and to a lesser extent, it purchases fresh flowers grown
in the United States, principally from 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 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
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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 Operating Companies have thousands of customers, consisting of other
wholesalers and bouquet manufacturers, 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 1997 revenues. To a limited
extent, the Operating Companies have historically been suppliers to and
customers of each other; the Company expects that these relationships will
continue in the future, and that the Company's strategy of fostering
cooperation and teamwork may yield new opportunities for the Operating
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. The Company is aware of at least one
other publicly traded company which engages in a similar line of business and
which the Company believes has a similar acquisition and vertical integration
strategy. The existence of such a competitor may result in increased
competition for suitable acquisition candidates and thereby increase the
purchase prices required to be paid for such candidates.
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 May 7, 1998:
<TABLE>
<CAPTION>
OWNED OR
COMPANY LOCATION PRINCIPAL USE LEASED
- ------- -------- ------------- --------
<S> <C> <C> <C>
Houff................... Chicago, IL Headquarters and Distribution Facility Owned
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>
53
<PAGE>
<TABLE>
<CAPTION>
OWNED OR
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 Facility Leased
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 Facility Leased
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 Facility Leased
Continental Farms and
Atlantic Bouquet....... Miami, FL Headquarters Owned
Miami, FL Bouquet Manufacturing Facility Owned
XL Group................ Miami, FL Headquarters and Distribution Facility Leased
Koehler & Dramm......... Minneapolis, MN Headquarters and Distribution Facility Leased
Kansas City, MO Distribution Facility Leased
Everflora and Everflora
Miami.................. Creskill, NJ Headquarters and Distribution Facility Leased
Miami, FL Headquarters and Distribution Facility Leased
UltraFlora.............. Miami, FL Headquarters and Distribution Facility Leased
La Fleurette............ Miami, FL Headquarters, Sales Office and Leased
Bouquet Manufacturing Facility
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OWNED OR
COMPANY LOCATION PRINCIPAL USE LEASED
- ------- -------- ------------- --------
<S> <C> <C> <C>
Maxima.................. Miami, FL Headquarters Leased
Los Angeles, CA Sales Office and Distribution Facility Leased
Florafresh.............. Miami, FL Headquarters and Distribution Facility Owned
Elite................... Miami, FL Headquarters and Distribution Facility Leased
David L. Jones.......... Burnaby, British Columbia Headquarters Leased
Edmonton, Alberta Branch Owned
Calgary, Alberta Branch Owned
Winnipeg, Manitoba Branch Owned
Selecta................. Miami, FL Headquarters and Distribution Facility Leased
Allan Stanley........... Oceanside, CA Headquarters, Distribution Facility and Leased
Bouquet Manufacturing Facility
Sabana.................. Miami, FL Headquarters and Distribution Facility Leased
Pacific Floral.......... Portland, OR Headquarters and Distribution Facility Leased
Portland, OR Headquarters and Distribution Facility Leased
</TABLE>
The Company believes that its facilities are adequate for the Company's
current operations.
EMPLOYEES
As of May 7, 1998, the Company employed approximately 2,100 people.
Approximately 1,280 employees were engaged in operations, 460 were engaged in
sales, and 360 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.
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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 May 7, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----- ---- -------------------------
<S> <C> <C>
Robert J. Poirier 46 Chairman of the Board, President and Chief Executive Officer
Jonathan J. Ledecky 40 Non-Executive Chairman of the Board
Raymond C. Anderson 32 Chief Financial Officer
Raymond R. Ashmore 53 President of United Wholesale and a Director
Jeffrey E. Brothers 39 President of Monterey Bay and a Director
John T. Dickinson 37 President of American Florist and a Director
John Q. Graham, Jr. 49 President of Alpine Gem and a Director
Dwight Haight 50 President of CFX and a Director
Roy O. Houff 56 Chief Executive Officer of Houff and a Director
Gustavo Moreno 44 President of Flower Trading Corporation and a Director
William W. Rudolph 65 President of Bay State and a Director
John Vaughan 63 Director
Vincent W. Eades 39 Director
Edward J. Mathias 56 Director
John A. Quelch 46 Director
</TABLE>
Robert J. Poirier co-founded the Company 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 the Company 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, as 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, and
currently serves as Chairman and Chief Executive Officer of, 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 also currently serves as a
director of UniCapital Corporation, a company formed to create a national
consolidator and operator of equipment leasing and specialty finance
businesses serving the commercial market. Prior to founding U.S. Office
Products Company, Mr. Ledecky served from 1989 to 1991 as the President of The
Legacy Fund, Inc., and from 1991 to September 1994 as President and Chief
Executive Officer of Legacy Dealer Capital Fund, Inc., a wholly-owned
subsidiary of Steelcase, Inc., the nation's largest manufacturer of office
furniture products.
Raymond C. Anderson has been the Chief Financial Officer of the Company
since July 1997. From May 1997 until September 1, 1997, Mr. Anderson served as
the President and Chief Operating Officer of Houff. From
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<PAGE>
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. Mr. Anderson is the son-in-law of Roy O.
Houff, a director of the Company.
Raymond R. Ashmore has served as President of the Company's United Wholesale
operating unit since the United Wholesale Acquisition and as a director of the
Company since appointment to the Board at its meeting in November 1997. Prior
to its acquisition by the Company, Mr. Ashmore served as President of United
Wholesale since 1983.
Jeffrey E. Brothers has served as President of the Company's Monterey Bay
operating unit since the Monterey Bay Acquisition and as a director of the
Company since appointment to the Board at its meeting in November 1997. Prior
to its acquisition by the Company, Mr. Brothers served as President of
Monterey Bay since February 1993. From 1985 until January 1993, Mr. Brothers
was President of 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 Acquisition and as a director of the
Company since appointment to the Board at its meeting in November 1997. Prior
to its acquisition by the Company, Mr. Dickinson 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 Acquisition and as a director of the
Company since appointment to the Board at its meeting in November 1997. Prior
to its acquisition by the Company, Mr. Graham served as President of Alpine
Gem since 1978.
Dwight Haight has served as President of the Company's CFX operating unit
since the CFX Acquisition and as a director of the Company since appointment
to the Board at its meeting in November 1997. Prior to its acquisition by the
Company, Mr. Haight served as President of CFX since 1974. Mr. Haight also
owned 50% of La Fleurette, a bouquet manufacturer with which CFX conducts
business, which was recently acquired by the Company.
Roy O. Houff has served as Chief Executive Officer of the Company's Houff
operating unit since the Houff Acquisition and as a director of the Company
since appointment to the Board at its meeting in November 1997. Prior to its
acquisition by the Company, Mr. Houff 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 Acquisition and as a director of the
Company since appointment to the Board at its meeting in November 1997. Prior
to its acquisition by the Company, Mr. Moreno 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 Acquisition and as a director of the
Company since appointment to the Board at its meeting in November 1997. Prior
to its acquisition by the Company, Mr. Rudolph served in an executive capacity
with Bay State since 1962, most recently as President of Bay State since 1990.
John Vaughan has been a director of the Company since appointment to the
Board in February 1998. He is a co-founder of Continental Farms and Atlantic
Bouquet and served as the Chairman of the Board of each entity until its
acquisition by the Company. Mr. Vaughan is also a founder, past president and
director of ASOCOLFLORES, the largest association of flower growers in Latin
America.
Vincent W. Eades has been a director of the Company since July 1997 and is
also a director of UniCapital Corporation and Consolidation Capital
Corporation. 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 eleven years prior to April 1995, Mr. Eades was associated with
Hallmark Cards Inc., most recently as a General Manager.
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<PAGE>
Edward J. Mathias has been a director of the Company since July 1997. Mr.
Mathias is also a director of U.S. Office Products Company, The Fortress
Group, Inc., Condor Technology Solutions, Inc. and Sirrom Capital Corporation.
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 the Company since July 1997. Dr.
Quelch is also a director of UniCapital Corporation, U.S. Office Products
Company, Pentland Group plc and WPP Group plc, a marketing services company
that includes Ogilvy & Mather, J. Walter Thompson and Hill & Knowlton. Dr.
Quelch is the Sebastian S. Kresge Professor of Marketing at the Harvard
Business School.
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 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. Eades and Quelch are the members of the Audit Committee.
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 in effect. See "--Executive Compensation
Summary Compensation Table." 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, and serving as the nominating committee for elections to the Board.
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 $25,000, plus reimbursement of expenses for each meeting of
the Board and each committee meeting that they attend in person. In addition,
non-employee directors receive certain formula grants of non-qualified stock
options under the 1997 Non-Employee Directors' Stock Plan. See "--Executive
Compensation Summary Compensation Table--1997 Non-Employee Directors' Stock
Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Ledecky and Mathias.
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation of the
Company's Chief Executive Officer and other executive officers whose
compensation is required to be disclosed (the "Named Executive Officers") of
the Company for the year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
--------------------------- ---- ------------ --------- ------------
<S> <C> <C> <C> <C>
Robert J. Poirier............................... 1997 $160,000 $ 0 110,000
Chairman of the Board, President
and Chief Executive Officer
Raymond C. Anderson............................. 1997 $150,000 $ 0 50,000
Chief Financial Officer
</TABLE>
58
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to the grant
of options to the Named Executive Officers during 1997 and the value of
options held at December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM (3)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- --------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Poirier (1)... 110,000 13.8% $13.00 10/2007 899,319 2,279,051
Raymond C. Anderson (2). 50,000 6.2% $8.00 10/2007 658,781 1,285,932
</TABLE>
- --------
(1) Options to purchase 60,000 shares are immediately exercisable. All other
options will vest in 25% annual installments over four years commencing on
the first anniversary date of grant.
(2) All options vest in 25% annual installments over four years commencing on
the first anniversary date of grant.
(3) The potential realizable value is based on the assumed annual rates of
stock price appreciation being applied to the above exercise prices. Such
information is shown for informational purposes and does not represent an
estimate or prediction of the Company's future stock price.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUE TABLE
The following table summarizes the value at December 31, 1997 of all shares
subject to options granted to the Named Executed Officers of the Company to
the extent not then exercised, and information concerning option exercises, if
any, during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
ON VALUE ------------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---- -------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Poirier....... 0 $0 60,000 50,000 $165,000 $137,500
Raymond C. Anderson..... 0 $0 0 50,000 $0 $387,500
</TABLE>
- --------
(1) The price of the Common Stock at December 31, 1997 was $15.75 per share.
1997 LONG-TERM INCENTIVE PLAN
The Company's 1997 Long-Term Incentive Plan (the "Incentive Plan") provides
officers (including directors who also serve as officers), key employees,
consultants and other service providers with additional incentives by enabling
such persons to increase their ownership interests in the Company. 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 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 Compensation
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.
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.
59
<PAGE>
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 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), 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 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. 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.
60
<PAGE>
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan")
permits 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 IPO price of $13.00 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 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 by the Board. 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.
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, 1997 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 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 Operating Companies. Described below are those
employment agreements of individuals who are directors of the Company. 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 Operating 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 which was
61
<PAGE>
equal to his current salary through December 31, 1997 and a base salary of
$150,000 beginning January 1, 1998. Jeffrey Brothers' 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.
62
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between the Company and certain persons who are officers, directors and
principal stockholders of the Company. In addition, set forth below is certain
information regarding transactions and relationships prior to the Acquisitions
between certain of the Operating Companies and their respective officers,
directors and principal stockholders.
ORGANIZATION OF USA FLORAL
The Company was founded as a holding company to acquire businesses in the
floral products distribution industry. Prior to 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. For information
regarding certain employment arrangements between the Company and certain
directors, officers and key employees, see "Management--Employment
Agreements."
THE ACQUISITIONS
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, and in January and April 1998 the Company
consummated the acquisitions of the Subsequent Acquisitions in fourteen
separate transactions. The aggregate consideration paid for the Operating
Companies was $218.5 million, which consisted of: (i) $116.2 million in cash
paid to the stockholders (or partners, as the case may be) of the Operating
Companies and (ii) $102.3 million fair value (based upon the prices of the
Common Stock issued in the Acquisitions) of 6,090,028 shares of Common Stock
issued to the stockholders (or partners, as the case may be) of the Operating
Companies. The Company may be required to pay additional earn-out
consideration pursuant to the Acquisition Agreements with XL Group, La
Fleurette, Maxima, David L. Jones, Allan Stanley, Sabana and Pacific Floral.
The Company paid additional earn-out consideration in the form of 359,487
shares of Common Stock valued at $5.9 million pursuant to the UltraFlora
Acquisition Agreement. The Company also assumed an estimated tax liability of
Flower Trading of approximately $0.5 million and established, along with
certain sellers in the Continental Farms and Atlantic Bouquet Acquisition, a
$7.0 million escrow account (to which the Company contributed $3.5 million) to
provide security against potential claims that may be asserted under the
Continental Farms and Atlantic Bouquet Acquisition Agreement, which
contribution will be returned to the Company to the extent (if any) that
indemnifiable claims under the escrow are not made prior to its expiration.
The purchase price for each Operating Company was determined based on
negotiations between the Company and that Operating 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 Operating Companies. With the exception of the
consideration paid to the stockholders (or partners, as the case may be) of
each of the Operating 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 and the acquisition of
each Subsequent Acquisition was subject to substantially the same terms and
conditions as those to which the acquisition of each other Subsequent
Acquisition was subject. The following table contains information concerning
the aggregate cash paid and Common Stock issued in connection with the
Acquisitions:
63
<PAGE>
<TABLE>
<CAPTION>
SHARES OF VALUE OF SHARES OF TOTAL
OPERATING COMPANY CASH COMMON STOCK COMMON STOCK CONSIDERATION
- ----------------- ------ ------------ ------------------ -------------
(IN MILLIONS, EXCEPT SHARES)
<S> <C> <C> <C> <C>
Houff................... $ 11.0 -- $ -- $ 11.0
CFX..................... 6.5 250,000 3.2 9.7
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........ 4.8 141,749 2.4 7.2
Monterey Bay............ 3.0 177,185 3.0 6.0
Alpine Gem.............. 1.6 160,000 2.1 3.7
Continental Farms and
Atlantic Bouquet....... 27.5 1,642,672 27.5 55.0(2)
XL Group................ 11.3 660,938 11.0 22.3(3)
Koehler & Dramm......... 5.0 298,596 5.0 10.0
Everflora and Everflora 4.0 246,654 4.0 8.0
Miami..................
UltraFlora.............. 2.8 522,768(4) 8.6 11.4
La Fleurette............ 1.6 -- -- 1.6(5)
Maxima.................. 5.3 233,418 5.3 10.6(6)
Florafresh.............. 3.9 172,928 3.9 7.8
Elite................... 3.7 184,907 3.7 7.4
David L. Jones.......... 2.2 179,020(7) 4.0 6.2(8)
Selecta................. 2.5 112,007 2.5 5.0
Allan Stanley........... 1.9 84,638 1.9 3.8(9)
Sabana.................. 0.7 87,864 2.0 2.7(10)
Pacific Floral.......... 0.2 10,634 0.2 0.4(11)
------ --------- ------ ------
Total................. $116.2 6,090,028 $102.3 $218.5
====== ========= ====== ======
</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.
(2) Does not reflect $3.5 million deposited by the Company into an escrow
account for potential contingent liabilities, which deposit will be
returned to the Company to the extent (if any) that indemnifiable claims
under the escrow are not made prior to its expiration.
(3) The seller of XL Group entered into an earn-out arrangement pursuant to
which he may receive additional consideration consisting of shares of
Common Stock. The earn-out is based upon XL Group's earnings before
interest and taxes for the year ending December 31, 1998 and in no event
will be greater than $4.0 million. This amount is not included in the
table above.
(4) Of the 522,768 shares of Common Stock, 359,487 were issued pursuant to an
earn-out arrangement based upon UltraFlora's earnings before interest and
taxes for the year ended December 31, 1997.
(5) The sellers of La Fleurette entered into an earn-out arrangement pursuant
to which they may receive additional consideration consisting of shares
of Common Stock. The earn-out is based upon La Fleurette's earnings
before interest and taxes for the year ending June 30, 1998. This amount
is not included in the table above.
(6) The stockholder of Maxima entered into an earn-out arrangement pursuant
to which it may receive additional consideration consisting of shares of
Common Stock. The earn-out is based upon Maxima's 1998 earnings before
interest and taxes for the year ending December 31, 1998 and in no event
will be greater than $6.0 million. This amount is not included in the
table above.
(7) The issuance of shares of Common Stock is contingent upon receipt of
favorable rulings from the securities commission of British Columbia,
Alberta and Manitoba in response to applications filed by the Company
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<PAGE>
requesting relief from certain provisions of the securities laws of the
above provinces. In the event such relief is not granted, the Company will
pay cash in lieu of issuing shares of Common Stock in the amount of $4.0
million, plus interest at the rate of 10% per annum from April 6, 1998.
(8) The stockholders of David L. Jones entered into an earn-out arrangement
pursuant to which they may receive additional consideration consisting of
shares of Common Stock. The earn-out is based upon David L. Jones'
earnings before interest and taxes for the year ending February 28, 1999
and in no event will be greater than $3.8 million. This amount is not
included in the table above.
(9) The stockholders of Allan Stanley entered into an earn-out arrangement
pursuant to which they may receive additional consideration consisting of
shares of Common Stock and cash. The earn-out is based upon Allan
Stanley's earnings before interest and taxes for the year ending March
31, 1999 and in no event will be greater than $6.0 million. This amount
is not included in the table above.
(10) The stockholders of Sabana entered into an earn-out arrangement pursuant
to which they may receive additional consideration consisting of shares
of Common Stock. The earn-out is based upon Sabana's earnings before
interest and taxes for the year ending May 31, 1998 and in no event will
be greater than $2.5 million. This amount is not included in the table
above.
(11) The stockholder of Pacific Floral entered into an earn-out arrangement
pursuant to which he may receive additional consideration consisting of
shares of Common Stock. The earn-out is based upon Pacific Floral's
earnings before interest and taxes for the year ending December 31, 1998
and in no event will be greater than $0.9 million. This amount is not
included in the table above.
The consummation of each Acquisition was contingent upon the satisfaction of
customary closing conditions, including the absence of material adverse
changes in the business, operations and financial condition of the Operating
Companies and the Company and certification by the parties to each Acquisition
Agreement that the representations and warranties made by such party in the
Acquisition Agreement were true and correct as of the consummation of the
Acquisition and that such party had performed its obligations under the
Acquisition Agreement. The Acquisition Agreements further provided that the
sellers of the Operating Companies will indemnify the Company against certain
liabilities that may arise in connection with the Acquisitions. A portion of
the consideration payable to the sellers of each of the Operating Companies
has been 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 underlying
Acquisition, as security for the sellers' indemnification obligations.
Pursuant to the Acquisition Agreements, options to purchase a number of
shares of Common Stock, equal to a percentage, ranging from 4.5% to 6.25% of
the cash and Common Stock portion of the Acquisition consideration, were made
available to certain employees of the Operating Companies. In addition,
pursuant to the La Fleurette Acquisition Agreement, Dwight Haight, a director
of the Company, received options to purchase 25,000 shares of Common Stock
upon consummation of the La Fleurette Acquisition. Also, the UltraFlora
Acquisition Agreement provided that options to purchase a number of shares of
Common Stock, equal to 6.25% of any earn-out consideration, shall be made
available to employees of the subsidiary operating the UltraFlora operation.
The options granted in conjunction with the acquisition of the Founding
Companies have an exercise price of $13.00 per share. The options granted in
conjunction with the acquisition of the Subsequent Acquisitions have varying
exercise prices equal to the last sale price per share of the Common Stock on
the closing date of each such Acquisition. All options vest ratably over a
four-year period, beginning on the anniversary of the date of the grant.
With respect to the Founding Companies, the Acquisition Agreements provided
that the stockholders of the Founding Companies will have the right, to the
extent and under the circumstances specified in the Acquisition Agreements, to
register the shares of Common Stock received by the stockholders. See "Risk
Factors--Shares Eligible for Future Sale."
FOUNDING COMPANIES
HOUFF
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
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<PAGE>
of Houff, became 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 Acquisition.
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 $0.9 million for
the period January 1, 1997 through October 15, 1997. All payments to RHI
Industries terminated upon consummation of the Acquisition. Houff leased six
of its seven facilities from Mr. Houff. Lease payments totaled $0.4 million
for the period January 1, 1997 through October 15, 1997. The properties owned
by Mr. Houff were acquired by Houff prior to the Houff Acquisition and the
lease arrangement was thereupon terminated.
CFX
USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger for $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
Acquisition) and 250,000 shares of Common Stock. In connection with the CFX
Acquisition, Dwight Haight, the President of CFX, became 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 CFX after the
CFX Acquisition.
Mr. Haight owns 25% of two farms, Miramonte and Mocari, both of which are
located in Colombia. CFX purchases flowers from these farms on a consignment
basis, which purchases totaled $12.0 million in the year ended December 31,
1996 and $13.3 million for the period January 1, 1997 through October 15,
1997. Mr. Haight also owned 50% of La Fleurette which was recently acquired by
the Company, a bouquet manufacturer with which CFX conducts business. Sales to
and purchases from La Fleurette for the period January 1, 1997 to October 15,
1997 totaled $2.67 million. CFX provides management services to La Fleurette,
for which services La Fleurette paid fees totaling $0.4 million for the period
January 1, 1997 to October 15, 1997. All arrangements with related parties are
on terms substantially similar to those the Company would realize in
agreements with unaffiliated third parties in arm's-length transactions. Mr.
Haight owns 50% of Floraltech, Inc., an entity that manages CFX's Colombian
business activities. CFX paid $0.2 million to Floraltech, Inc. for the period
January 1, 1997 to October 15, 1997. The CFX Acquisition Agreement provides
that, upon consummation of the Acquisition, CFX will acquire the stock of
Floraltech, Inc. for a nominal consideration. Mr. Haight owns 50% of Flying
High Venture, from which entity CFX leases its facility in Miami, Florida.
Lease payments to Flying High Venture totaled $0.2 million for the period
January 1, 1997 to October 15, 1997. 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 October 15, 1997, the outstanding principal balance
of the industrial revenue bond and the term loan in the aggregate was $3.5
million. Interest on the industrial revenue bond and the term loan accrues at
an effective annual rate of 7.48% and 9.44%, respectively. From time to time
prior to the CFX Acquisition, CFX advanced funds to Mr. Haight. All amounts
due to CFX from Mr. Haight were repaid to CFX upon consummation of the CFX
Acquisition.
BAY STATE
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 Acquisition, William W. Rudolph, the
President of Bay State, became 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
66
<PAGE>
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 Acquisition.
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 period January 1, 1997 to
October 15, 1997. Mr. Rudolph also owns 8.7% of Massachusetts Floral
Properties LLC ("MFP"), which is the owner of a building in Waltham,
Massachusetts from which Bay State operates its headquarters and wholesale
facility. Bay State has leased the Waltham, Massachusetts property from MFP
for an annual rental fee of $0.2 million since October 16, 1997. Bay State
also leases a building in Springfield, Massachusetts from MFP which it
operates as a wholesale distribution facility for an annual rental fee of
$0.03 million. The Company believes that the terms of each of these leases do
not exceed the rate that the Company would 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
ten years following the termination of his employment with Bay State.
FLOWER TRADING
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 Acquisition, Gustavo Moreno, the President of Flower Trading, became 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 Acquisition.
Flower Trading previously owned a 75% interest in UltraFlora, which was
transferred to Seacross Trading Inc. prior to the Flower Trading Acquisition
and which was recently acquired by the Company. Flower Trading provides
handling services to UltraFlora. For the period from January 1, 1997 to
October 15, 1997, UltraFlora paid Flower Trading $0.3 million for such
services.
UNITED WHOLESALE
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 Acquisition, R. Raymond
Ashmore, the President of United Wholesale, became 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 Acquisition.
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 June 30, 1997 totaled $0.2
million. United Wholesale leases its corporate headquarters from a partnership
in which United Properties has a 50% interest. Lease payments to the United
Properties affiliate totaled $0.1 million for the year ended June 30, 1997.
The Company was granted a five-year option to purchase the property leased
from the affiliated entity. The Company believes that all properties are
leased on terms no less favorable than those that the Company could obtain
from an unaffiliated third party.
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United Wholesale made advances to Mr. Ashmore totaling $34,000 in the year
ended June 30, 1997 and to United Properties totaling $1.1 million as of June
30, 1997. Upon consummation of the United Wholesale Acquisition, Mr. Ashmore
and United Properties repaid the balance of these advances.
AMERICAN FLORIST
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 Acquisition, John T. Dickinson, the President of American
Florist, became 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 Acquisition. Mr. Dickinson received options to purchase
50,000 shares of Common Stock at an exercise price per share of $13.00. In
addition, Mr. Dickinson received a contingent payment of $2.4 million, based
on American Florist's earnings before interest and taxes for the year ended
December 31, 1997. The contingent payment was payable by the issuance of
141,749 shares of Common Stock.
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 period January 1, 1997 through October 15, 1997 purchases from Meadow
Flowers totaled approximately $0.2 million. The Company believes that the
terms of the purchases made from Meadow Flowers are no less favorable than
those the Company could obtain from an unaffiliated third party.
MONTEREY BAY
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 Acquisition, Jeffrey Brothers, the President of Monterey Bay,
became 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 Acquisition. Mr. Brothers received options to
purchase 50,000 shares of Common Stock at an exercise price per share of
$13.00. The stockholders of Monterey Bay, including Mr. Brothers, received a
contingent payment of $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 was paid in cash and the remainder was payable by the
issuance of 177,185 shares of 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
for the period January 1, 1997 to October 15, 1997. The lease, which
terminates December 31, 1999, provides for monthly rental payments of $12,000.
ALPINE GEM
USA Floral acquired 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
Acquisition, John Q. Graham, Jr., became 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 Acquisition. 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 of $13.00 per share.
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SUBSEQUENT ACQUISITIONS
CONTINENTAL FARMS AND ATLANTIC BOUQUET
The Company acquired all of the partnership interests of Continental Farms
and Atlantic Bouquet on January 28, 1998 for $27.5 million in cash and
1,642,672 in shares of Common Stock. In connection with the acquisition of the
partnerships, John Vaughan, the grantor of one of three irrevocable trusts
which held partnership interests in Continental Farms and Atlantic Bouquet,
became a director of the Company upon appointment to the Board at its meeting
in February 1998. Certain farms, which are owned by the Vaughan family, are
significant supply sources for floral products. Upon the consummation of the
Acquisition, the Company entered into a flower supply agreement with Lewis
Marketing Ltd. ("Lewis Marketing"), an exclusive sales distributor of the
Vaughan-owned farms, to continue Lewis Marketing's commercial relationship
with the Company. The Company believes that the terms of the agreement with
Lewis Marketing are no less favorable than those the Company could obtain from
an unaffiliated third party. The total consideration paid by Continental Farms
and Atlantic Bouquet to Lewis Marketing in 1997 was $12.1 million. The Company
established, along with certain sellers in the Continental Farms and Atlantic
Bouquet Acquisition, a $7.0 million escrow account (to which the Company
contributed $3.5 million) to provide security against potential claims that
may be asserted under the Continental Farms and Atlantic Bouquet Acquisition
Agreement, which contribution will be returned to the Company the extent (if
any) that indemnifiable claims under the escrow are not made prior to its
expiration.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 7, 1998, 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 (iv) all of
the Company's 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>
SHARES OWNED
-----------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ --------- -------
<S> <C> <C>
Jonathan J. Ledecky (1)....................................... 1,310,000 9.1
c/o U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington, D.C. 20007
Robert J. Poirier (2)......................................... 1,060,000 7.4
c/o U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington, D.C. 20007
Pilgrim Baxter & Associates, Ltd. (3)......................... 866,000 6.0
825 Duportail Road
Wayne, PA 19087
Raymond C. Anderson........................................... -- *
Vincent W. Eades (4).......................................... 15,500 *
Edward J. Mathias (5)......................................... 110,500 *
John A. Quelch (6)............................................ 35,500 *
Raymond R. Ashmore............................................ 100,125 *
Jeffrey E. Brothers........................................... 70,874 *
John T. Dickinson............................................. 141,749 1.0
John Q. Graham, Jr............................................ 80,000 *
Dwight Haight................................................. 118,750 *
Roy O. Houff.................................................. -- *
Gustavo Moreno................................................ 22,400 *
William W. Rudolph............................................ 42,955 *
John Vaughan.................................................. -- *
All directors and executive officers, as a group (7).......... 3,108,353 21.4
</TABLE>
- --------
*Less than 1%
(1) Includes 100,000 shares which may be acquired within 60 days of May 7,
1998 pursuant to the exercise of options.
(2) Includes 60,000 shares which may be acquired within 60 days of May 7, 1998
pursuant to the exercise of options. Also includes 200,000 shares held by
trusts for the benefit of Mr. Poirier's spouse and children. Mr. Poirier
disclaims beneficial ownership of all shares held by such trusts.
(3) Based upon information contained in a report on Schedule 13G filed by such
stockholder with the Securities and Exchange Commission on February 17,
1998.
(4) Includes 10,500 shares which may be acquired within 60 days of May 7, 1998
pursuant to the exercise of options.
(5) Includes 10,500 shares which may be acquired within 60 days of May 7, 1998
pursuant to the exercise of options. Also includes 50,000 shares owned by
Mr. Mathias' daughter. Mr. Mathias disclaims beneficial ownership of his
daughter's shares.
(6) Includes 10,500 shares which may be acquired within 60 days of May 7, 1998
pursuant to the exercise of options.
(7) Includes an aggregate of 191,500 shares which may be acquired within 60
days of May 7, 1998 pursuant to the exercise of options.
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<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 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 are Class I
directors whose terms expire in 1998. Messrs. Brothers, Dickinson, Graham,
Moreno and Vaughan are Class II directors whose terms expire in 1999. Messrs.
Poirier, Ledecky, Eades, Mathias and Quelch are Class III directors whose
terms 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.
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<PAGE>
REGISTRATION RIGHTS
Pursuant to the Founding Company Acquisition Agreements, the Company granted
to the recipients of Common Stock in the Founding Company Acquisitions 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.
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SHARES ELIGIBLE FOR FUTURE SALE
As of May 7, 1998, 14,350,028 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; shares held
by affiliates will be subject to resale limitations of Rule 144 described
below. In addition, approximately 4,437,044 shares issued to non-affiliates in
the Subsequent Acquisitions may be sold in accordance with the provisions of
Rule 145 promulgated under the Securities Act, subject to contractual lock-up
periods contained in the Acquisition Agreements for the Subsequent
Acquisitions. Further, 4,162,984 shares of Common Stock issued to the co-
founders and initial investors of USA Floral and to the stockholders of the
Founding Companies will be available for resale subject to compliance with
Rule 144. Of those shares, 3,862,984 may be included in certain registration
statements that may be filed by the Company, in accordance with piggyback
registration rights granted pursuant to the Acquisition Agreements or pursuant
to such rights granted to Mr. Ledecky and Mr. Poirier. Further, 2,290,537
shares of Common Stock are issuable upon the exercise of stock options that
have been granted as of the date of this Prospectus, of which options to
purchase 191,500 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 certain of such options. In addition, the
8,062,956 shares of Common Stock which remain available by this Prospectus
generally will be freely tradeable after their issuance by persons not
affiliated with the Company subject to compliance with Rule 145 of the
Securities Act and any contractual restrictions; see "Restrictions on Resale"
below. 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.
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.
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<PAGE>
RESTRICTIONS ON RESALE
Affiliates of entities acquired by the Company who do not become affiliates
of the Company may not resell Common Stock registered under the Registration
Statement to which this Prospectus relates except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with Rule 145 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act.
Generally, Rule 145 permits such affiliates to sell such shares immediately
following the acquisition in compliance with certain volume limitations and
manner of sale requirements. Under Rule 145, sales by such affiliates during
any three-month period cannot exceed the greater of (i) one percent of the
shares of Common Stock of the Company outstanding and (ii) the average weekly
reported volume of trading of such shares of Common Stock on all national
securities exchanges during the four calendar weeks preceding the proposed
sale. These restrictions will cease to apply under most other circumstances if
the affiliate has held the Common Stock for at least one year, provided that
the person or entity is not then an affiliate of the Company. Individuals who
are not affiliates of the entity being acquired and do not become affiliates
of the Company will not be subject to resale restrictions under Rule 145 and,
unless otherwise contractually restricted, may resell Common Stock immediately
following the acquisition without an effective registration statement under
the Securities Act. The ability of affiliates to resell shares of Common Stock
under Rule 145 will be subject to the Company having satisfied its Exchange
Act reporting requirements for specified periods prior to the time of sale. In
addition, the Company generally includes contractual restrictions on resale in
the definitive agreements pursuant to which it effects its acquisitions of
entities, and intends to include such restrictions in future agreements as and
to the extent that it deems appropriate.
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 December 31, 1997 and for the
period April 22, 1997 (inception) to December 31, 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, Flower Trading, American
Florist, Monterey Bay and Alpine Gem as of December 31, 1996 and for each of
the two years in the period ended December 31, 1996 and for the period January
1, 1997 through October 15, 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 United Wholesale as of June 30, 1996 and 1997
and for each of the three years in the period ended June 30, 1997 and for the
period July 1, 1997 through October 15, 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 and for the period January 1, 1997 through October 15, 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 for the year ended December 31, 1995
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.
74
<PAGE>
The financial statements of Continental Farms as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 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 XL Group as of December 31, 1997 and for the
year 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 Koehler & Dramm as of July 31, 1997 and for the
year 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 LaFleurette as of June 30, 1997 and for the year
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.
The financial statements with respect to Elite Farms included in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The financial statements of Everflora and UltraFlora as of December 31, 1997
and for the year 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.
ADDITIONAL INFORMATION
The Company has filed with 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.
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 the addresses set forth above or through the Commission's
EDGAR system via the Internet at the website set forth above.
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U.S.A. FLORAL PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REGISTRANT
U.S.A. FLORAL PRODUCTS, INC.
Report of Independent Accountants..................................... F-4
Consolidated Balance Sheet............................................ F-5
Consolidated Statement of Operations.................................. F-6
Consolidated Statement of Stockholders' Equity........................ F-7
Consolidated Statement of Cash Flows.................................. F-8
Notes to Consolidated Financial Statements............................ F-9
U.S.A. FLORAL PRODUCTS, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements..... F-23
Unaudited Pro Forma Combined Balance Sheet............................ F-24
Unaudited Pro Forma Combined Statement of Operations.................. F-25
Notes to Unaudited Pro Forma Combined Financial Statements............ F-28
FOUNDING COMPANIES
ALPINE GEM FLOWER SHIPPERS, INC.
Report of Independent Accountants..................................... F-33
Balance Sheet......................................................... F-34
Statement of Operations............................................... F-35
Statement of Stockholders' Equity..................................... F-36
Statement of Cash Flows............................................... F-37
Notes to Financial Statements......................................... F-38
THE ROY HOUFF COMPANY
Report of Independent Accountants..................................... F-40
Balance Sheet......................................................... F-41
Statement of Operations............................................... F-42
Statement of Stockholder's Equity..................................... F-43
Statement of Cash Flows............................................... F-44
Notes to Financial Statements......................................... F-45
BAY STATE FLORIST SUPPLY, INC.
Report of Independent Accountants..................................... F-50
Balance Sheet......................................................... F-51
Statement of Operations............................................... F-52
Statement of Stockholders' Equity..................................... F-53
Statement of Cash Flows............................................... F-54
Notes to Financial Statements......................................... F-55
MONTEREY BAY BOUQUET, INC.
Report of Independent Accountants..................................... F-60
Combined Balance Sheet................................................ F-61
Combined Statement of Operations...................................... F-62
Combined Statement of Stockholders' Equity............................ F-63
Combined Statement of Cash Flows...................................... F-64
Notes to Combined Financial Statements................................ F-65
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
FLOWER TRADING CORPORATION
Report of Independent Accountants................................. F-70
Consolidated Balance Sheet........................................ F-71
Consolidated Statement of Operations.............................. F-72
Consolidated Statement of Stockholders' Equity.................... F-73
Consolidated Statement of Cash Flows.............................. F-74
Notes to Consolidated Financial Statements........................ F-75
UNITED WHOLESALE FLORISTS, INC.
Report of Independent Accountants................................. F-81
Combined Balance Sheet............................................ F-82
Combined Statement of Operations.................................. F-83
Combined Statement of Stockholders' Equity........................ F-84
Combined Statement of Cash Flows.................................. F-85
Notes to Combined Financial Statements............................ F-86
AMERICAN FLORIST SUPPLY, INC.
Report of Independent Accountants................................. F-92
Balance Sheet..................................................... F-93
Statement of Operations........................................... F-94
Statement of Stockholders' Equity................................. F-95
Statement of Cash Flows........................................... F-96
Notes to Financial Statements..................................... F-97
CFX, INC.
Report of Independent Accountants................................. F-102
Independent Auditors' Report...................................... F-103
Balance Sheet..................................................... F-104
Statement of Operations........................................... F-105
Statement of Stockholders' Equity................................. F-106
Statement of Cash Flows........................................... F-107
Notes to Financial Statements..................................... F-108
AUDITED SUBSEQUENT ACQUISITIONS
-------------------------------
CONTINENTAL FARMS LIMITED and ATLANTIC BOUQUET COMPANY LIMITED
Report of Independent Certified Public Accountants................ F-114
Consolidated Balance Sheet........................................ F-115
Consolidated Statement of Operations.............................. F-116
Consolidated Statement of Stockholders' Equity
and Partners' Capital............................................ F-117
Consolidated Statement of Cash Flows.............................. F-118
Notes to Financial Statements..................................... F-119
XL GROUP, INC.
Report of Independent Certified Public Accountants................ F-126
Balance Sheet..................................................... F-127
Statement of Operations........................................... F-128
Statement of Stockholder's Equity................................. F-129
Statement of Cash Flows........................................... F-130
Notes to Financial Statements..................................... F-131
KOEHLER & DRAMM, INC.
Report of Independent Accountants................................. F-135
Balance Sheet..................................................... F-136
Consolidated Statement of Operations.............................. F-137
Consolidated Statement of Stockholders' Equity.................... F-138
Consolidated Statement of Cash Flows.............................. F-139
Notes to Consolidated Financial Statements........................ F-140
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
H&H FLOWERS, INC.
Independent Auditors' Report.......................................... F-144
Balance Sheet......................................................... F-145
Statement of Income and Accumulated Deficit........................... F-146
Statement of Cash Flows............................................... F-147
Notes to Financial Statements......................................... F-148
ELITE FARMS
Report of Independent Certified Public Accountants.................... F-152
Balance Sheets........................................................ F-153
Statements of Income.................................................. F-154
Statements of Changes in Venturers' Capital........................... F-155
Statements of Cash Flows.............................................. F-156
Notes to Financial Statements......................................... F-157
EVERFLORA, INC. and EVERFLORA MIAMI, INC.
Report of Independent Certified Public Accountants.................... F-162
Combined Balance Sheet................................................ F-163
Combined Statement of Operations...................................... F-164
Combined Statement of Stockholder's Equity............................ F-165
Combined Statement of Cash Flows...................................... F-166
Notes to Combinued Financial Statements............................... F-167
ULTRAFLORA CORPORATION
Report of Independent Certified Public Accountants.................... F-171
Balance Sheet......................................................... F-172
Statement of Operations............................................... F-173
Statement of Stockholders' Equity..................................... F-174
Statement of Cash Flows............................................... F-175
Notes to Financial Statements......................................... F-176
</TABLE>
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
U.S.A. Floral Products, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
U.S.A. Floral Products, Inc. and its subsidiaries at December 31, 1997, and
the results of their operations and their cash flows for the period April 22,
1997 (inception) through December 31, 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 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.
February 24, 1998
F-4
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 15,582 $ 13,392
Accounts receivable, net............................. 18,505 41,985
Inventory............................................ 4,937 9,867
Due from related parties............................. 1,153 --
Prepaid income taxes................................. 52 --
Prepaid expenses..................................... 959 2,346
-------- --------
Total current assets................................ 41,188 67,590
Property and equipment, net........................... 8,726 15,497
Due from related parties.............................. 994 --
Deferred income taxes................................. 394 698
Goodwill, net......................................... 52,569 141,842
Restricted Cash....................................... -- 3,526
Deferred financing costs, net......................... 1,696 1,676
Other assets.......................................... 1,681 1,728
-------- --------
Total assets........................................ $107,248 $232,557
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt...................................... $ 290 $47,915
Accounts payable and accrued expenses................ 12,734 28,196
Due to stockholders.................................. 6,060 11,927
Income taxes payable................................. 1,008 3,170
Due to related parties............................... 36 --
-------- --------
Total current liabilities........................... 20,128 91,208
Long-term debt........................................ 309 383
Deferred income taxes................................. 97 6
Other................................................. 549 991
-------- --------
Total liabilities................................... 21,083 92,588
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 100,000 shares autho-
rized;
9,594 and 12,606 shares issued and outstanding...... 9 13
Additional paid-in capital........................... 85,740 135,588
Retained earnings.................................... 416 4,368
-------- --------
Total stockholders' equity.......................... 86,165 139,969
-------- --------
Total liabilities and stockholders' equity.......... $107,248 $232,557
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 22, 1997 TO THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net sales................................. $37,380 $100,520
Cost of sales............................. 26,685 74,056
------- --------
Gross profit............................. 10,695 26,464
Selling, general and administrative ex-
penses................................... 9,791 18,540
Goodwill amortization..................... 275 746
------- --------
Income from operations................... 629 7,178
Other (income) expense:
Interest expense......................... 8 681
Interest income.......................... (248) (270)
Other, net............................... (37) (315)
------- --------
Income before income taxes................ 906 7,082
Provision for income taxes................ 490 3,130
------- --------
Net income................................ $ 416 $ 3,952
======= ========
Net income per share:
Basic.................................... $ 0.09 $ 0.32
======= ========
Diluted.................................. $ 0.09 $ 0.31
======= ========
Weighted average number of common shares
Basic.................................... 4,734 12,360
======= ========
Diluted.................................. 4,824 12,928
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock for
initial capitalization
of the Company (April 22,
1997)......................... 2,400 $ 2 $ 398 $ -- $ 400
Issuance of 5,750 shares of
Common Stock
in initial public offering
(October 16, 1997)............ 5,750 6 66,571 -- 66,577
Exercise of stock options...... 110 -- 1,430 -- 1,430
Issuance of 1,334 shares of
Common Stock
for business acquisitions..... 1,334 1 17,341 -- 17,342
Net income..................... -- -- -- 416 416
------ --- -------- ------ --------
Balance at December 31, 1997... 9,594 9 85,740 416 86,165
Issuance of 3,012 shares of
Common Stock
for business acquisitions (un-
audited)...................... 3,012 4 49,848 -- 49,852
Net income (unaudited)......... -- -- -- 3,952 3,952
------ --- -------- ------ --------
Balance at March 31, 1998 (un-
audited)...................... 12,606 $13 $135,588 $4,368 $139,969
====== === ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 22, 1997 TO THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................... $ 416 $ 3,952
Adjustments to reconcile net income to
net cash
used in operating activities:
Depreciation and amortization........... 290 568
Amortization of goodwill................ 275 746
Amortization of deferred financing
costs.................................. 73 90
Loss on disposal of property and equip-
ment................................... (9) (16)
Deferred income taxes................... 43 (163)
Change in operating assets and liabili-
ties:
Accounts receivable.................... (214) (7,121)
Inventory.............................. 1,299 (1,272)
Due from related parties............... 781 3,323
Prepaid expenses and other current as-
sets.................................. (112) (477)
Other assets........................... 238 484
Income taxes payable................... (312) 1,757
Other liabilities...................... (45) 253
Accounts payable and accrued expenses.. (3,495) 1,111
-------- --------
Net cash provided by (used in) operat-
ing activities: (772) 3,235
-------- --------
Cash flows from investing activities:
Purchases of property and equipment...... (543) (585)
Payments for purchase of founding compa-
nies, net of cash acquired.............. (39,819) (47,332)
Deferred acquisition costs............... (647) 199
Increase in Restricted Cash.............. -- (3,526)
-------- --------
Net cash used in investing activities: (41,009) (51,244)
-------- --------
Cash flows from financing activities:
Proceeds from credit facility, net....... -- 47,500
Increase in deferred financing costs..... (1,769) (70)
Repayments on long-term debt............. (5,700) (1,611)
Principal payments on capital lease obli-
gations................................. (8) --
Payments to stockholders................. (3,679) --
Increase in due to stockholders.......... 659 --
Repayments of notes payable.............. (547) --
Proceeds from initial public offering,
net..................................... 66,577 --
Proceeds from the exercise of stock op-
tions................................... 1,430 --
Proceeds from the issuance of Common
Stock................................... 400 --
-------- --------
Net cash provided by financing activi-
ties.................................. 57,363 45,819
-------- --------
Net increase (decrease) in cash and cash
equivalents.............................. $ 15,582 $ (2,190)
Cash and cash equivalents--beginning of
period................................... -- $ 15,582
-------- --------
Cash and cash equivalents--end of period.. $ 15,582 $ 13,392
======== ========
See Note 12 for supplemental cashflow in-
formation.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
U.S.A FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
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 acquired eight U.S. businesses in the floral
industry (the "Founding Companies") subsequent to the initial public offering
("IPO") of its Common Stock in October 1997. These financial statements
include the net expenses incurred by USA Floral since inception (April 22,
1997) and the results of operations of the Founding Companies subsequent to
their acquisition effective October 16, 1997. The Company intends to continue
to acquire, through merger or purchase, similar companies to expand its
national operations. See Note 14 for companies purchased subsequent to
December 31, 1997.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of USA Floral and
its subsidiary companies, all of which are wholly owned. All significant
intercompany profits, transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of 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
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.
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. Leasehold improvements are amortized over the shorter of their
respective lease terms or estimated useful lives. The useful lives used in
computing depreciation, based on the Company's estimate of service life of the
classes of property, are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 30 years
Furniture fixtures and equipment............................ 5 to 7 years
Computer equipment and software............................. 3 to 5 years
Vehicles.................................................... 5 years
</TABLE>
F-9
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Goodwill
Goodwill, which represents costs in excess of net assets of businesses
acquired, is being amortized over forty years using the straight-line method.
The Company continually reviews goodwill to assess recoverability from
estimated future results of operations, using estimates of undiscounted cash
flows of the acquired businesses. Any required provisions for impairment would
be made in the period the impairment is first determined, and would be based
on the fair value of the related businesses. Accumulated amortization at
December 31, 1997 was $275.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, accrued expenses and short-term debt approximates fair
value because of the short-term nature of these instruments. The estimated
fair value of non-current debt approximates its carrying value due to its
stated interest rate approximating 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.
Concentration of Supply Risk
The supply of perishable floral products is significantly dependent on
weather conditions where the products are grown. The Company currently
purchases the majority of its perishable floral products from farms located in
South America, principally Columbia and Ecuador. Shortages or disruptions in
the supply of fresh flowers or the inability of the Company to procure such
material from alternative sources at acceptable prices in a timely manner,
could lead to loss of customers.
Income Taxes
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences between
such income and that recognized for tax return purposes. The Company and its
subsidiaries file a consolidated U.S. federal income tax return.
Stock-based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recorded. In the event that stock options are issued at an exercise price
below the market price, compensation expense is recorded ratably over the
vesting period for the options issued at a discount. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(Statement 123), requires the Company to make certain disclosures as if the
fair value based method of accounting had been applied to the Company's stock
option grants.
F-10
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Earnings Per Share
Basic earnings per share 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 earnings per share
reflect the potential dilution that could occur if outstanding stock options
were exercised. Diluted earnings per share is determined by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period plus the incremental shares that would
have been outstanding upon the assumed exercise of dilutive stock options.
NOTE 3 ACQUISITION OF FOUNDING COMPANIES
Effective October 16, 1997, USA Floral acquired all the outstanding capital
stock of the Founding Companies. The Founding Companies include: The Roy Houff
Company, CFX, Inc., Bay State Florist Supply, Inc., Flower Trading
Corporation, United Wholesale Florists, Inc. and United Wholesale Florists of
America, Inc., American Florist Supply, Inc., Monterey Bay Bouquet, Inc. and
Bay Area Bouquets, Inc. and Alpine Gem Flower Shippers, Inc. The acquisitions
were accounted for using the purchase method of accounting with USA Floral
being treated as the accounting acquiror.
The following table sets forth the consideration 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 fair value of the net
assets acquired and resulting goodwill. For purposes of computing the purchase
price for accounting purposes, the value of shares is based upon the initial
public offering price of $13.00. The total Purchase Consideration also
reflects the 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 $500 in cash and $5,400
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 318,934 shares of U.S.A. Floral Common Stock to be issued pursuant to
these arrangements are included as outstanding for purposes of earnings per
share calculations.
The purchase price has been allocated to each Founding Company's assets and
liabilities acquired based on their respective carrying values, with the
exception of acquired properties 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 acquired properties was determined by an
independent valuation by a third party.
<TABLE>
<CAPTION>
SHARES OF NET
COMMON VALUE OF TOTAL ASSETS
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roy Houff............... $11,006 -- $ -- $11,006 $ 3,454 $ 7,552
CFX, Inc................ 6,521 250,000 3,250 9,771 1,229 8,542
Bay State............... 6,045 495,550 6,442 12,487 4,156 8,331
Flower Trading.......... 5,920 160,000 2,080 8,000 1,273 6,727
United Wholesale........ 4,788 268,500 3,491 8,279 2,298 5,981
American Florist........ 4,800 141,749 2,400 7,200 249 6,951
Monterey Bay............ 3,000 177,185 3,000 6,000 705 5,295
Alpine Gem.............. 1,600 160,000 2,080 3,680 215 3,465
------- --------- ------- ------- ------- -------
Total................. $43,680 1,652,984 $22,743 $66,423 $13,579 $52,844
======= ========= ======= ======= ======= =======
</TABLE>
The following unaudited pro forma summary presents the combined results of
operations of the Company and the Founding Companies, as if the acquisitions
and USA Floral's IPO occurred at the beginning of 1997.
F-11
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma amounts give effect to certain adjustments including
amortization of intangibles, reduction in salary, bonuses and benefits in
connection with the transactions, anticipated compensation of USA Floral's
management, associated costs of being a public company and income taxes. The
pro forma summary does not purport to represent what USA Floral's results of
operations would actually have been if such transactions had occurred on
January 1, 1997 and are not necessarily representative of USA Floral's 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.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(UNAUDITED)
<S> <C>
Net sales.............................................. $184,124
Operating income....................................... 7,431
Net income............................................. 4,454
Earning per share--diluted and basic................... $ 0.50
</TABLE>
NOTE 4 STOCKHOLDER'S EQUITY
Common Stock
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $0.001 per share.
In connection with the organization and initial capitalization of USA
Floral, on April 22, 1997 the Company issued 2,000,000 shares of Common Stock
at $0.001 per share. Subsequently, the Company issued 300,000 shares on April
23, 1997 at $1.00 per share, on May 8, 1997 issued 25,000 shares at $1.00 per
share, on May 10, 1997 issued 25,000 shares at $1.00 per share and on May 25,
1997 issued 50,000 shares at $1.00 per share.
In connection with its IPO, the Company issued 5,750,000 shares for $13.00
per share, before costs and expenses of the offering, on October 13, 1997.
Also on October 13, 1997, the Non-Executive Chairman of the Board of USA
Floral exercised 110,000 stock options and the Company issued 110,000 shares
for $13.00 per share.
Stock Option Plans
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 from time to time, which
number of shares is reserved for issuance. The terms of the option awards were
established by the Compensation Committee of the Company's Board of Directors
(the "Committee") and awards may be settled in cash, shares, other awards or
other property, as determined by the Committee.
Under the Incentive Plan, the Company granted 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 IPO and options
to purchase 125,000 shares of Common Stock to other key employees at $8.00 per
share. Compensation expense is being recorded over the four year vesting
period for the options issued at a discount.
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
F-12
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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 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 were issued on the date of the IPO.
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, 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
prior to normal vesting, all options not already exercisable would become
fully vested and exercisable.
The Incentive Plan and the Directors' Plan provide for the granting of
either incentive stock options or nonqualified stock options to purchase
shares of the Company's Common Stock and for other stock-based awards to
officers, directors and key employees responsible for the direction and
management of the Company and to non-employee consultants and independent
contractors.
Information relating to stock options during 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE TOTAL
OPTIONS EXERCISE PRICE CONSIDERATION
--------- ---------------- -------------
<S> <C> <C> <C>
Granted........................... 1,073,856 $12.64 $13,569
Exercised......................... (110,000) 13.00 (1,430)
Forfeited......................... (2,214) 13.00 (29)
--------- -------
Shares under option at December
31, 1997......................... 961,642 12.59 $12,110
========= =======
Shares exercisable at December 31,
1997............................. 160,000 13.00 $ 2,080
========= =======
</TABLE>
All outstanding options are nonqualified options. From October 16, 1997 to
December 31, 1997, compensation expense of $36 was recognized related to stock
options issued below the market price on the date of the grant. Generally the
Company issues stock options at exercise prices equal to fair market value of
the common stock on the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company accounted
for its employee stock options under the fair value method of Statement 123.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate........................................ 6.00%
Dividend yield................................................. 0.00%
Volatility factor.............................................. 40.0%
Weighted average expected life................................. 7.5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
F-13
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net earnings and earnings per share under Statement 123
for the period April 22, 1997 to December 31, 1997 are shown below. These pro
forma disclosures are not representative of the effects on reported net income
and net income per share for future years, because the Company's first option
grants were made in the fourth quarter of this year, the options vest over
four years and additional awards may be made in future years.
<TABLE>
<S> <C>
Net income--as reported........................................... $ 416
Net income--pro forma............................................. $ 95
Income per share--as reported (basic and diluted)................. $ 0.09
Income per share--pro forma (basic and diluted)................... $ 0.02
Weighted average fair value of options granted during the year.... $ 9.55
</TABLE>
In January 1998, options to purchase an additional 971,000 shares were
granted at market prices prevailing at the date of grant. Of these, options
for 409,000 shares were granted to the Company's management at prices ranging
from $15.75-$18.87 per share, and options for 562,000 shares were granted to
management and employees of the companies acquired in January 1998 (see Note
14) at prices ranging from $17.37-$19.00 per share.
NOTE 5 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE OF
FOUNDING
COMPANIES
AT CHARGED TO BALANCE AT
OCTOBER 15, COSTS AND WRITE- DECEMBER 31,
INCEPTION 1997 EXPENSES OFFS 1997
--------- ----------- ---------- ------ ------------
<S> <C> <C> <C> <C> <C>
For the period October
16, 1997 through
December 31, 1997..... -- $711 49 (161) $599
</TABLE>
NOTE 6 INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Perishables..................................... $ 523 $1,662
Hardgoods....................................... 4,414 8,205
------ ------
$4,937 $9,867
====== ======
</TABLE>
NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Buildings................................................... $2,121
Leasehold improvements...................................... 1,188
Computer equipment.......................................... 2,089
Furniture, fixtures and equipment........................... 2,700
Vehicles.................................................... 321
Other....................................................... 37
------
8,456
Accumulated depreciation and amortization................... (291)
------
8,165
Land........................................................ 561
------
$8,726
======
</TABLE>
Depreciation expense for the period April 22, 1997 to December 31, 1997 was
$291.
F-14
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 8 CREDIT FACILITY
On October 16, 1997 the Company entered into a Credit Agreement
("Agreement") with various lending institutions and Bankers Trust Company, as
agent, (the "Bank") for a $100,000 credit facility. The Agreement provides for
a revolving credit facility with a $75,000 ($85,000 at March 31, 1998) limit
on acquisition loans and a $25,000 ($15,000 at March 31, 1998) limit on
working capital loans. The proceeds of the credit facility will be used to
finance acquisitions and fund related working capital requirements. The
revolving credit facility requires payment of interest quarterly at 1.50%
above LIBOR (London Inter Bank Offering Rate) on balances outstanding. The
Company paid on closing a financing fee of $1,769, which has been deferred and
will be amortized over the life of the Agreement; during the period October
16, 1997 to December 31, 1997, the Company amortized $73 of the deferred
financing fee. In addition, a commitment fee of 0.25% is charged on the unused
portion of the revolving credit facility on a quarterly basis. Commitment fees
charged for the period were $56. At December 31, 1997, no borrowings were
outstanding under the Agreement, which expires October 16, 2002. At December
31, 1997, a letter of credit of $3,900 was outstanding. During the year, the
Company paid $14 in fees related to outstanding letters of credit.
The credit facility is collateralized by receivables, inventories, equipment
and certain real property. Under the terms of the Agreement, the Company is
required to maintain certain financial ratios and other financial conditions.
The Agreement prohibits the Company from incurring additional indebtedness,
limits certain investments, advances or loans and restricts substantial asset
sales, capital expenditures and cash dividends. At December 31, 1997 the
Company was in compliance with all loan covenants.
In connection with the acquisitions consummated in January 1998 (see Note
14--Subsequent Events), the Company borrowed $47,500 under the revolving
credit facility. The interest rate on the borrowings varied from 6.5% to
7.25%. The Company obtained a waiver letter from the Bank with respect to
certain covenants under the Agreement in order to effect certain recent
acquisitions (see Note 14.)
NOTE 9 INCOME TAXES
The components of income tax expense (benefit) from continuing operations
for the period April 22, 1997 to December 31, 1997 are:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal........................................................... $450
State............................................................. 80
----
530
----
Deferred:
Federal........................................................... (34)
State............................................................. (6)
----
(40)
----
$490
====
</TABLE>
F-15
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts.................................. $189
Inventory capitalization......................................... 54
Anti-dumping accrual............................................. 64
Inventory reserves............................................... 52
Net operating loss carryforward for state tax purposes........... 35
----
Total deferred tax assets...................................... 394
Deferred tax liability
Accumulated depreciation......................................... 97
----
Net deferred tax assets........................................ $297
====
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective rate of income tax expense for the period April 22, 1997 to December
31, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
Statutory federal income tax rate.................................... 34%
Increase in taxes resulting from:
State tax, net of federal benefit.................................. 6%
Non-deductible goodwill amortization............................... 12%
Other.............................................................. 2%
---
54%
===
</TABLE>
NOTE 10 RELATED PARTY TRANSACTIONS
The Company receives and purchases flowers from farms partially owned by,
and/or persons related to, directors and senior management of USA Floral.
Approximately 13% of the cost of sales in 1997 represented purchases from
related entities, which are made on terms similar to those with outside third
parties in arms-length transactions. The Company also pays representative fees
to related entities for flowers shipped from Colombia. These related entities
ensure that the Company has a reliable source of fresh-cut flowers in
Colombia. The entities also provide each of the Company's suppliers with
technical expertise to improve and maintain the yield, quality and durability
of fresh-cut flowers. In addition, due to the large number of suppliers in
Colombia, the Company requires the service of the entities to consolidate the
shipments of flowers with a common carrier, and generate the paperwork
necessary to complete the shipment of flowers. Representative fees for the
period October 16, 1997 to December 31, 1997 were approximately $21.
The Company sells flowers to two bouquet manufacturers owned by directors
and senior management of USA Floral. Sales were approximately $448 to these
affiliates for the period October 16, 1997 to December 31, 1997.
The Company leases offices and warehouse facilities from entities owned
and/or related to directors and senior management of USA Floral. All such
transactions are conducted at rates intended by the parties to be
representative of market rates. Rent for the period October 16, 1997 to
December 31, 1997 was approximately $219.
F-16
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 11 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases warehouse and office facilities in a number of locations
under noncancelable operating leases. The aggregate future minimum rentals
(exclusive of real estate taxes and expenses) are as follows:
<TABLE>
<S> <C>
Year ending December 31,:
1998............................................................. $2,207
1999............................................................. 1,913
2000............................................................. 1,642
2001............................................................. 938
2002............................................................. 739
Thereafter....................................................... 1,116
------
$8,555
======
</TABLE>
The Company is also the lessor under several minor capital leases for which,
in the aggregate, the capitalized lease obligation approximates $300.
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,
results of operations or cash flows of the Company.
Anti-Dumping
In 1986, the U.S. Department of Commerce (the "DOC") imposed an antidumping-
duty deposit ("ADD") ranging from 1% to 50% 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 review
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 and the tenth review is in process.
Included in accrued expenses is approximately $1,082 as of December 31,
1997, of estimated antidumping duty imposed by the DOC. The antidumping duty
is subject to change upon the DOC's final review of all open antidumping
periods as well as various legal appeals. The Company believes its accrual to
be adequate, but cannot presently determine the effect, if any, of an adverse
determination by the DOC regarding the ADDs.
F-17
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
APRIL 22, 1997 TO THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
<S> <C> <C>
Cash paid during the period for interest. $ 100 $ 152
======= =======
Cash paid during the period for income
taxes................................... $ 225 $ 772
======= =======
Supplemental disclosure of non-cash trans-
actions:
Business acquisitions:
Cash paid for business acquisitions..... $43,679 $52,100
Less: cash acquired..................... 3,861 4,768
------- -------
Cash paid for business acquisitions,
net.................................... 39,818 47,332
Issuance of common stock for business
acquisitions........................... 22,743 56,142
------- -------
62,561 103,474
Fair value of net assets acquired, net
of cash................................ 9,717 13,398
------- -------
$52,844 $90,076
======= =======
</TABLE>
NOTE 13 QUARTERLY INFORMATION (UNAUDITED)
The Company became a public company with its IPO in October 1997. Quarterly
information for the fourth quarter of 1997, which includes the net expense
incurred by USA Floral and the results of operations of the Founding Companies
subsequent to their acquisition effective October 16, 1997, are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Net sales.................................................... $37,382
Operating income............................................. 742
Net income................................................... 529
Income per share--basic and diluted.......................... $ .06
</TABLE>
NOTE 14 SUBSEQUENT EVENTS (UNAUDITED)
In January 1998, USA Floral consummated the acquisition of the following six
companies (referred to collectively as the "January 1998 Class"):
Continental Farms Limited ("Continental Farms") and Atlantic Bouquet
Company Limited ("Atlantic Bouquet"), each a Florida limited partnership
headquartered in Miami, Florida. Prior to their acquisition, Continental
Farms and Atlantic Bouquet were under common ownership. Continental Farms
is an importer and broker of floral products from South America and Latin
America and Atlantic Bouquet is a bouquet manufacturer. Both companies
distribute their products throughout the United States and Canada.
XL Group, Inc. ("XL Group") imports fresh cut floral products from Costa
Rica, Ecuador and distributes these products to wholesalers and
supermarkets throughout the United States. The XL Group is located in
Miami, Florida.
Koehler & Dramm, Inc. ("Koehler & Dramm") is a regional wholesale florist
company serving retailers throughout the upper Midwest United States.
Koehler & Dramm is headquartered in Minneapolis, Minnesota and has a branch
operation in Kansas City, Missouri.
Everflora, Inc. ("Everflora") and Everflora Miami, Inc. ("Everflora
Miami") are importers/brokers of perishable floral products. Everflora,
headquartered in Creskill, New Jersey, sells various types of flowers to
wholesalers across the United States. Everflora Miami, headquartered in
Miami, Florida, sells various types of flowers and bouquets, primarily
imported from Central America and South America.
F-18
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
H&H Flowers, Inc. ("H&H Flowers"), which does business under the name of
"La Fleurette," assembles and sells floral bouquets and other arrangements
to the supermarket industry primarily throughout the eastern United States.
H&H Flowers is headquartered in Miami, Florida. A member of the Board of
Directors of USA Floral was a stockholder in H&H Flowers.
UltraFlora Corporation ("UltraFlora") imports and sells floral bouquets
and other arrangements to the mass-market industry throughout the eastern
United States. UltraFlora is headquartered in Miami, Florida. A member of
the Board of Directors of USA Floral was a stockholder in UltraFlora.
The following table sets forth the consideration paid (the "Purchase
Consideration") (a) in cash and (b) in shares of Common Stock to the common
stockholders of each of the January 1998 Class, the estimated fair value of
the net assets acquired and resulting goodwill. For purposes of computing the
purchase price for accounting purposes, the value of shares is based upon an
average share price calculated using the purchase contract formula, which
incorporates the share price at the date of the letter of intent, the date of
the definitive agreement and the average daily share price between the two
aforementioned events. The total Purchase Consideration also reflects the
contingent consideration related to earn-out arrangements included in the
definitive agreement for UltraFlora, which provides for the Company to pay
additional consideration, based on 1997 earnings before interest and taxes, of
approximately $5,900 in shares of Common Stock, calculated by reference to the
average closing price of the Common Stock for each trading day during the
thirty calendar day period ending December 31, 1997. The estimated resultant
359,487 shares will be issued when all amounts have been finalized.
The contingent consideration related to earn-out arrangements included in
the definitive agreement for XL Group, Inc. has not been included in the
Purchase Consideration. This arrangement provides for the Company to pay
additional consideration, based on 1998 earnings before interest and taxes, of
up to $4,000 in shares of Common Stock, calculated by reference to the average
closing price of the Common Stock for each trading day during the thirty
calendar day period ending December 31, 1998. The contingent consideration
related to earn-out arrangements included in the definitive agreement for H&H
Flowers also has not been included in the Purchase Consideration. This
arrangement provides for the Company to pay additional consideration, without
limit, based on earnings before interest and taxes for the twelve month period
ending June 30, 1998, in shares of Common Stock, calculated by reference to
the average closing price of the Common Stock for each trading day during the
thirty calendar day period ending June 30, 1998.
The purchase price has been allocated to each company's assets and
liabilities based on their respective carrying values, with the exception of
acquired properties at one of the entities, as these carrying values are
deemed to represent fair market value of these assets and liabilities. The
fair market value of acquired properties was estimated and will be determined
via an independent valuation by a third party. The allocation of the purchase
price is preliminary, but the Company does not anticipate that the final
allocation of purchase price will differ significantly from that as described
above.
F-19
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES OF NET
COMMON VALUE OF TOTAL ASSETS
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Continental Farms and
Atlantic
Bouquet................ $27,500 1,642,672 $27,500 $ 55,000 $ 5,359 $49,641
XL Group, Inc........... 11,250 660,938 11,000 22,250 5,525 16,725
Koehler & Dramm......... 5,000 298,596 5,000 10,000 3,544 6,456
Everflora and Everflora,
Miami.................. 4,000 246,654 4,000 8,000 2,889 5,111
H & H Flowers, d/b/a La
Fluerette.............. 1,600 -- -- 1,600 (710) 2,310
UltraFlora.............. 2,750 522,768 8,642 11,392 1,559 9,833
------- --------- ------- -------- ------- -------
Total................. $52,100 3,371,628 $56,142 $108,242 $18,166 $90,076
======= ========= ======= ======== ======= =======
</TABLE>
The following unaudited pro forma summary presents the combined results of
operations of the Company, the January 1998 Class and the Founding Companies,
as if the acquisitions and USA Floral's IPO occurred at January 1, 1997. The
pro forma amounts give effect to certain adjustments including amortization of
intangibles, reduction in salary, bonuses and benefits in connection with the
transactions, anticipated compensation of USA Floral's management, associated
costs of being a public company and income taxes. The pro forma summary does
not purport to represent what USA Floral's results of operations would
actually have been if such transactions in fact had occurred on January 1,
1997 and are not necessarily representative of USA Floral's results of
operations for any future period. Since the January 1998 Class and the
Founding Companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future
performance.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(UNAUDITED)
<S> <C>
Net sales.............................................. $360,241
Operating income....................................... 18,432
Net income............................................. 8,859
Net income per share--basic and diluted................ $ .67
</TABLE>
Additionally, in April 1998, USA Floral consummated the acquisition of the
following eight companies (referred to collectively as the "April 1998
Class"):
. David L. Jones Wholesale, Ltd., one of the largest wholesale floral and
import companies in Canada with offices in Vancouver, Edmonton, Calgary
and Winnipeg;
. Edfrancar, Inc., d/b/a Florafresh International, is a Miami-based bouquet
manufacturer, distributor and importer servicing major retail chains such
as Albertson's, Winn-Dixie, Food Lion and K-Mart;
. AFB Marketing Inc., d/b/a Allan Stanley Greenhouses, headquartered in
Carlsbad, California, is a bouquet manufacturer and distributor serving
California, Nevada, Arizona, New Mexico and Colorado;
. Pacific Floral Wholesale, Inc. and Rose City Floral, Inc., are regional
floral distributors serving the Portland, Oregon area;
. Master Flowers Inc., d/b/a Sabana Farms, is a Miami-based regional
importer of fresh-cut floral products serving over 300 national wholesale
accounts;
. Maxima Farms, Inc. is an importer and broker of fresh-cut flowers to over
450 customers in the United States, Europe and Canada with offices in
Florida and California;
. Selecta Farms, Inc. and Saint Ann Trading Corporation are Miami-based
importers of fresh-cut flowers from international growers serving over 450
customers nationwide;
. Elite Farms, Talent, Inc. and Anvacu, Inc., are importers of fresh-cut
flowers located in Miami serving over 200 customers on a nationwide basis.
F-20
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate consideration paid for the acquisition of the April 1998 Class was
approximately $44 million (excluding potential additional consideration under
earn-out arrangements of $19 million), comprising cash of $20 million and
approximately 1,065,500 shares of Common Stock with a value of $24 million.
Revenues for the eight companies for their latest respective fiscal year end
aggregated approximately $102 million. Goodwill arising from these
acquisitions, which will be accounted for as purchases, is expected to
approximate $35 million, excluding earnout arrangements.
NOTE 15--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 March 31, 1998 and
the results of its operations and its cash flows for the three months ended
March 31, 1998, as presented in the accompanying unaudited interim financial
statements.
F-21
<PAGE>
[This page intentionally left blank]
F-22
<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 certain acquisitions completed through April 8, 1998 by U.S.A. Floral
Products, Inc. ("USA Floral"). Specifically, they give effect to the
acquisition of Continental Farms Limited and Atlantic Bouquet Company Limited
("Continental"), XL Group, Inc. ("XL Group"), Koehler & Dramm, Inc. ("Koehler
& Dramm"), Everflora, Inc. and Everflora Miami, Inc. ("Everflora"), H&H
Flowers, Inc. ("H&H Flowers") and UltraFlora Corporation ("UltraFlora"), all
of which were consummated in January 1998, and Elite Farms ("Elite"),
consummated in April 1998. Audited financial statements for all of these
acquired businesses as of their respective fiscal year ends appear elsewhere
in this Registration Statement, and collectively they are referred to as the
"Audited Subsequent Acquisitions."
The unaudited pro forma combined balance sheets gives effect to the
acquisition of Elite as if it had occurred as of the Company's most recent
balance sheet date, March 31, 1998.
The unaudited pro forma combined statement of operations gives effect to (i)
USA Floral's initial public offering of Common Stock on October 13, 1997 as if
such offering had occurred on January 1, 1997; (ii) the acquisition, effective
October 16, 1997, of the Founding Companies, which were business combinations
accounted for under the purchase method of accounting, as if such acquisitions
had been consummated on January 1, 1997; and (iii) the acquisition of the
Audited Subsequent Acquisitions, which were business combinations accounted
for under the purchase method of accounting, as if such acquisitions had been
consummated on January 1, 1997.
The pro forma statement of operations for the year ended December 31, 1997
includes (i) the audited financial statements of USA Floral for the period
April 1997 to December 31, 1997 which include the operating results of the
Founding Companies subsequent to October 16, 1997; (ii) the audited financial
statements of the Founding Companies for the period January 1, 1997 to the
acquisition date of October 15, 1997, except that unaudited financial
information for the period January 1, 1997 to October 15, 1997 is included for
United Wholesale, whose fiscal year end was June 30; (iii) the audited
financial statements of Continental, XL Group, Everflora, UltraFlora and Elite
for the year ended December 31, 1997; and (iv) unaudited financial statements
for Koehler & Dramm whose fiscal year end is July 31, and for H&H Flowers
whose fiscal year end is June 30.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate, and may
be revised as additional information becomes available. The pro forma
financial data presented herein does 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. The unaudited pro forma combined financial
statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Registration Statement.
These unaudited pro forma combined financial statements do not give effect
to the acquisitions of, and do not include results of operations of,
Edfrancar, Inc., d/b/a Florafresh International ("Florafresh"), AFB Marketing
Inc., d/b/a Allan Stanley Greenhouses ("Allan Stanley"), Pacific Floral
Wholesale, Inc. and Rose City Floral, Inc. ("Rose City"), Master Flowers Inc.,
d/b/a Sabana Farms ("Sabana"), Maxima Farms, Inc., ("Maxima"), Selecta Farms,
Inc. and Saint Ann Trading Corporation ("Selecta") and David L. Jones
Wholesale, Ltd. ("David L. Jones") (collectively the "Other April
Acquisitions"), all of which were consummated in April 1998. The aggregate
consideration paid for the Other April Acquisitions was $36 million,
(excluding potential earn-out arrangements of $19 million), comprising cash of
$16 million and approximately 880,500 shares of Common Stock with a value of
$20 million . These acquisitions are being accounted for under the purchase
method of accounting, and are expected to result in goodwill aggregating $29
million, again excluding earn-out arrangements. Aggregate revenues for the
Other April Acquisitions, based on unaudited financial information for their
most recent fiscal year ends, approximated $90 million.
F-23
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
USA ADJUSTMENTS PRO FORMA
FLORAL ELITE (SEE NOTE 3) COMBINED
-------- ------ ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 13,392 $ 405 $ -- $ 13,797
Accounts receivable, net................. 41,985 1,596 -- 43,581
Inventory................................ 9,867 -- 9,867
Due from related parties................. -- -- --
Prepaid expenses and other............... 2,346 38 -- 2,384
-------- ------ ------ --------
Total current assets................... 67,590 2,039 69,629
Property and equipment, net.............. 15,497 197 15,694
Due from related parties................. -- -- --
Deferred income taxes.................... 698 -- 698
Goodwill, net............................ 141,842 -- 6,432 148,274
Restricted cash.......................... 3,526 -- 3,526
Deferred financing costs, net............ 1,676 -- -- 1,676
Other assets............................. 1,728 11 1,739
-------- ------ ------ --------
Total assets........................... $232,557 $2,247 $6,432 $241,236
======== ====== ====== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt.......................... $ 47,915 $ 7 $3,700 $ 51,622
Accounts payable and accrued expenses.... 28,196 1,122 150 29,468
Due to stockholders...................... 11,927 -- -- 11,927
Income taxes payable..................... 3,170 -- -- 3,170
Due to related parties................... -- -- -- --
-------- ------ ------ --------
Total current liabilities.............. 91,208 1,129 3,850 96,187
Long-term debt........................... 383 -- 383
Deferred income taxes.................... 6 -- 6
Other.................................... 991 -- 991
-------- ------ ------ --------
Total liabilities...................... 92,588 1,129 3,850 97,567
-------- ------ ------ --------
Stockholders' equity:
Common stock............................ 13 -- -- 13
Additional paid-in capital.............. 135,588 1,118 2,582 139,288
Retained earnings....................... 4,368 -- -- 4,368
-------- ------ ------ --------
Total stockholders' equity............. 139,969 1,118 2,582 143,669
-------- ------ ------ --------
Total liabilities and stockholders'
equity................................ $232,557 $2,247 $6,432 $241,236
======== ====== ====== ========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-24
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUDITED SUBSEQUENT ACQUISITIONS
-------------------------------------------------------------------
PRO FORMA
USA FOUNDING CONTINENTAL XL KOEHLER H&H ADJUSTMENTS
FLORAL COMPANIES FARMS GROUP & DRAMM ULTRAFLORA EVERFLORA FLOWERS ELITE (SEE NOTE 4)
------- --------- ----------- ------- ------- ---------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $37,380 $146,744 $62,494 $32,329 $22,685 $17,140 $20,693 $20,776 $12,017 $ --
Cost of sales.... 26,685 104,991 44,774 24,443 15,882 13,399 15,091 18,629 9,121 (3,714)
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.... 10,695 41,753 17,720 7,886 6,803 3,741 5,602 2,147 2,896 3,714
Selling, general
and administra-
tive............. 9,791 36,320 12,820 7,284 5,425 2,328 4,575 2,034 2,117 (2,972)
Goodwill amorti-
zation........... 275 -- -- -- -- -- -- -- -- 3,458
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Income from op-
erations........ 629 5,433 4,900 602 1,378 1,413 1,027 113 779 3,228
Other (income)
expense:
Interest ex-
pense........... 8 435 57 -- 4 3 11 51 14 3,205
Interest income. (248) (340) (458) (40) -- (23) -- (3) (2) 338
Other, net...... (37) (366) (58) (4) (63) -- -- -- (34) --
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Income before in-
come taxes....... 906 5,704 5,359 646 1,437 1,433 1,016 65 801 (315)
Provision for in-
come taxes....... 490 960 -- -- 551 558 -- -- 5,195
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Net income....... $ 416 $ 4,744 $ 5,359 $ 646 $ 886 $ 875 $ 1,016 $ 65 $ 801 $(5,510)
======= ======== ======= ======= ======= ======= ======= ======= ======= =======
Net income per
share, basic
and diluted...... $ 0.09
=======
Weighted average
shares
outstanding:
Basic........... 4,734
=======
Diluted......... 4,824
=======
Pro forma net in-
come per share,
basic and dilut-
ed...............
Shares used in
computing pro
forma net income
per share
(see Note 5):
Basic...........
Diluted.........
<CAPTION>
PRO FORMA
FOUNDING
COMPANIES
AND AUDITED
SUBSEQUENT
ACQUISITIONS
------------
<S> <C>
Net sales........ $372,258
Cost of sales.... 269,301
------------
Gross profit.... 102,957
Selling, general
and administra-
tive............. 79,721
Goodwill amorti-
zation........... 3,733
------------
Income from op-
erations........ 19,503
Other (income)
expense:
Interest ex-
pense........... 3,788
Interest income. (776)
Other, net...... (562)
------------
Income before in-
come taxes....... 17,053
Provision for in-
come taxes....... 7,754
------------
Net income....... $ 9,299
============
Net income per
share, basic
and diluted......
Weighted average
shares
outstanding:
Basic...........
Diluted.........
Pro forma net in-
come per share,
basic and dilut-
ed............... $ 0.69
============
Shares used in
computing pro
forma net income
per share
(see Note 5):
Basic........... 13,470
============
Diluted......... 13,568
============
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-25
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AUDITED SUBSEQUENT ACQUISITIONS FOUNDING
----------------------------------------------------------------- COMPANIES
PRO FORMA AND AUDITED
FOUNDING CONTINENTAL XL KOEHLER H&H ADJUSTMENTS SUBSEQUENT
COMPANIES FARMS GROUP & DRAMM ULTRAFLORA EVERFLORA FLOWERS ELITE (SEE NOTE 4) ACQUISITIONS
--------- ----------- ------ ------- ---------- --------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... $54,789 $20,507 $9,076 $6,062 $5,135 $6,007 $6,951 $3,870 $ -- $112,397
Cost of sales...... 40,230 14,946 6,939 4,203 4,331 4,346 6,035 2,983 (1,086) 82,927
------- ------- ------ ------ ------ ------ ------ ------ ------- --------
Gross profit...... 14,559 5,561 2,137 1,859 804 1,661 916 887 1,086 29,470
Selling, general
and administrative. 11,192 3,247 1,912 1,423 577 1,091 565 562 (410) 20,159
Goodwill amortiza-
tion............... -- -- -- -- -- -- -- -- 933 933
------- ------- ------ ------ ------ ------ ------ ------ ------- --------
Income from opera-
tions............. 3,367 2,314 225 436 227 570 351 325 563 8,378
Other (income) ex-
pense:
Interest expense.. 143 25 -- 1 3 14 9 5 774 974
Interest income... (94) (105) -- -- (2) -- (3) -- 84 (120)
Other, net........ (191) (14) (4) (63) -- -- -- (4) -- (276)
------- ------- ------ ------ ------ ------ ------ ------ ------- --------
Income before in-
come taxes......... 3,509 2,408 229 498 226 556 345 324 (295) 7,800
Provision for in-
come taxes......... 566 -- -- 191 85 -- -- -- 2,511 3,353
------- ------- ------ ------ ------ ------ ------ ------ ------- --------
Net income......... $ 2,943 $ 2,408 $ 229 $ 307 $ 141 $ 556 $ 345 $ 324 $(2,806) $ 4,447
======= ======= ====== ====== ====== ====== ====== ====== ======= ========
Pro forma net in-
come per share, ba-
sic and diluted.... $ 0.33
========
Shares used in com-
puting pro forma
net income per
share (see Note 5):
Basic............. 13,470
========
Diluted........... 13,518
========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-26
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUDITED SUBSEQUENT ACQUISITIONS PRO FORMA
-------------------------------------------------------------- PRO FORMA AUDITED
USA CONTINENTAL XL KOEHLER H&H ADJUSTMENTS SUBSEQUENT
FLORAL FARMS GROUP & DRAMM ULTRAFLORA EVERFLORA FLOWERS ELITE (SEE NOTE 4) ACQUISITIONS
-------- ----------- ------ ------- ---------- --------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $100,520 $3,709 $2,264 $ 663 $511 $888 $465 $3,938 $ -- $112,958
Cost of sales....... 74,056 2,696 1,676 450 440 719 415 2,993 (183) 83,262
-------- ------ ------ ----- ---- ---- ---- ------ ----- --------
Gross profit....... 26,464 1,013 588 213 71 169 50 945 183 29,696
Selling, general and
administrative...... 18,540 1,174 505 376 123 221 122 701 (81) 21,681
Goodwill amortiza-
tion................ 746 -- -- -- -- -- -- -- 187 933
-------- ------ ------ ----- ---- ---- ---- ------ ----- --------
Income from opera-
tions.............. 7,178 (161) 83 (163) (52) (52) (72) 244 77 7,082
Other (income) ex-
pense:
Interest expense... 681 3 -- -- -- 1 4 1 307 997
Interest income.... (270) (36) (2) -- (2) (2) -- -- 60 (252)
Other, net......... (315) (16) (1) (5) -- -- -- (12) -- (349)
-------- ------ ------ ----- ---- ---- ---- ------ ----- --------
Income before income
taxes............... 7,082 (112) 86 (158) (50) (51) (76) 255 (290) 6,686
Provision for income
taxes............... 3,130 -- -- -- (20) -- -- -- (120) 2,990
-------- ------ ------ ----- ---- ---- ---- ------ ----- --------
Net income.......... $ 3,952 $ (112) $ 86 $(158) $(30) $(51) $(76) $ 255 $(170) $ 3,696
======== ====== ====== ===== ==== ==== ==== ====== ===== ========
Net income per
share, basic........ $ 0.32
========
Net income per
share, diluted...... $ 0.31
========
Weighted average
shares outstanding:
Basic.............. 12,360
========
Diluted............ 12,928
========
Pro forma net income
per share, basic.... $ 0.27
========
Pro forma net income
per share, diluted.. $ 0.26
========
Shares used in com-
puting pro forma
net income per share
(see Note 5):
Basic.............. 13,470
========
Diluted............ 14,037
========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-27
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--ACQUISITION OF FOUNDING COMPANIES
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. Effective October 16, 1997 USA Floral acquired all of the
outstanding capital stock of the Founding Companies concurrently with the
closing of its IPO. These business combinations were accounted for under the
purchase method of accounting.
The following table sets forth the consideration paid and to be paid in cash
and 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 financial accounting purposes, the value of Common Stock is based upon the
initial public offering price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES OF VALUE NET
COMMON OF TOTAL ASSETS
CASH(1) STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Houff................... $11,006 -- $ -- $11,006 $ 3,454 $ 7,552
CFX..................... 6,521 250,000 3,250 9,771 1,229 8,542
Bay State............... 6,045 495,550 6,442 12,487 4,156 8,331
Flower Trading.......... 5,920 160,000 2,080 8,000 1,273 6,727
United Wholesale........ 4,788 268,500 3,491 8,279 2,298 5,981
American Florist........ 4,800 141,749 2,400 7,200 249 6,951
Monterey Bay............ 3,000 177,185 3,000 6,000 705 5,295
Alpine Gem.............. 1,600 160,000 2,080 3,680 215 3,465
------- --------- ------- ------- ------- -------
Total................. $43,680 1,652,984 $22,743 $66,423 $13,579 $52,844
======= ========= ======= ======= ======= =======
</TABLE>
- --------
(1) Does not include S Corporation distributions paid to owners of CFX, Inc.
The unaudited pro forma combined statements of operations for the year ended
December 31, 1997 and for the three months ended March 31, 1997 give effect to
the acquisition of the Founding Companies as if they had been consummated on
January 1, 1997.
NOTE 2--AUDITED SUBSEQUENT ACQUISITIONS
In January 1998 USA Floral acquired the outstanding capital stock of the
Continental, XL Group, Koehler & Dramm, Everflora, H&H Flowers and UltraFlora.
In April 1998, USA Floral acquired the outstanding capital stock of Elite.
These business combinations were accounted for under the purchase method of
accounting.
The following table sets forth the consideration paid in cash and in shares
of Common Stock to the stockholders of each of these acquisitions, the
allocation of the consideration to net assets acquired and resulting goodwill.
The purchase price includes contingent consideration of approximately $5,900
in shares of Common Stock related to an earn-out arrangement for UltraFlora,
which is based on 1997 earnings before interest and taxes. The total purchase
consideration does not reflect contingent consideration related to earn-out
arrangements included in the Definitive Agreements for H&H Flowers and XL
Group. The arrangements provide for the Company to pay additional
consideration, based on earnings before interest and taxes for the twelve
months ending June 30, 1998 for H&H Flowers and the twelve months ending
December 31, 1998 for XL Group, in Common Stock.
<TABLE>
<CAPTION>
SHARES OF VALUE NET
COMMON OF TOTAL ASSETS
CASH(1) STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Continental Farms....... $27,500 1,642,672 $27,500 $ 55,000 $ 5,359 $49,641
XL Group................ 11,250 660,938 11,000 22,250 5,525 16,725
Everflora............... 4,000 246,654 4,000 8,000 2,889 5,111
H&H Flowers............. 1,600 -- -- 1,600 (710) 2,310
UltraFlora.............. 2,750 522,768 8,642 11,392 1,559 9,833
Koehler & Dramm......... 5,000 298,596 5,000 10,000 3,544 6,456
Elite................... 3,700 184,907 3,700 7,400 968 6,432
------- --------- ------- -------- ------- -------
Total................. $55,800 3,566,535 $59,842 $115,642 $19,134 $96,508
======= ========= ======= ======== ======= =======
</TABLE>
- --------
(1) Does not include S Corporation distributions paid to owners of Continental
Farms.
F-28
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The unaudited pro forma combined balance sheet gives effect to the
acquisition of Elite as if it were consummated on March 31, 1998. The
unaudited pro forma combined statements of operations for the year ended
December 31, 1997 and for the three months ended March 31, 1997 and 1998 give
effect to the Audited Subsequent Acquisitions as if they had been consummated
on January 1, 1997.
NOTE 3--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments for the acquisition of Elite:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
ADJUSTMENTS
-----------
<S> <C>
ASSETS
Cash and cash equivalents........................................... $ --
Due from related parties............................................ --
-------
Total current assets..............................................
Property and equipment.............................................. --
Goodwill, net....................................................... 6,432
Restricted cash..................................................... --
Other assets........................................................ --
-------
Total assets...................................................... $ 6,432
=======
LIABILITIES AND STOCKHODLERS' EQUITY
Short-term debt..................................................... $ 3,700
Due to related parties.............................................. 150
Accounts payable and accrued expenses............................... --
-------
Total current liabilities......................................... 3,850
Long-term debt...................................................... --
Deferred income taxes............................................... --
-------
Total liabilities................................................. 3,850
Stockholders' equity:
Common stock....................................................... --
Additional paid-in capital......................................... 2,582
Retained earnings.................................................. --
-------
Total stockholders' equity........................................ 2,582
-------
Total liabilities and stockholders' equity........................ $ 6,432
=======
</TABLE>
The above adjustment records the purchase of Elite by USA Floral, various
purchase price adjustments and the recording of incremental debt necessary to
fund the acquisition.
F-29
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 4--UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
COMPANY
The following tables summarize unaudited pro forma combined statements of
operations adjustments. The tables for the year ended December 31, 1997 and
the three months ended March 31, 1997 include pro forma adjustments related to
the acquisitions of the Founding Companies, the January Acquisitions and the
acquisition of Elite. The table for the three months ended March 31, 1998
includes pro forma adjustments related to the January Acquisitions and the
acquisition of Elite.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) ADJUSTMENTS
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... $ -- $ -- $ -- $(3,714) $-- $-- $ -- $-- $-- $ -- $(3,714)
Selling, general and ad-
ministrative........... (2,339) -- -- (72) -- -- -- (506) (778) 723 (2,972)
Goodwill amortization... -- 3,458 -- -- -- -- -- -- -- -- 3,458
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Income from operations. 2,339 (3,458) -- 3,786 -- -- -- 506 778 (723) 3,228
Other (income) expense:
Interest expense....... -- -- (325) -- (50) 3,580 -- -- -- -- 3,205
Interest income........ -- -- -- -- 50 288 -- -- -- -- 338
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Income before income
taxes.................. 2,339 (3,458) 325 3,786 -- (3,868) -- 506 778 (723) (315)
Provision for income
taxes.................. -- -- -- -- -- -- 5,195 -- -- 5,195
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Net income.............. $2,339 $(3,458) $ 325 $ 3,786 $-- $(3,868) $(5,195) $506 778 (723) $(5,510)
====== ======= ===== ======= ==== ======= ======= ==== ==== ===== =======
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) ADJUSTMENTS
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... -- -- -- (1,086) -- -- -- -- -- -- (1,086)
Selling, general and ad-
ministrative........... (450) -- -- (18) -- -- -- -- (213) 271 (410)
Goodwill amortization... -- 933 -- -- -- -- -- -- -- -- 933
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Income from operations. 450 (933) -- 1,104 -- -- -- -- 213 (271) 563
Other (income) expense:
Interest expense....... -- -- (109) -- (12) 895 -- -- -- -- 774
Interest income........ -- -- -- -- 12 72 -- -- -- -- 84
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Income before income
taxes.................. 450 (933) 109 1,104 -- (967) -- -- 213 (271) (295)
Provision for income
taxes.................. -- -- -- -- -- 2,511 -- -- -- 2,511
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Net income.............. $450 $(933) $109 $1,104 $-- $(967) $(2,511) -- $213 $(271) $(2,806)
====== ======= ===== ======= ==== ======= ======= ==== ==== ===== =======
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) ADJUSTMENTS
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... -- -- -- (183) -- -- -- -- -- (183)
Selling, general and ad-
ministrative........... 177 -- -- -- -- -- -- (258) -- -- (81)
Goodwill amortization... -- 187 -- -- -- -- -- -- -- 187
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Income from operations. (177) (187) -- 183 -- -- -- 258 -- -- 77
Other (income) expense:
Interest expense....... -- -- -- -- (2) 309 -- -- -- -- 307
Interest income........ -- -- -- -- 2 58 -- -- -- -- 60
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Income before income
taxes.................. (177) (187) -- 183 -- (367) -- 258 -- -- (290)
Provision for income
taxes.................. -- -- -- -- -- -- (120) -- -- -- (120)
------ ------- ----- ------- ---- ------- ------- ---- ---- ----- -------
Net income.............. $(177) $(187) $-- $183 $-- $(367) $120 $258 $-- $-- $(170)
====== ======= ===== ======= ==== ======= ======= ==== ==== ===== =======
</TABLE>
(a) Reflects the reduction in salaries, bonuses and benefits to the former
owners of the Operating Companies to which they have agreed to
prospectively, net of an increase in expenses associated with USA Floral
management and administration required by the Subsequent Acquisitions.
F-30
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(b) Reflects the amortization of goodwill to be recorded as a result of these
acquisitions over a 40-year estimated life as if these acquisitions had
occurred on January 1, 1997.
(c) Reflects the elimination of interest expense on debt repaid with proceeds
from the initial public offering.
(d) Reflects the reduction in cost of sales and selling, general and
administrative expenses attributable to a reduction in the price of
products and services provided under contracts with affiliated entities,
to which USA Floral and the affiliated entities have agreed to
prospectively.
(e) Reflects the elimination of interest income and interest expense on
related party payables and receivables between the Founding Companies and
the January acquisitions.
(f) Reflects (i) the elimination of interest income earned on Offering
proceeds assumed to be utilized in the purchase of the January
acquisitions; and (ii) an increase in interest expense and related fees
associated with necessary debt incurred to fund the January Acquisitions
and the Elite acquisition, assuming the $100 million credit facility was
established on January 1, 1997.
(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 other statements of operations' adjustments and for income
taxes on S-Corporation income, assuming a combined federal and state
corporate income tax rate of 40% and the non-deductibility of goodwill
arising from the purchase on non-partnership interests.
(h) Reflects the elimination of legal costs incurred by the Operating
Companies in connection with the acquisitions.
(i) Reflects: (i) adjustment for the elimination of rental lease expense
associated with the purchase of real estate and real estate taxes
associated with this real estate; (ii) increase in rental expense as a
result of distribution of real estate prior to the acquisitions of the
Founding Companies and a related decrease in depreciation expense and real
estate taxes; and (iii) the renegotiation of lease terms with related
parties to arms length.
(j) Reflects: (i) an increase in expenses of $310 associated with USA Floral
management and the costs of being a public entity of $290; and (ii)
compensation expense of $123 associated with the issuance of 125,000 stock
options with an exercise price below the initial public offering price
which vest over four years.
F-31
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5 SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE
The shares used in computing pro forma net income per share is calculated as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
ACTUAL YEAR ENDED -----------------------------
SHARES DECEMBER 31, 1997 1997 1998
--------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Issued on formation of
USA Floral............. 2,400,000 2,400,000 2,400,000 2,400,000
Issued to owners of
Founding Companies..... 1,652,984 1,652,984 1,652,984 1,652,984
Issued in IPO........... 5,750,000 5,750,000 5,750,000 5,750,000
Issued on exercise of
option................. 110,000 110,000 110,000 110,000
Issued to owners of Au-
dited Recent Acquisi-
tions.................. 3,556,535 3,556,535 3,556,535 3,556,535
---------- -------------- --------------
Weighted average shares
outstanding-basic...... 13,469,519 13,469,519 13,469,519
Dilution attributable to
unexercised options.... 98,671 48,077 567,004
---------- -------------- --------------
Weighted average shares
outstanding-diluted.... 13,568,190 13,517,596 14,036,523
========== ============== ==============
</TABLE>
The above shares do not include (i) shares which may be issued under the
earn-out arrangements for XL Group and H&H Flowers as discussed in Note 2 of
the Notes to the Unaudited Proforma Combined Financial Statements, (ii) shares
issued in connection with USA Floral's acquisition of the Other April
Acquisitions (see the introduction to the unaudited pro forma combined
financial statements) and (iii) any shares which may be issued under earn-out
arrangements related to the Other April Acquisitions.
F-32
<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, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Alpine Gem Flower Shippers, Inc.
at December 31, 1996, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996 and for the period
January 1, 1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
December 12, 1997
F-33
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 1
Accounts receivable.............................................. 1,215
Prepaid expenses and other current assets........................ 18
------
Total current assets............................................ 1,234
Equipment, net.................................................... 26
------
Total assets.................................................... $1,260
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................. $ 469
Commissions payable.............................................. 168
Accrued expenses................................................. 14
------
Total liabilities............................................... 651
------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 50,000 shares authorized; 20,000
shares issued and outstanding................................... 727
Retained earnings (accumulated deficit).......................... (118)
------
Total stockholders' equity...................................... 609
------
Total liabilities and stockholders' equity...................... $1,260
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, THROUGH
-------------- OCTOBER 15,
1995 1996 1997
------ ------ ---------------
<S> <C> <C> <C>
Net sales...................................... $8,139 $9,334 $8,692
Cost of sales.................................. 6,287 7,132 6,540
------ ------ ------
Gross margin................................. 1,852 2,202 2,152
Selling, general and administrative expenses... 1,526 1,868 1,793
------ ------ ------
Operating income............................. 326 334 359
Other (income) expense:
Interest income............................... (35) (41) (28)
Other, net.................................... (12) (13) (19)
------ ------ ------
Net income..................................... $ 373 $ 388 $ 406
====== ====== ======
Unaudited pro forma information:
Pro forma net income before provision for in-
come taxes................................... $ 373 $ 388 $ 406
Provision for income taxes.................... 149 155 162
------ ------ ------
Pro forma income (see Note 2)................. $ 224 $ 233 $ 244
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
RETAINED
EARNINGS TOTAL
(ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT) 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............................ -- -- 406 406
Dividends paid........................ -- -- (365) (365)
------ ---- ----- -----
Balance at October 15, 1997............ 20,000 $727 $ (77) $ 650
====== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, THROUGH
-------------- OCTOBER 15,
1995 1996 1997
------ ------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 373 $ 388 $ 406
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................. 13 27 8
Change in operating assets and liabilities:
Accounts receivable......................... (266) (145) (317)
Prepaid expenses and other current assets... (5) 1 (9)
Accounts payable and accrued expenses....... 79 131 906
------ ------ -----
Net cash provided by operating activities.. 194 402 994
------ ------ -----
Cash flows used in investing activities:
Purchases of property and equipment........... (3) (40) (5)
Proceeds from disposal of property and equip-
ment......................................... -- 5 --
------ ------ -----
Net cash used in investing activities...... (3) (35) (5)
------ ------ -----
Cash flows used in financing activities:
Proceeds from short-term loan from stockhold-
ers.......................................... -- -- 100
Repayment of short-term loan from stockhold-
ers.......................................... -- -- (100)
Stockholder dividends......................... (292) (528) (365)
------ ------ -----
Net cash used in financing activities...... (292) (528) (365)
------ ------ -----
Net increase (decrease) in cash and cash equiv-
alents........................................ (101) (161) 624
Cash and cash equivalents--beginning of period. 263 162 1
------ ------ -----
Cash and cash equivalents--end of period....... $ 162 $ 1 $ 625
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<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.
Effective October 16, 1997, the Company merged with U.S.A. Floral Products,
Inc. ("USA Floral") (the "Merger"). 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.
These financial statements are those of the Company prior to the Merger and do
not reflect any purchase accounting adjustments or other transactions related
to the Merger.
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 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.
F-38
<PAGE>
ALPINE GEM FLOWER SHIPPERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 $860.
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.
NOTE 3 EQUIPMENT
Equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Equipment....................................................... $163
Accumulated depreciation........................................ (137)
----
$ 26
====
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and the
period January 1, 1997 through October 15, 1997 was $13, $27 and $8,
respectively.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company rented office space from the stockholders of Alpine Gem for the
years ended 1995, 1996 and the period January 1, 1997 through October 15,
1997; total rental payments were $18, $18 and $15, respectively.
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 two noncancelable operating leases which
expire on December 31, 1998 and June 30, 2000. Future minimum rental payments
under these leasing arrangements are as follows:
<TABLE>
<S> <C>
For the period from October 16, 1997 to December 31, 1997.............. $ 27
For the years ending December 31:
1998................................................................... 129
1999................................................................... 18
2000................................................................... 9
----
Total minimum lease payments as of October 15, 1997.................. $183
====
</TABLE>
Rental expense for the years ended December 31, 1995, 1996 and the period
January 1, 1997 through October 15, 1997 was $82, $179 and $110, 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-39
<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, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of The Roy Houff Company at December
31, 1996, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1996 and for the period January 1,
1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.
November 26, 1997
F-40
<PAGE>
THE ROY HOUFF COMPANY
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 210
Accounts receivable, net......................................... 3,604
Inventory........................................................ 1,118
Prepaid expenses and other current assets........................ 211
Advances to stockholder.......................................... 88
------
Total current assets............................................ 5,231
Property and equipment, net....................................... 2,045
------
Total assets.................................................... $7,276
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank line of credit.............................................. $ 400
Notes payable--current........................................... 120
Accounts payable................................................. 3,519
Accrued expenses................................................. 657
Due to related parties........................................... 124
------
Total current liabilities....................................... 4,820
Notes payable, net of current maturities.......................... 450
------
Total liabilities............................................... 5,270
------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value; 10,000 shares authorized; 50 shares
issued and outstanding.......................................... 425
Retained earnings................................................ 1,581
------
Total stockholder's equity...................................... 2,006
------
Total liabilities and stockholder's equity...................... $7,276
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, JANUARY 1, 1997
---------------- THROUGH
1995 1996 OCTOBER 15, 1997
------- ------- ----------------
<S> <C> <C> <C>
Net sales................................... $41,531 $39,090 $29,373
Cost of sales............................... 27,899 25,537 19,017
------- ------- -------
Gross margin.............................. 13,632 13,553 10,356
Selling, general and administrative ex-
penses..................................... 12,695 12,789 9,192
------- ------- -------
Operating income.......................... 937 764 1,164
Other (income) expense:
Interest expense........................... 84 110 61
Interest income............................ (76) (39) (14)
Other, net................................. (151) (95) (23)
------- ------- -------
Income before provision for income taxes.... 1,080 788 1,140
Provision for income taxes.................. 12 13 17
------- ------- -------
Net income.................................. $ 1,068 $ 775 $ 1,123
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for
income taxes.............................. $ 1,080 $ 788 $ 1,140
Provision for income taxes................. 432 315 456
------- ------- -------
Pro forma income (see Note 2).............. $ 648 $ 473 $ 684
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF STOCKHOLDER'S 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............... 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................................ -- -- 1,123 1,123
Dividends paid............................ -- -- (842) (842)
--- ---- ------ ------
Balance at October 15, 1997................ 50 $425 $1,862 $2,287
=== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
THE ROY HOUFF COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, JANUARY 1, 1997
---------------- THROUGH
1995 1996 OCTOBER 15, 1997
------- ------- ----------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income................................. $ 1,068 $ 775 $1,123
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 546 687 490
Loss on disposal of fixed assets......... 123 144 11
Change in operating assets and liabili-
ties:
Accounts receivable..................... (147) 497 (179)
Inventory............................... (295) 84 (158)
Prepaid expenses and other current as-
sets................................... (46) (33) 48
Accounts payable and accrued expenses... 344 (254) (404)
------- ------- ------
Net cash provided by operating activi-
ties.................................. 1,593 1,900 931
------- ------- ------
Cash flows from investing activities:
Purchases of property and equipment........ (1,043) (640) (211)
Proceeds from disposal of property and
equipment................................. -- 30 --
------- ------- ------
Net cash used in investing activities.. (1,043) (610) (211)
------- ------- ------
Cash flows from financing activities:
Advances to stockholder.................... (365) (13) 120
Advances from (repayments to) stockholder.. 840 237 (32)
Due from/to related parties................ (226) (4) (93)
Borrowings (repayments) under line of
credit agreement (net).................... 322 (530) 10
Proceeds from notes payable................ 75 23 --
Payments of notes payable.................. (249) (117) --
Stockholder dividends...................... (1,379) (743) (842)
------- ------- ------
Net cash used in financing activities.. (982) (1,147) (837)
------- ------- ------
Net increase (decrease) in cash and cash
equivalents................................ (432) 143 (117)
Cash and cash equivalents--beginning of pe-
riod....................................... 499 67 210
------- ------- ------
Cash and cash equivalents--end of period.... $ 67 $ 210 $ 93
======= ======= ======
Supplemental disclosure of cash flow infor-
mation:
Cash paid during the period for interest... $ 84 $ 93 $ 61
======= ======= ======
Cash paid during the period for income tax-
es........................................ $ 12 $ 13 $ 13
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<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.
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 effective October 16, 1997 (the "Merger"). 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.
These financial statements are those of the Company prior to the Merger and do
not reflect any purchase accounting adjustments or other transactions related
to the Merger (see Note 11).
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 respective lease terms or estimated useful lives.
Intangible Assets
Intangible assets at December 31, 1995 consisted of goodwill acquired in the
purchase of the Atlanta branch being amortized over five years. In 1996 the
remaining goodwill balance was written off in connection with the disposition
of the Atlanta branch as discussed in Note 10.
F-45
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, current notes payable, accrued expenses and short-term
debt approximates fair value because of the short-term nature of these
instruments. The estimated fair value of non-current notes payable
approximates its carrying value due to its stated interest rate approximating
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. 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
bases of the Company's net assets exceed their respective 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.
NOTE 3 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND WRITE- END OF
OF PERIOD EXPENSES OFFS PERIOD
---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995........ $233 $163 $(135) $261
Year ended December 31, 1996........ $261 $280 $(275) $266
January 1, 1997 through October 15,
1997............................... $266 $ 78 $ (66) $278
</TABLE>
NOTE 4 INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Perishables..................................................... $ 147
Hardgoods....................................................... 971
------
$1,118
======
</TABLE>
F-46
<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,
1996
------------
<S> <C>
Leasehold improvements.......................................... $1,420
Computer equipment.............................................. 650
Furniture, fixtures and equipment............................... 2,436
Vehicles........................................................ 17
------
4,523
Accumulated depreciation and amortization....................... (2,478)
------
$2,045
======
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 and the
period January 1, 1997 through October 15, 1997 was $526, $609, and $490,
respectively.
NOTE 6 CREDIT FACILITIES
Line of Credit
At December 31, 1996, the Company had a line of credit facility of $1,450 of
which $400 was borrowed. Advances on the line of credit are payable on demand
and bear interest at prime (8.25% as of December 31, 1996) and are unsecured.
Upon consummation of the Merger, all outstanding borrowings on the credit line
were paid in full (See Note 11).
Bank Term Note Payable
During 1996 the Company borrowed $600 under a term note that requires
payments of $120 per year through 2001. The note bears interest at the bank's
prime rate (8.25% at December 31, 1996) and is secured by certain equipment.
Upon consummation of the Merger, the bank term note was paid in full (See Note
11).
Notes Payable to Related Parties
Included in amounts shown as Due to Related Parties is an unsecured demand
note which bears interest at the greater of 10% or prime. The balance of this
note was $120 as of December 31, 1996. This note was paid in full in 1997.
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. Substantially all employees are
eligible to participate in the plan. Employees can contribute up to 15% of
their gross wages 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, 1995 and 1996, and the period
January 1, 1997 through October 15, 1997, Company contributions to the plan
were approximately $22, $23, and $24, respectively.
F-47
<PAGE>
THE ROY HOUFF COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 RELATED PARTY TRANSACTIONS
Salaries for several officers of the Company are paid through an entity
owned by the Company's sole 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 $563, $567, and $440 for the years ended
December 31, 1995 and 1996, and the period January 1, 1997 through October 15,
1997, respectively (See Note 11).
The Company also leases vehicles from the related entity. Total lease
payments were approximately $208, $71, and $309 for the years ended December
31, 1995 and 1996, and the period January 1, 1997 through October 15, 1997,
respectively (See Note 11).
The Company also purchases its health insurance through the related entity.
Premiums paid by the Company were approximately $323, $293, and $165 for the
years ended December 31, 1995 and 1996, and the period January 1, 1997 through
October 15, 1997, respectively (See Note 11).
The Company leases its corporate office and six branch facilities under
operating leases with its sole stockholder. Rent expense under these operating
leases for the years ended December 31, 1995 and 1996 and the period January
1, 1997 through October 15, 1997 was approximately $364, $481, and $399,
respectively (See Note 11).
At December 31, 1996, the Company had receivables of $88 from the sole
stockholder of the Company. Interest income related to this receivable was
$15, $15, and $5 for the years ended December 31, 1995 and 1996 and the period
January 1, 1997 through October 15, 1997, respectively (See Note 11).
NOTE 9 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its warehouse and office facilities in Richmond, VA under
a noncancelable operating lease. The aggregate future minimum rentals
(exclusive of real estate taxes and expenses) are as follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997................... $ 14
For the years ending December 31:
1998................................................................. 67
1999................................................................. 69
2000................................................................. 71
2001................................................................. 36
----
$257
====
</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 of the Company.
F-48
<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 operations 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 SUBSEQUENT EVENTS
As discussed in Note 1, the Company merged with USA Floral effective October
16, 1997. The management fee, lease payment and health insurance premium
arrangements with a related party as described in Note 8 were terminated upon
consummation of the Merger. Additionally, the properties owned by the sole
stockholder were acquired by the Company at the time of the Merger and the
related lease arrangement described in Note 8 was terminated. All amounts due
from the sole stockholder were repaid to the Company upon consummation of the
Merger, all outstanding bank debt was paid in full and the credit facilities
were terminated.
F-49
<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, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Bay State Florist Supply, Inc. at
December 31, 1996, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996, and for the
period January 1, 1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
January 6, 1998
F-50
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 791
Accounts receivable, net......................................... 3,413
Inventory........................................................ 1,701
Due from related parties......................................... 559
Prepaid expenses and other current assets........................ 165
------
Total current assets............................................ 6,629
Property and equipment, net....................................... 1,505
Cash surrender value of life insurance............................ 364
Other assets...................................................... 13
------
Total assets.................................................... $8,511
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank............................................. $ 200
Current maturities of long-term debt............................. 50
Accounts payable................................................. 1,701
Accrued expenses................................................. 336
------
Total current liabilities....................................... 2,287
Note payable, net of current maturities........................... 358
Other long-term liabilities....................................... 400
------
Total liabilities............................................... 3,045
------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock $0.01 par value; 500,000 shares authorized; 461,840
shares
issued and outstanding.......................................... 5
Additional paid-in capital....................................... 376
Retained earnings................................................ 5,561
Less: Treasury stock............................................. (476)
------
Total stockholders' equity...................................... 5,466
------
Total liabilities and stockholders' equity...................... $8,511
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED 1997
DECEMBER 31, THROUGH
---------------- OCTOBER 15,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Net sales........................................ $25,592 $30,563 $23,587
Cost of sales.................................... 17,068 20,722 15,924
------- ------- -------
Gross margin................................... 8,524 9,841 7,663
Selling, general and administrative expenses..... 7,579 8,976 7,154
------- ------- -------
Operating income............................... 945 865 509
Other (income) expense:
Interest expense................................ 16 33 80
Interest income................................. (48) (35) (68)
Other, net...................................... (229) (247) (268)
------- ------- -------
Income before income taxes...................... 1,206 1,114 765
Provision for income taxes....................... 87 81 46
------- ------- -------
Net income....................................... $ 1,119 $ 1,033 $ 719
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for income
taxes.......................................... $ 1,206 $ 1,114 $ 765
Provision for income taxes...................... 482 446 306
------- ------- -------
Pro forma income (see Note 2)................... $ 724 $ 668 $ 459
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<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,
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............. -- -- -- 719 -- 719
Dividends paid......... -- -- -- (1,006) -- (1,006)
------- ---- ---- ------- ----- -------
Balance at October 15,
1997................... 461,840 $ 5 $376 $ 5,274 $(476) $ 5,179
======= ==== ==== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, THROUGH OCTOBER
-------------- 15,
1995 1996 1997
------ ------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $1,119 $1,033 $ 719
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 149 154 171
Change in operating assets and liabilities:
Accounts receivable......................... (919) (323) 129
Inventory................................... (116) (304) (817)
Prepaid expenses and other current assets... (54) 34 65
Accounts payable accrued expenses and other
liabilities................................ 681 274 1,154
Due from/to related parties................. 47 (73) 223
------ ------ -------
Net cash provided by operating activities.. 907 795 1,644
------ ------ -------
Cash flows from investing activities:
Purchases of property and equipment........... (219) (320) (221)
Cash surrender value of life insurance........ (49) (26) (30)
------ ------ -------
Net cash used in investing activities....... (268) (346) (251)
------ ------ -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt...... -- 200 --
Payments of long-term debt.................... (87) (54) (37)
Purchase of treasury stock.................... (54) -- --
Stockholder dividends......................... (730) (599) (1,006)
------ ------ -------
Net cash used in financing activities...... (871) (453) (1,043)
------ ------ -------
Net increase (decrease) in cash and cash equiv-
alents........................................ (232) (4) 350
Cash and cash equivalents-beginning of period.. 1,027 795 791
------ ------ -------
Cash and cash equivalents-end of period........ $ 795 $ 791 $ 1,141
====== ====== =======
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the period for interest...... $ 16 $ 33 $ 35
Note payable issued for covenant not to com-
pete......................................... $ -- $ -- $ 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<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.
Effective October 16, 1997, the Company merged with and into U.S.A Floral
Products, Inc. ("USA Floral") (the "Merger"). All outstanding shares of the
Company were 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. These financial statements are those of the Company prior
to the Merger and do not reflect any purchase accounting adjustments or other
transactions related to the Merger (see Note 13).
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 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-55
<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 ongoing 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.
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 for which provision has been made.
There are no material differences between the financial statements carrying
amounts and the tax bases of existing assets and liabilities.
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.
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.......... $60 $71 $(71) $60
Year ended December 31, 1996.......... $60 $57 $(57) $60
Period ended October 15, 1997......... $60 $31 $(11) $80
</TABLE>
NOTE 4 INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Perishable..................................................... $ 165
Non-perishable, net............................................ 1,536
------
Total......................................................... $1,701
======
</TABLE>
Perishable goods consist of assorted flowers and green plants. Non-
perishable goods consist of assorted silk flowers, vases, baskets and
accessories.
F-56
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Land........................................................... $ 393
Buildings...................................................... 939
Building improvements.......................................... 911
Furniture, fixtures and equipment.............................. 919
Motor vehicles................................................. 184
-------
3,346
Accumulated depreciation and amortization...................... (1,841)
-------
$ 1,505
=======
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 was $149
and $154, respectively, and $160 for the period January 1, 1997 through
October 15, 1997.
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 October 15, 1997
are as follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997.................. $ 53
For the year ending December 31, 1998................................. 451
1999.................................................................. 180
2000.................................................................. 90
2001.................................................................. 4
----
Total future minimum payments........................................ $778
====
</TABLE>
Rental expense under operating leases during 1995 and 1996 was $298 and
$365, respectively, and $536 for the period January 1, 1997 through October
15, 1997.
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-57
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7 CREDIT FACILITIES
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Revolving line of credit; due May 31, 1998; interest on out-
standing balance at the bank's prime rate per annum; $1,000
borrowing maximum; limited to eligible accounts receivable
and inventory, as defined................................... $200
====
Long-term debt consists of the following:
Note payable, interest on outstanding balance at the bank's
prime rate plus 0.5% per annum.............................. $408
Less: Current maturities..................................... 50
----
$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. Subsequent
to October 15, 1997, in connection with the Merger, the above line of credit
and note payable were paid in full and the related party receivable was
collected (see Note 13).
Interest expense incurred for the years ended December 31, 1995 and 1996 was
$16 and $33, respectively, and $80 for the period January 1, 1997 through
October 15, 1997.
In January 1997, the Company entered into a non-compete agreement with an
unrelated third party which requires annual principal and interest payments of
$19 for a period of eight years. In connection with this agreement, the
Company recorded an asset and a related liability in the amount of $100,
representing the present value of the required payments under the agreement.
Related amortization and interest expense were $11 and $7, respectively, for
the period January 1, 1997 through October 15, 1997.
NOTE 8 EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan ("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 plan. The
Company's contributions to the Plan were approximately $41 and $56 for 1995
and 1996, respectively, and $51 for the period January 1, 1997 through October
15, 1997. Additionally, the Company, at its discretion, may make additional
contributions (considered profit sharing contributions). The Company's goal is
to contribute 3% of net income to the Plan through the 401(k) match or the
discretionary contribution. No discretionary contributions were made in 1995
or 1996 or for the period January 1, 1997 through October 15, 1997.
NOTE 9 RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company held a note payable to BankBoston, the
proceeds of which were provided to an affiliated 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 paid to the LLC under this lease
was $108 and $108 for 1995 and 1996, respectively, and $86 for the period
January 1, 1997 through October 15, 1997. Included in Due from Related Parties
is a corresponding receivable from the LLC for amounts provided to it (see
Note 13).
F-58
<PAGE>
BAY STATE FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 $1.25 at the bank's
prime rate plus 1.5% per annum. Additionally, the director had pledged his
shares in the Company (approximately 13%) as consideration for this guaranty.
In connection with the Merger, the guarantee was released and the loan was
repaid by the director.
NOTE 10 OTHER INCOME/OTHER EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER JANUARY 1, 1997
31, THROUGH OCTOBER
------------ 15,
1995 1996 1997
----- ----- ---------------
<S> <C> <C> <C>
Finance charges............................... $(139) $(176) $(139)
Real estate rental income, net................ $ (35) $ (23) $ (32)
Other (income) expense, net................... $ (55) $ (48) $ (97)
----- ----- -----
Total other (income).......................... $(229) $(247) $(268)
===== ===== =====
</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 articles amendment.
NOTE 12 DEFERRED COMPENSATION ARRANGEMENTS
The Company has entered into deferred compensation arrangements with three
officers which require monthly payments to each 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 SUBSEQUENT EVENTS
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. In addition, all other bank debt was repaid.
Additionally, the terms of the lease described in Note 9 were amended so
that all continuing obligations thereunder are intended to be no less
favorable to the Company than those that Bay State could obtain with
unaffiliated third parties.
F-59
<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, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Monterey
Bay Bouquet, Inc. and Bay Area Bouquet, Inc. (the Company) at December 31,
1996, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996 and for the period January 1,
1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
November 14, 1997
F-60
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 19
Accounts receivable.............................................. 909
Inventory........................................................ 126
Prepaid expenses and other current assets........................ 9
------
Total current assets............................................ 1,063
Property and equipment, net....................................... 144
Other assets:
Cash surrender value--life insurance............................. 73
Intangibles...................................................... 41
------
Total assets.................................................... $1,321
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line payable.............................................. $ 49
Current maturities of long-term debt............................. 6
Accounts payable................................................. 783
Accrued expenses................................................. 167
Notes payable to officers and stockholders....................... 10
Income taxes payable............................................. 12
------
Total current liabilities....................................... 1,027
Long-term debt, net of current maturities......................... 24
Growers contract--related party................................... 41
------
Total liabilities............................................... 1,092
------
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
Common stock, Bay Area Bouquet, Inc., no par value; 1,000 shares
authorized; 100 shares issued and outstanding................... 25
Retained earnings................................................ 126
------
Total stockholders' equity...................................... 229
------
Total liabilities and stockholders' equity...................... $1,321
======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, THROUGH
-------------- OCTOBER 15,
1995 1996 1997
------ ------ ---------------
<S> <C> <C> <C>
Net sales....................................... $6,903 $9,477 $10,175
Cost of sales................................... 5,959 8,285 8,384
------ ------ -------
Gross margin................................... 944 1,192 1,791
Selling, general and administrative expenses.... 910 1,113 875
------ ------ -------
Operating income................................ 34 79 916
Other (income) expense:
Interest expense............................... 13 15 13
Other, net..................................... (9) (8) (6)
------ ------ -------
Income before provision for income taxes........ 30 72 909
Provision for income taxes...................... 10 24 413
------ ------ -------
Net income...................................... $ 20 $ 48 $ 496
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-62
<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 Bou-
quets, 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.............................. -- -- 496 496
------- ---- ---- ----
Balance at October 15, 1997.............. 102,602 $103 $622 $725
======= ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-63
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, THROUGH
-------------- OCTOBER 15,
1995 1996 1997
------ ------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................... $ 20 $ 48 $ 496
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation................................ 64 87 53
Change in deferred income taxes............. 1 (3) --
Change in operating assets and liabilities:
Accounts receivable........................ (157) (236) 23
Inventory.................................. (51) 12 (95)
Prepaid expense and other current assets... (6) (1) (61)
Income taxes payable....................... 6 12 367
Accounts payable and accrued expenses...... 180 278 (340)
Grower contract............................ -- (8) (6)
------ ------ ------
Net cash provided by operating activities. 57 189 437
------ ------ ------
Cash flows from investing activities:
Purchases of property and equipment........... (97) (63) (68)
Cash surrender value of life insurance........ -- -- (17)
Increase in officer receivable................ (30) (30) --
Increase in intangibles....................... (12) (3) --
------ ------ ------
Net cash used in investing activities..... (139) (96) (85)
------ ------ ------
Cash flows from financing activities:
Advances to stockholder....................... (28) (37) (49)
Proceeds from issuance of common stock........ 25 -- --
Net borrowings (repayments) on line of credit. 19 (51) (49)
Repayments from related parties............... 14 -- --
Proceeds from issuance of long-term debt...... 40 -- 38
Repayments of long-term debt.................. (29) (20) (15)
Proceeds from stockholder loans............... 75 -- --
Repayment of stockholder loans................ -- -- (10)
------ ------ ------
Net cash (used in) provided by financing
activities............................... 116 (108) (85)
------ ------ ------
Net increase (decrease) in cash and cash equiv-
alents........................................ 34 (15) 267
Cash and cash equivalents--beginning of period. -- 34 19
------ ------ ------
Cash and cash equivalents--end of period....... $ 34 $ 19 $ 286
====== ====== ======
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the period for interest...... $ 13 $ 15 $ 13
Cash paid during the period for income taxes.. $ 4 $ 14 $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-64
<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.
Effective October 16, 1997, the Company merged with and into U.S.A. Floral
Products, Inc. ("USA Floral") (the "Merger"). All outstanding shares of the
Company were 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. These financial statements are those of the Company prior
to the Merger and do not reflect any purchase accounting adjustments or other
transactions related to the Merger (see Note 9).
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 basis (FIFO). 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, 1996 was $25.
F-65
<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."
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Leasehold improvements.......................................... $ 59
Equipment....................................................... 127
Vehicles........................................................ 130
-----
316
Accumulated depreciation and amortization....................... (172)
-----
$ 144
=====
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1995
and 1996, and for the period January 1, 1997 through October 15, 1997, was
$58, $78 and $53, respectively.
NOTE 4 CREDIT FACILITIES
Short-term debt
The Company's unsecured revolving line of credit, which expired in July
1997, provided for borrowings of up to $100 and bore interest at the prime
rate plus 1% (8% at December 31, 1996). The outstanding balance on this line
of credit was $49 at December 31, 1996.
F-66
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt
Outstanding long-term debt consists of the following capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Car lease; monthly principal and interest payments of $.5
through July 1997, interest at 7.9%........................... $ 3
Car lease; monthly principal and interest payments of $.4
through February 1999, interest at 8.5%....................... 8
Car lease; monthly principal and interest payments of $1
through June 1999; interest at 12.5%.......................... 19
Car lease; monthly principal and interest payments of $.6
through January 2000, interest at 9.75%....................... --
Car lease; monthly principal and interest payments of $.5
through February 2000, interest at 9.5%....................... --
---
30
Less: current maturities....................................... (6)
---
$24
===
</TABLE>
Principal maturities on capital leases over the next five years are as
follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997.................... $ 4
For the year ending December 31, 1998................................... 27
1999................................................................... 20
2000................................................................... 2
---
Total................................................................. $53
===
</TABLE>
NOTE 5 INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED 1997
DECEMBER 31, THROUGH
-------------- OCTOBER 15,
1995 1996 1997
------ ------ -----------
<S> <C> <C> <C>
Current expense:
State........................................... $ 3 $ 7 $ 89
Federal......................................... 7 17 324
------ ------ ----
Total income tax provision...................... $ 10 $ 24 $413
====== ====== ====
</TABLE>
The provision for income taxes differs from the U.S. statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR
ENDED JANUARY 1,
DECEMBER 1997
31, THROUGH
----------- OCTOBER 15,
1995 1996 1997
---- ---- -----------
<S> <C> <C> <C>
Statutory federal tax rate......................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit................ 1.4% 1.4% 6.5%
Rate differentials................................. (2.0)% (2.2)% 4.9%
---- ---- ----
33.4% 33.2% 45.4%
==== ==== ====
</TABLE>
Composition of deferred taxes has not been presented as amounts are not
material.
F-67
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS-- (CONTINUED)
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 and $132 for the period January 1, 1997 through
October 15, 1997.
There was a net loan payable to the three stockholders in the amount of $10
at December 31, 1996. Interest was 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 noncancellable operating leases at October 15,
1997 are as follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997................... $ 12
For the year ending December 31,
1998.................................................................. 144
1999.................................................................. 144
----
Total minimum lease payments......................................... $300
====
</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,
results of operations or cash flows of the Company.
Grower contract
The Company had entered into a contract with a grower who was also a
stockholder of the Company. The stockholder gave the Company cash in exchange
for a commitment from the Company to purchase product from the stockholder.
The contract, although due to expire in 2005, was terminated in 1997. Income
realized for the years ended December 31, 1995 and 1996 was $8 and $8,
respectively, and $6 for the period January 1, 1997 through October 15, 1997.
NOTE 8 SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Sales to customers that exceeded 10% of total revenues were as follows:
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED 1997
DECEMBER 31, THROUGH
-------------- OCTOBER 15,
1995 1996 1997
------ ------ -----------
<S> <C> <C> <C>
Customer A....................................... 65.0% 58.0% 50.0%
Customer B....................................... 33.0% 39.0% 46.0%
</TABLE>
F-68
<PAGE>
MONTEREY BAY BOUQUET, INC. AND
BAY AREA BOUQUETS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Additionally, these customers represented 97% of accounts receivable at
December 31, 1996. Both customers are national publicly traded companies with
multiple purchase divisions.
NOTE 9 SUBSEQUENT EVENTS
In conjunction with the Merger, all amounts due from related parties and all
amounts due from stockholders were repaid to the Company. The lease described
in Note 6 remains in effect, and the consulting arrangement described in Note
6 has been terminated.
F-69
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Flowtrad Corporation, N.V.
d/b/a Flower Trading Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Flowtrad Corporation, N.V. ("Flower Trading Corporation" or the "Company") at
December 31, 1996, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1996 and for the
period January 1, 1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
December 16, 1997
F-70
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 70
Accounts receivable, net......................................... 2,747
Officers, employees and related party receivables................ 38
Other receivables................................................ 10
Inventory........................................................ 52
Prepaid expenses and other current assets........................ 171
------
Total current assets............................................ 3,088
Property and equipment, net....................................... 330
Cash surrender value of life insurance............................ 44
Deferred income taxes............................................. 79
Other assets...................................................... 110
------
Total assets.................................................... $3,651
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit.............................................. $ 200
Notes payable-current............................................ 112
Trade accounts payable........................................... 669
Trade accounts payable due to affiliates......................... 532
Other accounts payable and accrued expenses...................... 277
Income taxes payable............................................. --
------
Total current liabilities....................................... 1,790
Notes payable, net of current maturities.......................... 391
------
Total liabilities............................................... 2,181
------
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value; 150,000 shares authorized, issued
and outstanding................................................. 150
Additional paid-in capital....................................... 128
Retained earnings................................................ 1,192
------
Total stockholders' equity...................................... 1,470
------
Total liabilities and stockholders' equity...................... $3,651
======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
FLOWER TRADING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, THROUGH
---------------- OCTOBER 15,
1995 1996 1997
------- ------- ---------------
<S> <C> <C> <C>
Net sales.................................... $20,335 $20,313 $17,509
Cost of sales (including purchases from af-
filiated farms of $4,451, $3,921 and
$3,050)..................................... 15,921 15,914 13,602
------- ------- -------
Gross profit............................... 4,414 4,399 3,907
Selling, general and administrative expenses. 4,068 4,142 3,240
------- ------- -------
Operating income............................ 346 257 667
Other (income) expense:
Interest expense............................ 9 32 48
Interest income............................. (18) (5) (16)
Write off of investment..................... 181 129
Other, net.................................. (51) (9) (32)
------- ------- -------
Income before provision for income taxes..... 225 110 667
Provision for income taxes................... 95 48 270
------- ------- -------
Net income................................... $ 130 $ 62 $ 397
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-72
<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, 1994.. 160,000 $150 $128 $1,716 $1,994
Net income................... -- -- -- 130 130
------- ---- ---- ------ ------
Balance at December 31, 1995.. 160,000 150 128 1,846 2,124
Net income................... -- -- -- 62 62
Distribution to shareholders
for investment in
subsidiary.................. -- -- -- (716) (716)
------- ---- ---- ------ ------
Balance at December 31, 1996.. 160,000 150 128 1,192 1,470
Net income................... -- -- -- 397 397
------- ---- ---- ------ ------
Balance at October 15, 1997... 160,000 $150 $128 $1,589 $1,867
======= ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-73
<PAGE>
FLOWER TRADING CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 1997
31, THROUGH
------------ OCTOBER 15,
1995 1996 1997
----- ----- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 130 $ 62 $ 397
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization...................... 216 202 161
Loss on investment................................. 181 129 --
Loss on disposal of fixed assets................... -- 40 --
Change in operating assets and liabilities:
Accounts receivable............................... 63 (53) 654
Inventory......................................... (7) (29) 47
Prepaid expenses and other assets................. (15) (176) 105
Accounts payable.................................. (27) (144) (719)
Accrued expenses.................................. 59 191 72
Income taxes payable.............................. (69) (9) 213
Deferred taxes asset and other assets............. (91) 41 (4)
----- ----- -----
Net cash provided by operating activities........ 440 254 926
----- ----- -----
Cash flows from investing activities
Purchase of investment.............................. (181) (129) --
Purchases of property and equipment................. -- (83) (110)
Proceeds from disposal of property and equipment.... (162) -- --
Cash surrender value of life insurance.............. 4 (5)
Advances to related parties......................... 28 -- --
----- ----- -----
Net cash used in investing activities............ (311) (217) (110)
----- ----- -----
Cash flows from financing activities:
Proceeds from issuance of long-term debt............ -- 1,100 --
Repayments of long-term debt........................ (74) (648) (87)
Distribution to stockholders for investment in sub-
sidiary............................................ -- (745) --
Borrowings (repayments) under line of credit agree-
ment, net.......................................... -- 200 (207)
----- ----- -----
Net cash used in financing activities............ (74) (93) (294)
----- ----- -----
Net increase (decrease) in cash and cash equivalents. 55 (56) 522
Cash and cash equivalents--beginning of period....... 71 126 70
----- ----- -----
Cash and cash equivalents--end of period............. $ 126 $ 70 $ 592
===== ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............ $ 9 $ 32 $ 48
Cash paid during the period for income taxes........ $ 189 $ 189 $ 52
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-74
<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.
Effective October 16, 1997, the Company merged with and into U.S.A Floral
Products, Inc. ("USA Floral") (the "Merger"). 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. These financial statements are those of the Company prior
to the Merger and do not reflect any purchase accounting adjustments or other
transactions related to the Merger (see Note 10).
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. UltraFlora Corporation and its subsidiary
were not included in 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 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. A significant portion of
inventory is purchased on a consignment basis. Cost is determined by the
specific identification method.
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).
F-75
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED 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 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) Expense
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.
NOTE 3 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
CHARGE BALANCE
BALANCE TO COSTS AT END
BEGINNING AND WRITE- OF
OF PERIOD EXPENSES OFFS PERIOD
--------- -------- ------ -------
<S> <C> <C> <C> <C>
Year ended December 31, 1995............... $-- $96 $18 $ 78
Year ended December 31, 1996............... $78 $21 $21 $ 78
January 1, 1997 through October 15, 1997... $78 $59 $-- $137
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Machinery and equipment......................................... $ 596
Computer equipment and software................................. 408
Furniture, fixtures and equipment............................... 245
Vehicles........................................................ 81
------
1,330
Accumulated depreciation and amortization....................... (1,000)
------
$ 330
======
</TABLE>
Depreciation expense for the years ended December 31, 1996 and the period
January 1, 1997 through October 15, 1997 was $202 and $153, respectively.
F-76
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5 CREDIT FACILITIES
Line of Credit
At December 31, 1996 the Company had a $750 revolving line of credit with a
bank which was 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, 1996). The
credit line was secured by all of the Company's personal property, which
included but was not limited to, the Company's accounts, inventory and fixed
assets. Outstanding balances on the line were $200 as of December 31, 1996
(see Note 10).
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Note payable to bank, due in monthly installments of $9, bear-
ing interest at bank's prime rate plus 1% (9.25% at December
31, 1996 and October 15, 1997, due September 6, 2001; secured
by assets of the Company and real property owned by affili-
ate)......................................................... $495
Note payable to financial corporation, due in monthly install-
ments of $1, including interest, through March 1997 and one
final payment of $5; secured by a vehicle with a net book
value of $10 in 1996......................................... 8
----
503
Less: Current maturities...................................... (112)
----
Long-term debt, excluding current maturities.................. $391
====
Principal maturities on notes payable are as follows:
For the period October 16, 1997 to December 31, 1997.......... $ 22
For the year ending December 31,:
1998........................................................ 104
1999........................................................ 104
2000........................................................ 104
2001........................................................ 79
----
Total..................................................... $413
====
</TABLE>
F-77
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6 INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------- OCTOBER 15,
1995 1996 1997
------ ------ -----------
<S> <C> <C> <C>
Current expense:
State............................................ $ 19 $ 4 $ 39
Federal.......................................... 166 32 225
------ ----- ----
Total income tax provision...................... $ 185 $ 36 $264
====== ===== ====
Deferred expense:
State............................................ $ (9) $ 1 $ 1
Federal.......................................... (81) 11 5
------ ----- ----
Total income tax provision...................... $ (90) $ 12 $ 6
====== ===== ====
</TABLE>
The provision for income taxes differs from the U.S. statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------- OCTOBER 15,
1995 1996 1997
------ ------ -----------
<S> <C> <C> <C>
Statutory federal tax rate....................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit.............. 3.7 3.7 4.4
Meals and entertainment.......................... 3.1 4.5 0.3
Other............................................ 1.4 1.4 1.7
------ ------ ----
42.2% 43.6% 40.4%
====== ====== ====
</TABLE>
Deferred tax assets were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Allowance for doubtful accounts................................. $23
Accruals........................................................ 56
---
$79
===
</TABLE>
NOTE 7 EMPLOYEE BENEFIT PLAN
In 1995, the Company established an employee savings plan ("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, $22 and
$18 for the years ended December 31, 1995 and 1996 and the period January 1,
1997 through October 15, 1997, 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
F-78
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 to generate the paperwork necessary to complete the
shipment of flowers. Representative fees paid for the years ended December 31,
1995 and 1996 and the period January 1, 1997 through October 15, 1997 were
$793, $675 and $480, respectively, (see Note 10).
The Company purchases flowers from a related entity. Total purchases were
approximately $3,658, $3,246 and $3,050 for the years ended December 31, 1995
and 1996 and the period January 1, 1997 through October 15, 1997,
respectively.
The Company leases office and warehouse space from a related entity. Total
lease payments were approximately $223, $230 and $188 for the years ended
December 31, 1995, 1996 and for the period January 1, 1997 through October 15,
1997, respectively.
The Company charges a related entity a monthly fee for the handling of
floral products. Total handling fees were $279, $225 and $258 for the years
ended December 31, 1995 and 1996 and the period January 1, 1997 through
October 15, 1997, respectively. Also included in other income for December 31,
1995 and 1996 and the period January 1, 1997 through October 15, 1997 is $66,
$54 and $15, respectively, representing administrative fees received by the
Company from this related party. At December 31, 1996 the Company had
receivables from this entity of $41.
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 1998. 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>
From October 16, 1997 to December 31, 1997............................. $ 48
For the year ending December 31, 1998.................................. 230
----
$278
====
</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 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. Final determinations have been published for
the second through ninth reviews but judicial appeals are pending. The eighth
review was liquidated at the cash-deposit rate. The tenth and eleventh reviews
are in process. All other reviews have been resolved.
Included in accrued expenses at December 31, 1996 is approximately $150 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-79
<PAGE>
FLOWER TRADING CORPORATION
NOTES TO CONSOLIDATED 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 10 SUBSEQUENT EVENTS
Upon consummation of the Merger, certain 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 has been discontinued
as has 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.
The line of credit (Note 5) has been terminated and all long-term debt (Note
5) was repaid subsequent to the Merger.
F-80
<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 sheets and the related
combined statements of operations, of 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
and for the period July 1, 1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
December 31, 1997
F-81
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED BALANCE SHEETS
(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
------ ------
Total liabilities.............................................. 5,081 5,562
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-82
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 1, 1997
YEAR ENDED JUNE 30, THROUGH
------------------------- OCTOBER 15,
1995 1996 1997 1997
------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net sales.............................. $17,985 $19,030 $19,673 $5,024
Cost of sales.......................... 11,556 12,563 12,862 3,173
------- ------- ------- ------
Gross margin......................... 6,429 6,467 6,811 1,851
Selling, general and administrative ex-
penses................................ 5,926 6,101 6,046 1,827
------- ------- ------- ------
Operating income..................... 503 366 765 24
Other (income) expense:
Interest expense...................... 227 236 231 70
Interest income....................... (91) (95) (133) (25)
Other, net............................ 9 (14) (20) 12
------- ------- ------- ------
Income (loss) before income taxes...... 358 239 687 (33)
Provision for income taxes............. 171 95 205 10
------- ------- ------- ------
Net income (loss)...................... $ 187 $ 144 $ 482 $ (43)
======= ======= ======= ======
Unaudited pro forma information:
Pro forma net income (loss) before
provision for income taxes........... $ 358 $ 239 $ 687 $ (33)
Provision (benefit) for income taxes.. 143 96 275 (13)
------- ------- ------- ------
Pro forma income (loss) (see Note 2)... $ 215 $ 143 $ 412 $ (20)
======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENTS 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
Net loss.................................. -- -- (43) (43)
----- --- ------ ------
Balance at October 15, 1997................ 2,000 $11 $2,136 $2,147
===== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE JULY 1, 1997
30, THROUGH
-------------------- OCTOBER 15,
1995 1996 1997 1997
------ ----- ----- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 187 $ 144 $ 482 $ (43)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization............ 341 410 442 119
Deferred income taxes.................... 17 26 6 --
Loss on disposal of fixed assets......... 18 -- -- --
Provision for doubtful accounts.......... 26 16 25 25
Change in operating assets and liabili-
ties:
Accounts receivable..................... (30) (149) (149) (139)
Inventory............................... 74 (99) (164) (137)
Prepaid expenses and other current as-
sets................................... (6) (18) (86) 34
Accounts payable and accrued expenses... (266) 881 100 52
Income taxes payable.................... 66 (153) 210 (135)
Changes in other assets................. (6) (12) (12) (14)
Changes in other liabilities............ (19) (21) (23) (7)
------ ----- ----- -----
Net cash provided by (used in) operating
activities............................... 402 1,025 831 (245)
------ ----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment........ (304) (295) (107) 7
Proceeds from disposal of property and
equipment................................. 8 -- 1 --
Advances to stockholders................... (30) (155) (168) (25)
Advances to affiliates..................... (151) (19) (181) 553
------ ----- ----- -----
Net cash provided by (used in) investing
activities............................... (477) (469) (455) 535
------ ----- ----- -----
Cash flows from financing activities:
Net borrowings on line of credit........... 300 383 400 (233)
Principal payments on capital lease obliga-
tions..................................... (207) (202) (225) (55)
Proceeds from long-term debt............... 470 57 18 --
Repayments on long-term debt............... (990) (323) (142) (32)
Proceeds from notes payable to stockhold-
ers....................................... 1,192 2 -- --
Repayments of notes payable to stockhold-
ers....................................... (849) (274) (236) (11)
------ ----- ----- -----
Net cash used in financing activities..... (84) (357) (185) (331)
------ ----- ----- -----
Net increase (decrease) in cash and cash
equivalents................................ (159) 199 191 (41)
Cash and cash equivalents--beginning of pe-
riod....................................... 394 235 434 625
------ ----- ----- -----
Cash and cash equivalents--end of period.... $ 235 $ 434 $ 625 $ 584
====== ===== ===== =====
Supplemental disclosure of cash flow infor-
mation:
Cash paid during the period for interest... $ 216 $ 231 $ 246 $ 70
Cash paid during the period for income tax-
es........................................ $ 84 $ 242 $ 57 $ 70
Supplemental disclosure of non-cash transac-
tions:
Acquisition of vehicles under capital
leases.................................... $ 174 $ 219 $ 379 $ 84
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 effective October 16, 1997 (the "Merger"). 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. These financial statements are
those of the Company prior to the Merger and do not reflect any purchase
accounting adjustments or other transactions related to the Merger (see Note
10).
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 basis.
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).
F-86
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
Goodwill is being amortized on the straight-line method over a period of 40
years. Accumulated amortization was $213 and $224, at June 30, 1996 and 1997,
respectively.
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 October 15, 1997,
there were no impairments of the Company's assets.
Other Assets
Other assets includes organizational costs with a net value of $5 and $0 at
June 30, 1996 and 1997, respectively, and a non-compete agreement with a net
value of $57 and $31 as of June 30, 1996 and 1997, respectively. These amounts
are 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, and $8 for the period July 1, 1997 through October
15, 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 common stock, $11 par value,
authorized, issued and outstanding. There are also 800 shares of Class B,
nonvoting common stock, $9.75 par value, 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-87
<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 AT CHARGED TO BALANCE
BEGINNING COSTS AND WRITE- AT END
OF PERIOD EXPENSES OFFS OF PERIOD
---------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Year-ended June 30, 1995............. $21 $26 $(10) $37
Year-ended June 30, 1996............. $37 $16 $(37) $16
Year-ended June 30, 1997............. $16 $25 $(11) $30
July 1, 1997 through October 15,
1997................................ $30 $25 $ (9) $46
</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 and the period July 1, 1997 through October 15, 1997 was $299, $368,
$401 and $108, respectively.
F-88
<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 receiv-
able 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, working capital of $500 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
(see Note 10).
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 inter-
est 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>
Notes payable to stockholders of $794 and $558 at June 30, 1996 and 1997,
respectively, are discussed in Note 8 (also see Note 10).
NOTE 7 INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED
------------------- -------------------
YEAR ENDED JUNE 30, FEDERAL STATE TOTAL FEDERAL STATE TOTAL TOTAL
------------------- ------- ----- ----- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1995.......................... $130 $24 $154 $ 14 $ 3 $ 17 $171
1996.......................... $ 59 $11 $ 70 $ 21 $ 4 $ 25 $ 95
1997.......................... $168 $31 $199 $ 5 $ 1 $ 6 $205
July 1, 1997 through October
15, 1997..................... $ 7 $ 3 $ 10 $-- $-- $-- $ 10
</TABLE>
F-89
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Net deferred income 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 income tax assets 14 19
Deferred compensation........................................... 32 23
Depreciation.................................................... (40) (42)
---- ----
Noncurrent deferred income tax asset (liability)............... (8) (19)
---- ----
Net deferred income tax assets................................. $ 6 $--
==== ====
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax rate
is as follows:
<TABLE>
<CAPTION>
JULY 1, 1997
YEAR ENDED JUNE 30, THROUGH
----------------------------- OCTOBER 15,
1995 1996 1997 1997
-------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income taxes at the statutory
rate.......................... $125 35% $84 35% $240 35% $ (12) 35%
(Income) loss of S-Corporation. 22 6 (7) (3) (58) (8) -- --
State income tax, net of fed-
eral benefit.................. 18 5 10 4 21 3 (2) 6%
Non-deductible goodwill amorti-
zation........................ 4 1 4 2 4 1 -- --
Other.......................... 2 1 4 2 (2) (1) 24 (71%)
---- --- --- --- ---- --- ------ -----
$171 48% $95 40% $205 30% $ 10 (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; no
formal repayment terms exist. Interest income related to these receivables for
the years ended June 30, 1995, 1996 and 1997 and the period July 1, 1997
through October 15, 1997 were $87, $89, $80 and $5, respectively (See Note
10).
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; no formal repayment
terms exist. Interest income related to these receivables for the years ended
June 30, 1995, 1996 and 1997, and for the period July 1, 1997 through October
15, 1997 were $5, $12, $24 and $9, respectively (See Note 10).
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, $221 in both 1996 and 1997, and $65 for the period July 1, 1997
through October 15, 1997.
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, $81 in both 1996 and 1997 and $24 for the period
July 1, 1997 through October 15, 1997.
At June 30, 1996 and 1997 the Company had $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 and the period July 1, 1997 through October 15, 1997
was $102, $106, $54 and $15, respectively, of interest related to this
obligation (see Note 10).
F-90
<PAGE>
UNITED WHOLESALE FLORISTS, INC. AND
UNITED WHOLESALE FLORISTS OF AMERICA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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, $334 for each of
the years ended June 30, 1996 and 1997, and $99 for the period July 1, 1997
through October 15, 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
were: June 30, 1996--$1,186 and $768, respectively; June 30, 1997--$1,252 and
$675, respectively. Depreciation expense of vehicles under capital lease for
the years ended June 30, 1995, 1996 and 1997 and for the period July 1, 1997
through October 15, 1997 was approximately $184, $218, $220 and $65,
respectively.
Minimum lease payments under the noncancelable portion of capital and
operating leases at October 15, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
For the year ending June 30,:
1998.................................................... $ 340 $255
1999.................................................... 340 206
2000.................................................... 313 116
2001.................................................... 259 14
2002.................................................... 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>
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 of the Company.
NOTE 10 SUBSEQUENT EVENTS
In conjunction with the Merger, all amounts due from related parties and due
from stockholders were repaid to the Company; amounts due to stockholders were
repaid by the Company. Additionally, borrowings under the line of credit and
all other debt discussed in Note 6, except the unsecured note, was repaid.
F-91
<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, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of American Florist Supply, Inc. at
December 31, 1996, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996 and for the period
January 1, 1997 through October 15, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
January 6, 1998
F-92
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 4
Accounts receivable, net......................................... 1,460
Inventory........................................................ 65
Notes receivable--stockholder.................................... 231
Prepaid expenses and other current assets........................ 30
------
Total current assets............................................ 1,790
Property and equipment, net....................................... 278
Goodwill and intangibles, net..................................... 298
Restricted investments............................................ 26
Other assets...................................................... 46
------
Total assets.................................................... $2,438
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit................................................... $ 302
Accounts payable................................................. 709
Accrued expenses................................................. 147
Income taxes payable............................................. 29
------
Total current liabilities....................................... 1,187
Long-term debt.................................................... 598
Other long-term liabilities....................................... 25
------
Total liabilities............................................... 1,810
------
Commitments and contingencies (Note 11)
Stockholder's equity:
Common stock, no par value; 5,000 shares authorized; 1,000 shares
issued and outstanding.......................................... 400
Retained earnings................................................ 228
------
Total stockholder's equity...................................... 628
------
Total liabilities and stockholder's equity...................... $2,438
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997
---------------- THROUGH
OCTOBER 15,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Net sales........................................ $10,783 $11,679 $10,051
Cost of sales.................................... 7,788 8,268 6,845
------- ------- -------
Gross margin................................... 2,995 3,411 3,206
Selling, general and administrative expenses..... 2,531 2,723 2,490
------- ------- -------
Operating income............................... 464 688 716
Other (income) expense:
Interest expense................................ 42 43 37
Interest income................................. (4) (11) (62)
Other, net...................................... (14) (64) 1
------- ------- -------
Income before income taxes..................... 440 720 740
Provision for income taxes....................... 17 37 41
------- ------- -------
Net income....................................... $ 423 $ 683 $ 699
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for income
taxes.......................................... $ 440 $ 720 $ 740
Provision for income taxes...................... 176 288 296
------- ------- -------
Pro forma income (see Note 2)................... $ 264 $ 432 $ 444
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF STOCKHOLDER'S 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............... 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................................ -- -- 699 699
Dividends paid............................ -- -- (739) (739)
----- ---- ----- -----
Balance at October 15, 1997................ 1,000 $400 $ 188 $ 588
===== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997
---------------- THROUGH
OCTOBER 15,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 423 $ 683 $ 699
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization.................. 89 91 54
Loss on disposal of fixed assets............... 32 8 --
Changes in operating assets and liabilities:
Accounts receivable........................... (126) (121) 155
Inventory..................................... (39) (26) (52)
Prepaid expenses and other assets............. (1) (2) (41)
Due from related parties...................... (16) (210) 231
Accounts payable and accrued expenses......... (85) 94 (110)
Other long-term liabilities................... -- -- 21
Income taxes payable.......................... 16 8 (2)
------- ------- -----
Net cash provided by operating activities.... 293 525 955
------- ------- -----
Cash flows from investing activities:
Purchases of property and equipment............. (7) (45) (38)
Equipment sale proceeds......................... 2 --
Purchases of investments........................ (2) (1) (17)
------- ------- -----
Net cash used in investing activities........ (9) (44) (55)
------- ------- -----
Cash flows from financing activities:
Proceeds from issuance of long-term debt........ 1,576 1,861
Repayments on note payable...................... (1,595) (1,636) (165)
Stockholder dividends........................... (265) (705) (739)
------- ------- -----
Net cash used in financing activities........ (284) (480) (904)
------- ------- -----
Net increase (decrease) in cash and cash equiva-
lents........................................... -- 1 (4)
Cash and cash equivalents--beginning of period... 3 3 4
------- ------- -----
Cash and cash equivalents--end of period......... $ 3 $ 4 $ --
======= ======= =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........ $ 42 $ 43 $ 37
Cash paid during the period for taxes........... $ 15 $ 17 $ 29
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<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 certain liabilities of the distribution business of
Johnson's Roses, Inc.
Effective October 16, 1997, the Company merged with and into U.S.A. Floral
Products, Inc. ("USA Floral") (the "Merger"). All outstanding shares of the
Company were 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. These financial statements are those of the Company prior
to the Merger and do not reflect any purchase accounting adjustments or other
transactions related to the Merger (see Note 12).
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 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-97
<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
Amortization.................................... (21) (8) (29)
----- --- -----
Balance, December 31, 1995....................... 309 18 327
Amortization.................................... (21) (8) (29)
----- --- -----
Balance, December 31, 1996....................... 288 10 298
Amortization.................................... (17) (1) (18)
----- --- -----
Balance at October 15, 1997...................... $ 271 $ 9 $ 280
===== === =====
</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 its key employees. The principal 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, 1996 approximate fair value of the underlying investments (See
Note 12).
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 for which provisions have been made.
F-98
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
There are no material differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities.
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.
NOTE 3 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND WRITE- END OF
OF PERIOD EXPENSES OFFS PERIOD
---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995......... $48 $58 $(58) $48
Year ended December 31, 1996......... $48 -- -- $48
Period ended October 15, 1997........ $48 $44 $(26) $66
</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 "Seller"). The final purchase price, payable
to the Seller 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. Subsequent to October 15, 1997, in
connection with the Merger, the outstanding balance of the note payable was
paid in full (see Note 12).
As part of the Agreement with 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 Note 11).
NOTE 5 INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Perishables..................................................... $19
Hardgoods....................................................... 46
---
$65
===
</TABLE>
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Machinery and equipment......................................... $ 255
Office equipment................................................ 127
Furniture, fixtures and equipment............................... 38
Rose bushes..................................................... --
-----
420
Accumulated depreciation and amortization....................... (142)
-----
$ 278
=====
</TABLE>
F-99
<PAGE>
AMERICAN FLORIST SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense for the years ended December 31, 1995 and 1996 and the
period January 1, 1997 through October 15, 1997 was $65, $67 and $36,
respectively.
NOTE 7 RELATED PARTIES
Notes receivable--stockholder consists of the following at :
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Unsecured note, due on demand, with interest at 8.5%............ $186
Unsecured note, due on demand, with no state interest rate...... 42
----
$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,
and $203 during the period January 1, 1997 through October 15, 1997. These
transactions were at prices that the Company believes to be comparable to
those that would be paid to unrelated parties. 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%
at December 31, 1996) 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 Company's
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. The note is secured by a first
priority perfected security interest in all assets of the Company. The
outstanding balance on the line was $302 as of December 31, 1996. Subsequent
to October 15, 1997, in connection with the Merger, the outstanding balance on
the line of credit was paid in full.
Long-Term Debt
The Company has a promissory note payable to Johnson's Roses, Inc. due May
2, 1999 in the amount of $597.50, 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. Subsequent to October 15, 1997,
in connection with the Merger, the outstanding balance of the note payable was
paid in full.
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 and for the period January 1, 1997
to October 15, 1997 were $76 and $75, respectively.
F-100
<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, 1996 and for the
period January 1, 1997 to October 15, 1997 was approximately $230, $267 and
$297, respectively. The leases expire in years 1997 through 2001.
The aggregate future minimum rentals under these operating leases are as
follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997................... $ 49
For the year ending December 31,:
1998................................................................. 196
1999................................................................. 73
2000................................................................. 37
2001................................................................. 9
----
$364
====
</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's Roses, Inc. Costs paid to Johnson's
Roses, Inc. were approximately $1,000 for each of the years ended 1995 and
1996 and approximately $800 for the period January 1, 1997 to October 15,
1997. 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 cash surrender value of 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, 1996 and is reflected on the Company's
balance sheet within other assets.
NOTE 12 SUBSEQUENT EVENTS
Upon consummation of the Merger, the unrestricted assets were given to an
employee in satisfaction of the Company's obligation (Note 1). In addition,
all amounts due under the line of credit and the long-term debt were repaid
(Note 8). The purchase commitment described in Note 11 and the related party
purchase arrangement described in Note 7 remain in effect.
F-101
<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, of 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
and for the period January 1, 1997 through October 15, 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. The
financial statements of CFX, Inc. for the year ended December 31, 1995 were
audited by other independent accountants whose report dated March 8, 1996,
expressed an unqualified opinion on those statements.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington DC
January 9, 1998
F-102
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CFX, Inc.
Miami, Florida
We have audited the accompanying statements of operations, of stockholders'
equity, and of cash flows of CFX, Inc. for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of CFX,
Inc. for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Madsen, Sapp, Mena, Rodriguez & Co., P.A.
Madsen, Sapp, Mena, Rodriguez & Co., P.A.
Plantation, Florida
March 8, 1996
F-103
<PAGE>
CFX, INC.
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $1,385
Accounts receivable, net......................................... 3,242
Due from related parties......................................... 397
Prepaid expenses and other current assets........................ 78
Advances to growers.............................................. 145
------
Total current assets........................................... 5,247
Property and equipment, net....................................... 402
Other assets:
Due from related parties......................................... --
Cash surrender value of life insurance........................... 207
Deposits......................................................... 13
Advances to stockholders......................................... 428
Advances to growers.............................................. 175
Other............................................................ 2
------
Total assets................................................... $6,474
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit................................................... $ 1
Current maturities of notes payable.............................. 16
Accounts payable................................................. 548
Accrued expenses................................................. 1,835
Due to related party growers..................................... 316
------
Total current liabilities...................................... 2,716
------
Notes payable, net of current maturities.......................... 21
------
Total liabilities.............................................. 2,737
------
Commitments and contingencies
Stockholder's equity:
Common stock $5.00 par value; 1000 shares authorized; 600 shares
issued and outstanding.......................................... 3
Additional paid-in capital....................................... 57
Retained earnings................................................ 3,677
------
Total stockholder's equity..................................... 3,737
------
Total liabilities and stockholder's equity..................... $6,474
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
CFX, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997
---------------- THROUGH
OCTOBER 15,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Net sales (include sales to related parties of
$3,121 $3,859 and $2,670)....................... $32,096 $35,684 $31,436
Cost of sales (includes purchases from related
parties of $9,644, $12,263 and $13,428)......... 24,328 28,190 24,378
------- ------- -------
Gross margin................................... 7,768 7,494 7,058
Selling, general and administrative expenses..... 6,773 8,956 6,517
------- ------- -------
Operating income (loss)........................ 995 (1,462) 541
Other (income) expense:
Interest income................................. (173) (115) (59)
Other, net...................................... (370) (100) --
------- ------- -------
Net income (loss).............................. $ 1,538 $(1,247) $ 600
======= ======= =======
Unaudited pro forma information:
Pro forma net income (loss) before provision for
income taxes................................... $ 1,538 $(1,247) $ 600
Provision (benefit) for income taxes............ 615 (499) 240
------- ------- -------
Pro forma income (loss) (see Note 2)............ $ 923 $ (748) $ 360
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
CFX, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<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, 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..................... -- -- -- 600 600
--- --- ---- ------- -------
Balance at October 15, 1997..... 600 $ 3 $ 57 $ 4,277 $ 4,337
=== === ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
CFX, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997
---------------- THROUGH
OCTOBER 15,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss).............................. $ 1,538 $(1,247) $ 600
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 265 264 179
Unrealized/realized gainon marketable trading
securities................................... (336) (92) --
Gain on disposal of property, plant and equip-
ment......................................... (8) (1) (1)
Purchase of marketable trading securities..... (14) -- --
Proceeds on sale of marketable trading securi-
ties......................................... 603 966 --
Change in operating assets and liabilities:
Accounts receivable.......................... (50) (99) (954)
Prepaid expense and other current assets..... (13) 34 219
Long-term receivables........................ 12 4 (24)
Other assets................................. (42) 67 (12)
Accounts payable and accrued expenses........ (231) 1,231 666
Due from/to related parties.................. (383) (518) (1,052)
------- ------- -------
Net cash provided by (used in) operating ac-
tivities................................... 1,341 609 (817)
------- ------- -------
Cash flows from investing activities:
Advances to growers............................ 72 (243) 103
Decrease in certificate of deposit............. 180 -- --
Purchases of property and equipment............ (287) (179) (179)
Proceeds from sale of equipment................ 8 1 1
Advances to related parties.................... (450) (126) (15,229)
Repayments from related parties................ 24 1,269 14,862
Advances to stockholders....................... (258) (1,557)
Repayments from stockholders................... 1,802 428
------- ------- -------
Net cash used in investing activities....... (711) 967 (14)
------- ------- -------
Cash flows from financing activities:
Borrowings/payments on bank line of credit..... (810) -- (1)
Repayments of long-term debt................... (81) -- (13)
Repayments of stockholders' notes payable...... (100) -- --
Repayments of life insurance loan Stockholder
dividends..................................... (40) (296) --
------- ------- -------
Net cash used in financing activities....... (1,031) (296) (14)
------- ------- -------
Net increase (decrease) in cash and cash equiva-
lents.......................................... (401) 1,280 (845)
Cash and cash equivalents--beginning of period.. 506 105 1,385
------- ------- -------
Cash and cash equivalents--end of period........ $ 105 $ 1,385 $ 540
======= ======= =======
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the period for interest....... $ 21 $ 2 $ 2
Supplemental disclosure of noncash investing and
financing activities Debt
incurred for the acquisition of equipment...... $ -- $ 37 $ --
Acquired grower advance asset by assuming re-
lated liability.............................. $ -- $ 16 $ --
Reclassification from accounts payable to due
to related parties........................... $ 816 $ -- $ --
</TABLE>
F-107
<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.
Effective October 16, 1997, the Company merged with and into U.S.A. Floral
Products, Inc. ("USA Floral") (the "Merger"). 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. These financial statements are those of the Company prior
to the Merger and do not reflect any purchase accounting adjustments or other
transactions related to the Merger (see Note 11).
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.
Investments
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
F-108
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of these instruments. The estimated fair value of long-term debt and other
long-term liabilities approximates their 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, 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 its fresh-cut flowers from
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.
There are no material differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities.
NOTE 3 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND WRITE- END OF
OF PERIOD EXPENSES OFFS PERIOD
---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995........... $90 $15 $(15) $90
Year ended December 31, 1996........... $90 $32 $(32) $90
January 1, 1997 through October 15,
1997.................................. $90 $ 6 $ (6) $90
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Leasehold improvements.......................................... $ 729
Equipment....................................................... 1,547
Vehicles........................................................ 491
Furniture and fixtures.......................................... 138
-------
2,905
Accumulated depreciation and amortization....................... (2,503)
-------
$ 402
=======
</TABLE>
F-109
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense for the years ended December 31, 1995 and 1996, and for
the period January 1, 1997 through October 15, 1997, was $265, $264 and $179,
respectively.
NOTE 5 CREDIT FACILITIES
Bank Lines of Credit
The Company maintained a line of credit and an overline facility which
provided for borrowings of up to $2,000 and $500, respectively, and bore
interest at prime plus 1/2 percent (9.5% and 8.75% at December 31, 1995 and
1996, respectively). These facilities technically expired on May 31, 1997;
however, the parties continued the credit line through October 15, 1997 (see
Note 11). The borrowings are collateralized by all of the Company's personal
property and place restrictions on among other matters, indebtedness, capital
expenditures, the payment of dividends, the sale of assets and mergers and
acquisitions. In addition, the loan agreement required certain ratios and
other financial covenants. 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
During 1996, the Company incurred a $37 note payable with a bank requiring
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 at December
31, 1996.
Principal maturities on the note payable at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997..................... $16
For the year ending December 31,:
1998.................................................................... 19
1999.................................................................... 2
---
Total................................................................ $37
===
</TABLE>
NOTE 6 PROFIT SHARING PLAN
The Company has a contributory profit sharing plan covering substantially
all its 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 $100 for the years
ended December 31, 1995 and 1996, and the period January 1, 1997 through
October 15, 1997.
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
$9,644, $11,993 and $13,354 in cost of sales for the years ended December 31,
1995 and 1996, and the period January 1, 1997 through October 15, 1997,
respectively.
The Company sells flowers to, and purchases flowers from, a bouquet
manufacturer affiliate owned by its majority stockholders. Sales were
approximately $3,121, $3,859 and $2,670 to this affiliate for the years ended
December 31, 1995 and 1996, and the period January 1, 1997 through October 15,
1997, respectively. Related accounts receivable balances were $0 and $283 at
December 31, 1996, and October 15, 1997, respectively. The financial
statements include cost of sales of $117, $270 and $74 for the years ended
December 31, 1995 and 1996, and the period January 1, 1997 through October 15,
1997, respectively (see Note 11).
F-110
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company also provides services to, receives services from, and loans
cash to and borrows from the bouquet manufacturer affiliate mentioned above.
Net management fee income for such services was approximately $518, $570 and
$404 for the years ended December 31, 1995 and 1996 and the period January 1,
1997 through October 15, 1997, respectively. At December 31, 1996, and October
15, 1997, the outstanding receivable balance resulting from such transactions
was approximately $388 and $876, respectively. 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 $205, $308 and $184 for the years ended
December 31, 1995 and 1996, and the period January 1, 1997 through October 15,
1997, 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, 1996 and is included in due from
related parties - current at December 31, 1996.
The accompanying financial statements include interest income from related
parties of approximately $112, $61 and $27 for the years ended December 31,
1995 and 1996, and the period January 1, 1997 through October 15, 1997,
respectively.
Advances to stockholders represent non-interest 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. (See note 11).
NOTE 8 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its bouquet manufacturer affiliate jointly lease office and
warehouse space from a partnership owned by the Company's majority
shareholders. Lease payments in 1997 were allocated 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 October 15, 1997, the Company's allocable share of the future minimum
rent under the current terms of the above office and warehouse lease were as
follows:
<TABLE>
<S> <C>
For the period October 16, 1997 to December 31, 1997................ $ 54
For the year ending December 31,:
1998................................................................ 266
1999................................................................ 266
2000................................................................ 266
2001................................................................ 266
2002................................................................ 266
Thereafter.......................................................... 1,066
------
Total............................................................. $2,450
======
</TABLE>
Rent expense was $203, $213 and $211 for the years ended December 31, 1995
and 1996, and the period January 1, 1997 through October 15, 1997,
respectively.
F-111
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 $3,760 and $3,549 at December 31, 1996 and October 15, 1997,
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 $1,080 at October 15, 1997 and matures in
October 2006. The bond and mortgage are collateralized by land and a building
which are leased by the Company and its wholesale affiliate. The Company has
pledged all of its assets as collateral and has guaranteed the bond and
mortgage. The bond agreement places restrictions on indebtedness, liens, the
payment of dividends, the sale of assets, mergers and acquisitions and
contains other restrictions. In addition, the bond agreement requires the
Company and its wholesale affiliate to maintain certain combined ratios and
other financial statistics (see Note 11).
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, 1996 of approximately $29.
At December 31, 1996 the Company had three outstanding uncollateralized
letters of credit totaling approximately $195, 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 ended 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 and the ninth reviews but judicial appeals are
pending. The eighth review was liquidated at the cash-deposit rate. The tenth
review is in process. All other reviews have been resolved.
Included in accrued expenses is approximately $1,248 and $919 as of December
31, 1996, and October 15, 1997, 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 Columbia 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-112
<PAGE>
CFX, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9 OTHER INCOME
Significant components of other income (expense) are as follows:
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER
31,
---------
1995 1996
---- ----
<S> <C> <C>
Realized gains on trading securities.............................. $ 14 $ 92
Unrealized gains (losses) on trading securities................... 265
Gain on sale of property and equipment............................ 65
Other............................................................. 26 8
---- ----
$370 $100
==== ====
</TABLE>
NOTE 10 SIGNIFICANT CUSTOMERS
Sales to the Company's bouquet manufacturing affiliate approximated 10%, 11%
and 9% of revenues for 1995 and 1996, and the period January 1, 1997 through
October 15, 1997, respectively.
NOTE 11 SUBSEQUENT EVENTS
All related party agreements, understandings and arrangements as outlined in
Note 7 were amended upon consummation of the Merger described in Note 1 such
that all continuing obligations thereunder are intended to be no greater than
they would be under agreements with unaffiliated third parties. In addition,
all advances to stockholders were paid to the Company upon the consummation of
the initial public offering of Common Stock of USA Floral on October 16, 1997,
and all bank debt of the Company was repaid in full. Further, the Company was
released from those guarantees discussed in note 8.
F-113
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Continental Farms Limited and
Atlantic Bouquet Company Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and partners'
capital and of cash flows present fairly, in all material respects, the
consolidated financial position of Continental Farms Limited and Atlantic
Bouquet Company Limited (the "Partnerships") at December 31, 1996 and 1997,
and the results of their consolidated operations and cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Partnerships' 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
February 27, 1998
F-114
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 8,669 $ 8,124
Investment.................................................... -- 63
Accounts receivable, net...................................... 6,106 6,165
Inventory..................................................... 737 693
Prepaid expenses.............................................. 80 34
Miscellaneous receivables..................................... 149 41
Advances to growers........................................... 406 123
------- -------
Total current assets......................................... 16,147 15,243
Property and equipment, net.................................... 4,343 4,031
Deposits....................................................... 28 31
------- -------
Total assets................................................. $20,518 $19,305
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable--current........................................ $ 763 $ 100
Accounts payable--related growers............................. 1,013 798
Accounts payable--unrelated growers........................... 1,936 2,278
Accrued expenses and other payables........................... 3,409 3,218
Due to related parties........................................ 1 66
------- -------
Total current liabilities.................................... 7,122 6,460
Notes payable, net of current maturities....................... 1,000 900
------- -------
Total liabilities............................................ 8,122 7,360
Commitments and contingencies
Partners' capital.............................................. 12,396 11,945
------- -------
Total liabilities and partners' capital...................... $20,518 $19,305
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales .......................................... $65,240 $64,349 $62,494
Cost of sales....................................... 47,802 47,093 44,774
------- ------- -------
Gross profit...................................... 17,438 17,256 17,720
Selling, general and administrative expenses........ 13,945 13,133 12,820
------- ------- -------
Operating income.................................. 3,493 4,123 4,900
Other (income) expense:
Interest expense................................... 120 115 57
Interest income.................................... (708) (503) (458)
Other, net......................................... (293) (138) (58)
------- ------- -------
Income before income taxes........................ 4,374 4,649 5,359
Provision for income taxes.......................... 1,552 -- --
------- ------- -------
Net income........................................ $ 2,822 $ 4,649 $ 5,359
======= ======= =======
Unaudited pro forma information:
Pro forma net income before provision for income
taxes............................................. $ 4,649 $ 5,359
Provision for income taxes......................... 1,860 2,144
------- -------
Pro forma income (see Note 2)...................... $ 2,789 $ 3,215
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
ADDITIONAL TOTAL TOTAL
PAID-IN RETAINED STOCKHOLDERS' PARTNERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY CAPITAL
------ ------ ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 300 $ 300 $ 95 $ 9,318 $ 9,713 $ --
Net income for 1995.... 2,822 2,822 --
Distributions to stock-
holders............... -- -- -- (316) (316) --
---- ----- ---- -------- -------- -------
Balance at December 31,
1995................... 300 300 95 11,824 12,219 --
Reorganization (Note
1).................... (300) (300) (95) (11,824) (12,219) 12,219
---- ----- ---- -------- -------- -------
Balance at January 1,
1996................... -- $ -- $-- $ -- $ -- 12,219
==== ===== ==== ======== ========
Net income for 1996.... 4,649
Partner distributions.. (4,472)
-------
Balance at December 31,
1996................... 12,396
Net income for 1997.... 5,359
Partner distributions.. (5,821)
Unrealized gain on se-
curities.............. 11
-------
Balance at December 31,
1997................... $11,945
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 2,822 $ 4,649 $ 5,359
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 622 552 448
Changes in operating assets and liabilities:
Accounts receivable.............................. (152) 438 (59)
Inventory........................................ (29) 244 44
Prepaid expenses................................. 15 61 46
Miscellaneous receivables........................ (299) 184 108
Advances to growers.............................. (345) 46 283
Other assets..................................... 22 88 (3)
Due from related parties......................... -- 1 65
Accounts payable and accrued expenses............ (1,063) 173 (64)
------- ------- -------
Net cash provided by operating activities....... 1,593 6,436 6,227
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment................ (286) (187) (136)
Purchase of investment............................. -- -- (52)
------- ------- -------
Net cash used in investing activities........... (286) (187) (188)
------- ------- -------
Cash flows from financing activities:
Repayments of notes payable........................ (140) (140) (763)
Stockholders' dividends............................ (316) -- --
Partners' distributions............................ -- (4,472) (5,821)
------- ------- -------
Net cash used in financing activities........... (456) (4,612) (6,584)
------- ------- -------
Net increase (decrease) in cash and cash equiva-
lents.............................................. 851 1,637 (545)
Cash and cash equivalents, beginning of period...... 6,181 7,032 8,669
------- ------- -------
Cash and cash equivalents, end of period............ $ 7,032 $ 8,669 $ 8,124
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 118 $ 115 $ 67
Cash paid during the period for income taxes....... $ 1,714 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 BUSINESS ORGANIZATION
Basis of Consolidation
The consolidated financial statements include the accounts of Continental
Farms Limited and Atlantic Bouquet Company Limited (the "Partnerships"), which
are commonly owned and managed. All intercompany transactions have been
eliminated in these financial statements.
Reorganization
Continental Farms, Inc. and its wholly-owned subsidiary, Atlantic Bouquet
Company, were the predecessor entities of the Partnerships. These entities
were organized in 1987 and 1989, respectively, were headquartered in Miami,
Florida and were engaged in the business of importation and distribution of
flowers and bouquets throughout the United States and Canada.
These entities were reorganized as limited partnerships as of January 1,
1996. Under a plan of liquidation, the assets, liabilities and equity of
Atlantic Bouquet Company were combined with Continental Farms, Inc.'s assets,
liabilities and equity. Certain holders of restricted stock of Continental
Farms, Inc. had their shares redeemed and then liquidating distributions were
made to the remaining shareholders. The prior shareholders of Continental
Farms, Inc. then contributed certain assets, liabilities and capital to
Continental Farms Limited. Continental Farms Limited contributed a portion of
these certain assets and liabilities to Atlantic Bouquet Company Limited. This
reorganization did not result in a change in the carrying amount of the net
assets of the Partnerships.
Management Agreements
Each Partnership has a management agreement dated January 1, 1996 with its
general partner, Continental Farms Management, Inc. Each agreement provides,
among other things, that the general partner will function as the manager and
sole general partner of the Partnership. The manager shall be responsible for
the day-to-day management of the business. The manager is reimbursed for
actual costs, including salaries, bonuses and certain other related costs,
incurred in connection with the management of the Partnership.
The terms of the agreements were initially for twelve months with automatic
renewal on each agreement's anniversary date unless the Partnerships give the
manager (general partner) written notice at least sixty days prior to
expiration of the current term.
The general partner for the Partnerships has employment contracts with three
executive employees. These contracts have severance benefits which are payable
under certain conditions after the second year of the contract. These
employment contracts are guaranteed by the Partnerships.
Each of the executives, who are shareholders in the general partner and are
limited partners in the Partnerships, have entered into Rights Agreements
dated January 1, 1996 with the general partner and the Partnerships. The
Rights Agreements restrict the transfer of partnership units and shares of the
general partner. In addition, the units/shares cannot be pledged, hypothecated
or disposed of without written authorization by the Board of Directors of the
general partner.
In the event of death, disability or termination of employment by persons
under contract, partnership units and equity (in the Partnerships and the
general partner, respectively) will be redeemed at a contractually agreed
price.
F-119
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Continental Farms Limited: The partners of Continental Farms Limited entered
into a partnership agreement effective January 1, 1996. The partnership
structure is composed of Class A units and Class B units. Class A units may be
transferred, sold or pledged, in whole or in part, to any transferee under
certain conditions. Class B units cannot be transferred, pledged or
hypothecated or disposed of unless authorized in writing by the Board of
Directors of the general partner.
Atlantic Bouquet Company Limited: The partners entered into a limited
partnership agreement effective January 1, 1996. The sole general partner is
Continental Farms Management, Inc. The limited partner is Continental Farms
Limited. The partnership structure is composed of Class A units. Class A units
may be transferred, sold or pledged, in whole or in part, to any transferee
under certain conditions.
Partners' Capital
The following units were issued and outstanding as of December 31, 1996 and
1997:
<TABLE>
<S> <C>
Continental Farms Limited:
Class A Units....................................................... 784
Class B Units....................................................... 216
-----
Total.............................................................. 1,000
=====
Atlantic Bouquet Limited:
Class A Units....................................................... 1,000
=====
</TABLE>
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 (see Note 10).
Revenue Recognition
Revenue is recognized upon shipment of product to the customer.
Cash Equivalents
For purposes of the statement of cash flows, the Partnerships consider all
highly liquid short-term investments purchased with a maturity of
approximately three months or less at date of purchase to be cash equivalents.
Investment
The Partnerships own common stock of USA Floral Products, Inc. at December
31, 1997. This investment is classified as an available-for-sale security with
unrealized holding gains being recorded as a separate component of equity. At
December 31, 1997 an unrealized gain on this investment of $11 is recorded in
partners' capital.
F-120
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventory
Inventory maintained by Continental Farms Limited is on consignment.
Continental Farms Limited primarily obtains products from growers on a
consignment basis. The Partnership periodically remits sales proceeds to
growers less sales commissions, duties, freight and other miscellaneous
selling expenses. Inventory used by the Partnerships for its own behalf is
considered a sale for purposes of remittances to growers. Inventory on
consignment which is unsold as of December 31, 1996 and 1997 is not recorded
in the accompanying consolidated balance sheets.
Inventory of Atlantic Bouquet Company Limited is recorded at average cost,
which does not exceed market value.
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 Partnerships, on behalf of the growers under the consignment
agreement.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets
(three to thirty-two 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 payable, accrued expenses and the current portion of
long-term debt approximates fair value because of the short maturity of these
instruments. The estimated fair value of the non-current portion of long-term
debt approximates its carrying value, because interest rates on outstanding
debt are at rates which approximate market rates for debt with similar terms
and maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnerships to
concentrations of credit risk consist principally of cash and cash
equivalents, trade accounts receivable and amounts due from related parties
and related and unrelated growers. The Partnerships extend unsecured credit to
wholesale florists primarily throughout the United States. The Partnerships,
from time to time, advance 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. Customers are geographically dispersed throughout
the North American continent and sales to any one customer are not significant
enough to expose the Partnerships to additional credit risk.
The Partnerships receive a significant portion of their fresh-cut flowers
from Colombia.
Income Taxes
The Partnerships are not tax paying entities for federal or state income tax
purposes, and therefore no income tax expense is recorded in the consolidated
financial statements for the years ended December 31, 1996 and 1997. The
income from the Partnerships is taxed to the partners in accordance with
income allocations under
F-121
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the partnership agreements. The predecessor entities were incorporated and
subject to federal and state income tax. For 1995, income taxes were computed
using the liability method under the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The unaudited pro forma income tax information included in the Consolidated
Statement of Operations is presented in accordance with SFAS No. 109 as if the
Partnerships had been subject to applicable federal and state income taxes for
each of the two years in the period ended December 31, 1997.
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......... $241 $51 $ (59) $233
Year ended December 31, 1996......... $233 $78 $ (98) $213
Year ended December 31, 1997......... $213 $ 9 $(105) $117
</TABLE>
NOTE 4 INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1996 1997
---- ----
<S> <C> <C>
Supplies........................................................... $663 $623
Flowers............................................................ 71 64
Finished goods..................................................... 3 6
---- ----
$737 $693
==== ====
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Buildings and improvements................................... $3,495 $3,495
Office equipment............................................. 1,503 1,636
Refrigeration equipment...................................... 1,471 1,471
Machinery and equipment...................................... 1,283 1,286
Furniture and fixtures....................................... 585 585
Automobiles and trailers..................................... 284 284
------ ------
Total depreciable assets at cost............................. 8,621 8,757
Accumulated depreciation and amortization.................... (5,244) (5,692)
------ ------
Net depreciable assets....................................... 3,377 3,065
Land......................................................... 966 966
------ ------
$4,343 $4,031
====== ======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1995, 1996 and 1997 was $622, $552 and $448, respectively.
F-122
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6 ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Accrued antidumping fees...................................... $1,962 $1,613
Accounts payable--non-growers................................. 760 816
Accrued payroll and related benefits.......................... 515 542
Customer rebates.............................................. 141 217
Miscellaneous accrued expenses................................ 31 30
------ ------
$3,409 $3,218
====== ======
</TABLE>
NOTE 7 CREDIT FACILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
-------------- -------------
LONG- LONG-
CURRENT TERM CURRENT TERM
------- ------ ------- -----
<S> <C> <C> <C> <C>
DADE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
Mandatory principal repayments of $100 due on
December 1, 1992-2002 (inclusive); balloon
payment of $500 due December 1, 2003; inter-
est payable monthly at a rate which approxi-
mates the issuing bank's demand note index
for high quality short-term tax-exempt obli-
gations (approximately 3%); loan is collat-
eralized by property with a net book value
of $1,833................................... $100 $1,000 $100 $900
NATIONSBANK--MORTGAGE
Principal of $3 payable monthly; balloon pay-
ment of $643 due August 1997; interest pay-
able monthly at prime rate; loan is collat-
eralized by property with a net book value
of $972..................................... 663 -- -- --
---- ------ ---- ----
$763 $1,000 $100 $900
==== ====== ==== ====
</TABLE>
Interest expense for the years ended December 31, 1995, 1996 and 1997 was
$120, $115 and $57, respectively.
Principal maturities on the note payable are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................................ $ 100
1999................................................................ 100
2000................................................................ 100
2001................................................................ 100
2002................................................................ 100
Thereafter.......................................................... 500
------
$1,000
======
</TABLE>
F-123
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 EMPLOYEE BENEFIT PLAN
The Partnerships established an employee savings plan under the provisions
of section 401(k) of the Internal Revenue Code on July 1, 1997. Prior to this
date, the Partnerships maintained a profit sharing plan and trust with terms
consistent with those of the 401(k) plan. For each of the three years ended
December 31, 1997, the Partnerships contributed $72 to these plans. Employees
are eligible to participate in the plan subject to certain requirements.
Qualified employees may contribute, on a pre-tax basis, up to the maximum
amount permitted by law. The Partnerships' contributions to the plan are
discretionary.
NOTE 9 RELATED PARTY TRANSACTIONS
Purchases
Continental Farms Limited, in the normal course of business, purchases
inventory for resale and holds inventory on consignment from related parties.
Purchases from related entities amounted to approximately $10,496, $10,558 and
$10,112 for the years ended December 31, 1995, 1996 and 1997, respectively.
Fees paid to Continental Farms Management, Inc. for salaries, bonuses and
certain other related management costs were approximately $1,890, $2,070 and
$1,836 for the years ended December 31, 1995, 1996 and 1997, respectively. The
Partnerships pay a related party for the handling of flower shipment
arrangements. The related party negotiates fixed shipping rates with a third
party carrier and receives a fee for this service. Fees paid by the
Partnership to the related party for the three years ended December 31, 1995,
1996, and 1997 were $1,152, $1,318 and $1,301, respectively.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Partnerships lease office space, equipment, and vehicles under
operating leases. Future minimum lease payments under these leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................................... $190
1999.................................................................... 138
2000.................................................................... 69
2001.................................................................... 15
----
Total.................................................................. $412
====
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $227, $194 and $220, respectively.
Legal Matters
The Partnerships are involved in various legal matters in the normal course
of business. In the opinion of the Partnerships' management, these matters are
not anticipated to have a material adverse effect on the financial position,
results of operations or cash flows of the Partnerships.
IRS Audits
Predecessor entities are currently under IRS audit for the final period of
their operations. Any additional taxes, penalties and interest assessed will
be borne by the stockholders of the predecessor entities in accordance with
the USA Floral Products, Inc. Purchase Agreement, dated January 20, 1998 (see
Note 11).
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-124
<PAGE>
CONTINENTAL FARMS LIMITED AND ATLANTIC BOUQUET COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
flower growers' margins. Since that time, the DOC has undertaken ten reviews,
the last one for the period ended 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 and eleventh reviews are
in process. All other reviews have been resolved.
Included in accrued expenses is approximately $1,962 and $1,613 as of
December 31, 1996 and 1997, respectively, of estimated antidumping duty
imposed by the DOC. The antidumping duty is based on rates imposed on certain
products from certain growers in Colombia and Ecuador. The duty is subject to
change upon the DOC final review of all open antidumping periods as well as
various legal appeals.
NOTE 11 SUBSEQUENT EVENT
Effective January 28, 1998, all of the Partnerships' outstanding Class A and
Class B units were sold to U.S.A. Floral Products, Inc. ("USA Floral") for an
aggregate of $55,000, comprised of cash and USA Floral Common Stock. The price
is subject to adjustment for net worth requirements as of the date of closing.
No effect has been given by USA Floral to adjustments that have or will take
place as a result of the purchase of the Partnerships.
F-125
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
XL Group Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of XL Group, Inc. at December 31,
1997, 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.
XL Group, Inc., as disclosed in the financial statements, has extensive
transactions and relationships with related parties. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
February 9, 1998
F-126
<PAGE>
XL GROUP INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $1,200
Accounts receivable, net......................................... 2,858
Prepaid expenses................................................. 47
Advances to related parties...................................... 2,693
Advances to related party grower................................. 705
Advances to stockholder.......................................... 1,260
------
Total current assets............................................ 8,763
Property and equipment, net....................................... 692
Other assets...................................................... 13
------
Total assets.................................................... $9,468
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................. $ 129
Accrued expenses................................................. 157
Due to related party growers..................................... 3,364
------
Total current liabilities....................................... 3,650
Commitments and contingencies
Stockholder's equity:
Common stock $1.00 par value; 100 shares authorized; 100 shares
issued and outstanding.......................................... --
Additional paid-in capital....................................... 200
Retained earnings................................................ 5,618
------
Total stockholder's equity...................................... 5,818
------
Total liabilities and stockholder's equity...................... $9,468
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-127
<PAGE>
XL GROUP, INC,
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net sales and other revenues...................................... $32,329
Cost of sales (includes purchases from related parties of
$24,216)......................................................... 24,443
-------
Gross profit.................................................... 7,886
Selling, general and administrative expenses...................... 7,284
-------
Operating income................................................ 602
Other (income):
Interest income.................................................. (40)
Gain on disposal of equipment.................................... (4)
-------
Net income...................................................... $ 646
=======
Unaudited pro forma information:
Pro forma net income before provision for income taxes........... $ 646
Provision for income taxes....................................... 258
-------
Pro forma income (see Note 2).................................... $ 388
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE>
XL GROUP, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 100 $-- $200 $4,972 $5,172
Net income..................... -- -- -- 646 646
--- ---- ---- ------ ------
Balance at December 31, 1997.... 100 $-- $200 $5,618 $5,818
=== ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE>
XL GROUP INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net income....................................................... $ 646
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Depreciation and amortization................................... 308
Gain on disposal of property and equipment...................... 4
Changes in operating assets and liabilities:
Accounts receivable............................................ 14
Prepaid expenses............................................... 13
Accounts payable and accrued expenses.......................... (228)
Advances to/due to related party growers....................... 1,317
-------
Net cash provided by operating activities..................... 2,074
Cash flows from investing activities:
Purchase of property and equipment............................... (399)
Proceeds from sale of equipment.................................. 20
Advances to related parties...................................... (508)
Repayments from related parties.................................. --
Advances to stockholder.......................................... (3,317)
Repayments from stockholder...................................... 1,912
-------
Net cash used in investing activities......................... (2,292)
Net decrease in cash and cash equivalents......................... (218)
Cash and cash equivalents, beginning of period.................... 1,418
-------
Cash and cash equivalents, end of period.......................... $ 1,200
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE>
XL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS ORGANIZATION
Founded in 1986, XL Group, Inc. (the "Company") is an importer and
distributor of perishable floral products operating from one location in
Florida. The Company imports flowers from related party farms located in
Colombia, Costa Rica and Ecuador, and distributes them throughout the United
States to wholesale distributors and mass markets. Flowers are received on
consignment from these farms.
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 short-term investments purchased with a maturity of
approximately three months or less at date of purchase to be cash equivalents.
Inventory
The Company obtains products from growers on a consignment basis. Upon sale,
the Company remits to growers the sales proceeds for the period less sales
commissions, duties, freight and other miscellaneous selling expenses.
Inventory on consignment which is unsold at December 31, 1997 is not recorded
in the accompanying balance sheet.
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
(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 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 cash and cash equivalents, trade
accounts receivable and amounts due from related parties and related growers.
The Company, from time to time, advances funds to related parties and related
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.
F-131
<PAGE>
XL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company receives a significant portion of their fresh-cut flowers from
the countries of Colombia, Costa Rica and Ecuador.
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 is the
direct responsibility of its stockholder.
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 or state income taxes for the entire periods
presented.
NOTE 3 ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND WRITE- END OF
OF PERIOD EXPENSES OFFS PERIOD
---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997........ $168 $-- $(88) $80
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Leasehold improvements.......................................... $1,388
Equipment....................................................... 1,641
Vehicles........................................................ 422
Furnitures and fixtures......................................... 417
------
3,868
Accumulated depreciation and amortization....................... (3,176)
------
$ 692
======
</TABLE>
Depreciation and amortization expense for the year ended December 31, 1997
was $308.
NOTE 5 CREDIT FACILITY
The Company maintained a $500 revolving line of credit with a bank which was
due on demand. Advances, if any, on the credit line were payable upon demand
and the interest rate was determined at the date of borrowing. The credit line
was secured by the Company's assets. There were no borrowings outstanding on
the credit line as of December 31, 1997. The credit line was cancelled on
January 28, 1998.
NOTE 6 EMPLOYEE BENEFIT PLAN
The Company has established an employee savings plan ("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. Qualified
employees may contribute, on a pretax basis, up to the maximum amount
allowable by law. The Company makes a matching contribution to the Plan not to
exceed 6% of employees compensation. Company contributions to the Plan in 1997
were $100.
F-132
<PAGE>
XL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7 RELATED PARTY TRANSACTIONS
The Company receives flowers on consignment from farms owned by the
Company's stockholder. In 1997, total purchases from these farms were $24,216.
At December 31, 1997 the amount due to these farms was $3,364. The Company
advanced one farm cash for working capital purposes. The Company intends to
offset future purchases from this farm against these advances. At December 31,
1997 the Company had advanced this farm $705.
The Company receives freight service from a cargo airline owned by the
Company's stockholder. In 1997, total freight service was $4,175 of which
$2,515 was paid to this cargo airline on behalf of the farms and charged to
them. At December 31, 1997 the Company had advanced the cargo airline $1,698.
These advances are to be applied against future air cargo costs.
The Company provides management and administrative services and pays
expenses on behalf of a company owned by its stockholder. Reimbursement for
such services and expenses of $80 reduced selling, general and administrative
expenses in 1997. In addition, the Company advances this company cash for
working capital purposes. At December 31, 1997, $995 was due from this
company.
The Company leases office and warehouse space from the Company's
stockholder. In 1997, total lease payments were $806.
The Company advances money to, borrows money from, and pays certain expenses
for its stockholder. At December 31, 1997, the Company had non-interest
bearing advances to its stockholder of $1,260.
NOTE 8 COMMITMENTS
The Company leases its office and warehouse facilities from the Company's
stockholder under an operating lease expiring in 2000. The Company has entered
into agreements to sublease a portion of its office space to unrelated
parties. In addition, the Company leases computer equipment under several
leases classified as operating leases which expire in the years 2000 and 2001.
Future minimum lease payments and receipts under such leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
NET
LEASE SUBLEASE LEASE
PAYMENTS INCOME PAYMENTS
-------- -------- --------
<S> <C> <C> <C>
1998.............................................. $ 871 $149 $ 722
1999.............................................. 861 144 717
2000.............................................. 420 72 348
------ ---- ------
$2,152 $365 $1,787
====== ==== ======
</TABLE>
Rental expense under operating leases in 1997 was $851. Sublease income in
1997 was $149 and is netted against rental expense for financial reporting
purposes.
During 1997, a related party company, owned solely by the Company's
stockholder, obtained a $3,500 loan which the Company guaranteed. On January
28, 1998, the Company was released from the guarantee by the lender.
F-133
<PAGE>
XL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9 SUBSEQUENT EVENT
Effective January 29, 1998, the stockholder sold all the outstanding shares
of the Company to U.S.A. Floral Products, Inc. ("USA Floral") for $22 million.
All outstanding shares of the Company were exchanged for cash of $11 million
and shares of USA Floral Common Stock equivalent to $11 million. The Company's
stockholder may receive additional consideration of up to a maximum of $4
million in cash and additional shares of USA Floral's Common Stock based upon
the 1998 earnings of the surviving entity.
In conjunction with the sale of the Company, advances to related parties,
advances to related party grower, and advances to stockholder were repaid to
the Company. Additionally, amounts due to related party growers were repaid by
the Company.
The Company will continue to lease office and warehouse space under the
current lease agreement. Additionally, the Company will continue to purchase
flowers from related party growers and freight services from a related party
airline.
No effect has been given to these financial statements for adjustments that
have or will take place as a result of the USA Floral purchase of the Company.
F-134
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Koehler & Dramm, Inc.
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 Koehler &
Dramm, Inc. and its subsidiary at July 31, 1997 and the results of their
operations and their 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
St. Louis, Missouri
March 3, 1998
F-135
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 297 $ 211
Marketable securities..................................... 297 302
Accounts receivable, net.................................. 1,831 2,278
Inventory................................................. 1,836 1,835
Prepaid expenses and other current assets................. 11 28
Deferred income taxes..................................... 117 117
------ ------
Total current assets..................................... 4,389 4,771
------ ------
Property and equipment, net................................ 623 629
Deferred income taxes...................................... 47 47
Advances to stockholder.................................... 367 373
------ ------
Total assets............................................. $5,426 $5,820
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit....................................... $ 80 $ 110
Accounts payable.......................................... 1,168 1,506
Accrued expenses.......................................... 90 182
Taxes payable............................................. 171 43
Other current liabilities................................. 23 19
------ ------
Total current liabilities................................ 1,532 1,860
Other liabilities.......................................... 166 166
------ ------
Total liabilities........................................ 1,698 2,026
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 100,000 shares
authorized; 69,547 shares issued and outstanding......... 70 70
Additional paid-in capital................................ 21 29
Retained earnings......................................... 3,637 3,695
------ ------
Total stockholders' equity............................... 3,728 3,794
------ ------
Total liabilities and stockholders' equity............... $5,426 $5,820
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-136
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JULY 31, --------------------
1997 1996 1997
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Net sales................. $21,249 $ 4,513 $ 5,346
Cost of sales............. 14,894 3,215 3,962
------- --------- ---------
Gross margin............ 6,355 1,298 1,384
Selling, general and ad-
ministrative expenses.... 5,473 1,144 1,291
------- --------- ---------
Operating income........ 882 154 93
Other (income) expense:
Interest expense......... 4 1 1
Dividend and interest in-
come.................... (159) (22) (31)
Other, net............... (42) 8 17
------- --------- ---------
Income before provision
for income taxes......... 1,079 167 106
Provision for income tax-
es....................... 428 63 48
------- --------- ---------
Net income................ $ 651 $ 104 $ 58
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-137
<PAGE>
KOEHLER & DRAMM, INC.
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 July 31, 1996....... 69,547 $70 $21 $2,986 $3,077
Net income.................... -- -- -- 651 651
------ --- --- ------ ------
Balance at July 31, 1997....... 69,547 70 21 3,637 3,728
Net income (unaudited)........ 58 58
Stock issued (unaudited)...... 554 -- 8 -- 8
------ --- --- ------ ------
Balance at October 31, 1997
(unaudited)................... 70,101 $70 $29 $3,695 $3,794
====== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-138
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED OCTOBER 31,
JULY 31, --------------
1997 1996 1997
---------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income......................................... $ 651 $ 104 $ 58
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 198 30 26
Net unrealized gain on marketable securities...... (23)
Proceeds from issuance of common stock............ 8
Gain on disposal of fixed assets.................. (10) (10) (1)
Change in operating assets and liabilities:
Accounts receivable, net......................... (187) (375) (447)
Inventory........................................ (744) (149) 1
Prepaid expenses and other current assets........ 18 (2) (17)
Advances to stockholder.......................... 69 (1) (6)
Deferred income taxes............................ (18)
Accounts payable................................. 176 270 338
Accrued liabilities.............................. (11) 91 88
Taxes payable.................................... 171 8 (128)
----- ------ ------
Net cash provided by (used in) operating activi-
ties........................................... 290 (34) (80)
Cash flows from investing activities:
Purchases of property and equipment................ (220) (31) (32)
Proceeds from sale of securities................... 35 41
Proceeds from disposal of property and equipment... 24 10 1
Purchase of securities............................. (5)
----- ------ ------
Net cash used in investing activities........... (161) 20 (36)
Cash flows from financing activities:
Proceeds from bank line of credit.................. 80 30
----- ------ ------
Net cash provided by financing activities....... 80 -- 30
----- ------ ------
Net increase (decrease) in cash and cash equiva-
lents.............................................. 209 (14) (86)
Cash and cash equivalents, beginning of period...... 88 88 297
----- ------ ------
Cash and cash equivalents, end of period............ $ 297 $ 74 $ 211
===== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 4 $ -- $ 1
===== ====== ======
Cash paid during the period for income taxes....... $ 275 $ 55 $ 176
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-139
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS ORGANIZATION
Founded in 1955, Koehler & Dramm, Inc. (the "Company") is a distributor of
perishable floral products and floral related hardgoods, operating from its
headquarters in Minneapolis, Minnesota and from Kansas City, Missouri. The
Company purchases floral products from importers, brokers and shippers and
sells them to retail florists and mass marketers in the upper Midwest United
States.
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 on January 16, 1998. All outstanding shares of the
Company were exchanged for cash and stock of USA Floral. These financial
statements and footnotes do not reflect any purchase accounting adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements represent the financial position,
results of operations and net cash flows of the Company and its wholly-owned
subsidiary, Koehler & Dramm of Kansas City, Inc. All significant intercompany
accounts have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
Revenue is recognized upon shipment of product.
Marketable securities
The Company's marketable securities are classified as trading securities.
The securities are recorded at fair value, with any change in fair value
during the period included in earnings.
Inventory
Inventory is stated at the lower of cost or market; cost is determined on a
first-in, first-out basis. Inventories are reduced for any excess, slow moving
or obsolete items.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the shorter of their
respective lease terms or estimated useful lives.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable accrued expenses and bank line of credit approximates fair
value because of the short-term nature of these instruments.
F-140
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED 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 is a C corporation for federal and state income tax purposes.
The Company accounts for income taxes using the liability method in accordance
with the Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1997
-------------------
<S> <C>
Balance at beginning of period........................... $ 150
Changes to costs and expenses............................ 250
Write-offs............................................... (252)
------
Balance at end of period................................. $ 148
======
4. INVENTORY
Inventory consists of the following finished goods at July 31, 1997:
Perishables.............................................. $ 256
Hardgoods................................................ 1,580
------
$1,836
======
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at July 31, 1997:
Leasehold improvements................................... $ 167
Computer equipment....................................... 126
Furniture, fixtures and equipment........................ 650
Vehicles................................................. 586
------
1,529
Accumulated depreciation................................. (906)
------
$ 623
======
</TABLE>
6. BANK LINE OF CREDIT
Amounts available and outstanding under bank lines of credit were $750 and
$80, respectively. Advances on the credit line bear interest at the bank's
reference rate (8.5% as of July 31, 1997). The credit line is secured by
accounts receivable, equipment and a personal guarantee by its principal
stockholder. The Company terminated the line of credit agreement in January
1998.
F-141
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The provision for income taxes at July 31, 1997 is as follows:
<TABLE>
<S> <C>
Current expense:
State................................................................ $ 67
Federal.............................................................. 379
-----
Total current tax provision......................................... 446
-----
Deferred expense:
State................................................................ (2)
Federal.............................................................. (16)
-----
Total deferred tax provision........................................ (18)
-----
Total income tax provision.......................................... $ 428
=====
</TABLE>
The provision for income taxes at July 31, 1997 differs from the U.S.
Statutory federal income tax rate for the following reasons:
<TABLE>
<S> <C>
Statutory federal tax rate............................................ 34.0%
State taxes, net of federal benefit................................... 6.0
Other................................................................. (0.3)
-----
39.7%
=====
Deferred tax assets (liabilities) at July 31, 1997 were comprised of the
following:
Allowance for doubtful accounts....................................... $ 59
Inventory reserves.................................................... 40
Accrued expenses...................................................... 18
-----
Current deferred tax assets......................................... 117
Deferred retirement benefit........................................... 73
Depreciation.......................................................... (17)
Unrealized gain on marketable securities.............................. (9)
-----
Noncurrent deferred tax asset....................................... 47
-----
Net deferred tax assets............................................. $ 164
=====
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has established an employee savings plan under the provisions of
section 401(k) of the Internal Revenue Code. Substantially all employees are
eligible to participate in the plan. Employees can contribute up to 15% of
their gross wages to the plan. The Company is liable for matching
contributions of up to 5% of participants' contributions. For the year ended
July 31, 1997, Company contributions to the plan were approximately $52.
9. RETIREMENT BENEFIT
Upon retirement of a previous owner, the Company entered into an agreement
in which it committed to pay $18 annually to the previous owner and his spouse
as long as either of them is living. A liability of $184 has been recorded in
the financial statements based on the net present value of the total payments
anticipated.
F-142
<PAGE>
KOEHLER & DRAMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company advanced $342 to its principal stockholder under a note due on
July 31, 2000 and which bears interest at 7.5%. At July 31, 1997, the accrued
interest totaled $25. Interest income related to the advance was $17 for the
year ended July 31, 1997. The principal portion of the note was repaid in
January 1998.
11. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company leases its warehouse and office facilities in Minneapolis and
Kansas City under noncancelable operating leases. The aggregate future minimum
rentals (exclusive of real estate taxes and expenses) are as follows:
<TABLE>
<S> <C>
Five months ended December 31, 1997................................... $ 95
Year ended December 31,
1998................................................................. 229
1999................................................................. 229
2000................................................................. 185
-----
$ 738
=====
</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.
12. 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 October 31, 1997 and
the results of its operations and its cash flows for the three months ended
October 31, 1996 and 1997, as presented in the accompanying unaudited interim
financial statements.
F-143
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
H&H Flowers, Inc. d/b/a La Fleurette
Miami, Florida
We have audited the accompanying balance sheet of H&H Flowers, Inc. d/b/a/
La Fleurette, as of June 30, 1997, and the related statements of income and
accumulated deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of H&H Flowers, Inc. d/b/a La
Fleurette as of June 30, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Madsen, Sapp, Mena, Rodriguez & Co., P.A.
Madsen, Sapp, Mena, Rodriguez & Co., P.A.
Plantation, Florida
August 28, 1997
F-144
<PAGE>
H & H FLOWERS, INC. D/B/A LA FLEURETTE
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable (net of allowance for doubtful ac-
counts
of approximately $49 and $49, respectively)........... $ 994 $1,316
Inventories............................................ 579 529
Other current assets................................... 29 46
------ ------
Total Current assets................................. 1,602 1,891
PROPERTY AND EQUIPMENT, at cost
Net of accumulated depreciation of $1,355 and $1,383,
respectively)......................................... 197 161
OTHER ASSETS
Other (principally cash surrender value of life insur-
ance)................................................. 229 409
------ ------
Total assets......................................... $2,028 $2,461
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft......................................... $ 652 $ 560
Accounts payable....................................... 507 991
Accrued expenses....................................... 326 221
Payable to related parties............................. 476 1,086
Current portion of capital lease obligation............ 10 36
Current portion of note payable........................ 20 --
------ ------
Total current liabilities............................ 1,991 2,894
------ ------
LONG-TERM LIABILITIES
Long-term portion of capital lease obligation.......... 27 25
Long-term portion of note payable...................... 12 --
------ ------
Total long-term liabilities.......................... 39 25
------ ------
Total liabilities.................................... 2,030 2,919
------ ------
STOCKHOLDERS' DEFICIT
Common stock--$1.00 par value; 100 shares authorized,
issued and outstanding................................ -- --
Paid-in capital........................................ 1 1
Accumulated deficit.................................... (3) (459)
------ ------
Total stockholders' deficit.......................... (2) (458)
------ ------
Total liabilities and stockholders' deficit.......... $2,028 $2,461
====== ======
</TABLE>
See accompanying notes.
F-145
<PAGE>
H & H FLOWERS, INC. D/B/A LA FLEURETTE
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, ----------------
1997 1996 1997
---------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Sales............................................. $20,021 $ 7,534 $ 8,289
Cost of sales..................................... 17,876 6,841 7,597
------- ------- -------
Gross margin.................................... 2,145 693 692
General and administrative expenses............... (2,082) (1,151) (1,148)
------- ------- -------
Net income...................................... 63 (458) (456)
Accumulated deficit, beginning of period.......... (66) (524) (3)
------- ------- -------
Accumulated deficit, end of period................ $ (3) $ (982) $ (459)
======= ======= =======
</TABLE>
See accompanying notes.
F-146
<PAGE>
H & H FLOWERS, INC. D/B/A LA FLEURETTE
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------
YEAR ENDED
JUNE 30,
1997 1996 1997
---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 63 $ (458) $ (456)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 90 39 36
Change in operating assets and liabilities:
Accounts receivable......................... (85) (270) (322)
Inventory................................... (127) (45) 50
Prepaid expenses and other assets........... (38) 135 (197)
Due to related parties...................... 51 (280) 610
Accounts payable and accrued expenses....... 157 247 379
----- --------- -------
Net cash provided by operating activities.. 111 (632) 100
----- --------- -------
Cash flows used in investing activities:
Purchase of property and equipment............. (88) (122) --
----- --------- -------
Cash flows used in financing activities: -- (122) --
Repayments of note payable and capital lease... (17) (35) (8)
----- --------- -------
Net increase (decrease) in cash and cash equiva-
lents: 6 (789) 92
Cash and cash equivalents--beginning of period.. (658) (659) (652)
----- --------- -------
Cash and cash equivalents--end of period........ $(652) $(1,448) $(560)
===== ========= =======
Presented in the accompanying balance sheet as
follows:
Cash........................................... $ -- $ --
Bank overdraft................................. 652 560
----- -------
Total cash and cash equivalents............ $ 652 $560
===== =======
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the period for interest....... $ 52 $ 34 $ 33
===== ========= =======
Debt incurred for the acquisition of equipment. $ 40
=====
</TABLE>
The accompanying notes are an integral part of these financial statements..
F-147
<PAGE>
H & H FLOWERS, INC. D/B/A/ LA FLEURETTE
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(IN THOUSANDS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
The Company is in the business of selling manufactured floral bouquets,
arrangements, and cut flowers primarily to supermarket chains throughout the
United States.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted auditing principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories:
Inventories are stated principally at the lower of cost (on a first-in,
first-out basis) or market and consist of the following at June 30, 1997:
<TABLE>
<S> <C>
Flowers and supplies................................................... $519
Arrangements and floral bouquets....................................... 60
----
$579
====
</TABLE>
Property and Equipment:
Property and equipment is stated at cost and depreciation is computed using
straight-line and accelerated methods over the estimated useful lives.
Income Taxes:
The Company has elected to be treated as a Small Business Corporation under
the applicable provisions of the Internal Revenue Code. Accordingly, no
liability has been accrued for income taxes since this is a direct
responsibility of the stockholders.
NOTE 2. CONCENTRATION OF CREDIT RISK
The Company sells floral products at wholesale primarily to supermarkets and
other retail outlets. The Company grants unsecured credit to its customers,
substantially all of whom are domestic corporations. Approximately 79% of
accounts receivable at June 30, 1997, is due from four customers. Included in
accounts receivable are amounts due from an affiliated company (see Note 5) of
approximately $7.
Cash is concentrated as follows:
<TABLE>
<CAPTION>
FINANCIAL
INSTITUTION CARRYING
BALANCE AMOUNT
----------- --------
<S> <C> <C>
Bank A.................................................. $157 $(652)
==== =====
</TABLE>
F-148
<PAGE>
H & H FLOWERS, INC. D/B/A LA FLEURETTE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(IN THOUSANDS)
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
IN YEARS
---------
<S> <C> <C>
Cold rooms and equipment.................................. $ 1,151 5-7
Leasehold improvements.................................... 65 7
Vehicles.................................................. 19 5
Furniture and fixtures.................................... 157 5-7
Computer equipment........................................ 160 3-5
-------
1,552
Accumulated depreciation.................................. (1,355)
-------
$ 197
=======
</TABLE>
Depreciation expense of $90 (including $12 related to assets under capital
lease) was recorded for the year ended June 30, 1997.
NOTE 4. PROFIT SHARING PLAN
The Company has a non-contributory profit sharing plan for all qualified
employees which is fully funded annually. The plan does not require minimum
contributions; however, the maximum contribution is 15% of qualified
employees' compensation. The Company contributed $38 for the year ended June
30, 1997.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company purchased a substantial portion of its inventory from affiliated
companies. An affiliated company also pays certain expenses on behalf of the
Company which are subsequently reimbursed and provides management, sales and
accounting services to the Company. As a result of these transactions for the
year ended June 30, 1997, approximately $4,417 is included in cost of sales,
$445 in general and administrative expenses, and $339 is included in payable
to related parties. In addition, included in sales is approximately $88 of
sales to an affiliate, and approximately $30 is included in other income for
services provided to an affiliate (see also Note 8).
As needed, monies are advanced between the Company and an affiliated company
for working capital purposes. Interest on outstanding advances is charged at
the rate of prime plus 1/2 percent and resulted in interest expense to the
Company of approximately $44. At June 30, 1997, the Company had an outstanding
balance due to the affiliate of approximately $137 which is included in
payable to related parties.
NOTE 6. CAPITAL LEASE
Capital lease obligation at June 30, 1997 consisted of the following:
<TABLE>
<S> <C>
A capital lease obligation with monthly payments of $1, including
interest at 12.46% through August 2000, collateralized by office
equipment with a carrying value of approximately $31 (approximately
$54 original cost).................................................... $37
Less current maturities.............................................. 10
---
$27
===
</TABLE>
F-149
<PAGE>
H & H FLOWERS, INC. D/B/A LA FLEURETTE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(IN THOUSANDS)
Interest expense related to the lease for 1997 was approximately $5.
Annual maturities of the capital lease obligation are as follows:
<TABLE>
<S> <C>
1998..................................................................... $10
1999..................................................................... 11
2000..................................................................... 13
2001..................................................................... 3
---
Total.................................................................. $37
===
</TABLE>
NOTE 7. LONG-TERM DEBT
Long-term debt at June 30, 1997 consisted of the following:
<TABLE>
<S> <C>
Note payable to bank in monthly installments of $2, including interest
at 8.25% through January 1999, collateralized by equipment with a
carrying value of approximately $38.................................. $32
Less current maturities............................................. 20
---
$12
===
</TABLE>
Interest expense related to the long-term debt for 1997 was approximately
$2.
Annual maturities of the long-term debt are as follows:
<TABLE>
<S> <C>
1998..................................................................... $20
1999..................................................................... 12
---
Total.................................................................. $32
===
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
During the current year, an affiliated partnership controlled by the
Company's stockholders extended the terms and converted to a variable interest
rate an Industrial Development Bond. The bond has an outstanding balance of
approximately $3,630 at June 30, 1997 and matures in January 2002. The
affiliated partnership also entered into a variable rate second mortgage
during the current year. The mortgage has an outstanding balance of
approximately $1,120 at June 30, 1997 and matures in October 2006. The bond
and mortgage are collateralized by land and building which are leased by the
Company and an affiliated company. 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 affiliate to maintain certain combined
ratios and other financial statistics. In conjunction with the bond and
mortgage, the affiliated partnership has entered into an interest rate swap as
a hedge against a rise in interest rates.
The Company and its affiliate jointly lease office and warehouse space from
the above partnership. Lease payments during the year ended June 30, 1997,
were divided 67% to the Company and 33% to the affiliate based on square
footage of lease space utilized. The lease expires December 31, 2006 and
requires basic rent in an amount equal to principal and interest payments on
the bond and second mortgage and other expenses of the affiliate. The rent is
a variable monthly amount and was $44 at June 30, 1996. Total rent paid by the
Company for the year June 30, 1997 was approximately $506.
F-150
<PAGE>
H & H FLOWERS, INC. D/B/A LA FLEURETTE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997 (IN THOUSANDS)
Based on the June 30, 1997 variable amount, the future minimum rent under
the terms of the office and warehouse lease are as follows:
<TABLE>
<CAPTION>
YEAR
ENDED AMOUNT
----- ------
<S> <C>
1998.................................................................. $ 527
1999.................................................................. 527
2000.................................................................. 527
2001.................................................................. 527
2002.................................................................. 527
Thereafter............................................................ 2,374
------
Total............................................................... $5,009
======
</TABLE>
The Company guarantees a $2,000 line of credit and a $500 overline loan of
an affiliate. At June 30, 1997, the line had an outstanding balance of $1.
There was no outstanding balance under the overline loan. The line and
overline matured on May 31, 1997, and are in the process of being
renegotiated.
NOTE 9. CONCENTRATIONS
Two customers represent over 75% of the Company sales. In addition, the
Company purchases a significant portion of their fresh-cut flowers from the
South American country of Colombia.
NOTE 10. 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 December 31, 1997 and
the results of its operations and its cash flows for the six months ended
December 31, 1996 and 1997, as presented in the accompanying unaudited interim
financial statements.
F-151
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Venturers of Elite Farms:
We have audited the accompanying balance sheet of Elite Farms (a Florida
general partnership) as of December 31, 1997, and the related statements of
income, changes in venturers' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Venture's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Elite Farms as of December
31, 1997, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP Arthur Andersen LLP Miami, Florida,
January 30, 1998, (except with respect to the matter
discussed in Note 9, as to which the date is April 3, 1998).
F-152
<PAGE>
ELITE FARMS
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 246,495 404,536
Trade receivables, net of allowance for doubtful ac-
counts of $27,400 and $76,700, respectively........ 1,208,219 1,595,854
Other current assets................................ 54,383 38,246
---------- ----------
Total current assets.............................. 1,509,097 2,038,636
PROPERTY AND EQUIPMENT, net........................... 203,502 196,634
DEPOSITS.............................................. 11,165 11,165
---------- ----------
Total assets...................................... $1,723,764 $2,246,435
========== ==========
LIABILITIES AND VENTURERS' CAPITAL
CURRENT LIABILITIES:
Payable to farms.................................... $ 498,099 $ 834,262
Accounts payable and accrued expenses............... 113,696 287,399
Current portion of note payable..................... 33,499 --
Current portion of lease obligations................ 8,541 6,646
---------- ----------
Total current liabilities......................... 653,835 1,128,307
NOTE PAYABLE, net of current portion.................. 33,703 --
LEASE OBLIGATIONS..................................... 661 --
---------- ----------
Total liabilities................................. 688,199 1,128,307
COMMITMENTS AND CONTINGENCIES (Note 7)
VENTURERS' CAPITAL.................................... 1,035,565 1,118,128
---------- ----------
Total liabilities and venturers' capital.......... $1,723,764 $2,246,435
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-153
<PAGE>
ELITE FARMS
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Net sales................................... $12,017 $ 3,870 $ 3,938
Cost of sales............................... 9,121 2,983 2,993
------- --------- ---------
Gross margin............................... 2,896 887 945
Selling, general and administrative ex-
penses..................................... 2,117 562 701
------- --------- ---------
Operating income........................... 779 325 244
Other (income) expense:
Interest expense........................... 14 5 1
Interest income............................ (2) -- --
Other, net................................. (34) (4) (12)
------- --------- ---------
Income before provision for income taxes.... 801 324 255
Provision for income taxes.................. -- -- --
------- --------- ---------
Net income.................................. $ 801 $ 324 $ 255
======= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-154
<PAGE>
ELITE FARMS
STATEMENTS OF CHANGES IN VENTURERS' CAPITAL
<TABLE>
<CAPTION>
ANVACU, INC. TALENT, INC. TOTAL
------------ ------------ ----------
<S> <C> <C> <C>
Venturers' capital, December 31, 1996.... $ 415,772 $ 68,099 $ 483,871
Receipt of contribution receivable..... -- 15,096 15,096
Distributions.......................... (220,500) (44,100) (264,600)
Net income............................. 667,638 133,560 801,198
--------- -------- ----------
Venturers' capital, December 31, 1997.... 862,910 172,655 1,035,565
Distributions (unaudited).............. (143,333) (28,667) (172,000)
Net income (unaudited)................. 212,127 42,436 254,563
--------- -------- ----------
Venturers' capital, March 31, 1998 (unau-
dited).................................. $ 931,704 $184,424 $1,118,128
========= ======== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-155
<PAGE>
ELITE FARMS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $801,198 $324,400 $254,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 73,514 18,915 14,669
Provision for doubtful accounts........... 35,195 40,809 53,772
Reversal of property and equipment provi-
sion..................................... (8,000) -- --
Decrease (increase) in trade receivables.... 121,739 55,199 (441,407)
Decrease (increase) in other current assets. (2,109) 4,570 16,137
Decrease in deposits........................ 3,760 2,910 --
Increase (decrease) in payables to affili-
ated farms................................. (257,978) (100,497) 336,163
Increase (decrease) in accounts payable and
accrued expenses........................... (107,729) 57,743 173,703
-------- -------- --------
Net cash provided by operating activities. 659,590 404,049 407,600
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (47,227) (5,819) (7,801)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions....................... 15,096 -- --
Repayment of line of credit................. (90,956) -- --
Principal payments under capital lease obli-
gations.................................... (9,488) (2,267) (2,556)
Principal payments under note payable....... (30,396) (7,326) (67,202)
Distributions............................... (264,600) (43,100) (172,000)
-------- -------- --------
Net cash used in financing activities..... (380,344) (52,693) (241,758)
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS..... 232,019 345,537 158,041
CASH AND CASH EQUIVALENTS, beginning of peri-
od........................................... 14,476 14,476 246,495
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period...... $246,495 $360,013 $404,536
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMA-
TION:
Cash paid during the period for interest.... $ 15,082 $ 4,847 $ 2,122
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-156
<PAGE>
ELITE FARMS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF BUSINESS
Elite Farms (the "Venture") was organized on August 31, 1992 as a joint
venture, in the form of a general partnership, pursuant to the Uniform
Partnership Act as in effect in the State of Florida. The Venture was formed
pursuant to the terms and conditions of a joint venture agreement entered into
by and between Talent, Inc. ("Talent"), a Florida corporation, Cheldi, Inc.
("Cheldi"), a Florida corporation, and Anvacu, Inc. ("Anvacu"), a Florida
corporation (collectively, the "Venturers"). Pre-organization activities
commenced on June 1, 1992. Operations commenced on October 12, 1992. The
interest of Cheldi was acquired by the Venture during July 1993.
The Venture was established to purchase, import, process, sell and
distribute flowers and related products and services, and to engage in any and
all activities related or incidental thereto. The flowers are primarily
imported on consignment from farms located in Colombia, which are owned and/or
operated by the shareholders of Anvacu. The Venture shall dissolve on December
31, 2012, or upon the earlier of any of the following events:
. The sale of all or substantially all of the assets of the Venture;
. The approval of the Venturers to terminate the Venture; or
. Otherwise by operation of law.
The net profits and losses of the Venture shall be allocated among the
Ventures on a pro-rata basis in accordance with their capital contribution
percentages, as calculated on a weighted average basis during the year. The
capital account allocation percentages at December 31, 1997 and 1996, which
are identical to the weighted average allocation percentages used to allocate
the net income of the Venture for the years then ended, are as follows:
<TABLE>
<CAPTION>
ALLOCATION
VENTURER PERCENTAGE
-------- ----------
<S> <C>
Anvacu......................................................... 83.33%
Talent......................................................... 16.67%
</TABLE>
The allocation percentages of the Venturers changed effective January 1,
1996 in accordance with the Amended and Revised Joint Venture Agreement. To
effect this change in allocation percentages, Talent was required to
contribute an additional $15,096, which was paid in 1997.
Distributions are made to the Venturers on a pro-rata basis, in accordance
with the Venturers' respective ownership interests at the time of
distribution, at such times as may be determined by the management committee.
Prior to the dissolution and liquidation of the Venture, no Venturer shall be
entitled, without the consent of the other Venturers, to withdraw any part of
its capital contribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Venture considers all highly liquid instruments with original maturities
of three months or less when purchased to be cash equivalents.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
is computed using the straight-line method over the estimated useful lives (2
to 10 years) of the related assets. Property acquired under capital
F-157
<PAGE>
ELITE FARMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
leases are depreciated over the life of the respective lease or the estimated
remaining useful life of the asset, whichever is shorter. Maintenance and
repair costs are charged to operations as incurred, whereas the cost of
significant additions and betterments are capitalized. When assets are retired
or otherwise disposed of, the cost and related accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
recognized in the statement of income.
Organization costs
Costs incurred for the organization of the Venture were capitalized and have
been amortized on a straight-line basis over a five-year period. At December
31, 1997, all previously capitalized organization costs were fully amortized.
Income taxes
Under the provisions of the Internal Revenue Code and applicable state tax
laws, the Venture is not subject to taxation. The tax consequences of Venture
profits and losses accrue to the Venturers. Certain items, principally
depreciation and start-up costs, may be treated differently on the Venture's
informational income tax return than for financial statement purposes.
Therefore, net income or loss according to the financial statements may not be
the same as that reported on the informational tax return.
Revenue recognition
Revenues and fuel charges are recognized upon shipment of product to
customers, with the appropriate provision for uncollectible amounts recorded
at the time when management deems the balance to be uncollectible.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
As of December 31, 1997, the carrying amount of cash and cash equivalents,
trade receivables, accounts payable, note payable, lease obligations and the
line of credit approximates fair value due to the short-term nature of these
accounts.
F-158
<PAGE>
ELITE FARMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Equipment:
Warehouse.......................................................... $ 160,209
Computers.......................................................... 228,867
Office............................................................. 33,130
---------
422,206
---------
Vehicles............................................................. 127,154
Furniture and fixtures............................................... 11,433
Leasehold improvements............................................... 14,169
---------
574,962
Less--accumulated depreciation and amortization...................... (371,460)
---------
$ 203,502
=========
</TABLE>
4. LINE OF CREDIT
In October 1996, the Venture refinanced its existing $150,000 bank line of
credit with a new $100,000 line of credit and a $100,000 note payable from
another bank. The line of credit requires the payment of an annual fee of
$1,000 as long as the line of credit is in force. The bank waived this fee for
the year ended December 31, 1997. Advances under this line of credit bear
interest at the bank's prime rate (8.5% at December 31, 1997) plus 1.5%. Such
interest is payable monthly. The advances are due in 24 equal monthly
installments 30 days after the cancellation of the line of credit by the bank
or on demand, at the option of the bank, if the Venture is in default, as
defined, under the line of credit agreement. There was no balance outstanding
at December 31, 1997.
Advances under the line of credit are secured by the inventory, accounts
receivable, intangibles and property and equipment of the Venture. Repayment
of the advances has been guaranteed by the Venturers and has been guaranteed
personally by the President of the Venture, who is also a shareholder of
Talent.
5. NOTE PAYABLE
The Venture executed a note payable in the amount of $100,000. The note
bears interest at 9.75% and is payable in 36 equal monthly installments of
$3,215, commencing December 1996. Principal payments due under the note
payable are as follows:
<TABLE>
<S> <C>
1998.............................................................. $33,499
1999.............................................................. 33,703
-------
$67,202
=======
</TABLE>
The note payable is secured by the inventory, accounts receivable,
intangibles and property and equipment of the Venture. Repayment of the note
payable has been guaranteed by the Venturers and by the President of the
Venture, who is also a shareholder of Talent. Subsequent to December 31, 1997,
the above note payable was paid in full.
F-159
<PAGE>
ELITE FARMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
6. RELATED PARTY TRANSACTIONS
As discussed in Note 1, the majority of flowers are imported on a
consignment basis and the resulting payables to affiliated farms for the sale
of such flowers are with related parties.
During 1997, the Venture recorded management fees due to a shareholder of
Anvacu totaling $72,000.
Included in other current assets are receivables due from employees totaling
$24,914 at December 31, 1997.
7. COMMITMENTS AND CONTINGENCIES
In 1997, the Venture entered into an operating lease for its existing office
and warehouse facility. Minimum lease payments under such lease are as
follows:
<TABLE>
<S> <C>
1998............................................................. $ 73,044
1999............................................................. 75,983
2000............................................................. 58,641
--------
$207,668
========
</TABLE>
Rent expense was $83,374 for 1997.
The Venture entered into capital leases for certain computer equipment. The
minimum lease payments under such leases are as follows:
<TABLE>
<S> <C>
1998................................................................. $9,121
1999................................................................. 677
------
Total minimum lease obligations.................................... 9,798
Less--amount representing interest................................... (596)
------
Present value of minimum obligations................................. 9,202
Less--current portion of lease obligations........................... (8,541)
------
Lease obligations.................................................. $ 661
======
</TABLE>
The Venture had an operating lease for a vehicle that expired during 1997.
The Venture acquired the vehicle by exercising the purchase option under such
lease.
In July 1996, a complaint was filed against the Venture in the United States
District Court, Southern District of Florida, by a former sales representative
employee for compensation and other relief under the Fair Labor Standards Act
("FLSA"), as amended. The action was brought to recover alleged unpaid
overtime and an additional amount as liquidated damages, costs and reasonable
attorney's fees. During a prescribed opt-in period, which has closed, five
additional former sales representative employees joined the complaint.
F-160
<PAGE>
ELITE FARMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
In March 1997, the Venture reached a settlement of this complaint with the
former employee who brought the action and four of the five opt-in plaintiffs.
The Settlement Agreement and General Release (the "Settlement Agreement")
provides for the payment of $12,000 to the former employees who settled plus
$9,300 for legal fees and costs. These amounts were paid in April 1997. The
accrual for these expenses was recorded in the 1996 financial statements.
After execution of the Settlement Agreement, a motion was filed in April
1997 to dismiss the complaint relating to the plaintiffs who settled with the
Venture and to file an amended complaint against the Venture in the name of
the opt-in plaintiff from the original complaint who did not agree to settle.
The amended complaint against the Venture was settled in August 1997 by
payment of $10,000 to the remaining opt-in plaintiff, plus payment of $5,000
for legal fees and costs.
In December 1996, the Venture received a subpoena from the Florida Attorney
General's office. The purpose of the subpoena was to investigate the Venture's
business practices in accordance with Florida's Deceptive and Unfair Trade
Practices Act. The Florida Attorney General's office terminated its
investigation of the Venture's practices in July 1997 after the Venture
executed an Assurance of Voluntary Compliance (the "Assurance"). The Assurance
was entered into by the Venture for settlement purposes only and without any
admission by the Venture that the Venture violated the law. The Venture paid
$5,000 to the office of the Attorney General, such payment representing
reimbursement of the costs and investigative fees of that office.
8. YEAR 2000 (UNAUDITED)
The Venture has assessed and continues to assess the impact of the Year 2000
Issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two digit date
fields to designate a year. As the century date occurs, date sensitive systems
will recognize the year 2000 as 1900 or not at all. This inability to
recognize or properly treat the year 2000 may cause the Venture's systems to
process critical financial and operational information incorrectly.
During the current year, the Venture incurred no costs to modify existing
computer systems and applications. The Venture anticipates that costs to be
incurred in 1998 and 1999 to modify or update existing computer systems and/or
applications will not have a significant impact on the financial position or
results of operations of the Venture and should not exceed $5,000.
If the Venture assesses that a negative impact on its reporting systems and
operations exist and management takes no action to remedy the negative impact,
there could be a significant disruption of the Venture's ability to transact
business with its major customers and suppliers. Such lack of action could
result in a possible shutdown of certain computer dependent operations.
9. SUBSEQUENT EVENT
On April 3, 1998, the Venturers entered into a definitive agreement and plan
of reorganization with USA Floral Products, Inc. ("USA Floral") and EFTA
Acquisition Corp., a wholly owned subsidiary of USA Floral ("EFTA"), pursuant
to which the Venturers merged with and into EFTA. All capital contributions
made by the Venturers were exchanged for cash and shares of USA Floral common
stock.
10. UNAUDITED INTERIM FINANCIAL STATEMENTS
In management's opinion, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the Venture as of March
31, 1998, and the results of its operations and its cash flows for the three
months ended march 31, 1998 and 1997. The results of operations and cash flows
for the three months ended March 31, 1998 and 1997 are not necessarily
indicative of the results of operations or cash flows which may be reported
for the remainder of 1998 and 1997.
F-161
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Everflora, Inc. and Everflora Miami, Inc.
In our opinion, the accompanying combined balance sheet and the related
statements of operations, of stockholder's equity and of cash flows present
fairly, in all material respects, the financial position of Everflora, Inc.
and Everflora Miami, Inc. (the "Company") at December 31, 1997, 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.
/s/ Price Waterhouse LLP Price Waterhouse LLP Miami, Florida
March 27, 1998
F-162
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 102
Accounts receivable, net.......................................... 2,632
Inventory......................................................... 131
Due from related parties.......................................... 929
Prepaid expenses and other current assets......................... 382
------
Total current assets............................................. 4,176
Property and equipment, net........................................ 871
Other assets....................................................... 494
------
Total assets..................................................... $5,541
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............................. 1,443
Bank line of credit............................................... 751
------
Total current liabilities........................................ 2,194
------
Commitments and contingencies
Stockholder's equity:
Common stock...................................................... 35
Additional paid-in capital........................................ 385
Retained earnings................................................. 3,044
Less: Treasury stock.............................................. (117)
------
Total stockholder's equity....................................... 3,347
------
Total liabilities and stockholder's equity....................... $5,541
======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-163
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net Sales.......................................................... $20,693
Cost of Sales...................................................... 15,091
-------
Gross margin..................................................... 5,602
Selling, general and administrative expenses....................... 4,575
-------
Operating income................................................. 1,027
Other expenses:
Interest expense.................................................. 11
-------
Income before provision for income taxes........................... 1,016
Provision for income taxes......................................... --
-------
Net income......................................................... $ 1,016
=======
Unaudited pro forma information:
Pro forma net income before provision for income taxes............ $ 1,016
Provision for income taxes........................................ 406
-------
Pro forma income (see Note 2)..................................... $ 610
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-164
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID IN TREASURY RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 3,352 $35 $385 $(117) $2,465 $2,768
Net income............. 1,016 1,016
Distributions to stock-
holder................ (437) (437)
----- --- ---- ----- ------ ------
Balance at December 31,
1997................... 3,352 $35 $385 $(117) $3,044 $3,347
===== === ==== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-165
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net income....................................................... $1,016
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Depreciation and amortization................................... 175
Change in operating assets and liabilities:
Accounts receivable............................................ (19)
Inventory...................................................... (33)
Prepaid expenses and other current assets...................... (199)
Due from related parties....................................... 6
Accounts payable and accrued expenses.......................... (231)
------
Net cash provided by operating activities..................... 715
------
Cash flows from investing activities:
Purchases of property and equipment.............................. (240)
Proceeds from disposal of property and equipment................. (6)
------
Net cash used in investing activities......................... (246)
------
Cash flows from financing activities:
Repayments of the bank lines of credit........................... (50)
Stockholder distributions........................................ (437)
------
Net cash used in financing activities......................... (487)
------
Net decrease in cash and cash equivalents......................... (18)
Cash and cash equivalents--beginning of period.................... 120
------
Cash and cash equivalents--end of period.......................... $ 102
======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......................... $ 11
======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-166
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
NOTE 1--BUSINESS ORGANIZATION
Everflora, Inc. and Everflora Miami, Inc. (together the "Company"), were
formed in 1986 for the purpose of importing and selling flowers. Everflora,
Inc. is located in Cresskill, New Jersey. Everflora Miami, Inc. is located in
Miami, Florida.
Everflora, Inc. and Everflora Miami, Inc. are commonly owned and managed by
a single stockholder. Accordingly, the financial statements have been
presented on a combined basis. All material intercompany transactions have
been eliminated in these financial statements.
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 effective January 19, 1998 (the "Merger"). All
outstanding shares of the Company were exchanged for cash and stock. These
financial statements and footnotes are those of the Company prior to the
Merger and do not reflect any purchase accounting adjustments or other
transactions related to the Merger (see Note 10).
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
accelerated methods over the estimated useful lives of the related assets
(five to seven years). Leasehold improvements are amortized over the shorter
of their respective lease terms or estimated useful lives.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, accrued expenses and short-term debt approximates fair
value because of the short term nature of these instruments.
F-167
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1997, the
tax bases of the Company's net assets exceed their respective financial
reporting bases by approximately $266.
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.
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, 1997.......... $203 $61 $(19) $245
</TABLE>
NOTE 4--INVENTORY
Inventory consists of the following finished goods:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Perishables..................................................... $ 68
Hardgoods....................................................... 63
----
$131
====
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Leasehold improvements.......................................... $ 589
Computer equipment.............................................. 90
Furniture, fixtures and equipment............................... 1,517
Vehicles........................................................ 421
-------
2,617
Accumulated depreciation and amortization....................... (1,746)
-------
$ 871
=======
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $175.
F-168
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
NOTE 6--CREDIT FACILITIES
Lines of Credit
The Company had two credit facilities aggregating $1,800, of which $751 was
outstanding at December 31, 1997. Advances on the lines of credit are payable
on demand and bear interest at prime plus .25% (9.25% as of December 31, 1997)
and are secured by the Company's assets. In connection with these credit
facilities, the Company needs to maintain various financial covenants
throughout the term of the loan. Upon consummation of the Merger, all
outstanding borrowings on the credit lines were paid in full (See Note 10).
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company established an employee savings plan (the "Plan") under the
provisions of section 401(k) of the Internal Revenue Code on June 15, 1997.
Prior to this date, the Company maintained a non-contributory profit sharing
plan for all qualified employees. All profit sharing plan assets were
transferred into the Plan as of July 1, 1997. Substantially all employees are
eligible to participate in the Plan. For the year ended December 31, 1997, the
Company contributed approximately $17 to the Plan. No contributions to the
profit sharing plan occurred in 1997. Contributions to the profit sharing plan
were discretionary.
NOTE 8--RELATED PARTY TRANSACTIONS
The Company purchased flowers from three related companies partially owned
by the Company's stockholder. Total purchases from the related companies were
approximately $481 for the year ended December 31, 1997. At December 31, 1997,
there is no outstanding payable balance due to the related parties.
The Company sold flowers to three related companies partially owned by the
Company's stockholder. Total sales to the related companies were approximately
$272 for the year ended December 31, 1997. At December 31, 1997, the
outstanding receivable balance from the related companies was approximately
$29.
Additionally, the Company advanced cash to entities partially owned by the
Company's stockholder. At December 31, 1997, the outstanding receivable
balance from the related companies was approximately $910.
Upon consummation of the Merger, all outstanding related party receivable
balances were collected in full (See Note 10).
NOTE 9--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office and warehouse space from an entity owned by the
Company's stockholder. The lease expires December 31, 2002. Rent expense was
$427 for the year ended December 31, 1997.
As of December 31, 1997, the Company's allocable share of future minimum
rent under the lease is as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 392
1999.................................................................. 392
2000.................................................................. 392
2001.................................................................. 392
2002.................................................................. 392
------
Total............................................................... $1,960
======
</TABLE>
F-169
<PAGE>
EVERFLORA, INC. AND EVERFLORA MIAMI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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,
results of operations or cash flows of the Company.
NOTE 10--SUBSEQUENT EVENTS
As discussed in Note 1, the Company merged with USA Floral effective January
19, 1998. The stockholder sold all of his outstanding shares of the Company to
USA Floral for $8 million. All outstanding shares of the Company were
exchanged for cash of $4 million and shares of USA Floral Common Stock
equivalent to $4 million.
In connection with the sale of the Company, advances to related parties were
repaid to the Company. Additionally, the outstanding bank lines of credit were
repaid on behalf of the Company by USA Floral.
The Company will continue to lease office and warehouse space under the
current lease agreement described in Note 9.
No effect has been given to these financial statements for adjustments that
have taken or will take place as a result of the USA Floral purchase of the
Company.
F-170
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
UltraFlora Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of UltraFlora Corporation (the
"Company") at December 31, 1997, 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.
/s/ Price Waterhouse LLP Price Waterhouse LLP Miami, Florida
March 13, 1998
F-171
<PAGE>
ULTRAFLORA CORPORATION
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 447
Accounts receivable, net......................................... 2,506
Notes receivable--related party.................................. 25
Inventory........................................................ 320
Prepaids and other current assets................................ 44
Deferred tax assets.............................................. 21
------
Total current assets............................................ 3,363
Property and equipment, net....................................... 276
Other assets...................................................... 2
------
Total assets.................................................... $3,641
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--Trade.......................................... $ 499
Accounts payable--Farms.......................................... 170
Accounts payable--Related party.................................. 500
Accrued expenses and other liabilities........................... 262
Income taxes payable............................................. 405
------
Total current liabilities....................................... 1,836
Deferred tax liability............................................ 6
------
Total liabilities............................................... 1,842
------
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value; 5,000 shares authorized, issued
and outstanding................................................. 5
Additional paid-in capital....................................... 382
Retained earnings................................................ 1,412
------
Total stockholders' equity...................................... 1,799
------
Total liabilities and stockholders' equity...................... $3,641
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-172
<PAGE>
ULTRAFLORA CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net sales.......................................................... $17,140
Cost of sales...................................................... 13,399
-------
Gross profit..................................................... 3,741
Selling, general and administrative expenses....................... 2,328
-------
Operating income................................................. 1,413
Other (income) expense:
Interest income................................................... (23)
Interest expense.................................................. 3
-------
Income before provision for income taxes........................... 1,433
Provision for income taxes......................................... 558
-------
Net income......................................................... $ 875
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-173
<PAGE>
ULTRAFLORA CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<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, 1996.... 5 $ 5 $362 $ 537 $ 904
Gain on sale of UFL............ 20 20
Net income..................... 875 875
--- --- ---- ------ ------
Balance at December 31, 1997.... 5 5 $382 $1,412 $1,799
=== === ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-174
<PAGE>
ULTRAFLORA CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net income....................................................... $ 875
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Depreciation and amortization................................... 95
Deferred income taxes........................................... 20
Change in operating assets and liabilities:
Accounts receivable............................................ (1,232)
Inventory...................................................... (176)
Prepaid expenses and other current assets...................... 38
Accounts payable............................................... 380
Accrued expenses and other liabilities......................... (7)
Income taxes payable........................................... 532
-------
Net cash provided by operating activities..................... 525
-------
Cash flows used in investing activities--purchases of property and
equipment........................................................ (137)
-------
Cash flows from financing activities:
Collection of note receivable--related party..................... 75
Repayments under line of credit agreement, net................... (150)
-------
Net cash used in financing activities......................... (75)
-------
Net increase in cash and cash equivalents......................... 313
Cash and cash equivalents--beginning of period.................... 134
-------
Cash and cash equivalents--end of period.......................... $ 447
=======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......................... $ 5
Cash paid during the period for income taxes..................... $ 5
Note receivable from sale of subsidiary.......................... $ 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-175
<PAGE>
ULTRAFLORA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS ORGANIZATION
UltraFlora Corporation (the "Company") was formed in 1986 for the purpose of
importing fresh cut floral products primarily from Colombia and distributing
them to retail stores throughout the United States. The Company's former
foreign subsidiary, UltraFlora Limitada ("UFL"), coordinates orders with the
Colombian growers, performs quality control and coordinates shipment of goods
to the United States.
Effective October 1, 1997, Flower Trading Corporation, a Florida
corporation, sold its seventy-five percent ownership interest in the Company
to Seacross Trading, Inc., a British Virgin Islands corporation.
Basis of Presentation
The financial statements represent the financial position, results of
operations, and net cash flows of UltraFlora Corporation.
Effective January 16, 1998, the Company merged with and into U.S.A. Floral
Products, Inc. ("USA Floral") (the "Merger"). All outstanding shares of the
Company were exchanged for cash and shares of USA Floral common stock. These
financial statements are those of the Company prior to the Merger and do not
reflect any purchase accounting adjustments or other transactions related to
the Merger (see Note 13).
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 includes perishable floral products and hard goods such as
sleeves, picks, boxes, etc. Since the Company does not purchase speculative
floral inventory, floral products included in inventory generally represent
shipments in-transit from growers. Cost for the floral products is determined
by the specific identification method.
The hard goods inventory used for packaging is held on consignment at UFL.
Cost for hard goods inventory is determined on a first-in, first-out (FIFO)
basis.
All inventory components are stated at the lower of cost or market.
F-176
<PAGE>
ULTRAFLORA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives of the related assets which range from three to seven years.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable 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. At December 31, 1997,
72% of the Company's accounts receivable balance was from sales to two major
U.S. retailers. These two customers also accounted for 71% of the Company's
sales in 1997. Any adverse change in the credit worthiness of the Company's
customers as well as general economic conditions could affect the Company's
estimate of bad debt.
Concentration from Supplies
The Company purchases substantially all of its floral product from three
flower farms in Colombia. Two farms are owned by shareholders of the Company
and the third farm is owned by a former shareholder of the Company. Since the
Company's primary source of supply comes from farms in a concentrated
geographic region, adverse weather conditions or poor harvest results,
combined with the Company's historical lack of relationships with other
growers could result in an interruption in supply and/or increased costs.
Income Taxes
The Company is a C Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the asset and liability method
under the provisions on the Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes."
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGE TO BALANCE
BEGINNING COSTS AND WRITE- AT END
OF PERIOD EXPENSES OFFS OF PERIOD
--------- --------- ------ ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1997............ $87 $36 $71 $52
</TABLE>
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Floral products................................................. $ 64
Hard goods...................................................... 256
----
$320
====
</TABLE>
F-177
<PAGE>
ULTRAFLORA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Furniture, fixtures and equipment............................... $ 100
Computer equipment and software................................. 522
Leasehold improvements.......................................... 66
-----
688
Accumulated depreciation and amortization....................... (412)
-----
$ 276
=====
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $95.
6. ACCRUED EXPENSES
Accrued expenses and other liabilities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Anti-dumping duties payable..................................... $143
Payroll and payroll taxes....................................... 81
Royalty payable................................................. 17
Accrued professional fees....................................... 6
Other........................................................... 15
----
$262
====
</TABLE>
7. LINE OF CREDIT
At December 31, 1997, the Company had an available $750 line of credit with
a financial institution which is due on demand and expires on May 31, 1998.
This line of credit agreement requires monthly interest payments at prime plus
1%. The $750 total line of credit available to the Company is secured by all
of the Company's assets and is equally guaranteed by an affiliated company and
a former affiliated company.
The line of credit has certain affirmative covenants with requirements as to
tangible net worth, operational profitability, and maintained banking
relationship. The line of credit also has certain negative covenants which
prevent the Company from making or guaranteeing loans; declaring or paying
dividends; consolidating or merging; incurring or assuming indebtedness; and
incurring or assuming liens. At December 31, 1997, there were no amounts
outstanding under the Company's line of credit. On January 2, 1998, the
Company and the financial institution mutually agreed to cancel this line of
credit agreement and the Company was released from the related guarantees.
F-178
<PAGE>
ULTRAFLORA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Current expense:
Federal........................................................ $453
State.......................................................... 85
----
$538
====
Deferred expense:
Federal........................................................ $ 17
State.......................................................... 3
----
20
----
$558
====
</TABLE>
The provision for income taxes differs from the U.S. Statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Statutory federal tax rate...................................... 34.0%
State taxes, net of federal benefit............................. 4.0%
Meals and entertainment......................................... .8%
Other........................................................... .1%
----
38.9%
====
</TABLE>
Net deferred tax assets were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Deferred tax asset--allowance for doubtful accounts............ $21
Deferred tax liability--accumulated depreciation and
amortization.................................................. (6)
---
$15
===
</TABLE>
9. EMPLOYEE BENEFIT PLAN
In 1995, the Company established an employee savings plan (the "Plan") under
the provisions of section 401(k) of the Internal Revenue Code. Employees who
meet certain minimum service and age requirements are eligible to participate
in the Plan. The Plan calls for the Company to match 20% of participant's
contributions up to 5%. Company contributions to the Plan were approximately
$8 for the year ended December 31, 1997.
F-179
<PAGE>
ULTRAFLORA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
10. RELATED PARTY TRANSACTIONS
The Company purchases substantially all of its product from three flower
farms in Colombia. Two of these farms are owned by shareholders of the Company
and a third farm was owned by a shareholder until the end of 1996. Total
floral purchases from these affiliates totaled $5,104 for the year ended
December 31, 1997.
Additionally, the Company is charged a fee by the affiliated farms to cover
certain packaging costs of the suppliers. Related fees were $1,422 for the
year ended December 31, 1997. Due to affiliates was $450 at December 31, 1997.
The Company leases its office space from a related entity. Total rent
expense was $30 for the year ended December 31, 1997.
The Company is charged a monthly fee from a related entity for handling of
floral products. For the year ended December 31, 1997, these fees amounted to
$340. Additionally, the Company is charged an administrative fee representing
a monthly overhead charge that amounted to $117 for the year ended December
31, 1997. The Company purchased $145 in flowers from this related entity for
the year ended December 31, 1997.
The Company paid UFL $4,628 for the year ended December 31, 1997 for
services provided as discussed in Note 1.
The Company has a $25 unsecured note outstanding from a related party at
December 31, 1997. The note bears interest at 9% annually with principal and
accrued interest due on September 29, 2000.
The Company paid its President, who is also a shareholder in the Company, a
salary of $147 for the year ended December 31, 1997. The President also was
paid a bonus of $25 for the year ended December 31, 1997.
On December 31, 1993, the Company and its two partners in a general
partnership signed a Dissolution, Liquidation, and Royalty Agreement (the
"Agreement"). Under the terms of the Agreement, the Partnership was dissolved
and terminated, and all of the Partnership's assets were transferred to the
Company. In consideration for the transfer of the Partnership's assets to the
Company and to induce the ex-partners to agree to the "no compete" provisions
of the Agreement, the Company agreed to pay certain royalties to its ex-
partners. The royalties are determined as a percentage of the Company's net
sales of floral products to a major retailer and to third parties that resell
such floral products to the major retailer. The Agreement establishes that the
percentage would be 1 percent for the period from January 1, 1996 through
December 31, 1998. However, per the Agreement, the aggregate amount of
royalties in any year shall not exceed $100. During the year ended December
31, 1997, the expense related to these royalties amounted to $92.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office facilities from a related party under an
operating lease expiring on January 1, 1999. Rental payments include minimum
rentals adjusted for sales tax. The aggregate future minimum rentals are as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
<S> <C>
1998.................................................................. $22
1999.................................................................. 2
---
$24
===
</TABLE>
F-180
<PAGE>
ULTRAFLORA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
The Company entered into an agreement to lease equipment under a
noncancelable operating lease expiring on September 30, 2001. Future minimum
rental payments including scheduled maintenance charges are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
<S> <C>
1998.................................................................. $ 4
1999.................................................................. 4
2000.................................................................. 4
2001.................................................................. 3
---
$15
===
</TABLE>
Antidumping Duty
In 1986, the U.S. Department of Commerce ("DOC") imposed an antidumping duty
deposit 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 eleven reviews. As a result of those
reviews, beginning in 1996, the Company's importation of flowers from its
suppliers has been subject to antidumping duties. Of the periods under review,
the results of the review for periods five through eleven could result in
additional liability for the Company. Final determinations have been published
for the fifth, sixth, seventh and ninth reviews, but judicial appeals are
pending. The eighth review liquidated at the cash-deposit rate which was zero
for the Company. The tenth and eleventh reviews are in process.
Included in accrued expenses is approximately $143 as of December 31, 1997
of estimated antidumping duties which may be imposed by the Department of
Commerce. The duty is based on rates imposed on certain products from certain
growers in Columbia and Ecuador. The antidumping duty is subject to change
upon the Department of Commerce's final review of all open antidumping
periods.
12. SALE OF ULTRAFLORA LIMITADA
The Company sold its 99.62% owned foreign subsidiary, UFL, to Venosa
Holdings, Inc. ("Venosa Holdings"), a holding company owned by shareholders of
the Company on October 1, 1997. In exchange for all of the stock of UFL, the
Company received a $100 unsecured note receivable from Venosa Holdings. The
Company recognized a gain of $20 on the sale of its subsidiary and such gain
has been recorded as a contribution to capital at December 31, 1997. The note
receivable from Venosa Holdings bears interest at 9% annually with principal
and accrued interest due on September 29, 2000. At December 31, 1997, the
balance outstanding under this note receivable amounted to $25.
13. SUBSEQUENT EVENTS
All related party agreements, understandings and arrangements as outlined in
Note 10 were amended, as necessary, upon consummation of the Merger described
in Note 1 such that all continuing obligations thereunder are intended to be
no greater than they would be under agreements with unaffiliated third
parties.
F-181
<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 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.............................................. 50,000**
Accounting Fees and Expenses......................................... 150,000**
Miscellaneous........................................................ 45,000**
--------
Total.............................................................. $329,465**
========
</TABLE>
- --------
* Previously paid
** Estimated
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.
II-1
<PAGE>
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.
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 issued 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 granted 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 issued
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 granted 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 issued 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 granted 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
II-2
<PAGE>
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 Acquisition Corp. and G. Warren
Stephenson and Raymond R. Ashmore, pursuant to which the registrant issued
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 granted 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 granted
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. ("American Florist"), AFS
Acquisition Corp. and John T. Dickinson, pursuant to which the registrant
granted 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, all of which shares (totaling 141,749 shares) were issued on
February 27, 1998. 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. ("Monterey
Bay"), Bay Area Bouquets, Inc., USA Floral Acquisition Co. and Jeffrey
Brothers, Philip Buran and Douglas Anderson, pursuant to which the registrant
granted 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 agreed 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, all of which shares (totaling 177,185 shares) were issued on
February 27, 1998. 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 issued 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 granted 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.
II-3
<PAGE>
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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration statement.
Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated parenthetically.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.01 Amended and Restated Agreement and Plan of 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. (Exhibit
10.01)/1/
2.02 Amended and Restated Agreement and Plan of 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. (Exhibit 10.02)/1/
2.03 Amended and Restated Agreement and Plan of Contribution by and among
U.S.A. Floral Products, Inc., BSF Acquisition Corp. and Bay State
Florist Supply, dated as of August 6, 1997. (Exhibit 10.03)/1/
2.04 Amended and Restated Agreement and Plan of 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. (Exhibit
10.04)/1/
2.05 Amended and Restated Agreement and Plan of 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. (Exhibit 10.05)/1/
2.06 Agreement and Plan of Contribution by and 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. (Exhibit 10.06)/1/
2.07 Amended and Restated Agreement and Plan of 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.
(Exhibit 10.07)/1/
2.08 Agreement and Plan of Contribution by and 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. (Exhibit
10.08)/1/
2.09 Purchase Agreement by and among U.S.A. Floral Products, Inc., CFL
Acquisition Corp., ABCL Acquisition Corp., Continental Farms Limited,
Atlantic Bouquet Company Limited, Continental Farms Management, Inc.
and the Limited Partners named therein made effective as of January
20, 1998./2/
2.10 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., XLG Acquisition Corp., XL Group, Inc. and Peter F.
Ullrich dated as of January 20, 1998./2/
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.11 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., EFI Acquisition Corp., EFM Acquisition Corp.,
Everflora, Inc., Everflora Miami, Inc. and the Stockholder named
therein dated January 16, 1998.**
2.12 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., LF Acquisition Corp., H&H Flowers, Inc. and the
Stockholders named therein made effective as of January 16, 1998.**
2.13 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., UF Acquisition Corp., Ultraflora Corporation and the
Stockholders named therein made effective as of January 16, 1998.**
2.14 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., KDI Acquisition Corp., Koehler & Dramm, Inc. and the
Stockholders named therein made effective as of January 16, 1998.**
2.15 Stock Purchase Agreement by and among U.S.A. Floral Products, Inc.,
Maxima Farms, Inc., Maxima Farms, Ltd. and the principal beneficial
owner of Maxima Farms, Ltd. made effective as of April 3, 1998.*
2.16 Share Purchase Agreement by and among U.S.A. Floral Products, Inc.,
David L. Jones Wholesale, Ltd. and the Shareholder named therein made
effective as of April 3, 1998.*
2.17 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., EFTA Acquisition Corp., Elite Farms, Talent, Inc.,
Anvacu, Inc., the Stockholders named therein and the beneficial
owners named therein made effective as of April 3, 1998.*
2.18 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., Selecta Farms, Inc., Saint Ann Trading Corporation,
Juecla Investment Corporation and persons named therein made
effective as of April 3, 1998.*
2.19 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., SAB Acquisition Corp., Master Flowers Inc. and the
Stockholders named therein made effective April 3, 1998.*
2.20 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., FFI Acquisition Corp., Edfrancar, Inc. and the
Stockholders named therein made effective as of April 3, 1998.*
2.21 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., ASG Acquisition Corp., AFB Marketing, Inc. and the
Stockholders named therein made effective as of April 3, 1998.*
2.22 Agreement and Plan of Reorganization by and among U.S.A. Floral
Products, Inc., PFW Acquisition Corp., RCF Acquisition Corp., Pacific
Floral Wholesale, Inc., Rose City Floral, Inc. and the Stockholder
named therein made effective as of April 3, 1998.*
3.01 Certificate of Incorporation of U.S.A. Floral Products, Inc., as
amended. (Exhibit 3.01)/1/
3.02 Amended and Restated Bylaws of U.S.A. Floral Products, Inc. (Exhibit
3.02)/1/
4.01 Credit Agreement among U.S.A. Floral Products, Inc., various Lending
Institutions and Bankers Trust Company, as Agent, dated as of October
16, 1997. (Exhibit 10.23)**
4.01(a) Consent to Credit Agreement among U.S.A. Floral Products, Inc.,
various Lending Institutions and Bankers Trust Company, as Agent,
dated as of January 26, 1998.**
5.01 Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered.**
10.01 U.S.A. Floral Products, Inc. 1997 Long-Term Incentive Plan. (Exhibit
10.10)/1/
10.02 U.S.A. Floral Products, Inc. 1997 Non-Employee Directors' Stock Plan.
(Exhibit 10.11)/1/
10.03 U.S.A. Floral Products, Inc. 1997 Employee Stock Purchase Plan.
(Exhibit 10.12)/1/
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.04(a) Employment Agreement between U.S.A. Floral Products, Inc. and Robert
Poirier, dated as of April 22, 1997. (Exhibit 10.09(a))/1/
10.04(b) Amendment No. 1 to Employment Agreement between U.S.A. Floral
Products, Inc. and Robert Poirier, dated August 6, 1997. (Exhibit
10.09(b))/1/
10.05 Employment Agreement between U.S.A. Floral Products, Inc. and Raymond
C. Anderson, dated October 9, 1997. (Exhibit 10.13)/1/
10.06 Employment Agreement between The Roy Houff Company and Roy O. Houff,
dated October 16, 1997. (Exhibit 10.14)/1/
10.07 Employment Agreement between CFX, Inc. and Dwight Haight, dated
October 16, 1997. (Exhibit 10.15)/1/
10.08 Employment Agreement between Bay State Florist Supply, Inc. and
William W. Rudolph, dated October 16, 1997. (Exhibit 10.16)/1/
10.09 Employment Agreement between Monterey Bay Bouquet, Inc. and Jeffrey
Brothers, dated October 16, 1997. (Exhibit 10.17)/1/
10.10 Employment Agreement between Alpine Gem Flower Shippers, Inc. and
John Q. Graham, Jr., dated October 16, 1997. (Exhibit 10.18)/1/
10.11 Employment Agreement between United Wholesale Florists, Inc. and
Raymond R. Ashmore, dated October 16, 1997. (Exhibit 10.19)/1/
10.12 Employment Agreement between American Florist Supply, Inc. and John
T. Dickinson, dated October 16, 1997. (Exhibit 10.20)/1/
10.13 Employment Agreement between Flower Trading Corporation and Gustavo
Moreno, dated October 16, 1997. (Exhibit 10.21)/1/
10.14 Registration Rights Agreement, dated as of July 25, 1997, among
U.S.A. Floral Products, Inc. and certain stockholders named therein.
(Exhibit 10.22)/1/
23.01 Consent of Price Waterhouse LLP.*
23.02 Consent of Madsen, Sapp, Mena, Rodriguez & Co., P.A.*
23.03 Consent of Arthur Andersen LLP.*
23.04 Consent of Morgan, Lewis & Bockius LLP (included in opinion filed as
Exhibit 5.01).**
24.01 Power of Attorney.**
27.01 Financial Data Schedule.*
</TABLE>
- --------
(1) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-
33131) filed with the Commission on October 9, 1997.
(2) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Current Report on Form 8-K filed with the Commission on
February 9, 1998.
* Filed herewith.
** Previously filed.
II-6
<PAGE>
(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 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:
(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) 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 post-effective amendment to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Washington, District of Columbia, on May 8, 1998.
U.S.A Floral Products, Inc.
By: /s/ Robert J. Poirier
---------------------------------
Robert J. Poirier
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this post-
effective amendment to the registration statement has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Robert J. Poirier Chairman of the Board, May 8, 1998
- ------------------------------------ President
Robert J. Poirier and Chief Executive Officer
and a Director (Principal
Executive Officer)
* Chief Financial Officer May 8, 1998
- ------------------------------------ (Principal
Raymond C. Anderson Financial and Accounting
Officer)
* Director May 8, 1998
- ------------------------------------
Jonathan J. Ledecky
* Director May 8, 1998
- ------------------------------------
Vincent W. Eades
* Director May 8, 1998
- ------------------------------------
Edward J. Mathias
* Director May 8, 1998
- ------------------------------------
John A. Quelch
* Director May 8, 1998
- ------------------------------------
Raymond R. Ashmore
* Director May 8, 1998
- ------------------------------------
Jeffrey Brothers
* Director May 8, 1998
- ------------------------------------
John T. Dickinson
* Director May 8, 1998
- ------------------------------------
John Q. Graham, Jr.
* Director May 8, 1998
- ------------------------------------
Dwight Haight
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
* Director May 8, 1998
____________________________________
Roy O. Houff
* Director May 8, 1998
____________________________________
Gustavo Moreno
* Director May 8, 1998
____________________________________
William W. Rudolph
* Director May 8, 1998
____________________________________
John Vaughan
</TABLE>
By: /s/ Robert J. Poirier
____________________________
Robert J. Poirier,
Attorney-In-Fact, pursuant
to powers of attorney
previously filed as part
of this registration
statement
II-9
<PAGE>
Exhibit 2.15
STOCK PURCHASE AGREEMENT
By and Among
U.S.A. Floral Products, Inc.,
Maxima Farms, Inc.
Maxima Farms, Ltd.
and
The Principal Beneficial Owner of Maxima Farms, Ltd.
dated April 3, 1998
<PAGE>
Table of Contents
Page
----
1. THE SALE AND PURCHASE OF SHARES....................................... 1
1.1 The Stock Purchase............................................ 1
1.2 Purchase Price................................................ 1
1.3 Certain Information with Respect to Capital Stock
of the Company.............................................. 2
2. POST CLOSING ADJUSTMENT; PLEDGED ASSETS............................... 2
2.1 Post-Closing Adjustment....................................... 2
2.2 Pledged Assets................................................ 4
3. CLOSING............................................................... 6
3.1 Location and Date............................................. 6
3.2 Closing Deliveries............................................ 6
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER..... 6
4.1 Due Organization.............................................. 6
4.2 Authorization; Validity....................................... 7
4.3 No Conflicts.................................................. 7
4.4 Capital Stock of the Company.................................. 8
4.5 Transactions in Capital Stock................................. 8
4.6 Subsidiaries, Stock, and Notes................................ 8
4.7 Predecessor Status............................................ 9
4.8 Absence of Claims Against the Company......................... 9
4.9 Company Financial Conditions.................................. 9
4.10 Financial Statements.......................................... 9
4.11 Liabilities and Obligations................................... 9
4.12 Accounts and Notes Receivable................................. 10
4.13 Books and Records............................................. 10
4.14 Permits....................................................... 11
4.15 Real Property................................................. 11
4.16 Personal Property............................................. 12
4.17 Intellectual Property......................................... 13
4.18 Material Contracts and Commitments............................ 14
4.19 Government Contracts.......................................... 15
4.20 Insurance..................................................... 16
4.21 Labor and Employment Matters.................................. 16
4.22 Employee Benefit Plans........................................ 17
4.23 Conformity with Law; Litigation............................... 19
4.24 Taxes......................................................... 20
4.25 Absence of Changes............................................ 21
i
<PAGE>
4.26 Deposit Accounts; Powers of Attorney.......................... 23
4.27 Environmental Matters......................................... 23
4.28 Relations with Governments.................................... 24
4.29 Disclosure.................................................... 25
4.30 USFloral Prospectus; Securities Representations............... 25
4.31 Affiliates.................................................... 25
4.32 Location of Chief Executive Offices........................... 25
4.33 Location of Equipment and Inventory........................... 25
5. REPRESENTATIONS OF USFLORAL........................................... 26
5.1 Due Organization.............................................. 26
5.2 USFloral Common Stock......................................... 26
5.3 Authorization; Validity of Obligations........................ 26
5.4 No Conflicts.................................................. 26
5.5 Capitalization of USFloral and Ownership of USFloral Stock.... 27
6. COVENANTS............................................................. 27
6.1 Tax Matters................................................... 27
6.2 Related Party Agreements...................................... 28
6.3 Cooperation................................................... 28
6.4 Conduct of Business Pending Closing........................... 29
6.5 Access to Information......................................... 30
6.6 Prohibited Activities......................................... 30
6.7 Notice to Bargaining Agents................................... 32
6.8 Sales of USFloral Common Stock................................ 32
6.9 USFloral Stock Options........................................ 33
6.10 Conduct of Business of Surviving Corporation.................. 33
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL................... 33
7.1 Representations and Warranties; Performance of Obligations.... 33
7.2 No Litigation................................................. 34
7.3 No Material Adverse Change.................................... 34
7.4 Consents and Approvals........................................ 34
7.5 Opinion of Counsel............................................ 34
7.6 Charter Documents............................................. 34
7.7 Quarterly Financial Statements................................ 34
7.8 Due Diligence Review.......................................... 34
7.9 Delivery of Closing Financial Certificate..................... 35
7.10 Employment Agreements......................................... 35
7.11 Stockholders' Release......................................... 35
7.12 Supply Agreements............................................. 35
7.13 Repayment of Indebtedness..................................... 35
7.14 Termination of Payments for Add-Backs......................... 35
ii
<PAGE>
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDER........................................................... 36
8.1 Representations and Warranties; Performance of Obligations... 36
8.2 No Litigation................................................ 36
8.3 Consents and Approvals....................................... 36
9. INDEMNIFICATION....................................................... 36
9.1 General Indemnification by the Stockholder................... 36
9.2 Limitation and Expiration.................................... 37
9.3 Indemnification Procedures................................... 38
9.4 Survival of Representations Warranties and Covenants......... 40
9.5 Remedies Cumulative.......................................... 40
9.6 Right to Set Off............................................. 40
10. NONCOMPETITION........................................................ 40
10.1 Prohibited Activities........................................ 40
10.2 Damages...................................................... 41
10.3 Reasonable Restraint......................................... 41
10.4 Severability; Reformation.................................... 41
10.5 Independent Covenant......................................... 41
10.6 Materiality.................................................. 42
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................. 42
11.1 Stockholder and Principal.................................... 42
11.2 USFloral..................................................... 42
11.3 Damages...................................................... 42
12. GENERAL............................................................... 43
12.1 Termination.................................................. 43
12.2 Effect of Termination........................................ 43
12.3 Successors and Assigns....................................... 44
12.4 Entire Agreement; Amendment; Waiver.......................... 44
12.5 Counterparts................................................. 44
12.6 Brokers and Agents........................................... 44
12.7 Expenses..................................................... 44
12.8 Specific Performance; Remedies............................... 44
12.9 Notices...................................................... 45
12.10 Governing Law................................................ 45
12.11 Severability................................................. 46
12.12 Absence of Third Party Beneficiary Rights.................... 46
12.13 Guarantee.................................................... 46
12.14 Further Representations...................................... 46
12.15 Accounting Terms............................................. 46
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 3rd day of April, 1998, by and among U.S.A. Floral Products, Inc., a
Delaware corporation ("USFloral"), Maxima Farms, Inc., a Florida corporation
(the "Company"), Maxima Farms Ltd., the sole stockholder of the Company (the
"Stockholder") and the principal beneficial owner of the Stockholder (the
"Principal").
BACKGROUND
WHEREAS, the Stockholder owns all of the issued and outstanding shares of
capital stock of the Company and desires to sell all such shares to USFloral and
USFloral desires to purchase all such shares from the Stockholder at the
purchase price and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE SALE AND PURCHASE OF SHARES
1.1 The Stock Purchase. Subject to the terms and conditions of this
Agreement and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, on the Closing Date (as
hereinafter defined) the Stockholder shall sell to USFloral all of the Company
Stock (as defined in Section 1.3 hereof) and USFloral shall purchase (the "Stock
Purchase") from the Stockholder all of the Company Stock, in exchange for the
Purchase Price (as defined in Section 1.2 hereof), subject to adjustment as
provided in Section 1.2 hereof. The Company, after the consummation of the
Stock Purchase, is sometimes referred to as the "Surviving Corporation."
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall
include the Initial Consideration and the Earn-Out Consideration. The "Initial
Consideration" shall be $10,600,000, less the aggregate amount of the long-term
indebtedness of the Company, including the current portion thereof, adjusted
pursuant to this Section 1.2 and Section 2.1. Of the Initial Consideration,
$5,300,000 less long-term debt shall be paid in cash at Closing in immediately
available funds. The remaining $5,300,000 of the Initial Consideration shall be
paid in shares of USFloral Common Stock valued at $22.706 per share (the
"Initial Price"). For each $1.00 by which the Company's and the Surviving
Corporation's earnings before interest and taxes ("EBIT") for the twelve months
ending December 31, 1998 (the "1998 EBIT") exceeds $1,674,000, USFloral shall
pay to the Stockholder $6.00 (the "Earn-Out Consideration"). The Earn-Out
Consideration shall not exceed $6,000,000. The Earn-Out Consideration shall be
paid in USFloral Common Stock valued at the average closing price on the Nasdaq
National Market per share of USFloral Common Stock for each trading day during
the thirty calendar day period ending December 31,1998 (the "Earn-Out Price").
The Earn-
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Out Consideration, if any, shall be paid within thirty days of the determination
by Price Waterhouse of the 1998 EBIT. In calculating the 1998 EBIT, Price
Waterhouse LLP ("USFloral's Accountant") shall add to EBIT any amounts paid by
the Company in respect of those items set forth on Schedule 4.9(b)(ii) hereof
during the period beginning on January 1, 1998 and ending on the Closing Date.
The shares of USFloral Common Stock to be issued (subject to adjustment as
provided in this Section 1.2 and Section 2.1) shall be registered under the
Securities Act of 1933, as amended (the "1933 Act").
(b) The Purchase Price has been calculated based upon several
factors, including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $2,294,000 (the "Net Worth
Target") as of the Closing.
(c) If, on the Closing Financial Certificate (as defined in Section
7.9), the Certified Closing Net Worth (as defined in Section 7.9) is less than
the Net Worth Target, then the Purchase Price to be delivered to the Stockholder
may, at USFloral's election, be reduced either (i) at the Closing, or (ii) after
completion of the Post-Closing Audit (as defined in Section 2.1), by the
difference between the Net Worth Target and the Certified Closing Net Worth set
forth on the Closing Financial Certificate (which reduction shall be pro rata in
cash and in USFloral Common Stock valued at the Initial Price in the same
proportions as the cash and USFloral Common Stock components of the Purchase
Price as provided in Section 1.2(a)).
(d) The Earn-Out Consideration has been calculated based upon several
factors, including the assumption that the Surviving Corporation's earnings
before interest and taxes for the year ended December 31, 1999 (the "1999 EBIT")
will be no less than the 1998 EBIT. For each $1.00 by which the 1999 EBIT is
less than the lesser of (i) 1998 EBIT or (ii) $2,674,000, the Stockholder will
repay USFloral $6.00 in USFloral Common Stock, valued at the Earn-Out Price, up
to the amount of the Earn-Out Consideration received by the Stockholder.
1.3 Certain Information with Respect to Capital Stock of the Company. As
of the date of this Agreement, the authorized capital stock of the Company
consists of 200,000 shares of common stock, par value $.001 per share (the
"Company Stock"), of which 112,544 shares of Company Stock are issued and
outstanding.
2. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
2.1 Post-Closing Adjustment.
(a) The Purchase Price shall be subject to adjustment after the
Closing Date as specified in this Section 2.1.
(b) Within one hundred twenty (120) days following the Closing Date,
USFloral shall cause USFloral's Accountant to audit the Surviving Company's
books to determine the accuracy
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of the information set forth on the Closing Financial Certificate (the "Post-
Closing Audit"). The parties acknowledge and agree that for purposes of
determining the net worth of the Company as of the Closing Date, the value of
the assets of the Company shall, except with the prior written consent of
USFloral, be calculated as provided in the last paragraph of Section 7.9. The
Stockholder shall cooperate and shall use its reasonable efforts to cause the
officers and employees of the Company to cooperate with USFloral and USFloral's
Accountant after the Closing Date in furnishing information, documents, evidence
and other assistance to USFloral's Accountant to facilitate the completion of
the Post-Closing Audit within the aforementioned time period. Without limiting
the generality of the foregoing, within two weeks after the Closing the
Stockholder shall provide USFloral's Accountant with the information and/or
documents requested on the Post-Closing Audit Checklist set forth as Schedule
2.1 hereto. In the event that USFloral's Accountant determines that the actual
Company net worth as of the Closing Date was less than the Certified Closing Net
Worth, USFloral shall deliver a written notice (the "Financial Adjustment
Notice") to the Stockholder setting forth (i) the determination made by
USFloral's Accountant of the actual Company net worth (the "Actual Company Net
Worth"), (ii) the amount of the Purchase Price that would have been payable at
Closing pursuant to Section 1.2(c) had the Actual Company Net Worth been
reflected on the Closing Financial Certificate instead of the Certified Closing
Net Worth, and (iii) the amount by which the number of shares issued as the
Purchase Price would have been reduced at Closing had the Actual Company Net
Worth been used in the calculations pursuant to Section 1.2(c) (the "Purchase
Price Adjustment"). The Purchase Price Adjustment shall take account of the
reduction, if any, to the Purchase Price already taken pursuant to Section
1.2(c)(i).
(c) The Stockholder shall have thirty (30) days from the receipt of
the Financial Adjustment Notice to notify USFloral if the Stockholder disputes
such Financial Adjustment Notice. If USFloral has not received notice of such a
dispute within such 30-day period, USFloral shall be entitled to receive from
the Stockholder (which may, at USFloral's sole discretion, be from the Pledged
Assets as defined in Section 3.2) the Purchase Price Adjustment. If, however,
the Stockholder has delivered notice of such a dispute to USFloral within such
30-day period, then USFloral's Accountant shall select a "Big-Five" independent
accounting firm that has not represented any of the parties hereto within the
preceding two (2) years to review the Surviving Corporation's books, Closing
Financial Certificate and Financial Adjustment Notice (and related information)
to determine the amount, if any, of the Purchase Price Adjustment. Such
independent accounting firm shall be confirmed by the Stockholder and USFloral
within five (5) days of its selection, unless there is an actual conflict of
interest. The independent accounting firm shall be directed to consider only
those agreements, contracts, commitments or other documents (or summaries
thereof) that were either (i) delivered or made available to USFloral's
Accountant in connection with the transactions contemplated hereby, or (ii)
reviewed by USFloral's Accountant during the course of the Post-Closing Audit.
The independent accounting firm shall make its determination of the Purchase
Price Adjustment, if any, within thirty (30) days of its selection. The
determination made by the independent accounting firm shall be final and binding
on the parties hereto, and upon such determination, USFloral shall be entitled
to receive from the Stockholder (which may, at USFloral's sole discretion, be
from the Pledged Assets as defined in Section 2.2) the Purchase Price
Adjustment. The costs of the independent accounting firm shall be borne by the
party (either USFloral or the Stockholder) whose determination of the Company's
net worth at Closing was further from the
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determination of the independent accounting firm, or equally by USFloral and the
Stockholder in the event that the determination by the independent accounting
firm is equidistant between the Certified Closing Net Worth and the Actual
Company Net Worth.
(d) Within one hundred twenty days following December 31, 1999
USFloral shall cause USFloral's Accountant to determine the Surviving
Corporation's 1999 EBIT. In the event that USFloral's Accountant determines
that the Surviving Corporation's 1999 EBIT was less than the 1998 EBIT, USFloral
shall deliver a written notice (the "Earn-Out Adjustment Notice") to the
Stockholder, setting forth (i) the determination made by USFloral's Accountant
of the 1999 EBIT, (ii) the amount of the Earn-Out Consideration that would have
been payable had the Earn-Out Consideration been calculated based on the 1999
EBIT rather than the 1998 EBIT and (iii) the amount by which the number of
shares issued as the Earn-Out Consideration would have been reduced at Closing
had the 1999 EBIT been used to calculate the Earn-Out Consideration (the "Earn-
Out Consideration Adjustment").
(e) The Stockholder shall have thirty (30) days from the receipt of
the Earn-Out Adjustment Notice to notify USFloral if the Stockholder disputes
such Earn-Out Adjustment Notice. Such notice shall include the Stockholder's
determination of the amount of 1999 EBIT. If USFloral has not received notice of
such a dispute within such 30-day period, USFloral shall be entitled to receive
from the Stockholder the Earn-Out Consideration Adjustment. If, however, the
Stockholder has delivered notice of such a dispute to USFloral within such 30-
day period, then USFloral's Accountant shall select a "Big-Five" independent
accounting firm that has not represented any of the parties hereto within the
preceding two (2) years to review the Surviving Corporation's books and Earn-
Out Adjustment Notice (and related information) to determine the amount, if any,
of the Earn-Out Consideration Adjustment. Such independent accounting firm
shall be confirmed by the Stockholder and USFloral within five (5) days of its
selection, unless there is an actual conflict of interest. The independent
accounting firm shall make its determination of the Earn-Out Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the independent accounting firm shall be final and binding on the
parties hereto, and upon such determination, USFloral shall be entitled to
receive from the Stockholder the Earn-Out Consideration Adjustment. The costs
of the independent accounting firm shall be borne by the party (either USFloral
or the Stockholder) whose determination of 1999 EBIT was further from the
determination of the independent accounting firm, or equally by USFloral and the
Stockholder in the event that the determination by the independent accounting
firm is equidistant between USFloral's and the Stockholder's determination of
1999 EBIT.
2.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Purchase Price under Section 2.1, or any indemnification
obligations of the Stockholder pursuant to Article 9, the Stockholder shall, and
by execution hereof do hereby, transfer, pledge and assign to USFloral, for the
benefit of USFloral, a security interest in the following assets (the "Pledged
Assets"):
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(i) at the Closing, that number of shares of USFloral Common
Stock with a value, based on the Initial Price, equal to ten percent (10%) of
the Initial Consideration as the same may have been adjusted pursuant to Section
1.2 or Section 2.1 hereof, and the certificates and instruments, if any,
representing or evidencing each such Stockholder's Pledged Assets; upon
determination of the Earn-Out Consideration, that number of shares of USFloral
Common Stock with a value, based on the Earn-Out Price, equal to ten percent
(10%) of the Earn-Out Consideration, and the certificates and instruments, if
any, representing or evidencing the Pledged Assets;
(ii) upon determination of the Earn-Out Consideration, that
number of shares of USFloral Common Stock with a value, based on the Earn-Out
Price equal to fifty percent (50%) of the Earn-Out Consideration (the "Earn-Out
Pledged Assets");
(iii) all securities hereafter delivered to such Stockholder
with respect to or in substitution for the Pledged Assets, all certificates and
instruments representing or evidencing such securities, and all cash and non-
cash dividends and other property at any time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof; and in the
event the Stockholder receives any such property, the Stockholder shall hold
such property in trust for USFloral and shall immediately deliver such property
to USFloral to be held hereunder as Pledged Assets; and
(iv) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing the Pledged Assets issued in
the Stockholder's name in the Stock Purchase shall be delivered to USFloral
directly by the transfer agent, such certificate bearing no restrictive or
cautionary legend other than those imprinted by the transfer agent at USFloral's
request. The Stockholder shall, at the Closing, deliver to USFloral, for each
such certificate, a stock power duly signed in blank by him or her. Any cash
comprising the Pledged Assets shall be withheld by USFloral from distribution to
the Stockholder.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Purchase Price pursuant to Section 2.1 and any indemnification
obligations of the Stockholder pursuant to Article 9 until the date which is one
year after the Closing Date (the "Release Date"). Promptly following the Release
Date, USFloral shall return or cause to be returned to the Stockholder the
Pledged Assets, less Pledged Assets having an aggregate value equal to the
amount of (i) any post-Closing adjustment to the Purchase Price under Section
2.1, (ii) any pending claim for indemnification made by any Indemnified Party
(as defined in Article 9), and (iii) any indemnification obligations of the
Stockholder pursuant to Article 9. Notwithstanding the preceding two sentences
the Earn-Out Pledged Assets shall be available to satisfy any adjustment to the
Earn-Out Consideration until the determination by USFloral's Accountant's of the
1999 EBIT. Promptly following such determination, USFloral shall cause to be
returned to the Stockholder the Earn-Out Pledged Assets, less Earn-Out Pledged
Assets having an aggregate value equal to the amount of any adjustment to the
Earn-Out Consideration under Section 2.1. For purposes of this Section 2.2(c)
and Article 9, the USFloral Common Stock held as Pledged Assets shall be valued
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at (x) the Initial Price with respect to any post-Closing adjustment to the
Purchase Price under Section 2.1, (y) the Earn-Out Price with respect to any
adjustment to the Earn-Out Consideration and (z) the average of the closing
price on the Nasdaq National Market per share of USFloral Common Stock for the
five trading days prior to the satisfaction of an indemnification obligation
(the "Market Value") with respect to indemnification obligations pursuant to
Article 9.
3. CLOSING
3.1 Location and Date. The Stock Purchase and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Morgan, Lewis & Bockius LLP, on April 3, 1998, providing that all conditions
to Closing shall have been satisfied or waived, or at such other time and date
as USFloral, the Company and the Stockholder may mutually agree, which date
shall be referred to as the "Closing Date."
3.2 Closing Deliveries.
(a) At the Closing the Stockholder, as the holder of all outstanding
certificates representing shares of Company Stock, shall surrender such
certificates to USFloral and USFloral shall deliver to the Stockholder the
Initial Consideration set forth in Section 1.2 above.
(b) The Stockholder shall deliver to USFloral at Closing the
certificates representing the Company Stock, duly endorsed in blank by the
Stockholder, or accompanied by blank irrevocable stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholder's
expense, affixed and canceled and shall take such steps as shall be necessary to
cause the Company to enter USFloral or its nominee(s) upon the books of the
Company as the holder of the Company Stock and to issue one or more share
certificates to USFloral or its nominee(s) representing the Company Stock. The
Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
such Company Stock or with respect to the stock powers accompanying any Company
Stock.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
To induce USFloral to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholder,
jointly and severally, represents and warrants to USFloral as follows (for
purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
Stockholder and the directors and officers of the Company, including facts of
which the directors and officers, in the reasonably prudent exercise of their
duties, should be aware):
4.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized,
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qualified and licensed under all applicable laws, regulations, ordinances and
orders of public authorities to own, operate and lease its properties and to
carry on its business in the places and in the manner as now conducted except
where the failure to be so authorized, qualified or licensed would not have a
material adverse effect on the business, operations, properties, assets or
condition, financial or otherwise, of the Company ("Material Adverse Effect").
Schedule 4.l hereto contains a list of all jurisdictions in which the Company is
authorized or qualified to do business. The Company is in good standing as a
foreign corporation in each jurisdiction it which it does business. The Company
has delivered to USFloral true, complete and correct copies of the Articles of
Incorporation and Bylaws of the Company. Such Articles of Incorporation and
Bylaws are collectively referred to as the "Charter Documents." The Company is
not in violation of any Charter Documents. The minute books of the Company have
been made available to USFloral (and have been delivered, along with the
Company's original stock ledger and corporate seal, to USFloral) and are correct
and, except as set forth in Schedule 4.1, complete in all material respects.
4.2 Authorization; Validity. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
this Agreement. The Company has the full legal right, corporate power and
authority to enter into this Agreement and the transactions contemplated hereby.
Each of the Stockholder and the Principal has the full legal right and authority
to enter into this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the performance by
the Company of the transactions contemplated herein have been duly and validly
authorized by the Board of Directors of the Company and the Stockholder, and
this Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of the Company,
the Stockholder, enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Company or the
Stockholder is a party or by which the Company or the Stockholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Company's properties pursuant to (i) any law or regulation to which the
Company or the Stockholder or any of their respective property is subject, or
(ii) any judgment, order or decree to which the Company or the Stockholder is
bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
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(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or the Stockholder is subject or by which the
Company or the Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
4.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 200,000 shares of common stock, $.001 par value, of which
112,544 shares are issued and outstanding. All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record and
beneficially by the Stockholder in the amounts set forth in Schedule 4.4 free
and clear of all Liens (defined below). All of the issued and outstanding
shares of the capital stock of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of the Company. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
4.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral, which may obligate the Company to issue, sell or
otherwise cause to become outstanding any shares of capital stock. The Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. As a result of the Stock
Purchase, USFloral will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
4.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 4.6(a), the Company has no
subsidiaries.
(b) Except as set forth on Schedule 4.6(b), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
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(c) Except as set forth on Schedule 4.6(c), there are no promissory
notes that have been issued to, or are held by, the Company.
4.7 Predecessor Status. Schedule 4.7 sets forth a list of all names of
all predecessor companies of the Company, including the names of any entities
from which the Company previously acquired significant assets. The Company has
never been a subsidiary or division of another corporation, nor has it been a
part of an acquisition that was later rescinded.
4.8 Absence of Claims Against the Company. The Stockholder has no claims
against the Company.
4.9 Company Financial Conditions.
(a) The Company's net worth (i) as of the end of its most recent
fiscal year was not less than $2,294,000, and (ii) as of the Closing will not be
less than the Net Worth Target. For purposes of this Section 4.9(a),
calculation of amounts as of the Closing shall be made in accordance with the
last paragraph of Section 7.9.
(b) The Company's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 4.9(b)) for its most recent fiscal
year was not less than $1,674,000.
4.10 Financial Statements. Schedule 4.10 includes true, complete and
correct copies of the Company's unaudited balance sheet as of December 31, 1997
(the "Balance Sheet Date") (the end of its most recently completed fiscal year),
and income statement for the year then ended (collectively, the "Company
Financial Statements"). The Company Financial Statements have been prepared in
accordance with GAAP consistently applied. Each balance sheet included in the
Company Financial Statements presents fairly the financial condition of the
Company as of the date indicated thereon, and each of the income statements
included in the Company Financial Statements presents fairly the results of its
operations for the periods indicated thereon. Since the dates of the Company
Financial Statements, there have been no material changes in the Company's
accounting policies other than as requested by USFloral to conform the Company's
accounting policies to GAAP.
4.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Balance Sheet and not
previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
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(iii) those liabilities incurred since the Balance Sheet Date
in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material.
(b) The Company has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 4.11(c) also includes a summary description of all
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company or the Surviving Corporation would require additional material
expenditures of capital.
(d) For purposes of this Section 4.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 4.11(d)
contains a complete list of all indebtedness of the Company.
4.12 Accounts and Notes Receivable. The Company has delivered to USFloral
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees, the
Stockholder and the Principal), which includes an aging of all accounts and
notes receivable showing amounts due in 30-day aging categories (collectively,
the "Accounts Receivable"). On the Closing Date, the Company will deliver to
USFloral a complete and accurate list, as of a date not more than two (2)
business days prior to the Closing Date, of the Accounts Receivable. All
Accounts Receivable represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. The Accounts
Receivable are current and collectible net of any respective reserves shown on
the Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within ninety (90)
days after the day on which it first became due and payable. There is no
contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
4.13 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
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4.14 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any Permit.
4.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 4.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
owner, and Company's use thereof) and, to the Company's knowledge, any Liens.
Schedule 4.15(b) indicates whether the Real Property is owned or leased. The
Real Property listed on Schedule 4.15 includes all interests in real property
necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 4.15(c):
(i) The Real Property and all present uses and operations of
the Real Property substantially comply with all applicable statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
licenses and permits) required in connection with the use, occupation and
operation of the Real Property.
(ii) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company
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or the Stockholder received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(iii) Except as set forth on Schedule 4.15(c), there are no
parties other than the Company in possession of any of the Real Property or any
portion thereof, and there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of the Real Property or any portion thereof.
(iv) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided USFloral with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. Except as set forth on
Schedule 4.15(c), the Leases and the Company's interests thereunder are free of
all Liens.
(v) None of the Leases requires the consent or approval of
any party thereto in connection with the consummation of the transactions
contemplated hereby.
4.16 Personal Property.
(a) Schedule 4.16(a) sets forth a complete and accurate list of all
personal property included on the Balance Sheet and all other personal property
owned or leased by the Company with a current book value in excess of $10,000
both (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet
Date, including in each case true, complete and correct copies of leases for
material equipment and an indication as to which assets are currently owned, or
were formerly owned, by the Stockholder, the Principal or business or personal
affiliates of the Stockholder, the Principal or the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
the Company, including those listed on Schedule 4.16(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 4.16(a) are in full force and effect and constitute valid and binding
agreements of the Company, and the Company is not in breach of any of their
terms. All fixed assets used by the Company that are material to the operation
of its business are either owned by the Company or leased under an agreement
listed on Schedule 4.16(a).
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4.17 Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 4.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Company now owns or
uses in connection with its business. Except with respect to those Marks shown
as licensed on Schedule 4.17(a), the Company owns all of the registered and
unregistered trademarks, service marks, and trade names that it uses. The Marks
listed on Schedule 4.17(a) will not cease to be valid rights of the Company by
reason of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. For purposes of this
Section 4.17, the term "Mark" shall mean all right, title and interest in and to
any United States or foreign trademarks, service marks and trade names now held
by the Company, including any registration or application for registration of
any trademarks and services marks in the PTO or the equivalent thereof in any
state of the United States or in any foreign country, as well as any
unregistered marks used by the Company, and any trade dress (including logos,
designs, company names, business names, fictitious names and other business
identifiers) used by the Company in the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 4.17(b)(i) and in the Copyright registrations listed on
Schedule 4.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Company now owns or is licensed to use. The Company
owns or is licensed to practice under all patents and copyright registrations
that the Company now owns or uses in connection with its business. For purposes
of this Section 4.17, the term "Patent" shall mean any United States or foreign
patent to which the Company has title as of the date of this Agreement, as well
as any application for a United States or foreign patent made by the Company;
the term "Copyright" shall mean any United States or foreign copyright owned by
the Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 4.17(c). Those Other Rights constitute all of the Other Rights that
the Company now owns or is licensed to use. The Company owns or is licensed to
practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 4.17(a), 4.17(b)(i), 4.17(b)(ii), and 4.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 4.17(d), the Company has no
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obligations to compensate any person for the use of any Intellectual Property
nor has the Company granted to any person any license, option or other rights to
use in any manner any Intellectual Property, whether requiring the payment of
royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 4.17(a), (b), or (c). No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property or other trade secret material to the Company;
or (iv) challenging the Company's license or legally enforceable right to use of
the Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor any of its
subsidiaries (x) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, or copyrights and which
has not been finally terminated or been informed or notified by any third party
that the Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its subsidiaries of any trade secret, patent, trademark, service mark, or
copyright of another.
(f) All Intellectual Property in the form of computer software that
is utilized by the Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries.
4.18 Material Contracts and Commitments.
(a) Schedule 4.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Company and any affiliate of the Company or any
officer, director or stockholder of the Company are parties ("Related Party
Agreements"); or (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, $50,000, or that may generate
revenues or income exceeding, during the current term thereof, $50,000
(collectively with the Related Party Agreements, the "Material Contracts"). The
Company has delivered to USFloral true, complete and correct copies of the
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Material Contracts. The Company has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
notice of default has been received with respect to any thereof, and there are
no Material Contracts that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 6.4, is valid and binding on the Company and is in full force and effect
and is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company [has obtained/will obtain prior to the
Closing Date] all necessary consents, waivers and approvals of parties to any
Material Contracts that are required in connection with any of the transactions
contemplated hereby, or are required by any governmental agency or other third
party or are advisable in order that any such Material Contract remain in effect
without modification after the Stock Purchase and without giving rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit ("Third Party Consents"). All Third Party Consents are listed on
Schedule 4.18(b).
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which the Stockholder or the Principal
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any Person in which the Stockholder or the Principal owns a material interest,
are set forth in Schedule 4.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially
all of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 4.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 4.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
4.19 Government Contracts.
(a) Except as set forth on Schedule 4.19, the Company is not a party
to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) Except as set forth in Schedule 4.19, the Company has not been,
nor is it now being, audited, or investigated by any government agency, or the
inspector general or auditor general
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or similar functionary of any agency or instrumentality, nor, to the knowledge
of the Company, has such audit or investigation been threatened.
(d) The Company has no dispute pending before a contracting office
of, nor any current claim (other than the Accounts Receivable) pending against,
any agency or instrumentality of the United States Government or any state or
local government, relating to a contract.
(e) The Company has not, with respect to any government contract,
received a cure notice advising the Company that it is or was in default or
would, if it failed to take remedial action, be in default under such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
4.20 Insurance. Schedule 4.20 sets forth a complete and accurate list of
all insurance policies carried by the Company and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Company has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Company. The insurance carried by
the Company with respect to its properties, assets and business is, to the
Company's knowledge, with financially sound insurers. To the knowledge of the
Company, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies.
4.21 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration
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Reform and Control Act, and occupational safety and health requirements, and has
not and is not engaged in any unfair labor practice;
(b) there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there
been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
the Company has fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
4.22 Employee Benefit Plans. Attached hereto as Schedule 4.22 are
complete and accurate copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the Company, or to which the Company currently contributes, or has an obligation
to contribute in the future (including, without limitation, employment
agreements and any other agreements containing "golden parachute" provisions and
deferred compensation agreements), together with copies of any trusts related
thereto and a classification of employees covered thereby (collectively, the
"Plans"). Schedule 4.22 sets forth all of the Plans that have been terminated
within the past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent
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actuarial valuation reports, if any, most recent Form 5500, or, as applicable,
Form 5500-C/R filed with respect to each such Qualified Plan or employee welfare
benefit plan and most recent trustee or custodian report, are included as part
of Schedule 4.22. To the extent that any Qualified Plans have not been amended
to comply with applicable law, the remedial amendment period permitting
retroactive amendment of such Qualified Plans has not expired and will not
expire within 120 days after the Closing Date. All reports and other documents
required to be filed with any governmental agency or distributed to plan
participants or beneficiaries (including, but not limited to, annual reports,
summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax returns)
have been timely filed or distributed. None of: (i) the Stockholder; (ii) any
Plan; or (iii) the Company has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and the Company does not currently have (nor
at the Closing Date will have) any direct or indirect liability whatsoever
(including being subject to any statutory lien to secure payment of any such
liability), to the Pension Benefit Guaranty Corporation ("PBGC") with respect to
any such Plan under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty; and neither the Company nor any member of a "controlled
group" (as defined in ERISA Section 4001(a)(14)) currently has (or at the
Closing Date will have) any obligation whatsoever to contribute to any "multi-
employer pension plan" (as defined in ERISA Section 4001(a)(14), nor has any
withdrawal liability whatsoever (whether or not yet assessed) arising under or
capable of assertion under Title IV of ERISA (including, but not limited to,
Sections 4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan.
Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Plan which were not
properly reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans"
under Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), the Company and the Stockholder have complied (and on the Closing Date
will have complied), in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder as and
when applicable to such plans, and the Company has no (and will incur no) direct
or indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the
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Company or the Stockholder, at any time prior to the Closing Date, to comply
with any such federal or state benefit continuation requirement, which is
capable of being assessed or asserted before or after the Closing Date directly
or indirectly against the Company or the Stockholder with respect to such group
health plans;
(f) the Company is not now nor has it been within the past five
years a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Company's knowledge, there is
no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Financial Statements as of the Balance Sheet Date reflect
the approximate total pension, medical and other benefit expense for all Plans,
and no material funding changes or irregularities are reflected thereon which
would cause such Financial Statements to be not representative of most prior
periods; and
(i) the Company has not incurred liability under Section 4062 of
ERISA.
4.23 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 4.23(a), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect on the Company.
(b) The Stockholder has not, at any time: (i) committed any criminal
act (except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 4.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by
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a court or administrative agency or by arbitration) against the Company or
against any of its properties or business.
4.24 Taxes.
(a)
(i) The Company has timely filed all Tax Returns due on or
before the Closing Date and all such Tax Returns are true, correct and
complete in all respects.
(ii) The Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes
as of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Balance
Sheet, and the amount of the Company's liability for unpaid Taxes for all
periods or portions thereof ending on or before the Closing Date will not exceed
the amount of the current liability accruals for Taxes (excluding reserves for
Deferred Taxes) as such accruals are reflected on the books and records of the
Company on the Closing Date.
(iv) There are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) The Company has, and since , 19 has had, a
----------- --
taxable year ended on December 31.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past three years. The Company has not agreed to, and is not and will not
be required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last five fiscal years have been delivered to
USFloral.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
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(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to any payment (or portion thereof) that would not
be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xii) The Company is not, and has not been at any time, a
party to a tax sharing, tax indemnity or tax allocation agreement, and the
Company has not assumed the tax liability of any other person under contract.
(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
4.25 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 4.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
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(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions or
fee arrangements payable or to become payable by the Company to any of its
officers directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Company to any person, including
without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
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(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or
non-renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $25,000;
(r) any loan by the Company to any person or entity, incurring by
the Company, of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with USFloral and its representatives
regarding the transactions contemplated by this Agreement).
4.26 Deposit Accounts; Powers of Attorney. Schedule 4.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
4.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule
4.27(a), no underground storage tanks and no amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state,
local or other applicable law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980,
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as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies
properly and safely maintained (a "Hazardous Material"), are present in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased. Schedule 4.27(a) identifies all underground and aboveground
storage tanks, and the capacity, age, and contents of such tanks, located on
Real Property owned or leased by the Company.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively,
"Company Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other business of the Company as such activities and business are
currently being conducted. All Environmental Permits are in full force and
effect. The Company (A) is in compliance in all material respects with all terms
and conditions of the Environmental Permits and (B) is in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Company's knowledge, there are no circumstances that
may prevent or interfere with such compliance in the future. Schedule 4.27(d)
includes a listing and description of all Environmental Permits currently held
by the Company.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
4.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
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4.29 Disclosure. The Company has delivered to USFloral true and complete
copies of each agreement, contract, commitment or other document (or summaries
thereof) that is referred to in the Schedules or that has been requested by
USFloral. Without limiting any exclusion, exception or other limitation
contained in any of the representations and warranties made herein, this
Agreement, the schedules hereto and all other documents and information
furnished to USFloral and its representatives pursuant hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. If any
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholder shall immediately
give notice of such fact or circumstance to USFloral. However, such notification
shall not relieve the Company or the Stockholder of their respective obligations
under this Agreement, and at the sole option of USFloral, the truth and accuracy
of any and all warranties and representations of the Stockholders, at the date
of this Agreement and as of the Closing date, shall be a precondition to the
consummation of this transaction.
4.30 USFloral Prospectus; Securities Representations. The Stockholder has
received and reviewed a copy of the prospectus dated March 18, 1998 including
all supplements thereto (as supplemented, the "USFloral Prospectus") contained
in USFloral's shelf registration statement on Form S-1 (File No. 333-39969). The
Stockholder (a) has such knowledge, sophistication and experience in business
and financial matters that they are capable of evaluating the merits and risks
of an investment in the shares of USFloral Common Stock, (b) fully understands
the nature, scope, and duration of the limitations on transfer contained herein,
and under applicable law, and (c) can bear the economic risk of any investment
in the shares of USFloral Common Stock and can afford a complete loss of such
investment. The Stockholder has had an adequate opportunity to ask questions
and receive answers (and has asked such questions and received answers to its
satisfaction) from the officers of USFloral concerning the business, operations
and financial condition of USFloral. None of the Stockholders has any contract,
undertaking, agreement or arrangement, written or oral, with any other person to
sell, transfer or grant participation in any shares of USFloral Common Stock to
be acquired by the Stockholder in the Stock Purchase. The Stockholder
acknowledges and agrees that USFloral has not and will not provide the
Stockholder or any other party with a prospectus for the Stockholder's use in
selling USFloral Common Stock.
4.31 Affiliates. The Stockholder and the Principal are the only persons
who are, in the reasonable judgment of the Company, the Stockholder, and the
Principal, affiliates of the Company within the meaning of Rule 145 (each such
person an "Affiliate") promulgated under the 1933 Act.
4.32 Location of Chief Executive Offices. Schedule 4.32 sets forth the
location of the Company's chief executive offices.
4.33 Location of Equipment and Inventory. All Inventory and Equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 4.33. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code as
in effect on October 16, 1997 in the State of New York (the "N.Y.U.C.C.") owned
by the Company as of the date hereof, and, in any event, shall include, but
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shall not be limited to, all merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production, and all proceeds therefrom; and (b)
the term "Equipment" shall mean any "equipment" as such term is defined in the
N.Y.U.C.C. owned by the Company as of October 16, 1997, and, in any event, shall
include, but shall not be limited to, all machinery, equipment, furnishings,
fixtures and vehicles owned by the Company, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
5. REPRESENTATIONS OF USFLORAL
To induce the Company and the Stockholder to enter into this Agreement and
consummate the transactions contemplated hereby, USFloral represents and
warrants to the Company and the Stockholder as follows:
5.1 Due Organization. USFloral is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and each is duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective businesses in the places and in the manner as now
conducted, except where the failure to be so authorized, qualified or licensed
would not have a Material Adverse Effect. Copies of the Certificate of
Incorporation and the Bylaws, each as amended, of USFloral (collectively, the
"USFloral Charter Documents") have been made available to the Company. USFloral
is not in violation of any USFloral Charter Document.
5.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholder at the Closing Date, when delivered in accordance
with the terms of this Agreement, will be valid and legally issued shares of
USFloral capital stock, fully paid and nonassessable.
5.3 Authorization; Validity of Obligations. The representatives of
USFloral executing this Agreement have all requisite corporate power and
authority to enter into and bind USFloral to the terms of this Agreement.
USFloral has the full legal right, power and corporate authority to enter into
this Agreement and the transactions contemplated hereby. The execution and
delivery of this Agreement by USFloral and the performance by USFloral of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of USFloral, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of USFloral enforceable in accordance with its terms.
5.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
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(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and
its lenders, conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which USFloral is a party, or result
in the creation or imposition of any lien, charge or encumbrance on any of
USFloral's properties pursuant to (i) any law or regulation to which USFloral or
any of its property is subject, or (ii) any judgment, order or decree to which
USFloral is bound or any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral is subject, or by which USFloral is bound,
(including, without limitation, the HSR Act, together with all rules and
regulations promulgated thereunder).
5.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. All of
the shares of USFloral Common Stock to be issued to the Stockholder in
accordance herewith will be offered, issued, sold and delivered by USFloral in
compliance with all applicable state and federal laws concerning the issuance of
securities and none of such shares was or will be issued in violation of the
preemptive rights of any stockholder of USFloral.
6. COVENANTS
6.1 Tax Matters. The following provisions shall govern the allocation of
responsibility as between the Stockholder, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(a) The Stockholder shall prepare or cause to be prepared and file or
cause to be filed, within the time and in the manner provided by law, all Tax
Returns of the Company for all periods ending on or before the Closing Date that
are due after the Closing Date. The Stockholder shall pay to the Surviving
Corporation on or before the due date of such Tax Returns the amount of all
Taxes shown as due on such Tax Returns to the extent that such Taxes are not
reflected in the current liability accruals for Taxes (excluding reserves for
deferred Taxes) shown on the Company's books and records as of the Closing Date.
Such Returns shall be prepared and filed in accordance with applicable law and
in a manner consistent with past practices and shall be subject to review and
approval by USFloral. To the extent reasonably requested by the Stockholder or
required by law, USFloral and the Surviving Corporation shall participate in the
filing of any Tax Returns filed pursuant to this paragraph.
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(b) The Surviving Corporation shall prepare or cause to be prepared
and file or cause to be filed any Tax Returns for Tax periods which begin before
the Closing Date and end after the Closing Date. The Stockholder shall pay to
the Surviving Corporation within fifteen (15) days after the date on which Taxes
are paid with respect to such periods an amount equal to the portion of such
Taxes which relates to the portion of such taxable period ending on the Closing
Date to the extent such Taxes are not reflected in the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the
Company's books and records as of the Closing Date. For purposes of this
Section 6.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Surviving Corporation.
(c) USFloral and the Surviving Corporation on one hand and the
Stockholder on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 6.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating Tax matters pertinent to the
Company that is in their possession or under their control until the expiration
of any applicable statute of limitations or extensions thereof.
(d) The Stockholder shall timely pay all transfer, documentary,
sales, use, stamp, registration and other Taxes and fees arising from or
relating to the transactions contemplated by this Agreement, and the Stockholder
shall, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration, and other Taxes and fees. If required by applicable law, USFloral
and the Surviving Corporation will join in the execution of any such Tax Returns
and other documentation.
6.2 Related Party Agreements. The Company and/or the Stockholder, as the
case may be, shall terminate any Related Party Agreements which USFloral
requests the Company or Stockholder to terminate.
6.3 Cooperation.
(a) The Company, the Stockholder, the Principal and USFloral shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall
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be reasonably agreed to, such instruments as the other may reasonably request
for the purpose of carrying out this Agreement. In connection therewith, if
required, the president or chief financial officer of the Company shall execute
any documentation reasonably required by USFloral's independent public
accountants (in connection with such accountants' audit of the Company) or the
Nasdaq National Market.
(b) The Stockholder and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
(d) The Company, the Stockholder and USFloral shall file all notices
and other information and documents required under the HSR Act (as defined in
Section 4.3) as promptly as practicable after the date hereof.
6.4 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, the Company will (except as requested or agreed by USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
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(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Stockholders) in accordance with past
practice.
6.5 Access to Information. Between the date of this Agreement and the
Closing Date, the Company will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Company and (ii) such additional financial and operating data
and other information as to the business and properties of the Company as
USFloral may from time to time reasonably request, including without limitation,
access upon reasonable request to the Company's employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 6.6 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Stock
Purchase.
6.6 Prohibited Activities. Between the date hereof and the Closing Date,
the Company will not, without the prior written consent of USFloral:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether
in cash, stock or property) in respect of its stock whether now or hereafter
outstanding, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice, in
an amount in excess of $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
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(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by Stock Purchase,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 6.7(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
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6.7 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral, and shall provide USFloral with proof that any required notice has
been sent.
6.8 Sales of USFloral Common Stock.
(a) No Stockholder will, directly or indirectly, offer, sell,
contract to sell, pledge or otherwise dispose of one-half of the shares of
USFloral Common Stock to be received by such Stockholder in the Stock Purchase
prior to the date that is, (i) with respect to one-third of the shares, eighteen
months from the Closing Date or the date of determination of the Earn-Out
Consideration, as the case may be, (ii) with respect to two-thirds of the
shares, twelve months from the Closing Date or the date of determination of the
Earn-Out Consideration, as the case may be and (iii) with respect to all of the
shares, six months from the Closing Date or the date of determination of the
Earn-Out Consideration, as the case may be.
(b) The Stockholder acknowledges and agrees that USFloral will not
provide the Stockholder with a prospectus for the Stockholder's use in selling
the shares of USFloral Common Stock to be received by the Stockholder in the
Stock Purchase, and agrees to sell such shares only in accordance with the
requirements, if any, of Rule 145(d) promulgated under the 1933 Act. USFloral
acknowledges that the provisions of this Section 6.8(b) will be satisfied as to
any sale by the Stockholder of the USFloral Common Stock the Stockholder may
acquire pursuant to the Stock Purchase pursuant to Rule 145(d) under the
Securities Act, by a broker's letter and a letter from the Stockholder with
respect to that sale stating that the applicable requirements of Rule 145(d)(1)
have been met or are inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3)
provided, however, that USFloral has no reasonable basis to believe that such
sales were not made in compliance with such provisions of Rule 145(d) and
subject to any changes in Rule 145 after the date of this Agreement.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Stockholder in the Stock Purchase will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN
OF REORGANIZATION, DATED AS OF APRIL 1, 1998, AMONG THE ISSUER
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AND THE STOCKHOLDERS OF MAXIMA FARMS, INC., A FLORIDA CORPORATION. PRIOR TO
THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) WHEN
THE HOLDING PERIOD HAS EXPIRED.
*** With respect to the Initial Consideration, certificates representing one-
third of the shares of USFloral Common Stock issued will read "October 3, 1998,"
one-third will read "April 3, 1999" and one-third will read "October 3, 1999."
6.9 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 4.5% of the Initial
Consideration provided for in Section 2.2 above shall be available for issuance
to the key employees of the Surviving Corporation after the Closing, as
determined by the Surviving Corporation's President (or other officer or
director designated by the Surviving Corporation and acceptable to USFloral) in
accordance with USFloral's policies, and authorized and issued under the terms
of USFloral's 1997 Long-Term Incentive Plan.
6.10 Conduct of Business of Surviving Corporation. During the period
commencing on the Closing Date and ending December 31, 1999, USFloral shall (i)
maintain the Surviving Corporation as a separate entity with a fiscal year
ending December 31 and (ii) cause the Surviving Corporation to be managed in
substantially the same manner as the Company was managed prior to the Stock
Purchase.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL
The obligation of USFloral to effect the Stock Purchase is subject to the
satisfaction or waiver, at or before the Closing Date, of the following
conditions and deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to USFloral.
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7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Stock Purchase shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit claim or proceeding of
any nature pending or threatened against USFloral or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company.
7.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Company, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by each Stockholder dated
the Closing Date to such effect.
7.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Stock Purchase under the HSR Act shall
have expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
7.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to USFloral.
7.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to USFloral.
7.7 Quarterly Financial Statements. USFloral shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to USFloral, and the Stock Purchase shall have been approved by
USFloral's lenders.
7.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. USFloral shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
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7.9 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of the Company as of the last day of its most
recent fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(c) the earnings of the Company before interest and taxes (after the
addition of "add-backs" set forth on Schedule 4.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the Company financial conditions set
forth in Section 4.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth, the Company shall not take account of any increase in
intangible assets (including without limitation goodwill, franchises and
intellectual property) accounted for after December 31, 1997.
7.10 Employment Agreements. Chris Karamat shall have entered into an
employment agreement with the Company and Jacky Bibliowicz shall have entered
into a consulting agreement with the Company, each in a form reasonably
satisfactory to USFloral.
7.11 Stockholders' Release. The Stockholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Company from any and
all claims of such Stockholder against the Company.
7.12 Supply Agreements. The Company shall have delivered to USFloral an
executed Flower Supply Agreement, in the form of Annex I attached hereto,
-------
between the Company and those farms listed on Schedule 7.12 attached hereto.
-------------
7.13 Repayment of Indebtedness. The Company shall have delivered to
USFloral evidence of repayment of all amounts due from the Stockholder, the
Principal and all entities in which the Stockholder or the Principal has an
interest.
7.14 Termination of Payments for Add-Backs. USFloral shall have received
a certificate, dated as of the Closing Date, signed on behalf of the Surviving
Corporation that no payments shall be made by the Surviving Corporation, from
and after the Closing Date, in respect of those items set forth on Schedule
4.9(b) hereof.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDER
The obligation of the Stockholder and the Company to effect the Stock
Purchase are subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral contained in this Agreement shall
be true, correct and complete on and as of the Closing Date with the same effect
as though such representations and warranties had been made as of such date; all
of the terms, covenants, agreements and conditions of this Agreement to be
complied with, performed or satisfied by USFloral on or before the Closing Date
shall have been duly complied with, performed or satisfied; and a certificate to
the foregoing effects dated the Closing Date and signed by the President or any
Vice President of USFloral shall have been delivered to the Company and the
Stockholder.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Stock Purchase shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened, against USFloral or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the USFloral and its
subsidiaries taken as a whole.
8.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral of the transactions contemplated herein, shall have been obtained
and made. Any waiting period applicable to the consummation of the Stock
Purchase under the HSR Act shall have expired or been terminated, and no action
by the Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the consummation of the transactions contemplated hereby shall be
pending.
9. INDEMNIFICATION
9.1 General Indemnification by the Stockholder. The Stockholder covenants
and agrees to indemnify, defend, protect and hold harmless USFloral and the
Surviving Corporation and their respective officers, directors, employees,
stockholders, assigns, successors and affiliates (individually, an "Indemnified
Party" and collectively, "Indemnified Parties") from, against and in respect of:
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(a) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholder or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholder or, prior to the Closing Date, the Company, under this Agreement; or
(iii) the business, operations or assets of the Company prior
to the Closing Date or the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Company Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 4.23 (conformity with
law; litigation), 4.24 (taxes), and 4.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 9.1.
9.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 9.1
unless, and solely to the extent that, the aggregate amount of Damages exceeds
$100,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Purchase
Price as set forth in Sections 1.2 and 2.1; (ii) Damages arising out of any
breaches of the covenants of the Stockholder set forth in this Agreement or
representations and warranties made in Sections 4.4 (capital stock of the
Company), 4.5 (transactions in capital stock), 4.9 (Company financial
conditions), 4.18 (material contracts and commitments), 4.23 (conformity with
law; litigation), 4.24 (taxes), 4.27 (environmental matters), (iii) Damages
described in Section 9.1(a)(iv), or (iv) Damages for liability for anti-dumping
duties in excess of reserves therefor on the balance sheet of the Company as of
the Closing Date (regardless of whether or not disclosed on any schedule to this
Agreement);
(b) the Stockholder's liability under this Article 9 shall not exceed
the Purchase Price; provided, however, that the Stockholder's liability for
Damages arising out of any breaches of the representations made in Sections 4.24
(taxes) or 4.27 (environmental matters) or Damages described in Section
9.1(a)(ii) and Section 9.1(a)(iv) shall not be subject to such limitation;
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(c) the indemnification obligations under this Article 9, or under
any certificate or writing furnished in connection herewith, shall terminate
at the date that is the later of clause (i) or (ii) of this Section 9.2(c):
(i)
(1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 9.2(c), the first
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 4.22 (employee benefit plans), 4.24 (taxes), 4.27
(environmental matters), and the indemnification set forth in Section
9.1(a)(ii), (iii) or (iv), on (A) the date that is six (6) months after the
expiration of the longest applicable federal or state statute of limitation
(including extensions thereof), or (B) if there is no applicable statute of
limitation, (x) ten (10) years after the Closing Date if the Claim is related to
the cost of investigating, containing, removing, or remediating a release of
Hazardous Material into the environment, or (y) five (5) years after the Closing
Date for any other Claim covered by clause (i)(2)(B) of this Section 9.2(c); or
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 9.2(c) (such claims
referred to as "Pending Claims").
9.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 9 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 9.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholder of such Claim, specifying the
nature of such Claim and the amount or the estimated amount thereof to the
extent then feasible (the "Claim Notice"). If the Stockholder does not notify
the Indemnified Party within thirty days after the date of delivery of the Claim
Notice that the Indemnifying Party disputes such Claim, with a detailed
statement of the basis of such position, the amount of such Claim shall be
conclusively deemed a liability of the Indemnifying Party hereunder. In case an
objection is made in writing in accordance with this Section 9.3(a), the
Indemnified Party shall respond in a written statement to the objection within
thirty days and, for sixty days thereafter, attempt in good faith to agree upon
the rights of the respective parties with respect to each of such Claims (and,
if the parties should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholder. The Stockholder shall
have thirty days from the date of delivery of the Claim Notice to notify the
Indemnified Party (A) whether the Indemnifying Party disputes liability to the
Indemnified Party
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hereunder with respect to the Third Party Claim, and, if so, the basis for such
a dispute, and (B) if such party does not dispute liability, whether or not the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend against the Third Party Claim, provided that the Indemnified
Party is hereby authorized (but not obligated) to file any motion, answer or
other pleading and to take any other action which the Indemnified Party shall
deem necessary or appropriate to protect the Indemnified Party's interests.
(ii) In the event that the Stockholder timely notifies the
Indemnified Party that the Indemnifying Party does not dispute the Indemnifying
Party's obligation to indemnify with respect to the Third Party Claim, the
Indemnifying Party shall defend the Indemnified Party against such Third Party
Claim by appropriate proceedings, provided that, unless the Indemnified Party
otherwise agrees in writing, the Indemnifying Party may not settle any Third
Party Claim (in whole or in part) if such settlement does not include a complete
and unconditional release of the Indemnified Party. If the Indemnified Party
desires to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If the Indemnifying
Party elects not to defend the Indemnified Party against a Third Party Claim,
whether by failure of such party to give the Indemnified Party timely notice as
provided herein or otherwise, then the Indemnified Party, without waiving any
rights against such party, may settle or defend against such Third Party Claim
in the Indemnified Party's sole discretion and the Indemnified Party shall be
entitled to recover from the Indemnifying Party the amount of any settlement or
judgment and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Stockholder,
any Third Party Claim seeks material prospective relief which could have an
adverse effect on any Indemnified Party or the Surviving Corporation or any
subsidiary, the Indemnified Party shall have the right to control or assume (as
the case may be) the defense of any such Third Party Claim and the amount of any
judgment or settlement and the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 9.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 9.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
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(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 9, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
9.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholder
and USFloral in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Stockholder will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 9.2. The
representations of USFloral will survive the Closing and will remain in effect
until, and will expire upon the first anniversary of the Closing Date.
9.5 Remedies Cumulative. The remedies set forth in this Article 9 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
9.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 9.3 to be owed to USFloral by the Stockholder
under Section 9.1 hereof.
10. NONCOMPETITION
10.1 Prohibited Activities. The Stockholder and the Principal agree that
for a period of three years following the Closing Date, they shall not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including, without limitation, hardgoods), or any business engaging in
the consolidation of the floral industry within the United States of America
(the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, the Company within the Territory for the purpose of
soliciting or selling floral products within the Territory;
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(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, the Company; or
(e) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Stockholder or the Principal 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, (ii) engaging in any activity to which USFloral shall have provided its
prior written consent, (iii) engaging in business on behalf of those entities
listed on Schedule 7.12 hereof, to the same extent the Stockholder or the
Principal engaged in such business prior to the Closing Date.
10.2 Damages. Because of the difficulty of measuring economic losses
to USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders agree that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
10.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 11 impose a reasonable restraint on the Stockholder
and the Principal in light of the activities and business of USFloral on the
date of the execution of this Agreement and the current and future plans of
USFloral and the Surviving Corporation (as successors to the businesses of the
Company).
10.4 Severability; Reformation. The covenants in this Article 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5 Independent Covenant. All of the covenants in this Article 10 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholder
against the Company, the Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of
three years stated above, shall be computed by excluding from such computation
any time during which the Stockholder or the Principal is in violation of any
provision of this Article 10 and any time during which there is pending in any
court of competent jurisdiction any action (including any appeal from any
judgment)
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brought by any person, whether or not a party to this Agreement, in which action
USFloral or the Surviving Corporation seeks to enforce the agreements and
covenants of the Stockholder or the Principal or in which any person contests
the validity of such agreements and covenants or their enforceability or seeks
to avoid their performance or enforcement; provided, however, that if the
Stockholder or the Principal is found not to be in violation of the agreements
or covenants in any such activity the period during which the action was pending
shall not be excluded from such computation.
10.6 Materiality. The Company, the Stockholder and the Principal hereby
agree that the covenants set forth in this Article 10 are a material and
substantial part of the transactions contemplated by this Agreement, supported
by adequate consideration.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 Stockholder and Principal. The Stockholder and the Principal
recognize and acknowledge that they have in the past, currently have, and in the
future may possibly have, access to certain confidential information of the
Company, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company and the
Company's business. The Stockholder and the Principal agree that they will not
disclose any confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except to
authorized representatives of USFloral, unless the Stockholder and the Principal
can show that such information has become known to the public generally through
no fault of the Stockholder or the Principal. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Article 11,
USFloral and the Surviving Corporation shall be entitled to an injunction
restraining the Stockholder and the Principal from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting USFloral and the Surviving Corporation from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
11.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the Company and the Company's business. USFloral agrees that it will not
disclose any confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, prior to the
Closing Date without prior written consent of the Stockholders. In the event of
a breach or threatened breach by USFloral of the provisions of this Article 11,
the Stockholder and the Principal shall be entitled to an injunction restraining
USFloral from disclosing, in whole or in part, such confidential information.
Nothing contained herein shall be construed as prohibiting the Stockholder and
the Principal from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
11.3 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would
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be caused for which they would have no other adequate remedy, USFloral, the
Surviving Corporation, the Stockholder and the Principal agree that, in the
event of a breach by any of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
12. GENERAL
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Company; or
(b) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April 15, 1998, provided that the right to terminate this Agreement under
this Section 12.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Stock
Purchase; or there shall be any action taken, or any statute, rule regulation or
order enacted, promulgated or issued or deemed applicable to the Stock Purchase
by any governmental entity which would make the consummation of the Stock
Purchase illegal.
12.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 12.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 12 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
12.1(c) above, then notwithstanding the provisions of Section 12.7 below, the
breaching party (with the Stockholders and the Company deemed to be a single
party for
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purposes of this Article 12), shall be liable to the other party to the extent
of the expenses incurred by such other party in connection with this Agreement
and the transactions contemplated hereby, as well as any damages in accordance
with applicable law.
12.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholders.
12.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 10.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
12.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
12.6 Brokers and Agents. USFloral on the one hand, and the Company and
the Stockholder (as a group), on the other hand, each represents and warrants to
the other that it has not employed any broker or agent in connection with the
transactions contemplated by this Agreement and agrees to indemnify the other
against all losses, damages or expenses relating to or arising out of claims for
fees or commission of any broker or agent employed or alleged to have been
employed by such party.
12.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Stockholder (and not the Company) has and will pay the fees, expenses and
disbursements of the Stockholder, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
12.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 10 and the confidentiality
obligations set forth in Article 11. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto
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shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties, covenants and agreements contained in this Agreement.
12.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral or the Surviving Corporation to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
(Telefax: (412) 560-3399)
If to the Stockholder to:
Herbert M. Selzer, Esq.
Loeb, Block & Partners, LLP
505 Park Avenue, Suite 900
New York, New York 10022
(Telefax: (212) 755-1777)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
12.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without giving effect to any of
45
<PAGE>
the conflicts of laws provisions thereof that would require the application of
the substantive laws of any other jurisdiction.
12.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 10.4.
12.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
12.13 Guarantee. The Principal hereby unconditionally guarantees to
USFloral and the Surviving Corporation and their successors, assigns and
affiliates, the full and timely performance of all of the obligations and
agreements of the Stockholder. The foregoing guarantee shall include the
guarantee of the payment of all damages, costs and expenses which might become
recoverable as a result of the nonperformance of any of the obligations or
agreements so guaranteed or as a result of the nonperformance of this guarantee.
Any guaranteed person may, at its option, proceed against the Principal for the
performance of any such obligation or agreement, or for damages for default in
the performance thereof, without first proceeding against any other party or
against any of its properties. The Principal further agrees that its guarantee
is an irrevocable guarantee and shall continue in effect notwithstanding any
extension or modification of any guaranteed obligation, any assumption of any
such guaranteed obligation, any assumption of any such guaranteed obligation by
any other party, or any other act or thing which might otherwise operate as a
legal or equitable discharge of a guarantor and the Principal hereby waives all
special suretyship defenses and notice requirements.
12.14 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
12.15 Accounting Terms. Except as otherwise expressly provided herein
or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
-----------------------------------------------
Robert J. Poirier
Chairman, President and CEO
MAXIMA FARMS, INC.
By: /s/ Jacky Bibliowicz
-----------------------------------------------
Jacky Bibliowicz
Chief Executive Officer
STOCKHOLDER
Maxima Farms Ltd.
By: /s/ Drake McKenney
-----------------------------------------------
Drake McKenney, Attorney in Fact
PRINCIPAL
/s/ Jacky Bibliowicz
----------------------------------------------
Jacky Bibliowicz
47
<PAGE>
SCHEDULES
SCHEDULE 2.1 [Post-Closing Audit Checklist]
SCHEDULES TO ARTICLE 4 [Schedules of exceptions to the representations and
warranties]
SCHEDULE 7.12 [List of Farms]
ANNEXES
ANNEX I [Form of Flower Supply Agreement]
The Schedules and Annexes to this Agreement will be provided to the Commission
supplementally upon request.
<PAGE>
Exhibit 2.16
SHARE PURCHASE AGREEMENT
By and Among
U.S.A. Floral Products, Inc.,
David L. Jones Wholesale, Ltd.
and
The Shareholders Named Therein
dated April 3, 1998
<PAGE>
Table of Contents
Page
----
1. THE SALE AND PURCHASE OF SHARES; THE LOAN.................................1
1.1 The Share Sale and Loan........................................1
1.2 Purchase Price.................................................1
1.3 Certain Information with Respect to Capital of the Company.....4
2. POST CLOSING ADJUSTMENT; PLEDGED ASSETS...................................4
2.1 Post-Closing Adjustment to Initial Consideration...............4
2.2 Pledged Assets.................................................5
2.3 Shareholders' Representative...................................6
3. CLOSING...................................................................7
3.1 Place and Date of Closing......................................7
3.2 Closing Deliveries.............................................7
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS........7
4.1 Due Organization...............................................7
4.2 Authorization; Validity........................................8
4.3 No Conflicts...................................................8
4.4 Capital Stock of the Company...................................9
4.5 Transactions in Capital Stock..................................9
4.6 Subsidiaries, Stock, and Notes.................................9
4.7 Predecessor Status............................................10
4.8 Absence of Claims Against the Company.........................10
4.9 Company Financial Conditions..................................10
4.10 Financial Statements..........................................10
4.11 Liabilities and Obligations...................................10
4.12 Accounts and Notes Receivable.................................11
4.13 Books and Records.............................................11
4.14 Permits.......................................................11
4.15 Real Property.................................................12
4.16 Fixed Assets..................................................15
4.17 Intellectual Property.........................................15
4.18 Material Contracts and Commitments............................17
4.19 Government Contracts..........................................18
4.20 Insurance.....................................................19
4.21 Labor and Employment Matters..................................19
4.22 Employee Benefit Plans........................................20
4.23 Conformity with Law; Litigation...............................22
4.24 Restrictive Covenants.........................................23
4.25 Taxes.........................................................23
4.26 Absence of Changes............................................25
4.27 Deposit Accounts; Powers of Attorney..........................27
<PAGE>
4.28 Environmental Matters.........................................27
4.29 Relations with Governments....................................29
4.30 Disclosure....................................................29
4.31 USFloral Prospectus; Securities Representations;
Resale Restrictions...........................................29
4.32 Affiliates....................................................30
4.33 Location of Chief Executive Offices...........................30
4.34 Location of Equipment and Inventory...........................30
4.35 Securities Law Matters........................................30
5. REPRESENTATIONS OF USFLORAL..............................................30
5.1 Due Organization..............................................30
5.2 USFloral Common Stock.........................................31
5.3 Authorization; Validity of Obligations........................31
5.4 No Conflicts..................................................31
5.5 Capitalization of USFloral and Ownership of USFloral Stock....31
6. COVENANTS................................................................32
6.1 Tax Matters...................................................32
6.2 Related Party Agreements......................................33
6.3 Cooperation...................................................33
6.4 Conduct of Business Pending Closing...........................34
6.5 Access to Information.........................................34
6.6 Prohibited Activities.........................................35
6.7 Notice to Bargaining Agents...................................36
6.8 Sales of USFloral Common Stock................................36
6.9 USFloral Stock Options........................................38
6.10 Canadian Securities Filings...................................38
6.11 Composition of Board of Directors.............................38
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL......................38
7.1 Representations and Warranties; Performance of Obligations....38
7.2 No Litigation.................................................39
7.3 No Laws.......................................................39
7.4 No Material Adverse Change....................................39
7.5 Consents and Approvals........................................39
7.6 Opinion of Counsel............................................39
7.7 Charter Documents.............................................39
7.8 Due Diligence Review..........................................40
7.9 Delivery of Closing Financial Certificate.....................40
7.10 Employment Agreements.........................................40
7.11 Shareholders' Release.........................................40
7.12 Related Party Agreements......................................40
ii
<PAGE>
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.............................................................41
8.1 Representations and Warranties; Performance of Obligations....41
8.2 No Litigation.................................................41
8.3 Consents and Approvals........................................41
8.4 Employment Agreements.........................................41
9. INDEMNIFICATION..........................................................41
9.1 General Indemnification by the Shareholders...................41
9.2 Limitation and Expiration.....................................43
9.3 Indemnification Procedures....................................44
9.4 Survival of Representations Warranties and Covenants..........46
9.5 Remedies Cumulative...........................................46
9.6 Right to Set Off..............................................46
10. NONCOMPETITION...........................................................46
10.1 Prohibited Activities.........................................46
10.2 Damages.......................................................47
10.3 Reasonable Restraint..........................................47
10.4 Severability; Reformation.....................................47
10.5 Independent Covenant..........................................47
10.6 Materiality...................................................48
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................48
11.1 Shareholders..................................................48
11.2 USFloral......................................................48
11.3 Damages.......................................................48
12. GENERAL..................................................................48
12.1 Termination...................................................49
12.2 Effect of Termination.........................................49
12.3 Successors and Assigns........................................49
12.4 Entire Agreement; Amendment; Waiver...........................50
12.5 Counterparts..................................................50
12.6 Brokers and Agents............................................50
12.7 Expenses......................................................50
12.8 Specific Performance; Remedies................................50
12.9 Notices.......................................................50
12.10 Governing Law.................................................51
12.11 Severability..................................................52
12.12 Absence of Third Party Beneficiary Rights.....................52
12.13 Further Representations.......................................52
12.14 Accounting Terms..............................................52
iii
<PAGE>
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 3rd day of April, 1998, by and among U.S.A. Floral Products, Inc., a
Delaware corporation ("USFloral"), David L. Jones Wholesale, Ltd., a British
Columbia corporation (the "Company"), and the shareholders of the Company listed
on the signature page hereof (each a "Shareholder" and collectively, the
"Shareholders").
BACKGROUND
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Company and the Shareholders desire to sell all such shares
to USFloral and USFloral desires to purchase all such shares from the
Shareholders at the purchase price and upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE SALE AND PURCHASE OF SHARES; THE LOAN
1.1 The Share Sale and Loan. Subject to the terms and conditions of this
Agreement and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, on the Closing Date (as
hereinafter defined) each Shareholder shall sell (the "Share Sale") to USFloral
all of the Company Shares (as defined in Section 1.3 hereof) and USFloral shall
purchase from each Shareholder all of the Company Shares, in exchange for the
Purchase Price (as defined in Section 1.2 hereof), subject to adjustment as
provided in Section 1.2 hereof. USFloral shall lend to the Company on the
Closing Date on a non-interest-bearing basis U.S. $1,783,394, which amount the
Company shall use to repay on the Closing Date indebtedness of the Company to
those persons listed on Schedule 4.8 hereto, such repayments to be solely in the
amounts set forth on such Schedule 4.8 with respect to such persons. The
Company, after the consummation of the Share Sale, is sometimes referred to as
the "Surviving Corporation."
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall include
the Initial Consideration and the Earn-Out Consideration. The "Initial
Consideration" shall be U.S. $6,168,674, as adjusted pursuant to this Section
1.2 and Section 2.1. Of the Initial Consideration, U.S. $2,192,640 shall be
paid in cash at Closing in immediately available funds. The balance of the
Initial Consideration of U.S. $3,976,034 shall be paid by USFloral delivering to
the Shareholders such number of shares of USFloral Common Stock as shall equal
the quotient obtained when U.S. $3,976,034 is divided by U.S. $22.21 (the
"Initial Price"), subject to Section 1.2(f) hereof. For each U.S. $1.00 by
which the U.S. Dollar 1999 EBIT Equivalent of the Company's earnings before
interest and taxes ("EBIT") for the twelve months ending February 28, 1999 (the
<PAGE>
"1999 EBIT") exceeds U.S. $1,154,000, USFloral shall pay to the Shareholders
U.S. $6.00 (the "Earn-Out Consideration"). For purposes of this Agreement, the
"U.S. Dollar Equivalent" of any amount which is expressed in Canadian dollars,
shall on any date, be determined by multiplying such amount by the inverse of
the noon buying rate in New York City on April 2, 1998 for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York, and the "U.S. Dollar 1999 EBIT Equivalent" of any amount expressed
in Canadian dollars shall be determined by multiplying such amount by the
inverse of the average U.S./Canada spot exchange rate quoted by the Bank of
Canada for the 12 months of March 1998 through to and including February 1999.
The Earn-Out Consideration shall not exceed U.S. $3,800,000 and shall be
calculated as set forth in Section 1.2(d) hereof. The Earn-Out Consideration
shall be paid in USFloral Common Stock valued at the average closing price on
The Nasdaq Stock Market, Inc.'s Nasdaq National Market (the "Nasdaq National
Market") per share of USFloral Common Stock for each trading day during the
thirty calendar day period ending February 27,1999 (the "Earn-Out Price"). The
issuances of shares of USFloral Common Stock to be issued pursuant to the terms
of this Agreement and USFloral's 1997 Long-Term Incentive Plan(subject to
adjustment as provided in this Section 1.2 and Section 2.1) shall, at the time
of the investment decision with respect to their issuance, be registered under
the Securities Act of 1933, as amended (the "1933 Act").
(b) The Purchase Price has been calculated based upon several factors,
including the assumption that the U.S. Dollar Equivalent of the net worth (that
is, the aggregate shareholders' equity) of the Company, calculated in accordance
with generally accepted accounting principles ("GAAP") consistently applied, is
equal to or greater than U.S. $1,500,000 (the "Net Worth Target") as of the
Closing. All references to generally accepted accounting principles means to
principles recommended, from time to time, in the Handbook of the Canadian
Institute of Chartered Accountants and all accounting terms not otherwise
defined in this Agreement have the meanings assigned to them in accordance with
Canadian generally accepted accounting principles.
(c) If, on the Closing Financial Certificate (as defined in Section
7.9), the Certified Closing Net Worth (as defined in Section 7.9) is less than
the Net Worth Target, then the Initial Consideration to be delivered to the
Shareholders may, at USFloral's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in Section 2.1),
by the U.S. Dollar Equivalent of the difference between the Net Worth Target and
the Certified Closing Net Worth set forth on the Closing Financial Certificate
(which reduction, subject to Section 1.2(f) hereof, shall be pro rata in cash
and in USFloral Common Stock valued at the Initial Price in the same proportions
as the cash and USFloral Common Stock components of the Purchase Price as
provided in Section 1.2(a); provided, that if the difference between the Net
--------
Worth Target and the Certified Closing Net Worth is less than or equal to U.S.
$25,000, then the reduction shall be effected entirely in shares of USFloral
Common Stock (subject to Section 1.2(f) hereof).
(d) Promptly, but in any event within one hundred twenty (120) days,
following February 28, 1999, USFloral shall cause Price Waterhouse LLP
("USFloral's Accountant"), at USFloral's expense, to audit the Company's books
to determine the 1999 EBIT. In calculating the 1999 EBIT, USFloral's Accountant
shall add to EBIT any amounts expensed by the Company in respect of those items
set forth on Schedule 1.2(d) hereof during the period beginning on March 1,
2
<PAGE>
1998 and ending on the Closing Date. Within ten (10) days of USFloral's
Accountant's determination of the 1999 EBIT, USFloral shall deliver to the
Shareholders' Representative a written notice (the "Earn-Out Determination
Notice"), setting forth (i) the determination made by USFloral's Accountant of
the 1999 EBIT, (ii) the amount of the Earn-Out Consideration, if any, and (iii)
the aggregate value, if any, of the Earn-Out Consideration and, subject to
Section 1.2(f) hereof, the corresponding number of shares of USFloral Common
Stock to be issued in payment of the Earn-Out Consideration, if any. The Earn-
Out Consideration, if any, shall be paid within thirty days of the determination
by USFloral's Accountant of the 1999 EBIT.
(e) The Shareholders' Representative shall have thirty (30) days from
the receipt of the Earn-Out Determination Notice to notify USFloral if the
Shareholders dispute such Earn-Out Determination Notice. Any notice from the
Shareholders' Representative to USFloral regarding the Earn-Out Consideration
shall include the Shareholders' determination of the 1999 EBIT. If
Shareholders' Representative has delivered notice of such a dispute to USFloral
within such 30-day period, then USFloral's Accountant shall select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years to review the Surviving Corporation's books,
Closing Financial Certificate and Financial Adjustment Notice (and related
information) to determine the amount, if any, of the Earn-Out Consideration.
Such independent accounting firm shall be confirmed by the Shareholders'
Representative and USFloral within five (5) days of its selection, unless there
is an actual conflict of interest. The independent accounting firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to USFloral's Accountant in connection with the transactions
contemplated hereby, or (ii) reviewed by USFloral's Accountant during the course
of its determination of 1999 EBIT. The independent accounting firm shall make
its determination of the Earn-Out Consideration, if any, within thirty (30) days
of its selection. The determination made by the independent accounting firm
shall be final and binding on the parties hereto. The costs of the independent
accounting firm shall be borne by the party (either USFloral or the Shareholders
as a group) whose determination of the Company's 1999 EBIT was further from the
determination of the independent accounting firm, or equally by USFloral and the
Shareholders in the event that the determination by the independent accounting
firm is equidistant between the determination made by USFloral and the
determination made by the Shareholders.
(f) The USFloral Common Stock to be issued in payment of a portion of
the Initial Consideration shall be issued immediately upon USFloral obtaining
the Orders described in Section 6.10 hereof (the "Orders"). Upon the earliest
of (i) USFloral's receipt of a final determination that such Orders shall not be
issued, (ii) USFloral's failure to obtain such Orders by October 3, 1998 and
(iii) the agreement of USFloral and the Shareholders' Representative, acting
reasonably, that such Orders shall not be issued, then (provided that such
Orders have not, in fact, theretofore been issued): (x) USFloral shall deliver,
in substitution for and in full satisfaction of its obligation to deliver the
USFloral Common Stock portion of the Initial Consideration, cash in the amount
of U.S. $3,976,034 plus interest thereon, which interest shall accrue at the
annual rate of ten percent from the Closing Date, compounded monthly; (y) upon
determination of the Earn-Out Consideration in accordance with this Section 1.2,
the Earn-Out Consideration shall be paid in cash
3
<PAGE>
within ten days; and (z) for the purposes of all other adjustments contemplated
by this Section 1.2 or Section 2.1 not theretofore made, all such adjustments
shall be effected in cash.
1.3 Certain Information with Respect to Capital of the Company. As of the
date of this Agreement, the authorized capital of the Company consists of
200,000 common shares, of which 30,052 shares are issued and outstanding, and
100,000 preferred shares, of which 45,977 shares are issued and outstanding (the
"Company Shares").
2. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
2.1 Post-Closing Adjustment to Initial Consideration.
(a) The Initial Consideration shall be subject to adjustment after the
Closing Date as specified in this Section 2.1
(b) Within one hundred twenty (120) days following the Closing Date,
USFloral shall cause USFloral's Accountant, at USFloral's expense, to audit the
Company's books to determine the accuracy of the information set forth on the
Closing Financial Certificate (the "Post-Closing Audit"). The parties
acknowledge and agree that for purposes of determining the net worth of the
Company as of the Closing Date, the value of the assets of the Company shall,
except with the prior written consent of USFloral, be calculated as provided in
the last paragraph of Section 7.9. The Shareholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with USFloral and USFloral's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to USFloral's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. In the event that USFloral's Accountant determines
that the actual Company net worth as of the Closing Date was less than the
Certified Closing Net Worth, USFloral shall deliver a written notice (the
"Financial Adjustment Notice") to the Shareholders' Representative, as defined
in Section 2.3, setting forth (i) the determination made by USFloral's
Accountant of the actual Company net worth (the "Actual Company Net Worth"),
(ii) the adjustment that would have been made to the Initial Consideration at
Closing pursuant to Section 1.2(c) had the Actual Company Net Worth been
reflected on the Closing Financial Certificate instead of the Certified Closing
Net Worth, and (iii) subject to Section 1.2(f) hereof, the amount by which the
amount of cash and number of shares issued as the Initial Consideration would
have been reduced at Closing had the Actual Company Net Worth been used in the
calculations pursuant to Section 1.2(c) (the "Purchase Price Adjustment"). The
Purchase Price Adjustment shall take account of the reduction, if any, to the
Initial Consideration already taken pursuant to Section 1.2(c)(i).
(c) The Shareholders' Representative shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify USFloral if the
Shareholders dispute such Financial Adjustment Notice. If USFloral has not
received notice of such a dispute within such 30-day period, USFloral shall be
entitled to receive from the Shareholders (which may, at USFloral's sole
discretion, be from the Pledged Assets as defined in Section 2.2) the Purchase
Price Adjustment. If, however,
4
<PAGE>
the Shareholders' Representative has delivered notice of such a dispute to
USFloral within such 30-day period, then USFloral's Accountant shall select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years to review the Surviving Corporation's books,
Closing Financial Certificate and Financial Adjustment Notice (and related
information) to determine the amount, if any, of the Purchase Price Adjustment.
Such independent accounting firm shall be confirmed by the Shareholders'
Representative and USFloral within five (5) days of its selection, unless there
is an actual conflict of interest. The independent accounting firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to USFloral's Accountant in connection with the transactions
contemplated hereby, or (ii) reviewed by USFloral's Accountant during the course
of the Post-Closing Audit. The independent accounting firm shall make its
determination of the Purchase Price Adjustment, if any, within thirty (30) days
of its selection. The determination made by the independent accounting firm
shall be final and binding on the parties hereto, and upon such determination of
a Purchase Price Adjustment, USFloral shall be entitled to receive from the
Shareholders (which may, at USFloral's sole discretion, be from the Pledged
Assets as defined in Section 2.2) the Purchase Price Adjustment. The costs of
the independent accounting firm shall be borne by the party (either USFloral or
the Shareholders as a group) whose determination of the Company's net worth at
Closing was further from the determination of the independent accounting firm,
or equally by USFloral and the Shareholders in the event that the determination
by the independent accounting firm is equidistant between the Certified Closing
Net Worth and the Actual Company Net Worth.
2.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Initial Consideration under Section 2.1, or any
indemnification obligations of the Shareholders pursuant to Article 9, the
Shareholders shall, on the earliest of the dates specified in Section 1.2(f)(i),
(ii) and (iii) hereof, transfer, pledge and assign to USFloral, for the benefit
of USFloral, a security interest in the following assets (the "Pledged Assets"):
(i) that number of shares of USFloral Common Stock with a value,
based on the Initial Price, equal to twelve and eighty-five one-hundredths
percent (12.85%) of each Shareholder's share of the Initial Consideration as the
same may have been adjusted pursuant to Section 1.2 or Section 2.1 hereof, and
the certificates and instruments, if any, representing or evidencing each such
Shareholder's Pledged Assets (provided, that if no shares of USFloral Common
--------
Stock have been issued at such time as a result of any of the conditions
contemplated by Section 1.2(f)(i), (ii) and (iii) hereof, then the Pledged
Assets referred to in this clause (i) shall be comprised solely of cash which
shall be delivered by each such Shareholder on such date);
(ii) all securities hereafter delivered to such Shareholder with
respect to or in substitution for such Shareholder's Pledged Assets, all
certificates and instruments representing or evidencing such securities, and all
cash and non-cash dividends and other property at any time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and in the event such Shareholder receives any such property, such Shareholder
shall hold such property
5
<PAGE>
in trust for USFloral and shall immediately deliver such property to United
States legal counsel acceptable to the Shareholders, Oregon, as escrow agent to
be held hereunder as Pledged Assets (provided, that if the Pledged Assets
--------
consist of cash as contemplated by the proviso to clause (a)(i) above, then the
escrow agent shall instead be a Canadian chartered bank with a branch office
located in Vancouver, British Columbia that is reasonably satisfactory to
USFloral); and
(iii) all cash and non-cash proceeds of all of the foregoing
property and all rights (including without limitation, voting rights), titles,
interests, privileges and preferences appertaining or incident to the foregoing
property.
(b) Each certificate, if any, evidencing a Shareholder's Pledged
Assets issued in his or her name pursuant to this Agreement shall be delivered
to an escrow agent directly by the transfer agent, such certificate bearing no
restrictive or cautionary legend other than those imprinted by the transfer
agent at USFloral's request. Each Shareholder shall, at the Closing, deliver to
USFloral, for each such certificate, a stock power duly signed in blank by him
or her.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Initial Consideration pursuant to Section 2.1 and any
indemnification obligations of the Shareholders pursuant to Article 9 until the
date which is one year after the Closing Date (the "Release Date"). Promptly
following the Release Date, USFloral shall return or cause to be returned to the
Shareholders the Pledged Assets, less Pledged Assets having an aggregate value
equal to the amount of (i) any post-Closing adjustment to the Purchase Price
under Section 2.1, (ii) any pending claim for indemnification made by any
Indemnified Party (as defined in Article 9), and (iii) any indemnification
obligations of the Shareholders pursuant to Article 9. For purposes of the
preceding sentence and Article 9, the USFloral Common Stock held as Pledged
Assets shall be valued at (x) the Initial Price with respect to any post-Closing
adjustment to the Purchase Price under Section 2.1 and (y) the average of the
closing price on the Nasdaq National Market per share of USFloral Common Stock
for the five trading days prior to the satisfaction of an indemnification
obligation (the "Market Value") with respect to indemnification obligations
pursuant to Article 9.
2.3 Shareholders' Representative.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates David Austin or, in the event that David Austin is unable or
unwilling to serve, Stanley Dart, to be the Shareholders' Representative for
purposes of this Agreement. The Shareholders shall be bound by any and all
actions taken by the Shareholders' Representative on their behalf.
(b) USFloral shall be entitled to rely upon any communication or
writings given or executed by the Shareholders' Representative. All
communications or writings to be sent to Shareholders pursuant to this Agreement
may be addressed to the Shareholders' Representative and any communication or
writing so sent shall be deemed notice to all of the Shareholders hereunder. The
Shareholders hereby consent and agree that the Shareholders' Representative is
authorized to accept deliveries, including any notice, on behalf of the
Shareholders pursuant hereto.
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(c) The Shareholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Shareholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Shareholders'
Representative, and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 9 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to and coupled
with the interest of the other Shareholders hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of any Shareholder, by operation of law,
whether by such Shareholder's death or any other event.
3. CLOSING
3.1 Place and Date of Closing. The consummation of the sale and purchase
of shares and the other transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Morgan, Lewis & Bockius LLP, on
April 6, 1998, providing that all conditions to Closing shall have been
satisfied or waived, or at such other time and date as USFloral, the Company and
the Shareholders may mutually agree, which date shall be referred to as the
"Closing Date."
3.2 Closing Deliveries.
(a) At the Closing the Shareholders, as the holders of all outstanding
certificates representing shares of Company Stock, shall surrender such
certificates to USFloral and USFloral shall deliver to the Shareholders the
Initial Consideration set forth in Section 1.1 above.
(b) The Shareholders shall deliver to USFloral at Closing the
certificates representing the Company Stock, duly endorsed in blank by the
Shareholders, or accompanied by blank irrevocable stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Shareholders'
expense, affixed and canceled and shall take such steps as shall be necessary to
cause the Company to enter the Purchaser or its nominee(s) upon the books of the
Company as the holder of the Company Shares and to issue one or more share
certificates to the Purchaser or its nominee(s) representing the Company Shares.
The Shareholders agree promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
such Company Stock or with respect to the stock powers accompanying any Company
Stock.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce USFloral to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and each Shareholder,
jointly and severally, represents and warrants to USFloral as follows (for
purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
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Shareholders and the directors and officers of the Company, including facts of
which the directors and officers, in the reasonably prudent exercise of their
duties, should be aware):
4.1 Due Organization. The Company is a corporation duly organized and
validly existing under the laws of the jurisdiction of its incorporation and has
all necessary corporate power, authority and capacity to own its property and
assets and to carry on its business as presently conducted. The Company is duly
authorized, qualified, registered and licensed under all applicable laws,
regulations, ordinances and orders of public authorities to own, operate and
lease its properties and to carry on its business in the places and in the
manner as now conducted except where the failure to be so authorized, qualified,
registered or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Company ("Material Adverse Effect"). Schedule 4.l hereto contains a list of all
jurisdictions in which the Company is authorized, qualified, registered or
licensed to do business. The Company has delivered to USFloral true, complete
and correct copies of the Memorandum of Association and Articles of Association
of the Company. Such Memorandum of Association and Articles of Association are
collectively referred to as the "Charter Documents." The Company is not in
violation of any Charter Documents. The corporate records (including without
limitation, the share certificate book, register of shareholders, register of
transfers and register of directors) minute books of the Company have been made
available to USFloral (and have been delivered, along with the Company's
corporate seal, to USFloral) and are correct and, except as set forth in
Schedule 4.1, complete in all material respects.
4.2 Authorization; Validity. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
this Agreement. Each Shareholder has the full legal right and authority to
enter into this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the performance by
the Company of the transactions contemplated herein have been duly and validly
authorized by the Board of Directors of the Company and the Shareholders and
this Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of the Company
and each Shareholder, enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Company or any
Shareholder is a party or by which the Company or any Shareholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Company's properties pursuant to (i) any law or regulation to which the
Company or any
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Shareholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Shareholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Shareholder is subject or by which the
Company or any Shareholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
4.4 Capital Stock of the Company. The authorized share capital of the
Company consists of 200,000 common shares, of which 30,052 shares are issued and
outstanding, and 100,000 shares of preferred stock of which 45,977 are issued
and outstanding. All of the issued and outstanding shares of the share capital
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the Shareholders in
the amounts set forth in Schedule 4.4. Each Shareholder severally represents
and warrants that such Shareholder owns the number of shares of Company Stock
set forth next to such Shareholder's name on Schedule 4.4 free and clear of all
Liens (defined below). All of the issued and outstanding shares of the capital
stock of the Company were offered, issued, sold and delivered by the Company in
compliance with all applicable, provincial, state and federal laws concerning
the issuance of securities. Further, none of such shares was issued in
violation of any preemptive rights. There are no voting agreements or voting
trusts with respect to any of the outstanding shares of the capital stock of the
Company. For purposes of this Agreement, "Lien" means any mortgage, security
interest, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), preferential
arrangement, or adverse claim of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Personal Property Security Act (British Columbia) or
comparable law of any jurisdiction).
4.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion or exchange right or other contract or commitment of any kind
exists of any character, written or oral, which may obligate the Company to
issue, sell or otherwise cause to become outstanding any shares or other
securities of the Company. The Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. As a result of the consummation of the transactions
contemplated by this Agreement, USFloral will be the record and beneficial owner
of all outstanding share capital of the Company and rights to acquire share
capital of the Company.
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4.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 4.6(a), the Company has no
subsidiaries.
(b) Except as set forth on Schedule 4.6(b), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor is the Company,
directly or indirectly, a participant in any joint venture, partnership, trust,
co-tenancy or other noncorporate entity or business undertaking.
(c) Except as set forth on Schedule 4.6(c), there are no promissory
notes that have been issued to, or are held by, the Company.
4.7 Predecessor Status. Except as set forth on Schedule 4.7, the Company
has not previously used any other names and has not acquired significant assets
from any entity. The Company has never been a subsidiary or division of another
corporation, nor has it been a part of an acquisition that was later rescinded.
4.8 Absence of Claims Against the Company. No Shareholder has any claims
against the Company, except those notes set forth on Schedule 4.8 hereto, which
notes shall have been paid as of the Closing Date.
4.9 Company Financial Conditions.
(a) The Company's net worth as of the end of its most recent fiscal
year was not less than U.S. $1,385,000.
(b) The Company's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 4.9(b)) for its most recent fiscal
year was not less than U.S. $1,154,000.
4.10 Financial Statements. Schedule 4.10 includes true, complete and
correct copies of the Company's balance sheet as of February 28, 1998 (the
"Balance Sheet Date"), and income statement for the year then ended
(collectively, the "Company Financial Statements"). The Company Financial
Statements have been prepared in accordance with GAAP consistently applied. Each
balance sheet included in the Company Financial Statements presents fairly the
assets, liabilities and financial condition of the Company as of the date
indicated thereon, and each of the income statements included in the Company
Financial Statements presents fairly the sales and earnings results of its
operations for the periods indicated thereon. Since the dates of the Company
Financial Statements, there have been no material changes in the Company's
accounting policies other than as requested by USFloral to conform the Company's
accounting policies to GAAP.
4.11 Liabilities and Obligations.
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(a) The Company is not liable for or subject to any liabilities except
for:
(i) those liabilities reflected on the Balance Sheet and not
previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) The Company has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 4.11(c) also includes a summary description of all plans
or projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any real property or existing business, to
which management of the Company has made any material expenditure in the two-
year period prior to the date of this Agreement, which if pursued by the Company
or the Surviving Corporation would require additional material expenditures of
capital.
(d) For purposes of this Section 4.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured, given or agreed to
be given. Schedule 4.11(d) contains a complete list of all indebtedness of the
Company.
4.12 Accounts and Notes Receivable. The Company has delivered to USFloral
a complete and accurate list, as of March 31, 1998, of the accounts and notes
receivable of the Company (including without limitation receivables from and
advances to employees and the Shareholders), which includes an aging of all
accounts and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). On the Closing Date, the Company
will deliver to USFloral a complete and accurate list, as of a date not more
than three (3) business days prior to the Closing Date, of the Accounts
Receivable. All Accounts Receivable represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. The Accounts Receivable are current and collectible net of any
respective reserves shown on the Company's books and records (which reserves are
adequate and calculated consistent with past practice). Subject to such
reserves, each of the Accounts Receivable will be collected in full, without any
set-off, within one hundred twenty (120) days after the Closing Date. There is
no contest, defense, claim, or right of set-off, other than rebates and returns
in the
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ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
4.13 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
4.14 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any Permit.
4.15 Real Property.
(a) For purposes of this Agreement, "Owned Real Property" means all
real property which the Company owns or has agreed to acquire beneficially,
either in fee simple or possession, or in respect of which the Company has
rights or options, and all rights, benefits, entitlements, and improvements
appurtenant thereto, and "Leased Real Property" means all real property leased,
subleased, licensed or otherwise used or occupied by the Company. Collectively,
the Owned Real Property and Leased Real Property shall constitute the Real
Property.
(b) Schedule 4.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
beneficial owner, registered title holder and Company's use thereof) and, to the
Company's knowledge, any Liens registered against the Real Property. Schedule
4.15(b) indicates whether the Real Property is owned, leased, subleased,
licensed or otherwise used or occupied by the Company. The Real Property listed
on Schedule 4.15 includes all interests in real property necessary to conduct
the business and operations of the Company.
(c) Except as set forth in Schedule 4.15(c):
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(i) The Company has good and marketable title to the Owned Real
Property in fee simple, free and clear of any Liens other than (A) liens for
current taxes not yet due and payable, (B) easements, covenants, conditions,
restrictions, and title defects that have been approved by USFloral, as set
forth on Schedule 4.15(c)(i), (C) liens securing indebtedness for borrowed money
that USFloral or one of its affiliates has elected to assume, as set forth on
Schedule 4.15(c)(i), and (D) the matters referred to in subsection 23(1) of the
Land Titles Act (British Columbia) (collectively, "Permitted Encumbrances").
(ii) The legal descriptions for the Owned Real Property contained
in the respective deeds thereof to be delivered to USFloral upon Closing
describe the properties fully and adequately. All structures, facilities and
improvements to the Owned Real Property ("Structures") are located within the
boundary lines of the Owned Real Property and no structures, facilities or other
improvements on any parcel adjacent to the Owned Real Property encroach onto any
portion of the Real Property. None of the Owned Real Property serves any
adjacent parcel for any purpose inconsistent with the use of the Owned Real
Property.
(iii) The Company has good and valid rights of ingress and egress
to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes and necessary for the conduct of the
Company's business.
(iv) All buildings, structures and all structural, mechanical and
other physical systems thereof that: (a) constitute part of the Owned Real
Property and, (b) to the extent the Company is responsible for the maintenance
and repair thereof as tenants or occupants, constitute part of the Leased Real
Property, including but not limited to the walls, roofs and structural elements
thereof and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facility included therein, and other material items (collectively,
the "Tangible Assets"), at the Owned Real Property and, to the Company's
knowledge, at the Leased Real Property, are free of defects and in good
operating condition and repair. For purposes of this Section, a defect shall
mean a condition relating to the structures or any structural, mechanical or
physical system which requires an expenditure of more than U.S. $10,000 to
correct. No maintenance or repair to the Owned Real Property, or to the
Company's knowledge the Leased Real Property, Structures or any Tangible Asset
has been unreasonably deferred. There is no water, chemical or gaseous seepage,
diffusion or other intrusion into said buildings, including any subterranean
portions, that would impair beneficial use of the Real Property, Structures or
any Tangible Asset.
(v) In respect of the Owned Real Property and, to the Company's
knowledge, in respect of the Leased Real Property: (a) all water, sewer, gas,
electric, telephone and drainage facilities, and all other utilities required by
any applicable law or by the use and operation of the Real Property in the
conduct of the business of the Company's business are installed to the property
lines of the Real Property, (b) are connected pursuant to valid permits to
municipal or public utility services or proper drainage facilities, are fully
operable and are adequate to service the Real Property in the operation of the
Company's business and to permit full compliance with the requirements of all
laws in the operation of such business, and (c) no fact or condition exists
which
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could result in the termination or material reduction of the current access from
the Real Property to existing roads or to sewer or other utility services
presently serving the Real Property.
(vi) The Owned Real Property and the Company's present uses and
operations thereof and, to the Company's knowledge the Leased Real Property and
the Company's present uses and operations thereof, comply with all applicable
statutes, rules, regulations, ordinances, orders, writs, injunctions, judgments,
decrees, awards or restrictions of any government entity having jurisdiction
over any portion of the Real Property (including, without limitation, applicable
statutes, rules, regulations, orders and restrictions relating to zoning, land
use, safety, health, employment and employment practices and access by the
handicapped) (collectively, "Laws"), covenants, conditions, restrictions,
easements, disposition agreements and similar matters affecting the Real
Property. The Company has obtained all approvals of governmental authorities
(including certificates of use and occupancy, licenses and permits) required in
connection with the construction, ownership, use, occupation and operation of
the Real Property.
(vii) None of the Structures, the appurtenances thereto or the
equipment therein or the operation or maintenance thereof, or the conduct of the
Company's business, violates any restrictive covenant or encroaches on any
property owned by others or any easement, right of way or other Lien or
restriction affecting such Real Property in any respect. The Real Property and
its continued use, occupancy and operation as used, occupied and operated in the
conduct of the Company's business does not constitute a nonconforming use and is
not the subject of a special use permit under any applicable Law.
(viii) There are no pending or, to the Company's knowledge after
having made due inquiry, threatened condemnation, fire, health, safety,
building, zoning or other land use regulatory proceedings, lawsuits or
administrative actions relating to any portion of the Real Property or any other
matters which do or may adversely effect the current use, occupancy or value
thereof, nor has the Company or any of the Shareholders received notice of any
pending or threatened special assessment proceedings affecting any portion of
the Real Property.
(ix) No portion of the Owned Real Property or to the Company's
knowledge the Leased Real Property, the Structures or the Tangible Assets has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
(x) There are no parties other than the Company in possession of
any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the
Owned Real Property or any portion thereof.
(xi) There are no outstanding options or rights of first refusal
to purchase the Owned Real Property, or any portion thereof or interest therein.
The Company has not transferred any air rights or development rights relating to
the Owned Real Property.
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(xii) There are no service contracts or other agreements relating
to the use or operation of the Owned Real Property.
(xiii) No portion of the Real Property is located in a wetlands
area, as defined by Laws, or in a designated or recognized flood plain, flood
plain district, flood hazard area or area of similar characterization.
(xiv) All real property taxes and assessments that are due and
payable with respect to the Owned Real Property or with respect to the Company's
use and occupation of the Leased Real Property have been paid or will be paid at
or prior to Closing.
(xv) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Company
occupies any Real Property, including all amendments, renewals, extensions,
modifications or supplements to any of the foregoing or substitutions for any of
the foregoing (collectively, the "Leases") are valid and in full force and
effect. The Company has provided USFloral with true and complete copies of all
of the Leases, all amendments, renewals, extensions, modifications or
supplements thereto, and all material correspondence related thereto, including
all correspondence pursuant to which any party to any of the Leases declared a
default thereunder or provided notice of the exercise of any operation granted
to such party under such Lease. The Leases and the Company's interests
thereunder are free of all Liens.
(xvi) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
4.16 Fixed Assets.
(a) Schedule 4.16 sets forth an accurate list of the Company's fixed
assets, machinery, equipment, fixtures, furniture, furnishings, vehicles,
material handling equipment, implements, parts and tools owned or used or held
by the Company, including, without limitation, any which are in storage or in
transit, and other tangible property and facilities used by the Company (the
"Fixed Assets").
(b) The Company currently owns or leases all Fixed Assets necessary to
conduct the business and operations of the Company as they are currently being
conducted.
(c) All of the trucks and other material machinery and equipment of
the Company, are in good working order and condition, ordinary wear and tear
excepted. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on Schedule 4.16(c). All leases set forth on Schedule 4.16(c)
are in full force and effect and constitute valid and binding agreements of the
Company, and the Company is not in breach of any of their terms.
4.17 Intellectual Property.
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(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use all rights in, the Marks
listed on Schedule 4.17(a). Such schedule lists (i) all of the Marks registered
in the United States Patent and Trademark Office ("PTO") or the equivalent
thereof in any state of the United States or in any foreign country, and (ii)
all of the unregistered Marks, that the Company now owns or uses in connection
with its business. Except with respect to those Marks shown as licensed on
Schedule 4.17(a), the Company owns all of the registered and unregistered
trademarks, service marks, and trade names that it uses. The Marks listed on
Schedule 4.17(a) will not cease to be valid rights of the Company by reason of
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby. For purposes of this Section 4.17, the
term "Mark" shall mean all right, title and interest in and to any United States
or foreign trademarks, service marks and trade names whether registered or not,
owned by or licensed to, the Company, including any registration or application
for registration of any trademarks and services marks in the PTO or the
equivalent thereof in any state of the United States or in any foreign country,
as well as any unregistered marks used by the Company, and any trade dress
(including logos, designs, company names, business names, fictitious names and
other business identifiers) used by the Company in the United States or any
foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 4.17(b)(i) and in the Copyrights listed on Schedule
4.17(b)(ii). Such Patents and Copyrights constitute all of the Patents and
Copyrights that the Company now owns or is licensed to use. The Company owns or
is licensed to practice under all patents and copyrights that the Company now
owns or uses in connection with its business. For purposes of this Section
4.17, the term "Patent" shall mean any United States or foreign patent (or
similar rights, including industrial designs) to which the Company has title or
is licensed to use as of the date of this Agreement, as well as any application
for a United States or foreign patent made by the Company; the term "Copyright"
shall mean any United States or foreign copyright owned by or licensed to the
Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the
confidential information, trade secrets, franchises, or other intellectual
property rights (collectively, "Other Rights") listed on Schedule 4.17(c).
Those Other Rights constitute all of the Other Rights that the Company now owns
or is licensed to use. The Company owns or is licensed to practice under all
confidential information trade secrets, franchises or other intellectual
property rights that it owns, uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedule 4.17(a), 4.17(b)(i), 4.17(b)(ii), and 4.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third
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Party Intellectual Property." Except as indicated on Schedule 4.17(d), the
Company has no obligations to compensate any person for the use of any
Intellectual Property nor has the Company granted to any person any license,
option or other rights to use in any manner any Intellectual Property, whether
requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 4.17(a), (b), or (c). No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret or
other intellectual property right; (ii) against the use by the Company of any
trademarks, trade names, trade secrets, copyrights, patents, technology, know-
how or computer software programs and applications used in the Company's
business as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property or other
trade secret material to the Company; or (iv) challenging the Company's license
or legally enforceable right to use of the Third Party Intellectual Property.
To the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights or other intellectual property right and which has not been
finally terminated or been informed or notified by any third party that the
Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its subsidiaries of any trade secret, patent, trademark, service mark, or
copyright or other intellectual property right of another.
4.18 Material Contracts and Commitments.
(a) Schedule 4.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Company and any affiliate of the Company or any
officer, director or Shareholder of the Company are parties ("Related Party
Agreements"); or (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, U.S. $25,000, or that may generate
revenues or income exceeding, during the current term thereof, U.S. $25,000,
other than purchases and sales of inventory in the ordinary course of business
(collectively with the Related Party Agreements, the "Material Contracts"). The
Company has delivered to USFloral true, complete and correct copies of the
Material Contracts. The Company has complied with all of its commitments and
obligations and is not in default under any
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of the Material Contracts, and no notice of default has been received with
respect to any thereof, and there are no Material Contracts that were not
negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 6.3, is valid and binding on the Company and is in full force and effect
and is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company [has obtained/will obtain prior to the
Closing Date] all necessary consents, waivers and approvals of parties to any
Material Contracts that are required in connection with any of the transactions
contemplated hereby, or are required by any governmental agency or other third
party or are advisable in order that any such Material Contract remain in effect
without modification after the Closing and without giving rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
4.18(b).
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any entity in which any of the Shareholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
entity in which any of the Shareholders owns a material interest, are set forth
in Schedule 4.18(c).
(d) The sale of Company Shares will not, except as set forth on
Schedule 4.18(d), (i) result in the breach or violation of, (ii) constitute a
default under, (iii) create a right of termination under, or (iv) result in the
creation or imposition of (or the obligation to create or impose) any lien upon
any of the assets of the Company (other than a lien created pursuant to the
pledge, hypothecation or mortgage described at the start of this Section
4.18(d)) pursuant to any of the terms and provisions of, any Material Contract
to which the Company is a party or by which the property of the Company is
bound.
4.19 Government Contracts.
(a) Except as set forth on Schedule 4.19, the Company is not a party
to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the Canadian or
United States Government, or any provincial, state or local government, nor, to
the knowledge of the Company, has any suspension or debarment action been
threatened or commenced. There is no valid basis for the Company's suspension or
debarment from bidding on contracts or subcontracts for any agency of the
Canadian or United States government or any provincial, state or local
government.
(c) Except as set forth in Schedule 4.19, the Company has not been,
nor is it now being, audited, or investigated by any Governmental Authority or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened. "Governmental Authority" means any government,
regulatory authority, governmental department, agency, commission, board,
tribunal,
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crown corporation, or court or other law, rule or regulation-making entity
having or purporting to have jurisdiction on behalf of any nation, or province
or state or other subdivision thereof or any municipality, district or other
subdivision thereof.
(d) The Company has no dispute pending before a contracting office of,
nor any current claim (other than the Accounts Receivable) pending against, any
Governmental Authority, relating to a contract.
(e) The Company has not, with respect to any government contract,
received a cure notice advising the Company that it is or was in default or
would, if it failed to take remedial action, be in default under such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any Governmental Authority.
(g) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
4.20 Insurance. Schedule 4.20 sets forth a complete and accurate list of
all insurance policies carried by the Company and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Company has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts and are against such risks as are
customarily carried by persons conducting businesses similar to that of the
Company. The insurance carried by the Company with respect to its properties,
assets and business is, to the Company's knowledge, with financially sound and
responsible insurers. To the knowledge of the Company, there have been no
threatened terminations of, or material premium increases with respect to, any
of such policies.
4.21 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material respects
with all applicable labor and employment laws, including without limitation any
such laws respecting employment discrimination, workers' compensation, pay
equity, income tax, human rights, family and medical leave, the Immigration and
occupational safety and health requirements, and has not and is not engaged in
any unfair labor practice;
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(b) there are no wrongful dismissal, constructive dismissal or other
employment claims, human rights or pay equity complaints, or employment
standards claims, actual or threatened, relating to employees of the Company or
independent contractors, or orders or judgments issued against the Company in
respect of any such claims or complaints.
(c) there are no written or oral employment agreements between the
Company and any employees or officers which cannot be terminated on reasonable
notice or pay in lieu thereof, or which include terms regarding change of
control of the Company.
(d) there are no contracts between the Company and independent
contractors which cannot be terminated on 30 days or less notice.
(e) there have been no surcharges, penalties, fines, orders or charges
issued against the Company under workers' compensation or occupational health
and safety legislation within the past three years.
(f) there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before a provincial labor relations board or
any other comparable authority;
(g) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage or lock-out actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(h) to the Company's knowledge, no labor organizing campaign exists
nor has there been any such organizing activity within the past three years;
(i) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims therefor exist, to the
Company's knowledge, or have been threatened; and
(j) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company.
4.22 Employee Benefit Plans.
(a) Attached hereto as Schedule 4.22 are complete and accurate copies
of all Pension/Benefit Plans.
(b) Current and complete copies of all written Pension/Benefit Plans
or, where oral, written summaries of the material terms thereof, have been
provided or made available to USFloral together with current and complete copies
of all documents relating to the Pension/Benefit
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Plans, including, without limitation, as applicable, (i) all documents
establishing, creating or amending any Pension/Benefit Plan; (ii) all trust
agreements, funding agreements, insurance contracts and investment management
agreements; (iii) documents describing the classification of employees covered
by each Pension/Benefit Plan (iv) all financial statements and accounting
statements and reports, and investment reports for each of the last 3 years and
the 3 most recent actuarial reports; (v) all reports, returns, filings and
material correspondence with any regulatory authority in the last 6 years; and
(vi) all booklets, summaries or manuals prepared for or circulated to, and
written communications of a general nature to employees concerning any
Pension/Benefit Plan.
(c) Except as disclosed in Schedule 4.22 each Pension/Benefit Plan is,
and has been, established, registered, qualified, administered and invested, in
compliance with (i) the terms thereof; (ii) all applicable laws, by-laws, rules,
regulations, orders, ordinances, protocols, codes, guidelines, policies,
notices, directions and judgements or other requirements of any Governmental
Authority; and (iii) any applicable collective agreements; and the Company has
not received, in the last 3 years, any notice from any Person questioning or
challenging such compliance (other than in respect of any claim related solely
to that Person), and the Shareholders have no knowledge of any such notice from
any Person questioning or challenging such compliance beyond the last 3 years.
(d) All obligations under the Pension/Benefit Plans (whether pursuant
to the terms thereof or applicable Law) have been satisfied, and there are no
outstanding defaults or violations thereunder by the Company nor does the
Company have any knowledge of any default or violation by any other party to any
Pension/Benefit Plan.
(e) There have been no improvements in benefits promised under the
Pension/Benefit Plans that are not reflected in the terms of the Pension/Benefit
Plans.
(f) All contributions or premiums required to be paid to or in respect
of each Pension/Benefit Plan have been paid in a timely fashion in accordance
with the terms thereof and all applicable Law, and no taxes, penalties or fees
are owing or exigible under any Pension/Benefit Plan.
(g) There is no pending proceeding, action, suit, claim (other than
routine claims for benefits), arbitration or disputed claim, settlement or
adjudication proceeding or any proceeding whether pending or threatened by a
Governmental Authority, with respect to any Pension/Benefit Plan or its assets,
the administrator or the sponsor of any of the Pension/Benefit Plans (in their
capacities as such) (collectively a "Proceeding" and to the Company's knowledge
there is no threatened Proceeding and no facts exist which could reasonably be
expected to give rise to any Proceeding.
(h) No event has occurred respecting any Pension/Benefit Plan which
would entitle any Person (without the consent of the Company) to wind-up or
terminate any Pension/Benefit Plan, in whole or in part, or which could,
reasonably be expected to adversely affect the tax status thereof.
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(i) There are no going concern unfunded actuarial liabilities, past
service unfunded liabilities or solvency deficiencies respecting any of the
Pension/Benefit Plans.
(j) The Financial Statements as of the Balance Sheet Date reflect the
approximate total pension, medical and other benefit expense for all
Pension/Benefit Plans, and no material funding changes or irregularities are
reflected thereon which would cause such Financial Statements to be not
representative of most prior period and no changes have occurred in respect of
any Pension/Benefit Plan since the date of the most recent financial, accounting
or actuarial report, as applicable, issued in connection with any
Pension/Benefit Plan, which could reasonably be expected to adversely affect the
relevant report (including rendering it misleading in any material respect).
(k) The Company has not received, or applied for, any payment of
surplus out of any Pension/Benefit Plan, and there have been no improper
withdrawals or transfers of assets from any Pension/Benefit Plan.
(l) Where the Company has taken any contribution holidays under any
Pension/Benefit Plan the Company was entitled to do so under the terms of the
Pension/Benefit Plans and under applicable Law.
(m) All employee data necessary to administer each Pension/Benefit
Plan is in the possession of the Company and is complete, correct and in a form
which is sufficient for the proper administration of the Pension/Benefit Plans,
and none of the Pension/Benefit Plans, other than the pension plans or any group
registered retirement savings plan or supplemental pension or retirement plan,
provide benefits to retired employees or to the beneficiaries or dependents of
retired employees.
(n) None of the Pension/Benefit Plans require or permit a retroactive
increase in premiums or payments, and the level of insurance reserves, if any,
under any insured Pension/Benefit Plan is reasonable and sufficient to provide
for all incurred but unreported claims.
For the purposes of this Section 4.22:
"Pension/Benefit Plans" means all plans, arrangements, agreements,
programs, policies or practices, whether oral or written, formal or informal,
funded or unfunded, currently maintained and/or sponsored by the Company and/or
to which the Company is a party or to which the Company currently contributes or
has an obligation to contribute in the future, relating to:
(a) retirement savings or pensions, including, without limitation, any
defined benefit pension plan, defined contribution pension plan, group
registered retirement savings plan, or supplemental pension or retirement plan;
or
(b) any employment agreements and any other agreements containing
"golden parachute" provisions and deferred compensation agreements, bonus,
profit sharing, incentive compensation, hospitalization, health, dental,
disability, unemployment insurance, vacation pay,
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severance pay or other benefit plan with respect to any of its employees or
former employees, individuals working on contract with it or other individuals
providing services to it of a kind normally provided by employees, and all
statutory plans which the Company is required to comply with, including, without
limitation, the Canada or Quebec Pension Plans and plans administered pursuant
to applicable provincial health tax, workers' compensation and unemployment
insurance legislation;
"Person" means any individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, Governmental Authority, and a natural
person in such person's capacity as trustee, executor, administrator or other
legal representative.
4.23 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 4.23(a), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on the Company. The Company has conducted and is conducting its
business in substantial compliance with, and has not received any notice of any
alleged breach of, the requirements, standards, criteria and conditions set
forth in applicable federal, provincial, state and local statutes, ordinances,
permits, licenses, orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing which might have a Material Adverse
Effect on the Company.
(b) No Shareholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy, insolvency, winding-up,
liquidation, reorganization or creditors' arrangement.
(c) Except as set forth on Schedule 4.23(c), there are no claims,
actions, suits, investigations, complaints, grievances or proceedings, pending
or, to the knowledge of the Company, threatened against or affecting the Company
at law or in equity, or before or by any federal, provincial, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it and no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received. There are
no judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against the
Company or against any of its properties or business.
4.24 Restrictive Covenants. The Company is not a party to or bound or
affected by any commitment, agreement or document containing any covenant
limiting the freedom of the Company to compete in any line of business, transfer
or move any of its assets or operations or which does or would reasonably
expected to materially or adversely affect the business practices, operations or
conditions of the Company or the Surviving Company.
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4.25 Taxes.
(a)
(i) The Company has duly and timely filed its Tax Returns with
the appropriate Governmental Authority and has duly, completely and correctly
reported all income and all other amounts and information required to be
reported thereon.
(ii) The Company has duly and timely paid all Taxes, including
all instalments on account of Taxes for the current year, that are due and
payable by it and the Company has established reserves that are reflected on the
Balance Sheet and that will be reflected on the books and records of the Company
on the Closing Date, that are adequate for the payment by the Company of all
Taxes that are not yet due and payable (and that will not be due and payable by
the Closing Date) and that relate to periods ending on or prior to the Closing
Date.
(iii) The Company has not requested, or entered into any
agreement or other arrangement or executed any waiver providing for, any
extension of time within which (A) to file any Tax Return covering any Taxes for
which the Company is or may be liable; (B) to file any elections, designations
or similar things relating to Taxes for which the Company is or may be liable;
(C) the Company is required to pay or remit any Taxes or amounts on account of
Taxes; or (D) any Governmental Authority may assess or collect Taxes for which
the Company is or may be liable.
(iv) The Canadian federal and provincial income and capital tax
liabilities of the Company has been assessed by the relevant taxing authorities
and notices of assessment have been issued to each such entity by the relevant
taxing authorities for all taxation years prior to and including the taxation
year ended February 28, 1997.
(v) Except as set forth on Schedule 4.25(a)(v), there are no
actions, suits, proceedings, investigations, audits or claims now pending or, to
the knowledge of the Shareholders, threatened, against the Company in respect of
any Taxes and there are no matters under discussion, audit or appeal with any
Governmental Authority relating to Taxes.
(vi) The Company has duly and timely withheld from any amount
paid or credited by it to or for the account or benefit of any Person,
including, without limitation, any of its employees, officers and directors and
any non-resident Person, the amount of all Taxes and other deductions required
by any applicable law, rule or regulation to be withheld from any such amount
and has duly and timely remitted the same to the appropriate Governmental
Authority.
(vii) Except as specifically disclosed in writing to USFloral,
for purposes of the Income Tax Act (Canada) or any applicable provincial or
municipal taxing statute, no Person or group of Persons has ever acquired or had
the right to acquire control of the Company.
(b) For purposes of this Section 4.25:
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(i) the term "Person" means any individual, sole proprietorship,
partnership, unincorporated association, unincorporated syndicate,
unincorporated organization, trust, body corporate, Governmental Authority, and
a natural person in such person's capacity as trustee, executor, administrator
or other legal representative;
(ii) the term "Taxes" includes, without limitation, all taxes,
duties, fees, premiums, assessments, imposts, levies and other charges of any
kind whatsoever imposed by any Governmental Authority, together with all
interest, penalties, fines, additions to tax or other additional amounts imposed
in respect thereof, including, without limitation, those levied on, or measured
by, or referred to as income, gross receipts, profits, capital, transfer, land
transfer, sales, goods and services, use, value-added, excise, stamp,
withholding, business, franchising, property, payroll, employment, health,
social services, education and social security taxes, all surtaxes, all customs
duties and import and export taxes, all license, franchise and registration fees
and all unemployment insurance, health insurance and Canada, Quebec and other
government pension plan premiums; and
(iii) the term "Tax Returns" includes, without limitation, all
returns, reports, declarations, elections, notices, filings, information returns
and statements filed in respect of Taxes.
(c) Complete and accurate information relating to each of the matters
referred to below is set forth in the Company's corporate tax returns and books
and records:
(i) cost and adjusted cost base of capital properties;
(ii) capital cost allowance deducted in each class of depreciable
assets;
(iii) undepreciated capital cost of each class of depreciable
assets;
(iv) paid-up capital of each class of shares;
(v) capital dividend account balance;
(vi) refundable dividend tax on hand;
(vii) non-capital losses available for carry over (year incurred,
how incurred, e.g., a property loss would be extinguished on a change of
control);
(viii) net capital losses (may be relevant if there are
unrealized gains available for designation under paragraph 111(4)(e);
(ix) cumulative eligible capital;
(x) investment tax credits; and
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(xi) unclaimed GST input tax credit.
(d) None of the Shareholders is a non-resident for the purposes of the
Income Tax Act (Canada).
(e) The only reserves claimed by the Corporation prior to the
acquisition of control by USFloral are set out in Schedule 4.25(e).
4.26 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 4.26, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the share capital, or any direct or indirect redemption, purchase or
other acquisition of any of the share capital of the Company;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers
directors, Shareholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Company to any person, including
without limitation the Shareholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Shareholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
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(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding U.S. $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
U.S. $25,000;
(r) any loan by the Company to any person or entity, incurring by the
Company, of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with USFloral and its representatives regarding the
transactions contemplated by this Agreement).
4.27 Deposit Accounts; Powers of Attorney. Schedule 4.27 sets forth a
complete and accurate list as of the date of this Agreement, of:
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(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Company and a description of the
terms of such power.
4.28 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 4.28(a),
no underground storage tanks and no amount of any substance that has been
designated, defined or identified by any Governmental Authority or by applicable
federal, state, provincial, local or other applicable orders, ordinances,
protocols, codes, guidelines, policies, notices, directions and judgments to be
a pollutant, contaminant, waste of any nature, deleterious substance or
dangerous or hazardous substance or good or to be radioactive, toxic, hazardous
or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum and urea-formaldehyde (a "Hazardous
Material"), excluding office and janitorial supplies properly and safely
maintained are present in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company currently
owns, operates, occupies, leases or has under its charge, management or control
or has owned, operated, occupied or leased or had under its charge, management
or control. Schedule 4.28(a) identifies all underground and aboveground storage
tanks, and the capacity, age, and contents of such tanks, located on Real
Property owned or leased by the Company.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, sold, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials or any product containing a
Hazardous Material (collectively, "Company Hazardous Materials Activities") in
violation of or in non-conformance with any rule, regulation, by-law, order,
ordinance, protocol, code, guideline, policy, notice, direction or judgment,
treaty or statute promulgated by any Governmental Authority in effect prior to
or as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity or relating to the protection of the environment
or public or employee health or safety.
(c) Permits. The Company currently holds all environmental approvals,
permits, certificates, authorizations, instructions, registrations, directions,
licenses, clearances and consents (the "Environmental Permits") required by any
Governmental Authority for the conduct of the Company's Hazardous Material
Activities and other business of the Company as such activities and business are
currently being conducted. All Environmental Permits are in full force and
effect and
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valid. The Company (A) is in compliance in all material respects with all terms
and conditions of the Environmental Permits and (B) is in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Authorities relating to pollution or
protection of the environment or public or employee health or safety or
contained in any regulation, code, plan, order, decree, judgment, notice, demand
letter, by-law, rule, policy, guideline, or direction issued, entered,
promulgated or approved thereunder. To the Company's knowledge, there are no
circumstances that may prevent or interfere with such compliance in the future.
Schedule 4.28(d) includes a listing and description of all Environmental Permits
currently held by the Company.
(d) Environmental Liabilities. No action, proceeding, prosecution,
revocation proceeding, amendment procedure, writ, injunction, order, direction
or claim has been brought against the Company or its operations or is pending,
or to the knowledge of the Company, threatened concerning any Environmental
Permit, Hazardous Material or any Company Hazardous Materials Activity,
including any administrative complaint, direction, order or sanction issued,
filed or imposed by any Governmental Authority requiring any remediation or
cleanup of any Hazardous Material or requiring that any release or other
activity be reduced, modified or eliminated. There are no past or present
actions, activities, circumstances, conditions, events, or incidents (including,
without limitation, the presence or release of any Hazardous Material in, on or
under any property now or formerly owned, operated, occupied or leased by, or
under the charge, management or control of, the Company) that could involve the
Company (or any person or entity whose liability the Company has retained or
assumed, either by contract or operation of law) in any environmental litigation
or prosecution, or impose upon the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) any environmental liability pursuant to any law, by-law, rule,
regulation, order, ordinance, protocol, code, guideline, policy, notice,
direction, judgment or other requirement of any Governmental Authority relating
to the protection of the environment or public or employee health or safety or
to Hazardous Materials or pursuant to the common law including, without
limitation, common law tort liability.
(e) No part of the property currently or, to the knowledge of the
Company formerly, owned, occupied, operated, leased or under its charge,
management or control has ever been used as a landfill or for the disposal of
waste.
(f) All material environmental data and studies (including the result
of any environmental audit) relating to the Company have been delivered or made
available to USFloral.
4.29 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
4.30 Disclosure. The Company has delivered to USFloral true and complete
copies of each agreement, contract, commitment or other document (or summaries
thereof) that is referred to in the Schedules or that has been requested by
USFloral. Without limiting any exclusion, exception
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or other limitation contained in any of the representations and warranties made
herein, this Agreement, the schedules hereto and all other documents and
information furnished to USFloral and its representatives pursuant hereto do not
and will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading. If any
Shareholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Shareholder in this Agreement or any
representation made on behalf of the Company, the Shareholder shall immediately
give notice of such fact or circumstance to USFloral. However, such notification
shall not relieve the Company or the Shareholder of their respective obligations
under this Agreement, and at the sole option of USFloral, the truth and accuracy
of any and all warranties and representations of the Shareholders, at the date
of this Agreement and as of the Closing date, shall be a precondition to the
consummation of this transaction.
4.31 USFloral Prospectus; Securities Representations; Resale Restrictions.
Each Shareholder has received and reviewed a copy of the prospectus dated March
18, 1998 including all supplements thereto (as supplemented, the "USFloral
Prospectus") contained in USFloral's shelf registration statement on Form S-1
(File No. 333-39969). Each Shareholder (a) has such knowledge, sophistication
and experience in business and financial matters that they are capable of
evaluating the merits and risks of an investment in the shares of USFloral
Common Stock, (b) fully understands the nature, scope, and duration of the
limitations on transfer contained herein, and under applicable law, and (c) can
bear the economic risk of any investment in the shares of USFloral Common Stock
and can afford a complete loss of such investment. Each Shareholder has had an
adequate opportunity to ask questions and receive answers (and has asked such
questions and received answers to its satisfaction) from the officers of
USFloral concerning the business, operations and financial condition of
USFloral. None of the Shareholders has any contract, undertaking, agreement or
arrangement, written or oral, with any other person to sell, transfer or grant
participation in any shares of USFloral Common Stock to be acquired by such
Shareholder in the Share Sale. Each Shareholder acknowledges and agrees that
USFloral has not and will not provide such Shareholder or any other party with a
prospectus for such Shareholder's use in selling USFloral Common Stock. Each
Shareholder acknowledges that the shares of USFloral Common Stock will not be
qualified for distribution in Canada and are being issued pursuant to exemptions
from the registration and prospectus requirements of applicable Canadian
securities legislation and that accordingly, subject to receipt of the Orders
contemplated in Section 6.10 hereof, the USFloral Common Stock will not be
freely tradeable in Canada and will be subject to restrictions on resale under
applicable Canadian securities laws.
4.32 Affiliates. The Shareholders are the only persons who are, in the
reasonable judgment of the Company and each of the Shareholders, affiliates of
the Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
4.33 Location of Chief Executive Offices. Schedule 4.33 sets forth the
location of the Company's chief executive offices.
4.34 Location of Equipment and Inventory. All Inventory and Equipment held
on the date hereof by the Company is located at one of the locations shown on
Schedule 4.34. For purposes
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of this Agreement, (a) the term "Inventory" shall include all merchandise,
inventory and goods, and all additions, substitutions and replacements thereof,
wherever located, together with all goods, supplies, incidentals, packaging
materials, labels, materials and any other items used or usable in
manufacturing, processing, packaging or shipping same; in all stages of
production, and all proceeds therefrom; and (b) the term "Equipment" shall
include all machinery, equipment, furnishings, fixtures and vehicles owned by
the Company, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
4.35 Securities Law Matters. The Company is not a "reporting issuer"
within the meaning of applicable Canadian securities legislation, there is not a
published market in respect of the Company Shares, and the number of holders of
Company Shares is not more than 50, exclusive of holders who are in the
employment of the Company or were formerly in the employment of the Company and
who while in that employment were, and have continued after that employment to
be, holders of Company Shares.
5. REPRESENTATIONS OF USFLORAL
To induce the Company and the Shareholders to enter into this Agreement and
consummate the transactions contemplated hereby, USFloral represents and
warrants to the Company and the Shareholders as follows:
5.1 Due Organization. USFloral is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized, qualified, registered and licensed to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
where the failure to be so authorized, registered, qualified or licensed would
not have a Material Adverse Effect. Copies of the Certificate of Incorporation
and the Bylaws, as amended, of USFloral (the "USFloral Charter Documents") have
been delivered to the Company. USFloral is not in violation of any USFloral
Charter Document.
5.2 USFloral Common Stock. The issuances of shares of USFloral Common
Stock to be delivered to the Shareholders at the Closing and in payment of the
Earn-Out Consideration and the Option Shares (as defined in Section 6.9 hereof)
shall, at the time of the investment decision with respect to their issuance, be
registered under the 1933 Act and, when delivered in accordance with the terms
of this Agreement or USFloral's 1997 Long-Term Incentive Plan, as the case may
be, will be valid and legally issued shares of USFloral capital stock, fully
paid and nonassessable, and prior to the time such shares may be transferred in
accordance with the provisions of Section 6.9 hereof, will be approved for
quotation on the Nasdaq National Market.
5.3 Authorization; Validity of Obligations. USFloral has all requisite
corporate power and authority to enter into and perform its obligations pursuant
to USFloral to the terms of this Agreement. USFloral has the full legal right,
power and corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by USFloral
and the performance by USFloral of the transactions contemplated herein have
been
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duly and validly authorized by the Board of Directors of USFloral, and this
Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of USFloral
enforceable in accordance with its terms.
5.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and its
lenders, conflict with, or result in a default (or an event that would
constitute a default but for a requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which USFloral is a party
or by which USFloral is bound, or result in the creation or imposition of any
lien, charge or encumbrance on any of USFloral's properties pursuant to (i) any
law or regulation to which either USFloral or any of its property is subject, or
(ii) any judgment, order or decree to which USFloral is bound or any of their
respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral is subject, or by which USFloral is bound,
(including, without limitation, the HSR Act, together with all rules and
regulations promulgated thereunder).
5.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. All of
the shares of USFloral Common Stock to be issued to the Shareholders in
accordance herewith and the Options (as defined in Section 6.9) will be offered,
issued, sold and delivered by USFloral in compliance with all applicable,
provincial, state and federal laws concerning the issuance of securities and
none of such shares was or will be issued in violation of the preemptive rights
of any Shareholder of USFloral.
5.6 Accredited Investor.
(a) USFloral is an "accredited investor" as that term is defined in
Rule 501(a) promulgated under the 1933 Act; is acquiring the Company Shares for
investment purposes only, for the account of USFloral and not with the view to
any resale or distribution thereof; is not participating, directly or
indirectly, in an underwriting of such Company Shares; and will not take, or
cause to be taken, any action that would cause itself or the Shareholders to be
deemed an "underwriter," as defined in Section 2(11) of the 1933 Act, of such
Company Shares.
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(b) USFloral Common Stock is currently listed for quotation on the
Nasdaq National Market. In the event that USFloral Common Stock is not listed
for quotation on the Nasdaq National Market or upon a national securities
exchange registered as such under the U.S. Securities Exchange Act of 1934, as
amended, USFloral covenants and agrees to make publicly available such
information as will satisfy the requirements of Rule 144(c) promulgated under
the 1933 Act.
6. COVENANTS
6.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Shareholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(i) USFloral shall cause to be prepared and filed on a timely
basis, all Tax Returns for the Company for any period which ends on or before
the Closing Date and for which Tax Returns have not been filed as of such date.
USFloral shall also cause to be prepared and filed on a timely basis, all Tax
Returns for the Company for periods beginning before and ending after the
Closing Date. The Shareholders and USFloral shall cooperate fully with each
other and make available to each other in a timely fashion such data and other
information as may reasonably be required for the preparation of any Tax Return
of the Company for a period ending on, prior to or including the Closing Date
and shall preserve such date and other information until the expiration of any
applicable limitation period under any applicable law with respect to Taxes.
(ii) If requested by USFloral, the Company will file an election
under subsection 256(9) of the Income Tax Act (Canada).
(iii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Shareholders
shall pay to the Surviving Corporation within fifteen (15) days after the date
on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. Any credits relating to
a taxable period that begins before and ends after the Closing Date shall be
taken into account as though the relevant taxable period ended on the Closing
Date. All determinations necessary to give effect to the foregoing allocations
shall be made in a manner consistent with prior practice of the Surviving
Corporation.
(iv) USFloral and the Surviving Corporation on one hand and the
Shareholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns
pursuant to this Section 6.1 and any audit, litigation or other proceeding with
respect to Taxes; (B) make available to the other, as reasonably requested, all
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information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating Tax matters pertinent to the
Company that is in their possession or under their control until the expiration
of any applicable statute of limitations or extensions thereof.
(v) The Shareholders shall timely pay all transfer, documentary,
sales, use, stamp, registration and other Taxes and fees arising from or
relating to the transactions contemplated by this Agreement, and the
Shareholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporation will join in the execution of any such
Tax Returns and other documentation.
6.2 Related Party Agreements. The Company and/or the Shareholders, as the
case may be, shall terminate any Related Party Agreements which USFloral
requests the Company or Shareholders to terminate.
6.3 Cooperation.
(a) The Company, the Shareholders and USFloral shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by USFloral's independent
public accountants (in connection with such accountants' audit of the Company)
or the Nasdaq National Market.
(b) The Shareholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
(d) The Company, the Shareholders and USFloral shall file all notices
and other information and documents required under the HSR Act (as defined in
Section 4.3) as promptly as practicable after the date hereof.
6.4 Conduct of Business Pending Closing. Except as set forth in Schedule
4.26, between the date hereof and the Closing Date, the Company will (except as
requested or agreed by USFloral):
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(a) carry on its business in the ordinary and normal course
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage and give all notices and present claims thereunder
in a timely fashion;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Shareholders) in accordance with past
practice.
6.5 Access to Information. Between the date of this Agreement and the
Closing Date, the Company will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Company and (ii) such additional financial and operating data
and other information as to the business and properties of the Company as
USFloral may from time to time reasonably request, including without limitation,
access upon reasonable request to the Company's employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 6.6 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the transactions
contemplated hereby.
6.6 Prohibited Activities. Except as set forth on Schedule 4.26 hereof,
between the date hereof and the Closing Date, the Company will not, without the
prior written consent of USFloral:
(a) make any change in its Memorandum of Association or Articles of
Association, or authorize or propose the same;
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(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, exchange or
conversion rights or commitments relating to its securities of any kind, or
authorize or propose any change in its equity capitalization, or issue or
authorize the issuance of any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, shares or property) in respect of its shares whether now or hereafter
outstanding, or split, combine or reclassify any of its share capital or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares, or purchase, redeem or otherwise acquire or retire
for value any shares;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of U.S. $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Shareholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
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(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Shareholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 6.6(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Shareholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
6.7 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral, and shall provide USFloral with proof that any required notice has
been sent.
6.8 Sales of USFloral Common Stock.
(a) No Shareholder will, directly or indirectly, offer, sell, contract
to sell, pledge or otherwise dispose of the shares of USFloral Common Stock to
be received by such Shareholder in the Share Sale prior to the date that is, (i)
with respect to one-third of the shares, eighteen months from the Closing Date
or February 28, 1999 with respect to the Earn-Out Consideration (if in shares of
USFloral Common Stock), as the case may be, (ii) with respect to two-thirds of
the shares, twelve months from the Closing Date or February 28, 1999 with
respect to the Earn-Out Consideration (if in shares of USFloral Common Stock),
as the case may be and (iii) with respect to all of the shares, six months from
the Closing Date or February 28, 1999 with respect to the Earn-Out Consideration
(if in shares of USFloral Common Stock), as the case may be.
(b) Each Shareholder acknowledges and agrees that USFloral will not
provide such Shareholder with a prospectus for such Shareholder's use in selling
the shares of USFloral Common Stock to be received by such Shareholder in the
Share Sale, and agrees to sell such shares
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only in accordance with the requirements, if any, of applicable Canadian
securities laws, the Orders contemplated in Section 6.10 hereof and Rule 145(d)
promulgated under the 1933 Act. USFloral acknowledges that the provisions of
this Section 6.8(b) will be satisfied under the 1933 Act as to any sale by a
Shareholder of the USFloral Common Stock such Shareholder may acquire pursuant
to the Share Sale pursuant to Rule 145(d) under the 1933 Act, by a broker's
letter and a letter from the Shareholder with respect to that sale stating that
the applicable requirements of Rule 145(d)(1) have been met or are inapplicable
by virtue of Rule 145(d)(2) or Rule 145(d)(3) provided, however, that USFloral
has no reasonable basis to believe that such sales were not made in compliance
with such provisions of Rule 145(d) and subject to any changes in Rule 145 after
the date of this Agreement. Upon receipt of a broker's letter and a letter from
a Shareholder stating that the USFloral Common Stock acquired hereunder by such
Shareholder is being sold in accordance with the provisions of Rule 145(d),
USFloral shall promptly instruct its transfer agent to remove the Rule 145
legend set forth in Section 6.8(c) below as to all such USFloral Common Stock
sold in the subject transaction.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Shareholders in the Share Sale will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN STOCK PURCHASE
AGREEMENT, DATED AS OF APRIL 3, 1998, AMONG THE ISSUER AND THE SHAREHOLDERS
OF DAVID L. JONES WHOLESALE, LTD., A BRITISH COLUMBIA CORPORATION. PRIOR TO
THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT.
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) WHEN THE HOLDING PERIOD HAS EXPIRED.
*** With respect to the Initial Consideration, certificates representing one-
third of the shares of USFloral Common Stock issued will read "October 3, 1998,"
one-third will read "April 3, 1999" and one-third will read "October 3, 1999."
With respect to the Earn-Out Consideration, certificates
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representing one-third of the shares of USFloral Common Stock issued will read
"August 28, 1999," one-third will read "February 28, 2000" and one-third will
read "August 28, 2000."
6.9 USFloral Stock Options. As soon as practicable after the Closing,
options (the "Options") to purchase such number of shares of USFloral Common
Stock (the "Option Shares") as shall have a fair market value as of the Closing
Date equal to 6.25% of the Initial Consideration provided for in Section 1.2
above, before any adjustment to the Initial Consideration pursuant to Section
1.2 or 2.1, shall be available for issuance to the key employees (the "Option
Holders") of the Surviving Corporation after the Closing, as determined by the
Surviving Corporation's President (or other officer or director designated by
the Surviving Corporation and acceptable to USFloral) in accordance with
USFloral's policies, and authorized and issued under the terms of USFloral's
1997 Long-Term Incentive Plan. The Options shall vest in four equal
installments of 25% each on the first four anniversaries of the date of grant
and shall have an exercise price equal to the fair market value as of the date
of grant. In the event that USFloral does not obtain the Option Orders
contemplated in Section 6.10 hereof, USFloral shall provide a "phantom stock
option plan" in substitution for the Options, the operative provisions of which
will be equivalent to the terms of the 1997 Long-Term Incentive Plan and which
will provide the same economic benefit to the Option Holders as the Options
would have provided.
6.10 Canadian Securities Filings. As soon as practicable after the
Closing and in any event no later than April 17, 1998, USFloral shall prepare
and file applications for orders, subject to usual conditions (the "Orders"),
from the securities authorities in each of British Columbia, Alberta and, if
necessary, Manitoba such that the resale of the USFloral Common Stock issued and
to be issued pursuant to this Agreement and upon exercise of the Options through
the facilities of a stock exchange outside of Canada or on the Nasdaq National
Market will not be subject to the prospectus requirements of the securities
legislation of such provinces. USFloral shall use its best efforts to obtain
the Orders.
6.11 Composition of Board of Directors. From the Closing Date through
February 28, 2000, USFloral shall not vote its shares of the Surviving
Corporation to alter the composition of the Board of Directors.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL
The obligation of USFloral to consummate the purchase of Company Stock is
subject to the satisfaction or waiver, at or before the Effective Time, of the
following conditions and deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Shareholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Shareholders on or before the Closing Date shall have been duly
complied with,
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performed or satisfied; and a certificate to the foregoing effects dated the
Closing Date and signed by the President and by the Chief Financial Officer on
behalf of the Company and by each of the Shareholders shall have been delivered
to USFloral.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Closing shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit claim or proceeding of any nature
pending or threatened against USFloral or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the Company.
7.3 No Laws. No laws, by-laws, rules, regulations, orders or any other
requirements of any Governmental Authority shall have been enacted, introduced
or announced which may materially and adversely affect the Company or the
business carried on by it.
7.4 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Company, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by each Shareholder dated
the Closing Date to such effect.
7.5 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Company and the Shareholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the transactions contemplated hereby under the
HSR Act shall have expired or been terminated, and no action by the Department
of Justice or Federal Trade Commission challenging or seeking to enjoin the
consummation of the transactions contemplated hereby shall be pending.
7.6 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Company and the Shareholders, dated the Closing Date, in a form
reasonably satisfactory to USFloral.
7.7 Charter Documents. USFloral shall have received (a) a copy of the
Memorandum of Association of the Company certified by an appropriate authority
in the Province of its incorporation and (b) a copy of the Articles of
Association of the Company certified by the Secretary of the Company, and such
documents shall be in form and substance reasonably acceptable to USFloral.
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7.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. USFloral shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
7.9 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company, setting forth:
(a) the net worth of the Company as of the last day of its most recent
fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (including,
without limitation, and to the extent that net worth is impacted thereby, the
earnings of the Company for the period from February 28, 1998 to the Closing
Date, and including the excess of the fair market value of the Company's
interest in the Templeton Growth Fund as of the Closing Date over the book value
of the Company's interest in such find as reflected in the Company's February
28, 1998 financial statements) (the "Certified Closing Net Worth");
(c) the earnings of the Company before interest and taxes (after the
addition of "add-backs" set forth on Schedule 4.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the Company financial conditions set forth
in Section 4.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth, the Company shall not take account of any increase in
intangible assets (including without limitation goodwill, franchises and
intellectual property) accounted for after February 28, 1997.
7.10 Employment Agreements. David Austin shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to
USFloral.
7.11 Shareholders' Release. The Shareholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Company from any and
all claims of such Shareholder against the Company.
7.12 Related Party Agreements. The Company shall have delivered to
USFloral evidence of repayment of all amounts due to the Company from the
Shareholders and any entities in which any Shareholder has an interest.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS
The obligation of the Shareholders and the Company to consummate the sale
of the Company Shares are subject to the satisfaction or waiver, at or before
the Closing, of the following conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral contained in this Agreement shall
be true, correct and complete on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants, agreements and conditions of this Agreement
to be complied with, performed or satisfied by USFloral on or before the Closing
Date shall have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Closing Date and signed by the
President or any Vice President of USFloral on behalf of USFloral shall have
been delivered to the Company and the Shareholders.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Closing shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against USFloral or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the USFloral and its subsidiaries taken as a
whole.
8.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral of the transactions contemplated herein, shall have been obtained
and made. Any waiting period applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated, and
no action by the Department of Justice or Federal Trade Commission challenging
or seeking to enjoin the consummation of the transactions contemplated hereby
shall be pending.
8.4 Employment Agreements. The Company shall have afforded David Austin
and Stanley Dart an opportunity to enter into an employment agreement with the
Company in a form reasonably satisfactory to USFloral.
9. INDEMNIFICATION
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9.1 General Indemnification by the Shareholders. Each Shareholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless USFloral and the Surviving Corporation and their respective
officers, directors, employees, Shareholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description and all costs incurred in investigating or
pursuing any of the foregoing) (collectively, "Damages") suffered, sustained,
incurred or paid by the Indemnified Parties in connection with, resulting from
or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Shareholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Shareholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Shareholders or, prior to the Effective Time, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Company Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the presence of any Hazardous Material prior to Closing upon
or within any property (including underlying soils and substrata, surface water
and groundwater) now or formerly owned, occupied or leased by or under the
charge, management or control of the Company or the presence of any Hazardous
Material prior to Closing upon or within any property (including underlying
soils and substrata, surface water and groundwater) proximate to such property
where such presence relates to any act or omission of the Company or the
carrying on of business by the Company prior to Closing;
(v) any environmental administrative complaint, direction, order
or sanction which is issued, imposed or proposed by any Governmental Authority
in connection with the business of the Company or any property (including
underlying soils and substrata, surface water and groundwater) now or formerly
owned, occupied or leased by or under the charge, management or control of the
Company relating to any condition, event or circumstance existing or occurring
prior to Closing, or in connection with any property proximate to such property
where such complaint, direction, order or sanction relates to any act or
omission of the Company or the carrying on of business by the Company prior to
Closing, including without limitation any order requiring
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any remediation or clean up of any Hazardous Material or requiring any release
or other activity relating to a Hazardous Material be reduced, modified or
eliminated;
(vi) any other Damages imposed at any time by any third parties
in connection with environmental matters relating to any period prior to
Closing;
(vii) the matters disclosed on Schedules 4.23 (conformity with
law; litigation), 4.25 (taxes), and 4.28 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 9.1.
9.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 9.1
unless, and solely to the extent that, the aggregate amount of Damages exceeds
(i) prior to the determination of the Earn-Out Consideration, U.S. $140,000; or
(ii) upon determination of the Earn-Out Consideration, the sum of $140,000 plus
one-percent of the Earn-Out Consideration (the "Indemnification Threshold");
provided, however, that the Indemnification Threshold shall not apply to (i)
adjustments to the Initial Consideration as set forth in Sections 2.2 and 3.1;
(ii) Damages arising out of any breaches of the covenants of the Shareholders
set forth in this Agreement or representations and warranties made in Sections
4.4 (capital stock of the Company), 4.5 (transactions in capital stock), 4.9
(Company financial conditions), 4.18 (material contracts and commitments), 4.23
(conformity with law; litigation), 4.25 (taxes), or 4.28 (environmental
matters), or (iii) Damages described in Section 9.1(a)(iv);
(b) the aggregate amount of the Shareholders' liability under this
Article 9 shall not exceed the Purchase Price; provided, however, that the
Shareholders' liability for Damages arising out of any breaches of the
representations made in Sections 4.25 (taxes) or 4.28 (environmental matters) or
Damages described in Section 9.1(a)(ii) and Section 9.1(a)(iv) shall not be
subject to such limitation;
(c) the indemnification obligations under this Article 9, or under any
certificate or writing furnished in connection herewith, shall terminate at the
date that is the later of clause (i) or (ii) of this Section 9.2(c):
(i)
(1) except as to representations, warranties, and covenants
specified in clause (i)(2) of this Section 9.2(c), the first anniversary of the
Closing Date, or
(2) with respect to representations and warranties contained
in Sections 4.22 (employee benefit plans), 4.28 (environmental matters), and the
indemnification set forth in Section 9.1(a)(ii), (iii) or (iv), on (A) the date
that is six (6) months after the expiration of the longest applicable federal or
state statute of limitation (including extensions thereof), or (B) if
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there is no applicable statute of limitation, (x) ten (10) years after the
Closing Date if the Claim is related to the cost of investigating, containing,
removing, or remediating a release of Hazardous Material into the environment,
or (y) five (5) years after the Closing Date for any other Claim covered by
clause (i)(2)(B) of this Section 9.2(c); with respect to representations and
warranties contained in Section 4.28 (environmental matters), the
indemnification obligations under this Article 9 shall not terminate; or
(3) with respect to representations and warranties contained
in Section 4.25 (taxes), the date that is 90 days after the relevant authorities
shall no longer be entitled to assess liability for tax against the Company for
any particular taxation year ended on or prior to the Closing Date, having
regard without limitation, to any waivers given by the Company in respect of any
taxation year;
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 9.2(c) (such claims
referred to as "Pending Claims");
(iii) Notwithstanding the limitations set forth in Section 9.2,
any Claim which is based on title to the Company Shares, intentional
misrepresentation or fraud may be brought at any time.
9.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 9 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 9.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Shareholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Shareholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 9.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter, attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such Claims (and, if the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Shareholders' Representative. The
Shareholders' Representative shall have thirty days from the date of delivery of
the Claim Notice to notify the Indemnified Party (A) whether the Indemnifying
Party disputes
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liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B) if such party does not
dispute liability, whether or not the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend against the Third Party
Claim, provided that the Indemnified Party is hereby authorized (but not
obligated) to file any motion, answer or other pleading and to take any other
action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that Shareholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Shareholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Surviving Corporation or any subsidiary, the Indemnified Party shall have the
right to control or assume (as the case may be) the defense of any such Third
Party Claim and the amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of the indemnification
obligations of the Indemnifying Party hereunder. If the Indemnified Party elects
to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third Party Claim at the
sole cost and expense of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 9.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 9.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the
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Indemnifying Party of any liability which the Indemnifying Party may have to the
Indemnified Party unless the failure to give such notice materially and
adversely prejudiced the Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 9, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
(f) Any indemnification payment made to USFloral shall be deemed to be
a reduction of the Purchase Price.
9.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Shareholders
and USFloral in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Shareholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 9.2. The
representations of USFloral will survive the Closing and will remain in effect
until, and will expire upon the first anniversary of the Closing date, except
for the representations set forth in Section 5.2, which will expire (i) upon the
second anniversary of the Closing Date, as to the shares of USFloral Common
Stock (if any) issued as part of the Initial Consideration or the Earn-Out
Consideration, and (ii) upon the earlier of the exercise, termination or
expiration of each Option.
9.5 Remedies Cumulative. The remedies set forth in this Article 9 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
9.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 9.3 to be owed to USFloral by the Shareholders
under Section 9.1 hereof.
10. NONCOMPETITION
10.1 Prohibited Activities. The Shareholders listed on Schedule 10.1 agree
that for a period of two years following the Closing Date, they shall not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including,
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without limitation, hardgoods), or any business engaging in the consolidation of
the floral industry within the United States of America (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, the Company within the Territory for the purpose of
soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, the Company; or
(e) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Shareholders 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 USFloral shall have provided its prior written consent.
10.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Shareholders agree that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
10.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 10 impose a reasonable restraint on the Shareholders
in light of the activities and business of USFloral on the date of the execution
of this Agreement and the current and future plans of USFloral and the Surviving
Corporation (as successors to the businesses of the Company).
10.4 Severability; Reformation. The covenants in this Article 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
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10.5 Independent Covenant. All of the covenants in this Article 10 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Shareholders
against the Company, the Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of two
years stated above, shall be computed by excluding from such computation any
time during which any Shareholder is in violation of any provision of this
Article 10 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action USFloral or
the Surviving Corporation seeks to enforce the agreements and covenants of the
Shareholders or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement; provided, however, that if any Shareholder is found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
10.6 Materiality. The Company and each Shareholder hereby agree that the
covenants set forth in this Article 10 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 Shareholders. The Shareholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, such as, without limitation,
lists of customers, operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company and the Company's business.
The Shareholders agree that they will not disclose any confidential information
to any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except to authorized representatives of USFloral, unless the
Shareholders can show that such information has become known to the public
generally through no fault of the Shareholders. In the event of a breach or
threatened breach by the Shareholders of the provisions of this Article 12,
USFloral and the Surviving Corporation shall be entitled to an injunction
restraining the Shareholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
11.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the Company and the Company's business. USFloral agrees that it will not
disclose any confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, prior to the
Closing Date without prior written consent of the Shareholders. In the event of
a breach or threatened breach by USFloral of the provisions of this Article 12,
the Shareholders shall be entitled to an injunction restraining USFloral from
disclosing,
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in whole or in part, such confidential information. Nothing contained herein
shall be construed as prohibiting the Shareholders from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
11.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, USFloral, the Surviving Corporation and the Shareholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
12. GENERAL
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Company; or
(b) by the Shareholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April __, 1998, provided that the right to terminate this Agreement under
this Section 12.1(b) shall not be available to either party (with the
Shareholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Shareholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Shareholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Shareholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal, provincial or state court in effect preventing consummation of the
Share Sale; or there shall be any action taken, or any statute, rule regulation
or order enacted, promulgated or issued or deemed applicable to the Share Sale
by any Governmental Authority which would make the consummation of the Share
Sale illegal.
12.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 12.1, this Agreement shall forthwith become
ineffective, and there shall be no liability
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or obligation on the part of any party hereto or its officers, directors or
shareholders. Notwithstanding the foregoing sentence, (i) the provisions of this
Article 12 shall remain in full force and effect and survive any termination of
this Agreement; (ii) each party shall remain liable for any breach of this
Agreement prior to its termination; and (iii) in the event of termination of
this Agreement pursuant to Section 12.1(c) above, then notwithstanding the
provisions of Section 12.7 below, the breaching party (with the Shareholders and
the Company deemed to be a single party for purposes of this Article 12), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
12.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Shareholders.
12.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 10.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
12.5 Counterparts. This Agreement may be executed by facsimile in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original, and
all of which counterparts taken together shall constitute but one and the same
instrument.
12.6 Brokers and Agents. USFloral represents and warrants to the Company
and the Shareholders, and the Company and each Shareholder represents to
USFloral, that it has not employed any broker or agent in connection with the
transactions contemplated by this Agreement and agrees to indemnify the other
against all losses, damages or expenses relating to or arising out of claims for
fees or commission of any broker or agent employed or alleged to have been
employed by such party.
12.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Shareholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Shareholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
51
<PAGE>
12.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 10 and the confidentiality
obligations set forth in Article 11. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
12.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral or the Surviving Corporation to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
(Telefax: (412) 560-3399)
If to any Shareholder to:
David Austin
David L. Jones Wholesale Ltd.
3737 Marine Way
Burnaby, B.C. V5J 5A7
Canada
(Telefax: (604) 451-7297)
52
<PAGE>
with a required copy to:
J. Thomas English
Fraser & Beatty
15th Floor, The Grosvenor Building
1040 West Georgia Street
Vancouver, B.C. V6E 4H8
Canada
(Telefax: (604) 683-5214)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
12.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the Province of British
Columbia, without giving effect to any of the conflicts of laws provisions
thereof that would require the application of the substantive laws of any other
jurisdiction.
12.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 10.4.
12.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
12.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
12.14 Accounting Terms. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
53
<PAGE>
[Execution Pages Following]
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
-----------------------------------------------
Name: Robert J. Poirier
Title: Chairman, President and CEO
DAVID L. JONES WHOLESALE, LTD.
By: /s/ Ken Austin
-----------------------------------------------
Name: Ken Austin
Title: President
SHAREHOLDERS:
Ken Austin Holdings Inc.
by:
-----------------------------------------------
Name:
Title:
/s/ Ronald Andrews
-----------------------------------------------
Ronald Andrews
/s/ Joseph Crowder
-----------------------------------------------
Joseph Crowder
/s/ Stanley Dart
-----------------------------------------------
Stanley Dart
/s/ Arnold Glencross
-----------------------------------------------
Arnold Glencross
[SIGNATURES CONTINUED ON NEXT PAGE]
55
<PAGE>
/s/ Antonius Graaf
-----------------------------------------------
Antonius Graaf
/s/ Simon Lai
-----------------------------------------------
Simon Lai
/s/ Martin Shigehiro
-----------------------------------------------
Martin Shigehiro
/s/ Bryan Street
-----------------------------------------------
Bryan Street
/s/ Frank Verkerk
-----------------------------------------------
Frank Verkerk
/s/ Scott Wells
-----------------------------------------------
Scott Wells
/s/ Daniel Welsh
-----------------------------------------------
Daniel Welsh
56
<PAGE>
SCHEDULES
SCHEDULE 1.2 [Add-backs]
SCHEDULES TO ARTICLE 4 [Schedules of exceptions to the representations and
warranties]
SCHEDULE 10.01 [List of shareholders subject to noncompetition
provisions]
The Schedules to this Agreement will be provided to the Commission
supplementally upon request.
57
<PAGE>
Exhibit 2.17
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
U.S.A. Floral Products, Inc.,
EFTA Acquisition Corp.,
Elite Farms,
Talent, Inc.,
Anvacu, Inc.,
The Stockholders Named Therein
and
The Beneficial Owners Named Therein
made effective as of April 3, 1998
<PAGE>
Table of Contents
Page
----
1. THE MERGER............................................................ 1
1.1 The Merger.................................................... 1
1.2 Articles of Incorporation; Bylaws, Directors and Officers..... 1
1.3 Effects of the Merger......................................... 2
2. CONVERSION AND EXCHANGE OF STOCK....................................... 2
2.1 Manner of Conversion........................................... 2
2.2 Merger Consideration........................................... 3
2.3 Exchange of Certificates and Payment of Cash................... 4
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS................................ 5
3.1 Post-Closing Adjustment........................................ 5
3.2 Pledged Assets................................................. 6
3.3 Stockholders' Representative................................... 7
4. CLOSING................................................................ 8
4.1 Location and Date.............................................. 8
4.2 Effect......................................................... 8
5. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP, THE PARTNERS AND
THE STOCKHOLDERS....................................................... 9
5.1 Due Organization............................................... 9
5.2 Authorization; Validity........................................ 9
5.3 No Conflicts................................................... 10
5.4 Partnership Interests; Capital Stock of the Partners........... 10
5.5 Transactions in Capital Stock and Partnership Interests........ 11
5.6 Subsidiaries, Stock, and Notes................................. 11
5.7 Predecessor Status............................................. 11
5.8 Absence of Claims Against the Partnership and the Partners..... 11
5.9 Partnership Financial Conditions............................... 11
5.10 Financial Statements........................................... 12
5.11 Liabilities and Obligations.................................... 12
5.12 Accounts and Notes Receivable.................................. 13
5.13 Books and Records.............................................. 13
5.14 Permits........................................................ 13
5.15 Real Property.................................................. 14
5.16 Personal Property.............................................. 15
5.17 Intellectual Property.......................................... 15
5.18 Material Contracts and Commitments............................. 17
5.19 Government Contracts........................................... 18
5.20 Insurance...................................................... 19
5.21 Labor and Employment Matters................................... 19
5.22 Employee Benefit Plans......................................... 20
<PAGE>
5.23 Conformity with Law; Litigation................................ 22
5.24 Taxes.......................................................... 22
5.25 Absence of Changes............................................. 24
5.26 Deposit Accounts; Powers of Attorney........................... 26
5.27 Environmental Matters.......................................... 26
5.28 Relations with Governments..................................... 28
5.29 Disclosure..................................................... 28
5.30 USFloral Prospectus; Securities Representations................ 28
5.31 Affiliates..................................................... 28
5.32 Location of Chief Executive Offices............................ 29
5.33 Location of Equipment and Inventory............................ 29
6. REPRESENTATIONS OF USFLORAL AND NEWCO.................................. 29
6.1 Due Organization............................................... 29
6.2 USFloral Common Stock.......................................... 29
6.3 Authorization; Validity of Obligations......................... 30
6.4 No Conflicts................................................... 30
6.5 Capitalization of USFloral and Ownership of USFloral Stock..... 30
7. COVENANTS.............................................................. 31
7.1 Tax Matters.................................................... 31
7.2 Reserved....................................................... 32
7.3 Related Party Agreements and Personal Vehicles................. 32
7.4 Cooperation.................................................... 32
7.5 Conduct of Business Pending Closing............................ 33
7.6 Access to Information.......................................... 33
7.7 Prohibited Activities.......................................... 34
7.8 Notice to Bargaining Agents.................................... 35
7.9 Sales of USFloral Common Stock................................. 35
7.10 USFloral Stock Options......................................... 36
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO.......... 37
8.1 Representations and Warranties; Performance of Obligations..... 37
8.2 No Litigation.................................................. 37
8.3 No Material Adverse Change..................................... 37
8.4 Consents and Approvals......................................... 37
8.5 Opinion of Counsel............................................. 38
8.6 Charter Documents.............................................. 38
8.7 Due Diligence Review........................................... 38
8.8 Delivery of Closing Financial Certificate...................... 38
8.9 FIRPTA Compliance.............................................. 38
8.10 Employment Agreements.......................................... 39
8.11 Stockholders' Release.......................................... 39
ii
<PAGE>
8.12 Related Party Agreements....................................... 39
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTNERSHIP, THE
PARTNERS AND THE STOCKHOLDERS.......................................... 39
9.1 Representations and Warranties; Performance of Obligations..... 39
9.2 No Litigation.................................................. 39
9.3 Consents and Approvals......................................... 40
9.4 Employment Agreements.......................................... 40
10. INDEMNIFICATION........................................................ 40
10.1 General Indemnification by the Beneficial Owners
and the Stockholders........................................... 40
10.2 Limitation and Expiration...................................... 41
10.3 Indemnification Procedures..................................... 42
10.4 Survival of Representations Warranties and Covenants........... 43
10.5 Remedies Cumulative............................................ 44
10.6 Right to Set Off............................................... 44
11. NONCOMPETITION......................................................... 44
11.1 Prohibited Activities.......................................... 44
11.2 Damages........................................................ 45
11.3 Reasonable Restraint........................................... 45
11.4 Severability; Reformation...................................... 45
11.5 Independent Covenant........................................... 45
11.6 Materiality.................................................... 46
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................. 46
12.1 Stockholders and Beneficial Owners............................. 46
12.2 USFloral....................................................... 46
12.3 Damages........................................................ 46
13. GENERAL................................................................ 47
13.1 Termination.................................................... 47
13.2 Effect of Termination.......................................... 47
13.3 Successors and Assigns......................................... 48
13.4 Entire Agreement; Amendment; Waiver............................ 48
13.5 Counterparts................................................... 48
13.6 Brokers and Agents............................................. 48
13.7 Expenses....................................................... 48
13.8 Specific Performance; Remedies................................. 48
13.9 Notices........................................................ 49
13.10 Governing Law; Legal Action.................................... 50
13.11 Severability................................................... 50
13.12 Absence of Third Party Beneficiary Rights...................... 50
iii
<PAGE>
13.13 Further Representations........................................ 50
13.14 Accounting Terms............................................... 50
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 3rd day of April, 1998, by and among U.S.A. Floral Products,
Inc., a Delaware corporation ("USFloral"), EFTA Acquisition Corp., a Florida
corporation and a newly-formed, wholly-owned subsidiary of USFloral ("Newco"),
Elite Farms, a Florida general partnership (the "Partnership"), Talent, Inc., a
Florida corporation, Anvacu, Inc. a Florida corporation (each a "Partner" and
together, the "Partners"), Mauricio Jaramillo V., Monica Rivera, Flores Carmel
S.A., a Colombian corporation, Flores del Lago Ltda., a Colombian corporation,
Cota Asociados Ltda., a Colombian corporation, Los Geranios Ltda., a Colombian
corporation and Flores de La Vega, Ltda., a Colombian corporation (each a
"Stockholder" and collectively, the "Stockholders"); and the beneficial owners
of the corporate Stockholders as set for on the signature page to this Agreement
(each a "Beneficial Owner" and collectively, the "Beneficial Owners").
BACKGROUND
WHEREAS, the respective Boards of Directors of Newco and the Partners
(which together are sometimes referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that the Partners merge with and into Newco (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the State of Florida.
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 4.2), the
Partners shall be merged with and into Newco pursuant to this Agreement and a
plan of merger (the "Plan of Merger") substantially in the form attached as
Schedule 1.1 hereto, and the separate corporate existence of each Partner shall
cease. Newco, as it exists from and after the Effective Time, is sometimes
referred to as the "Surviving Corporation."
1.2 Articles of Incorporation; Bylaws, Directors and Officers. At the
Effective Time:
(a) The Articles of Incorporation of the Surviving Corporation from
and after the Effective Time shall be the Articles of Incorporation of Newco
until thereafter amended in accordance with the provisions therein and as
provided by the applicable provisions of the Florida Business Corporation Act.
<PAGE>
(b) The Bylaws of the Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco in effect immediately prior to the
Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the Florida Business Corporation Act.
(c) The initial director of the Surviving Corporation shall be Robert
J. Poirier until his successor is elected and qualified, and the initial
officers of the Surviving Corporation shall be the officers of the Company
immediately prior to the Effective Time, with the addition of Robert J. Poirier
as Vice President and Assistant Secretary of the Surviving Corporation, in each
case until their successors are duly elected and qualified.
1.3 Effects of the Merger. The Merger shall have the effects provided
therefor by the Florida Business Corporation Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time (i) all
the rights, privileges, immunities, powers and franchises, of a public as well
as of a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including without limitation subscriptions to
shares, and all other choses in action, and all and every other interest of or
belonging to or due to the Company or Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, immunities, powers and franchises
and all and every other interest shall be thereafter as effectually the property
of the Surviving Corporation, as they were of each Partner and Newco, and (ii)
all debts, liabilities, duties and obligations of each Partner and Newco,
subject to the terms hereof, shall become the debts, liabilities and duties of
the Surviving Corporation and the Surviving Corporation shall thenceforth be
responsible and liable for all the debts, liabilities, duties and obligations of
each Partner and Newco and neither the rights of creditors nor any liens upon
the property of either Partner or Newco shall be impaired by the Merger, and may
be enforced against the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 Manner of Conversion. At the Effective Time, by virtue of the Merger
and without any action on the part of USFloral, Newco, either Partner or any
Stockholder, the shares of capital stock of each of the Constituent Corporations
shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one share of validly issued, fully paid and non-assessable Common
Stock of the Surviving Corporation. Each stock certificate of Newco evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Partners.
All shares of capital stock of each Partner that are owned directly or
indirectly by such Partner shall be canceled and no stock of USFloral or other
consideration shall be delivered in exchange therefor.
2
<PAGE>
(c) Conversion of Capital Stock of the Partners. Subject to Section
2.1(d), and Sections 2.2, 3.1 and 3.2, each issued and outstanding share of
common stock of the Partners ("Partner Common Stock") (other than shares to be
canceled pursuant to Section 2.1(b)), that is issued and outstanding immediately
prior to the Effective Time shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof as follows: (1)
each share of outstanding capital stock of Anvacu, Inc. shall be converted into
the right to receive (i) an amount of cash equal to five-sixths (5/6) of the
cash portion of the Merger Consideration divided by the number of shares of
Anvacu, Inc. Common Stock outstanding immediately prior to the Effective Time
and (ii) that number of shares of USFloral common stock, $.001 par value
("USFloral Common Stock"), valued at the Merger Price (as defined in Section
2.2), that is equal in value to the USFloral Common Stock portion of the Merger
Consideration (as defined in Section 2.2) divided by the number of shares of
Anvacu, Inc. Common Stock outstanding immediately prior to the Effective Time;
and (2) each share of outstanding capital stock of Talent, Inc. shall be
converted into the right to receive (i) an amount of cash equal to one-sixth
(1/6) of the cash portion of the Merger Consideration divided by the number of
shares of Talent, Inc. Common Stock outstanding immediately prior to the
Effective Time, and (ii) that number of shares of USA Floral Common Stock,
valued at the Merger Price, that is equal in value to the one-sixth (1/6) of the
USA Floral portion of the Merger Consideration divided by the number of shares
of Talent, Inc. Common Stock outstanding immediately prior to the effective
time. All such shares of Partner Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
the consideration therefor upon the surrender of such certificate in accordance
with Section 2.3 of this Agreement.
(d) Fractional Shares. No fractional shares of USFloral Common Stock
shall be issued, but in lieu thereof each holder of shares of Partner Common
Stock who would otherwise be entitled to receive a fraction of a share of
USFloral Common Stock shall receive from USFloral an amount of cash equal to the
Merger Price, as defined in Section 2.2(a), multiplied by the fraction of a
share of USFloral Common Stock to which such holder would otherwise be entitled.
The fractional share interests of each Stockholder shall be aggregated, so that
no Stockholder shall receive cash in an amount greater than the value of one
full share of USFloral Common Stock.
2.2 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall
be $7,400,000 adjusted pursuant to this Section 2.2 and Section 3.1. Of the
Merger Consideration, $3,700,000 less the aggregate amount of long-term
indebtedness, including any current portion thereof, shall be paid in cash at
Closing in immediately available funds. The remaining $3,700,000 of the Merger
Consideration shall be paid in shares of USFloral Common Stock valued at $20.01
per share (the "Merger Price"). The 184,907 shares of USFloral Common Stock to
be issued (subject to adjustment as provided in this Section 2.2 and Section
3.1) shall be registered under the Securities Act of 1933, as amended (the "1933
Act").
3
<PAGE>
(b) The Merger Consideration has been calculated based upon several
factors, including the assumption that the net worth of the Partnership,
calculated in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $1,000,000 (the "Net Worth
Target") as of the Closing.
(c) If, on the Closing Financial Certificate (as defined in Section
8.9), the Certified Closing Net Worth (as defined in Section 8.9) is less than
the Net Worth Target, then the Merger Consideration to be delivered to the
Stockholders may, at USFloral's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in Section 3.1),
by the difference between the Net Worth Target and the Certified Closing Net
Worth set forth on the Closing Financial Certificate (which reduction shall be
pro rata in cash and in USFloral Common Stock valued at the Merger Price in the
same proportions as the cash and USFloral Common Stock components of the Merger
Consideration as provided in Section 2.2(a)).
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for the
outstanding shares of capital stock of the Partners, USFloral shall cause to be
made available to the Stockholders the Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.2(d)), as adjusted pursuant to Section 2.2 and Section 3.1. The
certificates evidencing the USFloral Common Stock component of the Merger
Consideration shall bear appropriate legends pursuant to the terms of this
Agreement and the Affiliate Agreement (as described in Section 8.12), and
USFloral shall be entitled to issue appropriate stop transfer instructions to
its transfer agent consistent with the terms of this Agreement.
(b) Certificate Delivery Requirements. At the Effective Time, the
Stockholders shall deliver to USFloral the certificates (the "Certificates")
representing Partner Common Stock, accompanied by blank stock powers duly
executed by the Stockholders and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders shall promptly cure any deficiencies with respect to the stock
powers accompanying such Certificates. The Certificates so delivered shall
forthwith be canceled. Until delivered as contemplated by this Section 2.3(b),
each Certificate shall be deemed at any time after the Effective Time to
represent the right to receive upon such surrender the number of shares of
USFloral Common Stock and the amount of cash as provided by this Article 2 and
the applicable provisions of the State Corporation Laws.
(c) No Further Ownership Rights in Capital Stock of the Company. All
USFloral Common Stock and cash to be delivered (including USFloral Common Stock
delivered pursuant to Section 3.2(b) but withheld) upon the surrender for
exchange of shares of Partner Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Partner Common Stock, and following the Effective
Time the Certificates shall have no further rights to, or ownership in, shares
of capital stock of the Partners. There shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Partner Common Stock which were outstanding immediately prior to
4
<PAGE>
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Section 2.3.
(d) Lost, Stolen or Destroyed Certificates. If any certificates
evidencing shares of Partner Common Stock shall have been lost, stolen or
destroyed, then USFloral shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of USFloral Common Stock and cash as
provided in Section 2.1; provided, however that USFloral may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
USFloral with respect to the certificates alleged to have been lost, stolen or
destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 2.3, none of the Surviving Corporation or any party hereto shall be
liable to a holder of shares of Partner Common Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 Post-Closing Adjustment.
(a) The Merger Consideration shall be subject to adjustment after the
Closing Date as specified in this Section 3.1.
(b) Within one hundred twenty (120) days following the Effective
Time, USFloral shall cause Price Waterhouse LLP ("USFloral's Accountant") to
audit the Surviving Corporation's books to determine the accuracy of the
information set forth on the Closing Financial Certificate (the "Post-Closing
Audit"). The parties acknowledge and agree that for purposes of determining the
net worth of the Partnership as of the Closing Date, the value of the assets of
the Partnership shall, except with the prior written consent of USFloral, be
calculated as provided in the last paragraph of Section 8.9. The Stockholders
shall cooperate and shall use their reasonable efforts to cause the officers and
employees of the Partnership to cooperate with USFloral and USFloral's
Accountant after the Closing Date in furnishing information, documents, evidence
and other assistance to USFloral's Accountant to facilitate the completion of
the Post-Closing Audit within the aforementioned time period. In the event that
USFloral's Accountant determines that the actual net worth of the Partnership
(the "Actual Partnership Net Worth") as of the Closing Date was less than the
Certified Closing Net Worth, USFloral shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholders' Representative, as defined
in Section 3.3, setting forth (i) the determination made by USFloral's
Accountant of the Actual Partnership Net Worth, (ii) the amount of the Merger
Consideration that would have been payable at Closing pursuant to Section 2.2(c)
had the Actual Partnership Net Worth been reflected on the Closing Financial
Certificate instead of the Certified Closing Net Worth, and (iii) the amount by
which the number of shares issued as the Merger Consideration would have been
reduced at Closing had the Actual Company Net Worth been
5
<PAGE>
used in the calculations pursuant to Section 2.2(c) (the "Merger Consideration
Adjustment"). The Merger Consideration Adjustment shall take account of the
reduction, if any, to the Merger Consideration already taken pursuant to Section
2.2(c)(i).
(c) The Stockholders' Representative shall have thirty (30) days
from the receipt of the Financial Adjustment Notice to notify USFloral if the
Stockholders dispute such Financial Adjustment Notice. If USFloral has not
received notice of such a dispute within such 30-day period, USFloral shall be
entitled to receive from the Stockholders (which may, at USFloral's sole
discretion, be from the Pledged Assets as defined in Section 3.2) the Merger
Consideration Adjustment. If, however, the Stockholders' Representative has
delivered notice of such a dispute to USFloral within such 30-day period, then
USFloral's Accountant shall select an independent "Big Five" accounting firm
that has not represented any of the parties hereto within the preceding two (2)
years to review the Surviving Corporation's books, Closing Financial
Certificate and Financial Adjustment Notice (and related information) to
determine the amount, if any, of the Merger Consideration Adjustment. Such
independent accounting firm shall be confirmed by the Stockholders'
Representative and USFloral within five (5) days of its selection, unless there
is an actual conflict of interest. The independent accounting firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to USFloral's Accountant in connection with the transactions
contemplated hereby, or (ii) reviewed by USFloral's Accountant during the course
of the Post-Closing Audit. The independent accounting firm shall make its
determination of the Merger Consideration Adjustment, if any, within thirty (30)
days of its selection. The determination made by the independent accounting
firm shall, absent manifest error, be final and binding on the parties hereto,
and upon such determination, USFloral shall be entitled to receive from the
Stockholders (which may, at USFloral's sole discretion, be from the Pledged
Assets as defined in Section 3.2) the Merger Consideration Adjustment. The
costs of the independent accounting firm shall be borne by the party (either
USFloral or the Stockholders as a group) whose determination of the
Partnership's net worth at Closing was further from the determination of the
independent accounting firm, or equally by USFloral and the Stockholders in the
event that the determination by the independent accounting firm is equidistant
between the Certified Closing Net Worth and the Actual Partnership Net Worth.
3.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Merger Consideration under Section 3.1, or any indemnification
obligations of the Stockholders pursuant to Article 10, the Stockholders shall,
and by execution hereof do hereby, transfer, pledge and assign to USFloral, for
the benefit of USFloral, a security interest in the following assets (the
"Pledged Assets"):
(i) [cash][that number of shares of USFloral Common Stock
with a value, based on the Merger Price,] equal to ten percent (10%) of each
Stockholder's share of the Merger Consideration as the same may have been
adjusted pursuant to Section 2.2 or Section 3.1 hereof, and
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the certificates and instruments, if any, representing or evidencing each such
Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to such Stockholder
with respect to or in substitution for such Stockholder's Pledged Assets, all
certificates and instruments representing or evidencing such securities, and all
cash and non-cash dividends and other property at any time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and in the event such Stockholder receives any such property, such Stockholder
shall hold such property in trust for USFloral and shall immediately deliver
such property to USFloral to be held hereunder as Pledged Assets; and
(iii) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Stockholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to USFloral
directly by the transfer agent, such certificate bearing no restrictive or
cautionary legend other than those imprinted by the transfer agent at USFloral's
request. Each Stockholder shall, at the Closing, deliver to USFloral, for each
such certificate, a stock power duly signed in blank by him or her. Any cash
comprising a Stockholder's Pledged Assets shall be withheld by USFloral from
distribution to such Stockholder.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Merger Consideration pursuant to Section 3.1 and any
indemnification obligations of the Stockholders pursuant to Article 10 until the
date which is one year after the Effective Time (the "Release Date"). Promptly
following the Release Date, USFloral shall return or cause to be returned to the
Stockholders the Pledged Assets, less Pledged Assets having an aggregate value
equal to the amount of (i) any post-Closing adjustment to the Merger
Consideration under Section 3.1, but only to the extent such adjustment has not
already been paid, (ii) any pending claim for indemnification made by any
Indemnified Party (as defined in Article 10), (iii) any previously applied
indemnification obligations of the Stockholders pursuant to Article 10. For
purposes of the preceding sentence and Article 10, the USFloral Common Stock
held as Pledged Assets shall be valued at (x) the Merger Price with respect to
any post-Closing adjustment to the Merger Consideration under Section 3.1 and
(y) the average of the closing price on the Nasdaq National Market per share of
USFloral Common Stock for the five trading days prior to the satisfaction of an
indemnification obligation (the "Market Value") with respect to indemnification
obligations pursuant to Article 10.
3.3 Stockholders' Representative.
(a) Each holder of Partner Common Stock and each Beneficial Owner,
by signing this Agreement, designates Ricardo Russi Lopez or, in the event that
Ricardo Russi Lopez is unable or unwilling to serve, Pablo Toro to be the
Stockholders' Representative for purposes of this Agreement. The Stockholders
and the Beneficial Owners shall be bound by any and all actions taken by the
Stockholders' Representative on their behalf.
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(b) USFloral and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All communications or writings to be sent to Stockholders pursuant to this
Agreement may be addressed to the Stockholders' Representative and any
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder. The Stockholders hereby consent and agree that the
Stockholders' Representative is authorized to accept deliveries, including any
notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative, and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 10 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to and coupled
with the interest of the other Stockholders hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of any Stockholder, by operation of law,
whether by such Stockholder's death or any other event.
4. CLOSING
4.1 Location and Date. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Morgan, Lewis & Bockius LLP, on April 3, 1998, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as USFloral, the Partners and the Stockholders may mutually agree,
which date shall be referred to as the "Closing Date."
4.2 Effect. On the Closing Date, the articles of merger, certificate of
merger, or other appropriate documents executed in accordance with the Florida
Business Corporation Act (the "Merger Documents"), together with any required
officers' certificates, shall be filed with the Secretary of State of the State
of Florida in accordance with the provisions of the Florida Business Corporation
Act. The Merger shall become effective upon such filing or at such later time
as may be specified in such filing (the "Effective Time").
5. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP, THE PARTNERS AND THE
STOCKHOLDERS
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To induce USFloral and Newco to enter into this Agreement and consummate
the transactions contemplated hereby, the Partnership, each Partner, each
Stockholder and each Beneficial Owner, jointly and severally, represents and
warrants to USFloral and Newco as follows (for purposes of this Agreement, the
term "knowledge" means the knowledge of the Stockholders, the Beneficial Owners
and the directors and officers of the Partnership and each Partner, including
facts of which the directors and officers, in the reasonably prudent exercise of
their duties, should be aware):
5.1 Due Organization. The Partnership is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization is
duly authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to own, operate and lease its
properties and to carry on its business in the places and in the manner as now
conducted except where the failure to be so authorized, qualified or licensed
would not have a material adverse effect on the business, operations,
properties, assets or condition, financial or otherwise, of such Partnership
("Material Adverse Effect"). Schedule 5.l hereto contains a list of all
jurisdictions in which the Partnership is authorized or qualified to do
business. The Partnership is in good standing in each jurisdiction it which it
does business. The Partnership has delivered to USFloral true, complete and
correct copies of its organizational documents. Each Partner is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly authorized, qualified and licensed
under all applicable laws, regulations, ordinances and orders of public
authorities to own, operate and lease its properties and to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized, qualified or licensed would not have a Material
Adverse Effect. Each Partner has delivered to USFloral true, complete and
correct copies of its Articles of Incorporation and Bylaws Such Articles of
Incorporation and Bylaws are collectively referred to as the "Charter
Documents." Neither Partner is in violation of its Charter Documents. The
minute books of the Partners have been made available to USFloral (and, as of
the Closing, will have been delivered, along with each Partner's original stock
ledger and corporate seal, to USFloral) and are correct and, except as set forth
in Schedule 5.1, complete in all material respects.
5.2 Authorization; Validity. Each of the Partnership and each Partner has
all requisite power, authority and the full legal right to enter into and
perform its obligations pursuant to the terms of this Agreement and the
transactions contemplated hereby. Each Stockholder has the full legal right and
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by the Partnership and each Partner
and the performance by the Partnership and each Partner of the transactions
contemplated herein have been duly and validly authorized by the Partnership,
the Board of Directors of each Partner and the Stockholders and this Agreement
has been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Partnership, each
Partner and each Stockholder, enforceable in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
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(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Partnership, any
Partner or any Stockholder is a party or by which the Partnership, any Partner
or any Stockholder is bound, or result in the creation or imposition of any
lien, charge or encumbrance on any of the Partnership's properties pursuant to
(i) any law or regulation to which the Partnership, any Partner or any
Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Partnership, any Partner or any
Stockholder is bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Partnership or any
Partner; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Partnership, any Partner or any Stockholder is subject or
by which the Company or any Stockholder is bound including, without limitation,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
together with all rules and regulations promulgated thereunder.
5.4 Partnership Interests; Capital Stock of the Partners. Talent, Inc.
and Anvacu, Inc. are all of the partners of the Partnership. The authorized
capital stock of Talent, Inc. consists of 100,000 shares of common stock, $1.00
par value, of which 1,000 shares are issued and outstanding. The authorized
capital stock of Anvacu, Inc. consists of 450,000 shares of common stock, $1.00
par value, of which 375,000 shares are issued and outstanding. All of the
issued and outstanding shares of the capital stock of each Partner have been
duly authorized and validly issued, are fully paid and nonassessable and are
owned of record and beneficially by the Stockholders in the amounts set forth in
Schedule 5.4 free and clear of all Liens (defined below), except restrictions on
transfer contained in the Elite Farms Partnership Agreement, which restrictions
shall be canceled as of Closing. All of the issued and outstanding shares of
the capital stock of each Partner Company were offered, issued, sold and
delivered by such Partner in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of any Partner. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
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5.5 Transactions in Capital Stock and Partnership Interests. No option,
warrant, call, subscription right, conversion right or other contract or
commitment of any kind exists of any character, written or oral, which may
obligate (i) the Partnership to issue, sell or otherwise cause to became
outstanding any interests in the Partnership, or (ii) any Partner to issue, sell
or otherwise cause to become outstanding any shares of capital stock. Neither
Partner has an obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. As a result of
the Merger, USFloral will be the record and beneficial owner of all outstanding
capital stock of each Partner and rights to acquire capital stock of the
Company. The Partnership has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any interests in the Partnership or make
any distribution in respect thereof.
5.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 5.6(a), neither Partner has any
subsidiaries.
(b) Except as set forth on Schedule 5.6(b), neither the Partnership
nor any Partner owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Partnership or any Partner, directly or indirectly, a participant in any
joint venture, partnership (other than the Partnership) or other noncorporate
entity.
(c) Except as set forth on Schedule 5.6(c), there are no promissory
notes that have been issued to, or are held by, the Partnership or any Partner.
5.7 Predecessor Status. Schedule 5.7 sets forth a list of all names of
all predecessor companies of the Partnership, including the names of any
entities from which the Partnership previously acquired significant assets. The
Partnership has never been a subsidiary or division of a corporation, nor has it
been a part of an acquisition that was later rescinded.
5.8 Absence of Claims Against the Partnership and the Partners. Except as
set forth on Schedule 5.8, no Partner has any claims against the Partnership.
No Stockholder has any claims against any Partner.
5.9 Partnership Financial Conditions.
(a) The Partnership's net worth (i) as of the end of its most recent
fiscal year was not less than $1,000,000, and (ii) as of the Closing will not be
less than the Net Worth Target. For purposes of this Section 5.9(a),
calculation of amounts as of the Closing shall be made in accordance with the
last paragraph of Section 8.9.
(b) The Partnership's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)) for (i) its most recent
fiscal year was not less than $1,236,000.
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5.10 Financial Statements. Schedule 5.10 includes (a) true, complete and
correct copies of the Partnership's audited balance sheet as of December 31,
1997 and income statement for the year then ended (collectively, the "Audited
Financials") and (b) true, complete and correct copies of the Partnership's
unaudited balance sheet (the "Interim Balance Sheet") as of February 28, 1998
(the "Balance Sheet Date") and income statement, for the two-month period then
ended (collectively, the "Interim Financials," and together with the Audited
Financials, the "Partnership Financial Statements"). Except as noted on the
auditors' report accompanying the Audited Financials, the Partnership Financial
Statements have been prepared in accordance with GAAP consistently applied,
subject to, in the case of the Interim Financials, (i) normal year-end audit
adjustments, which individually or in the aggregate will not be material, (ii)
the exceptions stated on Schedule 5.10, and (iii) the omission of footnote
information. Each balance sheet included in the Partnership Financial
Statements presents fairly the financial condition of the Partnership as of the
date indicated thereon, and each of the income statements included in the
Partnership Financial Statements presents fairly the results of its operations
for the periods indicated thereon. Since the dates of the Partnership Financial
Statements, there have been no material changes in the Partnership's accounting
policies other than as requested by USFloral to conform the Partnership's
accounting policies to GAAP.
5.11 Liabilities and Obligations.
(a) The Partnership is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance Sheet
and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) The Partnership has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 5.11(c) also includes a summary description of all plans
or projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any real property or existing business, to
which management of the Partnership has made any material expenditure in the
two-year period prior to the date of this Agreement, which if pursued by the
Partnership or the Surviving Corporation would require additional material
expenditures of capital.
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(d) Neither Partner is liable for or subject to any liabilities for
any liabilities other than the liabilities of the Partnership.
(e) For purposes of this Section 5.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 5.11(d)
contains a complete list of all indebtedness of the Partnership.
5.12 Accounts and Notes Receivable. The Partnership has delivered to
USFloral a complete and accurate list, as of a date not more than two (2)
business days prior to the date hereof, of the accounts and notes receivable of
the Partnership (including without limitation receivables from and advances to
employees, Partners and the Stockholders), which includes an aging of all
accounts and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). On the Closing Date, the Partnership
will deliver to USFloral a complete and accurate list, as of a date not more
than two (2) business days prior to the Closing Date, of the Accounts
Receivable. All Accounts Receivable represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. Except as disclosed in Schedule 5.12, (i) the Accounts Receivable are
current and collectible net of any respective reserves shown on the
Partnership's books and records (which reserves are adequate and calculated
consistent with past practice); and (ii) subject to such reserves, each of the
Accounts Receivable will be collected in full, without any set-off, within
ninety (90) days after the day on which it first became due and payable. There
is no contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
5.13 Books and Records. The Partnership has made and kept books and
records and accounts, which, in reasonable detail, accurately and fairly reflect
the activities of the Partnership. The Partnership has not engaged in any
transaction, maintained any bank account, or used any partnership funds except
for transactions, bank accounts, and funds which have been and are reflected in
its normally maintained books and records.
5.14 Permits. The Partnership owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Partnership has not received any
notice that any governmental authority intends to modify, cancel, terminate or
fail to renew any Permit. No present or former officer, manager, member or
employee of the Partnership or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any Permits. The Partnership has conducted and
is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits and
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other applicable orders, approvals, variances, rules and regulations and is not
in violation of any of the foregoing. The transactions contemplated by this
Agreement will not result in a default under, or a breach or violation of, or
adversely affect the rights and benefits afforded to the Partnership by, any
Permit.
5.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 5.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
owner, and Partnership's use thereof) and, to the Partnership's knowledge, any
Liens. Schedule 5.15(b) indicates whether the Real Property is owned or leased.
The Real Property listed on Schedule 5.15 includes all interests in real
property necessary to conduct the business and operations of the Partnership.
(c) Except as set forth in Schedule 5.15(c):
(i) All present uses and operations of the Real Property
comply with all applicable statutes, rules, regulations, ordinances, orders,
writs, injunctions, judgments, decrees, awards or restrictions of any government
entity having jurisdiction over any portion of the Real Property (including,
without limitation, applicable statutes, rules, regulations, orders and
restrictions relating to zoning, land use, safety, health, employment and
employment practices and access by the handicapped) (collectively, "Laws"),
covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Real Property. The Partnership has obtained all
approvals of governmental authorities (including certificates of use and
occupancy, licenses and permits) required in connection with the use, occupation
and operation of the Real Property.
(ii) There are no pending or, to the Partnership's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Partnership, any
Partner or any of the Stockholders received notice of any pending or threatened
special assessment proceedings affecting any portion of the Real Property.
(iii) Except as set forth in Schedule 5.15(c), there are no
parties other than the Partnership in possession of any of the Real Property or
any portion thereof, and there are no leases, subleases, licenses, concessions
or other agreements, written or oral, granting to any party or parties the right
of use or occupancy of any portion of the Real Property or any portion thereof.
(iv) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Partnership leases from any other party any real property, including all
amendments, renewals, extensions, modifications or supplements to
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any of the foregoing or substitutions for any of the foregoing (collectively,
the "Leases") are valid and in full force and effect. The Partnership has
provided USFloral with true and complete copies of all of the Leases, all
amendments, renewals, extensions, modifications or supplements thereto, and all
material correspondence related thereto, including all correspondence pursuant
to which any party to any of the Leases declared a default thereunder or
provided notice of the exercise of any operation granted to such party under
such Lease. The Leases and the Partnership's interests thereunder are free of
all Liens.
(v) None of the Leases requires the consent or approval of
any party thereto in connection with the consummation of the transactions
contemplated hereby.
5.16 Personal Property.
(a) Schedule 5.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Partnership with a current book value in excess
of $10,000 both (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date, including in each case true, complete and correct copies of
leases for material equipment and an indication as to which assets are currently
owned, or were formerly owned, by any Stockholder or business or personal
affiliates of any Stockholder or of the Partnership.
(b) The Partnership currently owns or leases all personal property
necessary to conduct the business and operations of the Partnership as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
the Partnership, including those listed on Schedule 5.16(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 5.16(a) are in full force and effect and constitute valid and binding
agreements of the Partnership, and the Partnership is not in breach of any of
their terms. All fixed assets used by the Partnership that are material to the
operation of its business are either owned by the Partnership or leased under an
agreement listed on Schedule 5.16(a).
5.17 Intellectual Property.
(a) The Partnership is the true and lawful owner of, or is licensed
or otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 5.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Partnership now owns
or uses in connection with its business. Except with respect to those Marks
shown as licensed on Schedule 5.17(a), the Partnership owns all of the
registered and unregistered trademarks, service marks, and trade names that it
uses. The Marks listed on Schedule 5.17(a) will not cease to be valid rights of
the Partnership by reason of the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby. For
purposes of this Section 5.17, the term "Mark" shall mean
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all right, title and interest in and to any United States or foreign trademarks,
service marks and trade names now held by the Partnership, including any
registration or application for registration of any trademarks and services
marks in the PTO or the equivalent thereof in any state of the United States or
in any foreign country, as well as any unregistered marks used by the
Partnership, and any trade dress (including logos, designs, Partnership names,
business names, fictitious names and other business identifiers) used by the
Partnership in the United States or any foreign country.
(b) The Partnership is the true and lawful owner of, or is licensed
or otherwise possesses legally enforceable rights to use, all rights in the
Patents listed on Schedule 5.17(b)(i) and in the Copyright registrations listed
on Schedule 5.17(b)(ii). Such Patents and Copyrights constitute all of the
Patents and Copyrights that the Partnership now owns or is licensed to use. The
Partnership owns or is licensed to practice under all patents and copyright
registrations that the Partnership now owns or uses in connection with its
business. For purposes of this Section 5.17, the term "Patent" shall mean any
United States or foreign patent to which the Partnership has title as of the
date of this Agreement, as well as any application for a United States or
foreign patent made by the Partnership; the term "Copyright" shall mean any
United States or foreign copyright owned by the Partnership as of the date of
this Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by the
Partnership.
(c) The Partnership is the true and lawful owner of, or is licensed
or otherwise possesses legally enforceable rights to use, all rights in the
trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 5.17(c). Those Other Rights constitute all of the Other
Rights that the Partnership now owns or is licensed to use. The Partnership owns
or is licensed to practice under all trade secrets, franchises or similar rights
that it owns, uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 5.17(a), 5.17(b)(i), 5.17(b)(ii), and 5.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Partnership is referred to herein collectively as the "Partnership
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 5.17(d), the Partnership has no obligations to compensate any person
for the use of any Intellectual Property nor has the Partnership granted to any
person any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Partnership is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 5.17(a), (b), or (c). No claims
with respect to the Partnership Intellectual Property or Third Party
Intellectual Property are currently pending or, to the knowledge of the
Partnership, are threatened by any person, nor, to the Partnership's knowledge,
do any grounds for any claims exist: (i) to the effect that the manufacture,
sale, licensing or use of any product as now used, sold or licensed or proposed
for use, sale or license by the Partnership infringes on any copyright, patent,
trademark, service mark or trade secret; (ii)
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against the use by the Partnership of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Partnership's business as currently conducted by
the Partnership; (iii) challenging the ownership, validity or effectiveness of
any of the Partnership Intellectual Property or other trade secret material to
the Partnership; or (iv) challenging the Partnership's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Partnership's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Partnership Intellectual Property by any third
party. Neither the Partnership nor any of its subsidiaries (x) has been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim or infringement of trade secrets, any patents, trademarks,
service marks, or copyrights and which has not been finally terminated or been
informed or notified by any third party that the Partnership may be engaged in
such infringement or (y) has knowledge of any infringement liability with
respect to, or infringement by, the Partnership or any of its subsidiaries of
any trade secret, patent, trademark, service mark, or copyright of another.
(f) All Intellectual Property in the form of computer software that
is utilized by the Partnership in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries.
5.18 Material Contracts and Commitments.
(a) Schedule 5.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Partnership is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Partnership and any affiliate of the Partnership or
any officer, director or stockholder of the Partnership are parties ("Related
Party Agreements"); or (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, $10,000, or that may generate
revenues or income exceeding, during the current term thereof, $10,000
(collectively with the Related Party Agreements, the "Material Contracts"). The
Partnership has delivered to USFloral true, complete and correct copies of the
Material Contracts. The Partnership has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
notice of default has been received with respect to any thereof, and there are
no Material Contracts that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 7.4, is valid and binding on the Partnership and is in full force and
effect and is not subject to any default thereunder by any party obligated to
the Partnership pursuant thereto. The Partnership [has obtained/will obtain
prior to the Closing Date] all necessary consents, waivers and approvals of
parties to any Material Contracts that are required in connection with any of
the transactions contemplated hereby, or are required by any governmental agency
or other third party or are advisable in order that any such Material Contract
remain in effect without modification after the
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Merger and without giving rise to any right to termination, cancellation or
acceleration or loss of any right or benefit ("Third Party Consents"). All Third
Party Consents are listed on Schedule 5.18(b).
(c) The outstanding balance on all loans or credit agreements
either (i) between the Partnership and any Person in which any Partner or any
Stockholder owns a material interest, (ii) between any Partner and any Person in
which any Stockholder owns a material interest, or (iii) guaranteed by the
Partnership or any Partner for the benefit of any Person in which any of the
Stockholders owns a material interest, are set forth in Schedule 5.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially
all of the Partnership's assets (including, without limitation, a pledge of the
Partnership's contract rights under any Material Contract) will not, except as
set forth on Schedule 5.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Partnership (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 5.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which the Partnership is a party or by which the property of the
Partnership is bound.
5.19 Government Contracts.
(a) Except as set forth on Schedule 5.19, the Partnership is not a
party to any government contracts.
(b) The Partnership has not been suspended or debarred from bidding
on contracts or subcontracts for any agency or instrumentality of the United
States Government or any state or local government, nor, to the knowledge of the
Partnership, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Partnership's suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 5.19, the Partnership has not
been, nor is it now being, audited, or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Partnership, has such audit or
investigation been threatened.
(d) The Partnership has no dispute pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or instrumentality of the United States Government or any
state or local government, relating to a contract.
(e) The Partnership has not, with respect to any government
contract, received a cure notice advising the Partnership that it is or was in
default or would, if it failed to take remedial action, be in default under such
contract.
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(f) The Partnership has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate of
the Partnership or any Partner is in receipt or possession of any competitor or
government proprietary or procurement sensitive information related to the
Partnership's business under circumstances where there is reason to believe that
such receipt or possession is unlawful or unauthorized.
(h) Each of the Partnership's government contracts has been issued,
awarded or novated to the Partnership in the Partnership's name.
5.20 Insurance. Schedule 5.20 sets forth a complete and accurate list of
all insurance policies carried by the Partnership and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Partnership has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Partnership is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Partnership. The insurance carried
by the Partnership with respect to its properties, assets and business is, to
the Partnership's knowledge, with financially sound insurers. To the knowledge
of the Partnership, there have been no threatened terminations of, or material
premium increases with respect to, any of such policies.
5.21 Labor and Employment Matters. With respect to employees of and
service providers to the Partnership, and except as otherwise provided in
Schedule 5.21:
(a) the Partnership is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Partnership pending or, to
the Partnership's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three years has there
been, any labor strike, slowdown or stoppage actually pending or, to the
Partnership's knowledge, threatened, against or directly affecting the
Partnership;
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(d) to the Partnership's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Partnership's knowledge,
no claims therefor exist or have been threatened;
(f) the employees of the Partnership are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Partnership or currently being negotiated by
the Partnership; and
(g) all persons classified by the Partnership as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Partnership has fully and accurately reported their
compensation on IRS Forms 1099 when required to do so.
5.22 Employee Benefit Plans. Attached hereto as Schedule 5.22 are
complete and accurate copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the Partnership, or to which the Partnership currently contributes, or has an
obligation to contribute in the future (including, without limitation,
employment agreements and any other agreements containing "golden parachute"
provisions and deferred compensation agreements), together with copies of any
trusts related thereto and a classification of employees covered thereby
(collectively, the "Plans"). Schedule 5.22 sets forth all of the Plans that have
been terminated within the past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 5.22. To the extent that any
Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) the Stockholders; (ii) the Partners; (iii) any
Plan; or (iv) the Partnership has engaged in any transaction prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency, as defined
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in Section 412(a) of the Code and Section 302(1) of ERISA; and the Partnership
does not currently have (nor at the Closing Date will have) any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation ("PBGC") with respect to any such Plan under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty; and neither the
Partnership nor any member of a "controlled group" (as defined in ERISA Section
4001(a)(14)) currently has (or at the Closing Date will have) any obligation
whatsoever to contribute to any "multi-employer pension plan" (as defined in
ERISA Section 4001(a)(14), nor has any withdrawal liability whatsoever (whether
or not yet assessed) arising under or capable of assertion under Title IV of
ERISA (including, but not limited to, Sections 4201, 4202, 4203, 4204, or 4205
thereof) been incurred by any Plan. Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Plan which were not
properly reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), the Company and the Stockholders have complied (and on the Closing
Date will have complied), in all respects with all reporting, disclosure,
notice, election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the Partnership has no (and will incur
no) direct or indirect liability and is not (and will not be) subject to any
loss, assessment, excise tax penalty, loss of federal income tax deduction or
other sanction, arising on account of or in respect of any direct or indirect
failure by the Partnership, the Partners or the Stockholders, at any time prior
to the Closing Date, to comply with any such federal or state benefit
continuation requirement, which is capable of being assessed or asserted before
or after the Closing Date directly or indirectly against the Partnership, the
Partners or the Stockholders with respect to such group health plans;
(f) the Partnership is not now nor has it been within the past five
years a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Partnership's knowledge, there
is no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other
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proceeding, or investigation with respect to any Plan, or with respect to any
fiduciary, administrator, or sponsor thereof (in their capacities as such), or
any party in interest thereof;
(h) the Financial Statements as of the Balance Sheet Date reflect
the approximate total pension, medical and other benefit expense for all Plans,
and no material funding changes or irregularities are reflected thereon which
would cause such Financial Statements to be not representative of most prior
periods; and
(i) the Partnership has not incurred liability under Section 4062
of ERISA.
5.23 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 5.23(a), the Partnership is not
in violation of any law or regulation or under any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction which would have a
Material Adverse Effect. The Partnership has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect.
(b) No Stockholder has, at any time: (i) committed any criminal
act (except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 5.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Partners,
threatened against or affecting the Partnership or the Partners at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. There are no judgments,
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration) against the Partnership or
against any of its properties or business.
5.24 Taxes.
(a)
(i) The Partnership has timely filed all Tax Returns due
on or before the Closing Date and all such Tax Returns are true, correct and
complete in all respects.
(ii) The Partnership has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return.
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(iii) The amount of the Partnership's liability for unpaid
Taxes as of the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Interim Balance Sheet, and the amount of the Partnership's liability for
unpaid Taxes for all periods or portions thereof ending on or before the Closing
Date will not exceed the amount of the current liability accruals for Taxes
(excluding reserves for Deferred Taxes) as such accruals are reflected on the
books and records of the Partnership on the Closing Date.
(iv) There are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) The Partnership has a taxable year ended on December 31.
(vi) The Partnership currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past six years. The Partnership has not agreed to, and is not and will
not be required to, make any adjustments under Code Section 481(a) as a result
of a change in accounting methods.
(vii) The Partnership has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Partnership for the last five fiscal years have been delivered to
USFloral.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Partnership relating to or
attributable to Taxes.
(x) To the Partnership's knowledge, there is no basis for
the assertion of any claim relating to or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Partnership
or otherwise have an adverse effect on the Partnership or its business.
(xi) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Partnership that, individually
or collectively, could give rise to any payment (or portion thereof) that would
not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xii) The Partnership is not, and has not been at any time,
a party to a tax sharing, tax indemnity or tax allocation agreement, and the
Partnership has not assumed the tax liability of any other person under
contract.
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(xiii) The Partnership's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Partnership's tax books and
records.
(b)
(i) Talent, Inc. has, since August 17, 1992, been an S
corporation within the meaning of Section 1361 of the Code.
(ii) Talent, Inc. does not have a net recognized built-in
gain within the meaning of Section 1374 of the Code
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including
any information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
(d) The Merger qualifies as a reorganization pursuant to the
provisions of Section 368(a)(2)(D) of the Code.
5.25 Absence of Changes. Since the Balance Sheet Date, the Partnership
has conducted its business in the ordinary course and, except as contemplated
herein or as set forth on Schedule 5.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Partnership;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Partnership;
(c) any change in the ownership interests of the Partnership or any
grant of any options, rights or commitments; any change in the authorized
capital of any Partner or in any Partner's outstanding securities or any change
in any Partner's ownership interests or any grant of any options, warrants,
calls, conversion rights or commitments;
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(d) any distribution in respect of the ownership interests of the
Partnership, or any direct or indirect redemption, purchase or other acquisition
of any of ownership interests of the Partnership;
(e) any increase in the compensation, bonus, sales commissions or
fee arrangements payable or to become payable by the Partnership to any of its
Partners, officers, directors, employees, consultants or agents, or the
Stockholders, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Partnership to any person, including
without limitation the Partners, the Stockholders and their affiliates (except
for sales of inventory in the ordinary course of business);
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Partnership, including without limitation any
indebtedness or obligation of the Partners, the Stockholders and their
affiliates, provided that the Partnership may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent with past
practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Partnership or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Partnership;
(k) any waiver of any material rights or claims of the Partnership;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Partnership is a party;
(m) any transaction by the Partnership outside the ordinary course
of business;
(n) any capital commitment by the Partnership, either individually
or in the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Partnership or
the revaluation by the Partnership of any of its assets;
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(p) any creation or assumption by the Partnership of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or
non-renewal by the Partnership of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Partnership in
excess of $25,000;
(r) any loan by the Partnership to any person or entity, incurring
by the Partnership, of any indebtedness, guaranteeing by the Partnership of any
indebtedness, issuance or sale of any debt securities of the Partnership or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Partnership, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Partnership or any of its affairs; or
(t) negotiation or agreement by the Partnership or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with USFloral and its representatives
regarding the transactions contemplated by this Agreement).
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Partnership
has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Partnership and a
description of the terms of such power.
5.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule
5.27(a), no underground storage tanks and no amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state,
local or other applicable law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980,
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as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies
properly and safely maintained (a "Hazardous Material"), are present in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Partnership has at any time owned, operated,
occupied or leased. Schedule 5.27(a) identifies all underground and aboveground
storage tanks, and the capacity, age, and contents of such tanks, located on
Real Property owned or leased by the Partnership.
(b) Hazardous Materials Activities. The Partnership has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Partnership disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (collectively,
"Partnership Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. The Partnership currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Partnership's Hazardous Material
Activities and other business of the Partnership as such activities and business
are currently being conducted. All Environmental Permits are in full force and
effect. The Partnership (A) is in compliance in all material respects with all
terms and conditions of the Environmental Permits and (B) is in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Partnership's knowledge, there are no circumstances
that may prevent or interfere with such compliance in the future. Schedule
5.27(d) includes a listing and description of all Environmental Permits
currently held by the Partnership.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Partnership, threatened concerning any Environmental Permit,
Hazardous Material or any Partnership Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Partnership (or any person or entity whose
liability the Partnership has retained or assumed, either by contract or
operation of law) in any environmental litigation, or impose upon the
Partnership (or any person or entity whose liability the Partnership has
retained or assumed, either by contract or operation of law) any environmental
liability including, without limitation, common law tort liability.
5.28 Relations with Governments. Neither the Partnership nor any Partner
has made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office, nor has the
Partnership or any Partner otherwise taken any action that would
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cause the Partnership or any Partner to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any law of similar effect.
5.29 Disclosure. The Partnership has delivered to USFloral and Newco true
and complete copies of each agreement, contract, commitment or other document
(or summaries thereof) that is referred to in the Schedules or that has been
requested by USFloral. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement, the schedules hereto and all other documents and information
furnished to USFloral and its representatives pursuant hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. If any
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Partnership, the Stockholder shall
immediately give notice of such fact or circumstance to USFloral. However, such
notification shall not relieve the Partnership, the Partners or the Stockholder
of their respective obligations under this Agreement, and at the sole option of
USFloral, the truth and accuracy of any and all warranties and representations
of the Stockholders, at the date of this Agreement and as of the Closing date,
shall be a precondition to the consummation of this transaction.
5.30 USFloral Prospectus; Securities Representations. Each Stockholder
has received and reviewed a copy of the prospectus dated March 18, 1998
including all supplements thereto (as supplemented, the "USFloral Prospectus")
contained in USFloral's shelf registration statement on Form S-1 (File No. 333-
39969). Each Stockholder (a) has such knowledge, sophistication and experience
in business and financial matters that they are capable of evaluating the merits
and risks of an investment in the shares of USFloral Common Stock, (b) fully
understands the nature, scope, and duration of the limitations on transfer
contained herein, in the Affiliate Agreement (if applicable), and under
applicable law, and (c) can bear the economic risk of any investment in the
shares of USFloral Common Stock and can afford a complete loss of such
investment. Each Stockholder has had an adequate opportunity to ask questions
and receive answers (and has asked such questions and received answers to its
satisfaction) from the officers of USFloral concerning the business, operations
and financial condition of USFloral. None of the Stockholders has any contract,
undertaking, agreement or arrangement, written or oral, with any other person to
sell, transfer or grant participation in any shares of USFloral Common Stock to
be acquired by such Stockholder in the Merger. Each Stockholder acknowledges and
agrees that USFloral has not and will not provide such Stockholder or any other
party with a prospectus for such Stockholder's use in selling USFloral Common
Stock.
5.31 Affiliates. The Stockholders are the only persons who are, in
the reasonable judgment of the Partnership, the Partners and each of the
Stockholders, affiliates of the Partnership within the meaning of Rule 145
(each such person an "Affiliate") promulgated under the 1933 Act.
5.32 Location of Chief Executive Offices. Schedule 5.32 sets forth the
location of the Company's chief executive offices.
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5.33 Location of Equipment and Inventory. All Inventory and Equipment
held on the date hereof by the Partnership is located at one of the locations
shown on Schedule 5.33. For purposes of this Agreement, (a) the term "Inventory"
shall mean any "inventory" as such term is defined in the Uniform Commercial
Code as in effect on October 16, 1997 in the State of New York (the
"N.Y.U.C.C.") owned by the Partnership as of the date hereof, and, in any event,
shall include, but shall not be limited to, all merchandise, inventory and
goods, and all additions, substitutions and replacements thereof, wherever
located, together with all goods, supplies, incidentals, packaging materials,
labels, materials and any other items used or usable in manufacturing,
processing, packaging or shipping same; in all stages of production, and all
proceeds therefrom; and (b) the term "Equipment" shall mean any "equipment" as
such term is defined in the N.Y.U.C.C. owned by the Partnership as of October
16, 1997, and, in any event, shall include, but shall not be limited to, all
machinery, equipment, furnishings, fixtures and vehicles owned by the
Partnership, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
6. REPRESENTATIONS OF USFLORAL AND NEWCO
To induce the Partnership, the Partners the Stockholders and the Beneficial
Owners to enter into this Agreement and consummate the transactions contemplated
hereby, each of USFloral and Newco represents and warrants to the Partnership,
the Partners the Stockholders and the Beneficial Owners as follows:
6.1 Due Organization. Each of USFloral and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and each is duly authorized and qualified to
do business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on their respective businesses in the places and in
the manner as now conducted, except where the failure to be so authorized,
qualified or licensed would not have a Material Adverse Effect. Copies of the
Certificate of Incorporation and the Bylaws, each as amended, of USFloral and
Newco (collectively, the "USFloral Charter Documents") have been made available
to the Company. Neither USFloral nor Newco is in violation of any USFloral
Charter Document.
6.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholders at the Effective Time shall be registered under
the 1933 Act and, when delivered in accordance with the terms of this Agreement,
will be valid and legally issued shares of USFloral capital stock, fully paid
and nonassessable, and prior to the time such shares may be transferred in
accordance with the provisions of Section 7.9 hereof, will be approved for
quotation on the Nasdaq National Market.
6.3 Authorization; Validity of Obligations. The representatives of
USFloral and Newco executing this Agreement have all requisite corporate power
and authority to enter into and bind USFloral and Newco to the terms of this
Agreement. USFloral and Newco have the full legal right, power and corporate
authority to enter into this Agreement and the transactions contemplated
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hereby. The execution and delivery of this Agreement by USFloral and Newco and
the performance by each of USFloral and Newco of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of USFloral and Newco, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of each of USFloral and Newco enforceable in accordance
with its terms.
6.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and
its lenders, conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which either USFloral or Newco is a
party, or result in the creation or imposition of any lien, charge or
encumbrance on any of USFloral's or Newco's properties pursuant to (i) any law
or regulation to which either USFloral or Newco or any of their respective
property is subject, or (ii) any judgment, order or decree to which USFloral or
Newco is bound or any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral or
Newco; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral or Newco is subject, or by which USFloral or Newco
is bound, (including, without limitation, the HSR Act, together with all rules
and regulations promulgated thereunder).
6.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. The
authorized capital stock of Newco consists of 1,000 shares of Common Stock, of
which 100 shares are outstanding. All of the issued and outstanding shares of
Newco are owned beneficially, and of record, by USFloral. All of the shares of
USFloral Common Stock to be issued to the Stockholders in accordance herewith
will be offered, issued, sold and delivered by USFloral in compliance with all
applicable state and federal laws concerning the issuance of securities and none
of such shares was or will be issued in violation of the preemptive rights of
any stockholder of USFloral.
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7. COVENANTS
7.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(i) The Stockholders shall prepare or cause to be prepared
and file or cause to be filed, within the time and in the manner provided by
law, all Tax Returns of the Partnership and the Partners for all periods ending
on or before the Closing Date that are due after the Closing Date. The
Stockholders shall pay to the Surviving Corporation on or before the due date of
such Tax Returns the amount of all Taxes shown as due on such Tax Returns to the
extent that such Taxes are not reflected in the current liability accruals for
Taxes (excluding reserves for deferred Taxes) shown on the Partnership's or the
Partners' books and records, as the case may be, as of the Closing Date. Such
Returns shall be prepared and filed in accordance with applicable law and in a
manner consistent with past practices and shall be subject to review and
approval by USFloral. To the extent reasonably requested by the Stockholders or
required by law, USFloral and the Surviving Corporation shall participate in the
filing of any Tax Returns filed pursuant to this paragraph.
(ii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholders
shall pay to the Surviving Corporation within fifteen (15) days after the date
on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Partnership's books and records as of the Closing Date. For purposes of this
Section 7.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Surviving Corporation.
(iii) USFloral and the Surviving Corporation on one hand and
the Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with
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the preparation and filing of Tax Returns pursuant to this Section 7.1 and any
audit, litigation or other proceeding with respect to Taxes; (B) make available
to the other, as reasonably requested, all information, records or documents
with respect to Tax matters pertinent to the Partnership or the Partners for all
periods ending prior to or including the Closing Date; and (C) preserve
information, records or documents relating Tax matters pertinent to the
Partnership or the Partners that is in their possession or under their control
until the expiration of any applicable statute of limitations or extensions
thereof.
(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporation will join in the execution of any such
Tax Returns and other documentation.
(b) Talent, Inc. shall, prior to the Closing, maintain its status
as an S Corporation for federal and state income tax purposes.
7.2 Reserved.
7.3 Related Party Agreements and Personal Vehicles. The Partnership,
the Partners and/or the Stockholders, as the case may be, shall terminate any
Related Party Agreements which USFloral requests the Partnership, the Partners
or Stockholders to terminate, except for those Related Party Agreements listed
in Schedule 7.3. The Stockholders shall also purchase any personal vehicles
owned by either Company at a value equal to the greater of such vehicles net
book value or the outstanding indebtedness against such vehicle.
7.4 Cooperation.
(a) The Partnership, the Partners, the Stockholders, USFloral and
Newco shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places as shall be reasonably agreed to, such
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. In connection therewith, if required, the president or chief
financial officer of the Partnership or the Partners shall execute any
documentation reasonably required by USFloral's independent public accountants
(in connection with such accountants' audit of the Company) or the Nasdaq
National Market.
(b) The Stockholders, the Partners and the Partnership shall
cooperate and use their reasonable efforts to have the present officers,
directors and employees of the Partnership cooperate with USFloral on and after
the Closing Date in furnishing information, evidence, testimony and other
assistance in connection with any filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
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(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
(d) The Partnership, the Partners, the Stockholders and USFloral
shall file all notices and other information and documents required under the
HSR Act (as defined in Section 5.3) as promptly as practicable after the date
hereof.
7.5 Conduct of Business Pending Closing. Between the date hereof and the
Effective Time, the Partnership will (except as requested or agreed by
USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
7.6 Access to Information. Between the date of this Agreement and the
Closing Date, the Partnership will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Partnership and (ii) such additional financial and operating
data and other information as to the business and properties of the Partnership
as USFloral may from time to time reasonably request, including without
limitation, access upon reasonable request to the Partnership's employees,
customers, vendors, suppliers and creditors for due diligence inquiry. No
information or knowledge obtained in any investigation pursuant to this Section
7.7 shall
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affect or be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to consummate the
Merger.
7.7 Prohibited Activities. Between the date hereof and the Effective
Time, the Partnership will not, without the prior written consent of USFloral:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) make any distribution (whether in cash, stock or property) in
respect of the ownership interests of the Partnership; nor shall any Partner
declare or pay any dividend or make any distribution in respect of such
Partner's stock whether now or hereafter outstanding, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or purchase, redeem or otherwise acquire or retire for value any
shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Partner, Stockholder, employee, agent, representative or
independent contractor; make any bonus or management fee payment to any such
person; make any loans or advances; adopt or amend any Company Plan or Company
Benefit Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Partnership;
(i) merge or consolidate or agree to merge or consolidate with or
into any other entity;
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(j) waive any material rights or claims of the Partnership, provided
that the Partnership may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction that is (i) not negotiated at
arm's length with a third party not affiliated with the Partnership, the
Partners or any officer, director or Partner of the Partnership or any
Stockholder of any Partner or (ii) outside the ordinary course of business
consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 7.8(a) through (o) above, or any action which
would make any of the representations and warranties of the Partnership, the
Partners and the Stockholders contained in this Agreement untrue or result in
any of the conditions set forth in Articles 8 and 9 not being satisfied.
7.8 Notice to Bargaining Agents. Prior to the Closing Date, the
Partnership shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by USFloral, and shall provide USFloral with proof that
any required notice has been sent.
7.9 Sales of USFloral Common Stock.
(a) No Stockholder will, directly or indirectly, offer, sell,
contract to sell, pledge or otherwise dispose of the shares of USFloral Common
Stock to be received by such Stockholder in the Merger prior to the date that
is, (i) with respect to one-third of the shares, eighteen months from the
Closing Date, (ii) with respect to two-thirds of the shares, twelve months from
the Closing Date and (iii) with respect to all of the shares, six months from
the Closing Date.
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(b) Each Stockholder acknowledges and agrees that USFloral will not
provide such Stockholder with a prospectus for such Stockholder's use in selling
the shares of USFloral Common Stock to be received by such Stockholder in the
Merger, and agrees to sell such shares only in accordance with the requirements,
if any, of Rule 145(d) promulgated under the 1933 Act. USFloral acknowledges
that the provisions of this Section 7.9(b) will be satisfied as to any sale by a
Stockholder of the USFloral Common Stock Stockholder may acquire pursuant to the
Merger pursuant to Rule 145(d) under the Securities Act, by a broker's letter
and a letter from the Stockholder with respect to that sale stating that the
applicable requirements of Rule 145(d)(1) have been met or are inapplicable by
virtue of Rule 145(d)(2) or Rule 145(d)(3) provided, however, that USFloral has
no reasonable basis to believe that such sales were not made in compliance with
such provisions of Rule 145(d) and subject to any changes in Rule 145 after the
date of this Agreement.
(c) The certificate or certificates evidencing the shares of
USFloral Common Stock to be delivered to the Stockholders in the Merger will
bear restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN
OF REORGANIZATION, DATED AS OF APRIL 3, 1998, AMONG THE ISSUER AND THE
STOCKHOLDERS OF TALENT, INC. AND ANVACU, INC. PRIOR TO THE EXPIRATION OF
SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
TRANSFER OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING PERIOD HAS
EXPIRED.
*** Certificates representing one-third of the shares of USFloral Common Stock
issued will read "October 3, 1998," one-third will read "April 3, 1999" and one-
third will read "October 3, 1999."
7.10 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 6.25% of the Merger
Consideration provided for in Section 2.2 above shall be available for issuance
to the key employees of the Surviving Corporation after the Closing, as
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determined by the Surviving Corporation's President (or other officer or
director designated by the Surviving Corporation and acceptable to USFloral) in
accordance with USFloral's policies, and authorized and issued under the terms
of USFloral's 1997 Long-Term Incentive Plan.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO
The obligation of USFloral and Newco to effect the Merger is subject to the
satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Beneficial Owners, Stockholders, the
Partners and the Partnership contained in this Agreement shall be true, correct
and complete on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by the Partnership, the Partners the Stockholders
and the Beneficial Owners on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Partnership, on
behalf of each Partner and by each of the Stockholders shall have been delivered
to USFloral.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Partnership, or limiting or restricting
USFloral's conduct or operation of the business of the Partnership (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit claim or proceeding of any nature
pending or threatened against USFloral, Newco, the Partnership or any Partner,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Partnership.
8.3 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Partnership, taken as a whole, since the Balance
Sheet Date; and USFloral shall have received a certificate signed by each
Stockholder dated the Closing Date to such effect.
8.4 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Partnership, the Partners and the Stockholders of the
transactions contemplated hereby, shall have been obtained and made. Any
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated, and no action by the Department of
Justice or Federal Trade
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Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby shall be pending.
8.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Partnership, the Partners the Stockholders and the Beneficial
Owners, dated the Closing Date, in a form reasonably satisfactory to USFloral.
8.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of each Partner certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of each Partner
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to USFloral.
8.7 Due Diligence Review. The Partnership shall have made such
deliveries as are called for by this Agreement. USFloral shall be fully
satisfied in its sole discretion with the results of its review of all of the
Schedules, whether delivered before or after the execution hereof, and such
deliveries, and its review of, and other due diligence investigations with
respect to, the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits and condition
(financial or otherwise) of the Partnership.
8.8 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Partnership and each Partner and by each
of the Stockholders, setting forth:
(a) the net worth of the Partnership as of the last day of its most
recent fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Partnership as of the Closing Date (the
"Certified Closing Net Worth");
(c) the earnings of the Partnership before interest and taxes (after
the addition of "add-backs" set forth on Schedule 5.9(b)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the Company financial conditions set
forth in Section 5.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth and the Certified Closing EBIT, the Partnership shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after December 31,
1997.
8.9 FIRPTA Compliance. Each of the Stockholders shall have delivered
to USFloral a properly executed statement in a form reasonably acceptable
to USFloral for purposes of satisfying USFloral's obligations under Treas.
Reg. (S) 1.1445-2(b).
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8.10 Employment Agreements. Mauricio Jaramillo shall have entered into
an employment agreement with the Company in the form of Schedule 8.9.
8.11 Stockholders' Release. The Stockholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Partnership and each
Partner from any and all claims of such Stockholder against the Partnership and
each Partner.
8.12 Related Party Agreements. The Company shall have delivered to
USFloral:
(a) an executed Flower Supply Agreement, in the form of Annex I
-------
attached hereto, between the Company and those farms in which the Stockholders
have an interest which are listed on Schedule 8.12(a) attached hereto; and
----------------
(b) evidence of repayment of all amounts due from the Partners, the
Stockholders and all entities in which the Stockholders have an interest.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTNERSHIP, THE PARTNERS
AND THE STOCKHOLDERS
The obligation of the Beneficial Owners, the Stockholders, the Partners and
the Partnership to effect the Merger are subject to the satisfaction or waiver,
at or before the Effective Time, of the following conditions and deliveries:
9.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral and Newco contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by USFloral and Newco on
or before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of USFloral shall have been
delivered to the Partnership and the Stockholders.
9.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Partnership, or limiting or restricting
USFloral's conduct or operation of the business of the Partnership (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against USFloral, Newco, the Partnership or the Partners,
their respective properties or any of their officers or directors, that could
materially and adversely affect the business,
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assets, liabilities, financial condition, results of operations or prospects of
the USFloral and its subsidiaries taken as a whole.
9.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral and Newco of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no action by
the Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the transactions contemplated hereby shall be
pending.
9.4 Employment Agreements. The Company shall have afforded Mauricio
Jaramillo an opportunity to enter into an employment agreement with the Company
in the form of Schedule 8.9.
10. INDEMNIFICATION
10.1 General Indemnification by the Beneficial Owners and the
Stockholders. Subject to Section 10.2, each Beneficial Owner and each
Stockholder, jointly and severally, covenants and agrees to indemnify, defend,
protect and hold harmless USFloral, Newco and the Surviving Corporation and
their respective officers, directors, employees, stockholders, assigns,
successors and affiliates (individually, an "Indemnified Party" and
collectively, "Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Beneficial Owners, the Stockholders, the Partners or the Partnership set forth
in this Agreement or any Schedule or certificate, delivered by or on behalf of
any Beneficial Owner, any Stockholder, any Partner or the Partnership in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Beneficial Owners, the Stockholders or, prior to the Effective Time, the
Partnership or the Partners, under this Agreement; or
(iii) the business, operations or assets of the Partnership
prior to the Closing Date or the actions or omissions of the Partnership's
directors, officers, partners, employees
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or agents prior to the Closing Date, other than Damages arising from matters
expressly disclosed in the Partnership Financial Statements, this Agreement or
the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 5.8 (Absence of Claims
Against the Partnership and the Partners), 5.21 (Labor and Employment Matters),
5.23 (conformity with law; litigation), and 5.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.1.
10.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section
10.1 unless, and solely to the extent that, the aggregate amount of Damages
exceeds $125,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Merger
Consideration as set forth in Sections 2.2 and 3.1; (ii) Damages arising out of
any breaches of the covenants of the Beneficial Owners or the Stockholders set
forth in this Agreement or representations and warranties made in Sections 5.4
(capital stock of the Company), 5.5 (transactions in capital stock), 5.8
(Absence of Claims Against the Partnership and the Partners), 5.9 (Company
financial conditions), 5.18 (material contracts and commitments), 5.21 (Labor
and Employment Matters) 5.23 (conformity with law; litigation), 5.24 (taxes),
5.27 (environmental matters), or (iii) Damages described in Section 10.1(a)(iv),
or (iv) Damages for liability for anti-dumping duties in excess of reserves
therefor on the balance sheets of the Partnership as of the Closing Date
(regardless of whether or not disclosed on any schedule to this Agreement);
(b) the aggregate amount of liability of the Stockholders of
Talent, Inc. under this Article 10 shall not exceed the aggregate amount of
Merger Consideration received by the Stockholders of Talent, Inc., and the
aggregate amount of liability of the Stockholders of Anvacu, Inc. and the
Beneficial Owners under this Article 10 shall not exceed the aggregate amount of
Merger Consideration received by the Stockholders of Anvacu, Inc.; provided,
however, that the Partners', Stockholders' and Beneficial Owners' liability for
Damages arising out of any breaches of the representations made in Sections 5.24
(taxes) or 5.27 (environmental matters) or Damages described in Section
10.1(a)(ii) and Section 10.1(a)(iv) shall not be subject to such limitation;
(c) the indemnification obligations under this Article 10, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 10.2(c):
(i)
(1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 10.2(c), the first
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 5.22 (employee benefit plans), 5.24 (taxes), 5.27
(environmental matters), and the
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indemnification set forth in Section 10.1(a)(ii), (iii) or (iv), on (A) the date
that is six (6) months after the expiration of the longest applicable federal or
state statute of limitation (including extensions thereof), or (B) if there is
no applicable statute of limitation, (x) ten (10) years after the Closing Date
if the Claim is related to the cost of investigating, containing, removing, or
remediating a release of Hazardous Material into the environment, or (y) five
(5) years after the Closing Date for any other Claim covered by clause (i)(2)(B)
of this Section 10.2(c); or
(ii) the final resolution of claims or demands pending as of
the relevant dates described in clause (i) of this Section 10.2(c) (such claims
referred to as "Pending Claims").
10.3 Indemnification Procedures. All claims or demands for
indemnification under this Article 10 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 10.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 10.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter, attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such Claims (and, if the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty days from the date of delivery of
the Claim Notice to notify the Indemnified Party (A) whether the Indemnifying
Party disputes liability to the Indemnified Party hereunder with respect to the
Third Party Claim, and, if so, the basis for such a dispute, and (B) if such
party does not dispute liability, whether or not the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend against the
Third Party Claim, provided that the Indemnified Party is hereby authorized (but
not obligated) to file any motion, answer or other pleading and to take any
other action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend
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the Indemnified Party against such Third Party Claim by appropriate proceedings,
provided that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any Third Party Claim (in whole or in part) if
such settlement does not include a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at its
sole cost and expense. If the Indemnifying Party elects not to defend the
Indemnified Party against a Third Party Claim, whether by failure of such party
to give the Indemnified Party timely notice as provided herein or otherwise,
then the Indemnified Party, without waiving any rights against such party, may
settle or defend against such Third Party Claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Surviving Corporation or any subsidiary, the Indemnified Party shall have the
right to control or assume (as the case may be) the defense of any such Third
Party Claim and the amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of the indemnification
obligations of the Indemnifying Party hereunder. If the Indemnified Party elects
to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third Party Claim at the
sole cost and expense of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 10.2, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section
10.3 of any actual, threatened or possible claim or demand which may give rise
to a right of indemnification hereunder shall not relieve the Indemnifying Party
of any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 10, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
10.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Partnership, the Partners,
the Stockholders, the Beneficial Owners, USFloral and Newco in or pursuant to
this Agreement or in any document delivered
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pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Partnership, the Partners the
Stockholders and the Beneficial Owners will survive the Closing and will remain
in effect until, and will expire upon, the termination of the indemnification
obligations as provided in Section 10.2. The representations of USFloral and
Newco will survive the Closing and will remain in effect until, and will expire
upon the first anniversary of the Closing date.
10.5 Remedies Cumulative. The remedies set forth in this Article 10 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law except that the indemnification
obligations set forth in this Article 10 shall be the sole and exclusive remedy
of USFloral and Newco for claims based upon breach of contract or breach of
representation or warranty, unless such claim is founded in fraud.
10.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 10.3 to be owed to USFloral by the Stockholders
or Beneficial Owners under Section 10.1 hereof.
11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholders and Beneficial Owners agree
that for a period of three years following the Merger Effective Date, they shall
not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including, without limitation, hardgoods), or any business engaging in
the consolidation of the floral industry within the United States of America
(the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, the Partnership within the Territory for the purpose
of soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any
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of them made an acquisition analysis for themselves or USFloral or any
subsidiaries of USFloral, the Partnership; or
(e) disclose customers, whether in existence or proposed, of the
Partnership to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholders and Beneficial Owners (i) 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 in the over-the-counter
market, (ii) from engaging in any activity to which USFloral shall have provided
its prior written consent or (iii) with respect only to the Stockholders of
Anvacu, Inc., and only if each of such Stockholders is not in breach of the
Flower Supply Agreements such Stockholders entered into pursuant to Section 8.12
of this Agreement, from selling to their current customers that percentage of
such Stockholders' production of flowers which such Stockholders currently sell
to customers other than the Partnership.
11.2 Damages. Because of the difficulty of measuring economic losses
to USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders and Beneficial Owners agree
that, in the event of a breach by them of the foregoing covenant, the covenant
may be enforced by USFloral or the Surviving Corporation by, without limitation,
injunctions and restraining orders.
11.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 11 impose a reasonable restraint on the Stockholders
and Beneficial Owners in light of the activities and business of USFloral on the
date of the execution of this Agreement and the current and future plans of
USFloral and the Surviving Corporation (as successors to the businesses of the
Partnership).
11.4 Severability; Reformation. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.5 Independent Covenant. All of the covenants in this Article 11 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholders
and the Beneficial Owners against the Partnership, the Partners, the Surviving
Corporation or USFloral, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement of such covenants. It is
specifically agreed that the period of three years stated above, shall be
computed by excluding from such computation any time during which any
Stockholder or any Beneficial Owner is in violation of any provision of this
Article 11 and any time during which there is pending in any court of competent
jurisdiction any action
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(including any appeal from any judgment) brought by any person, whether or not a
party to this Agreement, in which action USFloral or the Surviving Corporation
seeks to enforce the agreements and covenants of the Stockholders and the
Beneficial Owners or in which any person contests the validity of such
agreements and covenants or their enforceability or seeks to avoid their
performance or enforcement; provided, however, that if any Stockholder or any
Beneficial Owner is found not to be in violation of the agreements or covenants
in any such activity the period during which the action was pending shall not be
excluded from such computation.
11.6 Materiality. The Partnership, each Partner, each Stockholder and
each Beneficial Owner hereby agree that the covenants set forth in this Article
11 are a material and substantial part of the transactions contemplated by this
Agreement, supported by adequate consideration.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Stockholders and Beneficial Owners. The Stockholders and Beneficial
Owners recognize and acknowledge that they have in the past, currently have, and
in the future may possibly have, access to certain confidential information of
the Partnership, such as lists of customers, operational policies, and pricing
and cost policies that are valuable, special and unique assets of the
Partnership and the Partnership's business. The Stockholders and Beneficial
Owners agree that they will not disclose any confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of USFloral, unless the
Stockholders or Beneficial Owner can show that such information has become known
to the public generally through no fault of the Stockholders or the Beneficial
Owners. In the event of a breach or threatened breach by the Stockholders or
Beneficial Owners of the provisions of this Article 12, USFloral and the
Surviving Corporation shall be entitled to an injunction restraining the
Stockholders or Beneficial Owners from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
12.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Partnership, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of the Partnership and the Partnership's business. USFloral
agrees that it will not disclose any confidential information to any person,
firm, corporation, association, or other entity for any purpose or reason
whatsoever, prior to the Closing Date without prior written consent of the
Stockholders. In the event of a breach or threatened breach by USFloral of the
provisions of this Article 12, the Stockholders shall be entitled to an
injunction restraining USFloral from disclosing, in whole or in part, such
confidential information. Nothing contained herein shall be construed as
prohibiting the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
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12.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, USFloral, the Surviving Corporation the Stockholders and the
Beneficial Owners agree that, in the event of a breach by any of them of the
foregoing covenant, the covenant may be enforced against them by injunctions and
restraining orders.
13. GENERAL
13. Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Partners; or
(b) by the Stockholders, the Partners and the Partnership as a
group, on the one hand, or by USFloral, on the other hand, if the Closing shall
not have occurred on or before April 30, 1998, provided that the right to
terminate this Agreement under this Section 13.1(b) shall not be available to
either party (with the Stockholders, the Partners and the Partnership deemed to
be a single party for this purpose) whose material misrepresentation, breach of
warranty or failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date; or
(c) by the Stockholders, the Partners and the Partnership as a
group, on the one hand, or by USFloral, on the other hand, if there is or has
been a material breach, failure to fulfill or default on the part of the other
party (with the Stockholders, the Partners and the Partnership deemed to be a
single party for this purpose) of any of the representations and warranties
contained herein or in the due and timely performance and satisfaction of any of
the covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made or shall not reasonably be expected to occur
before the Closing Date; or
(d) by the Stockholders, the Partners and the Partnership as a
group, on the one hand, or by USFloral, on the other hand, if there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or there shall be any action taken, or any statute,
rule regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity which would make the consummation of the
Merger illegal.
13.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 13.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 13 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
13.1(c) above, then notwithstanding the provisions of Section 13.7
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below, the breaching party (with the Stockholders, the Partners and the
Partnership deemed to be a single party for purposes of this Article 13), shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
13.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholders.
13.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 11.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
13.6 Brokers and Agents. USFloral and Newco (as a group) and the
Partnership, each Partner and each Stockholder (as a group) each represents and
warrants to the other that it has not employed any broker or agent in connection
with the transactions contemplated by this Agreement and agrees to indemnify the
other against all losses, damages or expenses relating to or arising out of
claims for fees or commission of any broker or agent employed or alleged to have
been employed by such party.
13.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and Newco and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement. The Stockholders (and neither the Partnership nor the Partners) have
and will pay the fees, expenses and disbursements of the Stockholders, the
Partners, the Partnership, and their agents, representatives, financial
advisers, accountants and counsel incurred in connection with the subject matter
of this Agreement.
13.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 11 and the confidentiality
obligations set forth in Article 12. It is accordingly agreed that, in addition
to any other remedies
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which may be available upon the breach of any such covenants or agreements, each
party hereto shall have the right to obtain injunctive relief to restrain a
breach or threatened breach of, or otherwise to obtain specific performance of,
the other parties, covenants and agreements contained in this Agreement.
13.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral, Newco or the Surviving Corporation to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
(Telefax: (412) 560-3399)
If to any Stockholder or any Beneficial Owner to:
c/o Mauricio Jaramillo
7901 N.W. 21st Street
Miami, Florida 33122
(Telefax: (305) 513-0431)
with a required copy to:
Shutts & Bowen
1500 Miami Center
201 S. Biscayne Boulevard
Miami, FL 33131
(Telefax: (305) 381-9982)
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or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
13.10 Governing Law; Legal Action. This Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the
State of Delaware, without giving effect to any of the conflicts of laws
provisions thereof that would require the application of the substantive laws of
any other jurisdiction. All parties hereto: agree that any legal action or
proceeding under this Agreement may be brought in the courts of the State of
Florida located in Dade County or in the United States District Court for the
Southern District of Florida; (b) irrevocably submit to the jurisdiction of such
courts; (c) agree not to assert any claim or defense that it is not personally
subject to the jurisdiction of such courts, and that any such forum is not
convenient or the venue thereof is improper, or that this Agreement or the
subject matter hereof may not be enforced in such courts; and (d) agree to
accept service of process on it by certified or registered mail or by any other
method authorized by law.
13.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 11.4.
13.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
13.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
13.14 Accounting Terms. Except as otherwise expressly provided herein
or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
[Execution Pages Following]
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
-----------------------------------------------
Robert J. Poirier
Chairman, President & Chief Executive Officer
EFTA ACQUISITION CORP.
By: /s/ Robert J. Poirier
-----------------------------------------------
Robert J. Poirier
President
[Signatures Continued on Following Page]
51
<PAGE>
ELITE FARMS, A GENERAL PARTNERSHIP
By Talent, Inc., a general partner
By: /s/ Mauricio Jaramllo V.
-----------------------------------------------
Mauricio Jaramillo V.
President
By Anvacu, Inc., a general partner
By: /s/ Mauricio Jaramllo V.
-----------------------------------------------
Mauricio Jaramillo V.
Vice President
TALENT, INC.
By: /s/ Mauricio Jaramllo V.
-----------------------------------------------
Mauricio Jaramillo V.
President
ANVACU, INC.
By: /s/ Mauricio Jaramllo V.
-----------------------------------------------
Mauricio Jaramillo V.
Vice President
[Signatures Continued on Following Page]
52
<PAGE>
STOCKHOLDERS:
/s/ Mauricio Jaramllo V.
--------------------------------------------------
Mauricio Jaramillo V.
/s/ Monica Rivera
--------------------------------------------------
Monica Rivera
FLORES CARMEL S.A.
By: /s/ Jorge Humberto Restrepo
--------------------------------------------------
Name: Jorge Humberto Restrepo
Title:
FLORES DEL LAGO LTDA.
By: /s/ Paulo Toro
--------------------------------------------------
Name: Paulo Toro
Title: Legal Representative
COTA ASOCIADOS LTDA.
By: /s/ Ricardo Russi
--------------------------------------------------
Name: Ricardo Russi
Title: Manager
LOS GERANIOS LTDA.
By: /s/ Luis Ignacio Mosa
--------------------------------------------------
Name: Luis Ignacio Mosa
Title: Legal Representative
FLORES DE LA VEGA LTDA.
By: /s/ Dario Fernandez
--------------------------------------------------
Name: Dario Fernandez
Title: Legal Representative
[Signatures Continued on Following Page]
53
<PAGE>
BENEFICIAL OWNERS:
/s/ Juan Gonzalo Restrepo
---------------------------------
Juan Gonzalo Restrepo
/s/ Jorge Humberto Restrepo
---------------------------------
Jorge Humberto Restrepo
/s/ Ricardo Angel
---------------------------------
Ricardo Angel
/s/ Andres Angel
---------------------------------
Andres Angel
/s/ Pablo Toro
---------------------------------
Pablo Toro
/s/ Efraun Russi Lopez
---------------------------------
Efrain Russi Lopez
/s/ Alicia Neira de Russi
---------------------------------
Alicia Neira de Russi
/s/ Consuelo Ramirez de Russi
---------------------------------
Consuelo Ramirez de Russi
/s/ Ricardo Russi Lopez
---------------------------------
Ricardo Russi Lopez
/s/ Luis Carlos Uribe
---------------------------------
Luis Carlos Uribe
/s/ Ricardo Mejia
---------------------------------
Ricardo Mejia
/s/ Luis Ignacio Mesa
---------------------------------
Luis Ignacio Mesa
/s/ Mauricio Mesa
---------------------------------
Mauricio Mesa
[Signatures Continued on Following Page]
54
<PAGE>
/s/ Juan Gonzalo Restrepo
---------------------------------
Juan Gonzalo Restrepo
/s/ Dario Fernandez
---------------------------------
Dario Fernandez
/s/ Horacio Mejia
---------------------------------
Horacio Mejia
55
<PAGE>
SCHEDULES
SCHEDULE 1.1 [Form of Plan of Merger]
SCHEDULES TO ARTICLE 5 [Schedules of exceptions to the representations and
warranties]
SCHEDULE 7.3 [Related Party Agreements]
SCHEDULE 8.9 [Form of Employment Agreement]
SCHEDULE 8.12 [List of Farms]
ANNEXES
ANNEX I [Form of Flower Supply Agreement]
The Schedules and Annexes to this Agreement will be provided to the Commission
supplementally upon request.
56
<PAGE>
Exhibit 2.18
STOCK PURCHASE AGREEMENT
By and Among
U.S.A. Floral Products, Inc.,
Selecta Farms, Inc.,
Saint Ann Trading Corporation,
Juecla Investment Corporation
and
The Persons Named Therein
dated April 3, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. THE SALE AND PURCHASE OF SHARES......................................... 1
1.1 The Stock Purchase.............................................. 1
1.2 Purchase Price.................................................. 1
1.3 Certain Information with Respect to Capital Stock of Saint Ann.. 2
2. POST CLOSING ADJUSTMENT; PLEDGED ASSETS................................. 2
2.1 Post-Closing Adjustment......................................... 2
2.2 Pledged Assets.................................................. 3
2.3 Stockholders' Representative.................................... 4
3. CLOSING................................................................. 5
3.1 Location and Date............................................... 5
3.2 Closing Deliveries.............................................. 5
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES
AND THE STOCKHOLDERS.................................................... 6
4.1 Due Organization................................................ 6
4.2 Authorization; Validity......................................... 6
4.3 No Conflicts.................................................... 6
4.4 Capital Stock of the Companies.................................. 7
4.5 Transactions in Capital Stock................................... 7
4.6 Subsidiaries, Stock, and Notes.................................. 8
4.7 Predecessor Status.............................................. 8
4.8 Absence of Claims Against the Companies......................... 8
4.9 Selecta Financial Conditions.................................... 8
4.10 Financial Statements............................................ 8
4.11 Liabilities and Obligations..................................... 9
4.12 Accounts and Notes Receivable...................................10
4.13 Books and Records...............................................10
4.14 Permits.........................................................10
4.15 Real Property...................................................10
4.16 Personal Property...............................................12
4.17 Intellectual Property...........................................13
4.18 Material Contracts and Commitments..............................14
4.19 Government Contracts............................................15
4.20 Insurance.......................................................16
<PAGE>
4.21 Labor and Employment Matters....................................17
4.22 Employee Benefit Plans..........................................17
4.23 Conformity with Law; Litigation.................................19
4.24 Taxes...........................................................20
4.25 Absence of Changes..............................................22
4.26 Deposit Accounts; Powers of Attorney............................23
4.27 Environmental Matters...........................................24
4.28 Relations with Governments......................................25
4.29 Disclosure......................................................25
4.30 USFloral Prospectus; Securities Representations.................25
4.31 Affiliates......................................................26
4.32 Location of Chief Executive Offices.............................26
4.33 Location of Equipment and Inventory.............................26
5. REPRESENTATIONS OF USFLORAL.............................................26
5.1 Due Organization................................................26
5.2 USFloral Common Stock...........................................26
5.3 Authorization; Validity of Obligations..........................26
5.4 No Conflicts....................................................27
5.5 Capitalization of USFloral and Ownership of USFloral Stock......27
6. COVENANTS...............................................................27
6.1 Tax Matters.....................................................27
6.2 Accounts Receivable.............................................29
6.3 [Intentionally Omitted].........................................29
6.4 Related Party Agreements........................................29
6.5 Cooperation.....................................................29
6.6 Conduct of Business Pending Closing.............................30
6.7 Access to Information...........................................30
6.8 Prohibited Activities...........................................31
6.9 Notice to Bargaining Agents.....................................32
6.10 Sales of USFloral Common Stock..................................32
6.11 USFloral Stock Options..........................................34
6.12 Other Covenants.................................................34
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL.....................34
7.1 Representations and Warranties; Performance of Obligations......34
<PAGE>
7.2 No Litigation...................................................34
7.3 No Material Adverse Change......................................35
7.4 Consents and Approvals..........................................35
7.5 Opinion of Counsel..............................................35
7.6 Charter Documents...............................................35
7.7 Quarterly Financial Statements..................................35
7.8 Due Diligence Review............................................35
7.9 Delivery of Closing Financial Certificate.......................35
7.10 [Intentionally Omitted].........................................36
7.11 Employment Agreements...........................................36
7.12 Stockholders' Release...........................................36
7.13 Related Party Agreements........................................36
7.14 Termination of Payments for Add-Backs...........................36
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANIES AND THE
STOCKHOLDERS............................................................37
8.1 Representations and Warranties; Performance of Obligations......37
8.2 No Litigation...................................................37
8.3 Consents and Approvals..........................................37
8.4 Employment Agreements...........................................37
9. INDEMNIFICATION.........................................................37
9.1 General Indemnification by the Stockholders.....................37
9.2 Limitation and Expiration.......................................38
9.3 Indemnification Procedures......................................39
9.4 Survival of Representations Warranties and Covenants............41
9.5 Remedies Cumulative.............................................41
9.6 Right to Set Off................................................41
10. NONCOMPETITION.........................................................41
10.1 Prohibited Activities...........................................41
10.2 Damages.........................................................42
10.3 Reasonable Restraint............................................42
10.4 Severability; Reformation.......................................42
10.5 Independent Covenant............................................43
10.6 Materiality.....................................................43
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................43
<PAGE>
11.1 Stockholders....................................................43
11.2 USFloral........................................................43
11.3 Damages.........................................................44
12. GENERAL.................................................................44
12.1 Termination.....................................................44
12.2 Effect of Termination...........................................44
12.3 Successors and Assigns..........................................45
12.4 Entire Agreement; Amendment; Waiver.............................45
12.5 Counterparts....................................................45
12.6 Brokers and Agents..............................................45
12.7 Expenses........................................................45
12.8 Specific Performance; Remedies..................................45
12.9 Notices.........................................................46
12.10 Governing Law...................................................47
12.11 Severability....................................................47
12.12 Absence of Third Party Beneficiary Rights.......................47
12.13 Further Representations.........................................47
12.14 Accounting Terms................................................47
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 3rd day of April, 1998, by and among U.S.A. Floral Products, Inc., a
Delaware corporation ("USFloral"), Saint Ann Trading Corporation, a Florida
corporation ("Saint Ann"), Selecta Farms, Inc., a Florida corporation (Selecta
and Saint Ann are hereinafter collectively referred to as the "Companies"),
Juecla Investment Corporation, a Panamanian corporation and the sole stockholder
of Saint Ann ("Juecla") and Juan Mejia and Olga Kopp de Samper, the stockholders
of Juecla (each a "Stockholder" and Juecla, Juan Mejia and Olga Kopp de Samper
are hereinafter collectively referred to as the "Stockholders").
BACKGROUND
WHEREAS, Juecla owns all of the issued and outstanding shares of capital
stock of Saint Ann and desires to sell all such shares to USFloral and USFloral
desires to purchase all such shares from Juecla at the purchase price and upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE SALE AND PURCHASE OF SHARES
1.1 The Stock Purchase. Subject to the terms and conditions of this
Agreement and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, on the Closing Date (as
hereinafter defined) Juecla shall sell to USFloral all of the Saint Ann Common
Stock (as defined in Section 1.3 hereof) and USFloral shall purchase (the "Stock
Purchase") from Juecla all of the Saint Ann Common Stock, in exchange for the
Purchase Price (as defined in Section 1.2 hereof), subject to adjustment as
provided in Section 1.2 hereof. Saint Ann, after the consummation of the Stock
Purchase, is sometimes referred to as the "Surviving Corporation."
1.2 Purchase Price.
(a) For purposes of this Agreement, the "Purchase Price" shall be
$5,000,000 less (i) the aggregate amount of the long-term indebtedness of Saint
Ann as of the Closing Date, including the current portion thereof (as set forth
on Schedule 1.2 (a)) and (ii) the amounts set forth on Schedule 1.2(b), adjusted
pursuant to this Section 1.2 and Section 2.1. Of the Purchase Price, $2,500,000
less long-term debt shall be paid in cash at Closing in immediately available
funds. The remaining $2,500,000 of the Purchase Price shall be paid at Closing
in shares of USFloral Common Stock valued at $22.32 per share (the "Initial
Price"). All amounts of the Purchase Price withheld for long-term indebtedness
will be applied toward such indebtedness on the Closing Date. The shares of
USFloral Common Stock to be issued shall be registered under the Securities Act
of 1933, as amended.
<PAGE>
(b) The Purchase Price has been calculated based upon several factors
set forth in this Agreement, including the assumption that the net worth of
Saint Ann, calculated in accordance with generally accepted accounting
principles ("GAAP") consistently applied, is equal to or greater than negative
$354,000 (the "Net Worth Target") as of the Closing, provided the accruals set
forth on Schedule 1.2(c) have been made.
(c) If, on the Closing Financial Certificate (as defined in Section
7.9), the Certified Closing Net Worth (as defined in Section 7.9) is less than
the Net Worth Target, then the Purchase Price to be delivered to Juecla may, at
USFloral's election, be reduced either (i) at the Closing (which reduction
shall be pro rata in cash and in USFloral Common Stock valued at the Initial
Price in the same proportions as the cash and USFloral Common Stock components
of the Purchase Price as provided in Section 1.2(a)), or (ii) after completion
of the Post-Closing Audit (as defined in Section 2.1), by the difference between
the Net Worth Target and the Certified Closing Net Worth set forth on the
Closing Financial Certificate (which reduction shall be in USFloral Common Stock
valued at the Initial Price).
1.3 Certain Information with Respect to Capital Stock of Saint Ann. As of
the date of this Agreement, the authorized capital stock of Saint Ann consists
of 10,000 shares of common stock, par value $.01 per share (the "Saint Ann
Common Stock"), of which 1,000 shares are issued and outstanding.
2. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
2.1 Post-Closing Adjustment.
(a) The Purchase Price shall be subject to adjustment after the
Closing Date as specified in this Section 2.1.
(b) Within one hundred twenty (120) days following the Closing Date,
USFloral shall cause Price Waterhouse LLP ("USFloral's Accountant") to audit the
Surviving Corporation's books to determine the accuracy of the information set
forth on the Closing Financial Certificate (the "Post-Closing Audit"). The
parties acknowledge and agree that for purposes of determining the net worth of
Saint Ann as of the Closing Date, the value of the assets of Saint Ann shall,
except with the prior written consent of USFloral, be calculated as provided in
the last paragraph of Section 7.9. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of Saint Ann to
cooperate with USFloral and USFloral's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to USFloral's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. Without limiting the generality of the foregoing,
within two weeks after the Closing the Stockholders shall provide USFloral's
Accountants with the information and/or documents requested on the Post-Closing
Audit Checklist set forth as Schedule 2.1 hereto. In the event that USFloral's
Accountant determines that the actual Company net worth as of the Closing Date
was less than the Certified Closing Net Worth, USFloral shall deliver a written
notice (the "Financial Adjustment Notice") to the Stockholders' Representative
(as defined in Section 2.3) setting forth (i) the determination made
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<PAGE>
by USFloral's Accountant of Saint Ann's actual net worth (the "Actual Company
Net Worth"), (ii) the amount of the Purchase Price that would have been payable
at Closing pursuant to Section 1.2(c) had the Actual Company Net Worth been
reflected on the Closing Financial Certificate instead of the Certified Closing
Net Worth, and (iii) the amount by which the number of shares issued as part of
the Purchase Price would have been reduced at Closing had the Actual Company Net
Worth been used in the calculations pursuant to Section 1.2(c) (the "Purchase
Price Adjustment"). The Purchase Price Adjustment shall take account of the
reduction, if any, to the Purchase Price already taken pursuant to Section
1.2(c)(i).
(c) The Stockholders' Representative (as defined in Section 2.3) shall
have thirty (30) days from the receipt of the Financial Adjustment Notice to
notify USFloral if the Stockholders dispute such Financial Adjustment Notice.
If USFloral has not received notice of such a dispute within such 30-day period,
USFloral shall be entitled to receive from Juecla (which may, at USFloral's sole
discretion, be from the Pledged Assets as defined in Section 2.2) the Purchase
Price Adjustment. If, however, the Stockholders' Representative has delivered
notice of such a dispute to USFloral within such 30-day period, then USFloral's
Accountant shall select an independent accounting firm that has not represented
any of the parties hereto within the preceding two (2) years to review the
Surviving Corporation's books, Closing Financial Certificate and Financial
Adjustment Notice (and related information) to determine the amount, if any, of
the Purchase Price Adjustment. Such independent accounting firm shall be
confirmed by the Stockholders' Representative and USFloral within five (5) days
of its selection, unless there is an actual conflict of interest. The
independent accounting firm shall be directed to consider only those agreements,
contracts, commitments or other documents (or summaries thereof) that were
either (i) delivered or made available to USFloral's Accountant in connection
with the transactions contemplated hereby or (ii) reviewed by USFloral's
Accountant during the course of the Post-Closing Audit. The independent
accounting firm shall make its determination of the Purchase Price Adjustment,
if any, within thirty (30) days of its selection. The determination made by the
independent accounting firm shall be final and binding on the parties hereto,
and upon such determination, USFloral shall be entitled to receive from the
Stockholders (which may, at USFloral's sole discretion, be from the Pledged
Assets the Purchase Price Adjustment. The costs of the independent accounting
firm shall be borne by the party (either USFloral or the Stockholders) whose
determination of Saint Ann's net worth at Closing was further from the
determination of the independent accounting firm, or equally by USFloral and the
Stockholders in the event that the determination by the independent accounting
firm is equidistant between the Certified Closing Net Worth and the Actual
Company Net Worth. The Stockholders shall have the right to examine, upon
written demand, in person or by agent or attorney, at any reasonable time or
times, all of the books and records of accounts of the Companies to determine if
they wish to dispute the Actual Company Net Worth and in connection with any
resolution thereof.
2.2 Pledged Assets.
(a) As collateral security for the payment of any Purchase Price
Adjustment under Section 2.1, or any indemnification obligations of the
Stockholders pursuant to Article 9, Juecla shall, and by execution hereof does
hereby, transfer, pledge and assign to USFloral, for the benefit of USFloral, a
security interest in the following assets (the "Pledged Assets"):
3
<PAGE>
(i) at the Closing, that number of shares of USFloral Common
Stock with a value, based on the Initial Price, equal to ten percent (10%) of
the Purchase Price as the same may have been adjusted pursuant to Section 1.2 or
Section 2.1 hereof, and the certificates and instruments, if any, representing
or evidencing Juecla's Pledged Assets;
(ii) all securities hereafter delivered to Juecla with respect to
or in substitution for Juecla's Pledged Assets, all certificates and instruments
representing or evidencing such securities, and all non-cash dividends and other
property at any time received, receivable or otherwise distributed in respect of
or in exchange for any or all thereof; and in the event Juecla receives any such
property, Juecla shall hold such property in trust for USFloral and shall
immediately deliver such property to USFloral to be held hereunder as Pledged
Assets; and
(iii) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing Juecla's Pledged Assets
issued in its name in the Stock Purchase shall be delivered to USFloral directly
by the transfer agent, such certificate bearing no restrictive or cautionary
legend other than those imprinted by the transfer agent at USFloral's request.
Juecla shall, at the Closing, deliver to USFloral, for each such certificate, a
stock power duly signed in blank by it.
(c) The Pledged Assets shall be available to satisfy any Purchase
Price Adjustment pursuant to Section 2.1 and any indemnification obligations of
the Stockholder pursuant to Article 9 until the date which is one year after the
Closing Date (the "Release Date"). Promptly following the Release Date,
USFloral shall return or cause to be returned to the Stockholders the Pledged
Assets, less Pledged Assets having an aggregate value equal to the amount of (i)
any Purchase Price Adjustment under Section 2.1, (ii) any pending claim for
indemnification made by any Indemnified Party (as defined in Article 9) until
such claim is resolved, and (iii) any indemnification obligations of the
Stockholders pursuant to Article 9. For purposes of this Section 2.2(c) and
Article 9, the USFloral Common Stock held as Pledged Assets shall be valued at
(x) the Initial Price with respect to any Purchase Price Adjustment under
Section 2.1 and (y) the average of the closing price on the Nasdaq National
Market per share of USFloral Common Stock for the five trading days prior to the
satisfaction of an indemnification obligation (the "Market Value") with respect
to indemnification obligations pursuant to Article 9.
(d) Juecla shall be entitled to exercise any voting powers incident to
the Pledged Assets and to receive and retain all cash dividends paid thereon.
2.3 Stockholders' Representative.
(a) The Stockholders, by signing this Agreement, designate Juan Mejia
or, in the event that Juan Mejia is unable or unwilling to serve, Elena Mejia to
be the Stockholders'
4
<PAGE>
Representative for purposes of this Agreement. The Stockholders shall be bound
by any and all actions taken by the Stockholders' Representative on their
behalf.
(b) USFloral shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All
communications or writings to be sent to Stockholders pursuant to this Agreement
may be addressed to the Stockholders' Representative and any communication or
writing so sent shall be deemed notice to all of the Stockholders hereunder. The
Stockholders hereby consent and agree that the Stockholders' Representative is
authorized to accept deliveries, including any notice, on behalf of the
Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative, and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 9 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to and coupled
with the interest of the other Stockholders hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of any Stockholder or by operation of law,
whether by such Stockholder's death or any other event.
3. CLOSING
3.1 Location and Date. The Stock Purchase and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Morgan, Lewis & Bockius LLP in Miami, Florida on April 3, 1998, providing
that all conditions to Closing shall have been satisfied or waived, or at such
other time and date as USFloral, Saint Ann and the Stockholders may mutually
agree, which date shall be referred to as the "Closing Date."
3.2 Closing Deliveries.
(a) At the Closing the Stockholders, as the holders of all outstanding
certificates representing shares of Saint Ann Common Stock, shall surrender such
certificates to USFloral and USFloral shall deliver to the Stockholders the
Purchase Price set forth in Section 1.2 above.
(b) The Stockholders shall deliver to USFloral at Closing the
certificates representing the Saint Ann Common Stock, duly endorsed in blank by
the Stockholders, or accompanied by blank irrevocable stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled and shall take such steps as shall be necessary to
cause Saint Ann to enter USFloral or its nominee(s) upon the books of Saint Ann
as the holder of the Saint Ann Common Stock and to issue one or more share
certificates to USFloral or its nominee(s) representing the Saint Ann Common
Stock. The Stockholders agree promptly to cure any deficiencies with respect to
the endorsement of the
5
<PAGE>
certificates or other documents of conveyance with respect to such Saint Ann
Common Stock or with respect to the stock powers accompanying any Saint Ann
Common Stock.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE STOCKHOLDERS
To induce USFloral to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Companies and each Stockholder,
jointly and severally, represents and warrants to USFloral as follows (for
purposes of this Agreement, the phrases "knowledge of the Companies" or the
"Companies' knowledge," or words of similar import, mean the knowledge of the
Stockholders and the directors and officers of the Companies, including facts of
which the directors and officers, in the reasonably prudent exercise of their
duties, should be aware):
4.1 Due Organization. The Companies are corporations duly organized,
validly existing and in good standing under the laws of the jurisdiction of
their incorporation and are duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Companies, taken as a whole ("Material Adverse Effect"). Schedule 4.l hereto
contains a list of all jurisdictions in which the Companies are authorized or
qualified to do business. The Companies are in good standing in each such
jurisdiction. The Companies have delivered to USFloral true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Companies.
Such Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Companies are not in violation of any Charter
Documents. The minute books of the Companies have been made available to
USFloral (and as of the Closing, will have been delivered, along with the
Companies' original stock ledger and corporate seal, to USFloral) and are
correct and, except as set forth in Schedule 4.1, complete in all material
respects.
4.2 Authorization; Validity. The Companies have all requisite corporate
power and authority to enter into and perform their respective obligations
pursuant to the terms of this Agreement. The Companies have the full legal
right, corporate power and authority to enter into this Agreement and the
transactions contemplated hereby. Each Stockholder has the full legal right and
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by the Companies and the
performance by the Companies of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of the Companies and
Juecla, and this Agreement has been duly and validly authorized by all necessary
corporate action. This Agreement is a legal, valid and binding obligation of
the Companies and each Stockholder, enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
6
<PAGE>
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Companies or any
Stockholder is a party or by which the Companies or any Stockholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Companies' properties pursuant to (i) any law or regulation to which the
Companies or any Stockholder or any of their respective property is subject, or
(ii) any judgment, order or decree to which the Companies or any Stockholder is
bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Companies; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Companies or any Stockholder is subject or by which the
Companies or any Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
4.4 Capital Stock of the Companies. The authorized capital stock of Saint
Ann consists of 10,000 shares of Saint Ann Common Stock, of which 1,000 shares
are issued and outstanding. The authorized capital stock of Selecta consists of
10,000 shares of common stock, $1.00 par value, of which 1,000 shares are issued
and outstanding. All of the issued and outstanding shares of the capital stock
of the Companies have been duly authorized and validly issued, are fully paid
and nonassessable and are owned of record and beneficially by the Stockholders
in the amounts set forth in Schedule 4.4 free and clear of all Liens (defined
below). All of the issued and outstanding shares of the capital stock of the
Companies were offered, issued, sold and delivered by the Companies in
compliance with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares was issued in violation of any
preemptive rights. There are no voting agreements or voting trusts with respect
to any of the outstanding shares of the capital stock of the Companies. For
purposes of this Agreement, "Lien" means any mortgage, security interest,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
4.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral, which may obligate the Companies to issue, sell
or otherwise cause to become outstanding any shares of capital stock. The
Companies have no obligation (contingent or otherwise) to purchase,
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redeem or otherwise acquire any of their respective equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. As a result of the Stock Purchase, USFloral will be the record and
beneficial owner of all outstanding capital stock of the Companies and rights to
acquire capital stock of the Companies.
4.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 4.6(a), the Companies have no
subsidiaries.
(b) Except as set forth on Schedule 4.6(b), the Companies do not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor are the
Companies, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
(c) Except as set forth on Schedule 4.6(c), there are no promissory
notes that have been issued to, or are held by, the Companies.
4.7 Predecessor Status. Schedule 4.7 sets forth a list of all names of
all predecessor companies of the Companies, including the names of any entities
from which Saint Ann previously acquired significant assets. Except as set
forth on Schedule 4.7, the Companies have never been a subsidiary or division of
another corporation, nor have they been a part of an acquisition that was later
rescinded.
4.8 Absence of Claims Against the Companies. Except as set forth on
Schedule 4.8, no Stockholder has any claims against the Companies, and upon
consummation of the Stock Purchase and the distribution of the Purchase Price,
no Stockholder will have any claims against the Companies.
4.9 Selecta Financial Conditions.
(a) Selecta's net worth (i) as of the end of its most recent fiscal
year was not less than $64,000 and (ii) as of the Closing will not be less than
the Net Worth Target, provided the accruals set forth on Schedule 1.2(c) have
been made, to which all parties agree. For purposes of this Section 4.9(a),
calculation of amounts as of the Closing shall be made in accordance with the
last paragraph of Section 7.9.
(b) Selecta's earnings before interest and taxes (after the addition
of "add-backs" set forth on Schedule 4.9(b)) for its most recent fiscal year
was not less than $883,000. Any adjustments made in Section 4.9(a) will not
affect the calculation of EBIT.
4.10 Financial Statements. Schedule 4.10 includes (a) true, complete and
correct copies of each of Selecta's reviewed balance sheet as of June 30, 1997
(the end of its most recently completed fiscal year), and statement of income
and retained earnings and statement of cash flow
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for the year then ended (collectively, the "Year-end Financials") and (b) true,
complete and correct copies of the Selecta's unaudited balance sheet (the
"Interim Balance Sheet") as of December 31, 1997 (the "Balance Sheet Date") and
statement of profit and loss, for the six-month period then ended (collectively,
the "Interim Financials," and together with the Year-end Financials, the
"Company Financial Statements"). Except as noted on the Year-end Financials, the
Company Financial Statements have been prepared in accordance with GAAP
consistently applied, subject to, in the case of the Interim Financials, (i)
normal year-end adjustments, which individually or in the aggregate will not be
material; (ii) the exceptions stated on Schedule 4.10; and (iii) the omission of
footnote information. Each balance sheet included in the Company Financial
Statements presents fairly the financial condition of Selecta as of the date
indicated thereon, and each of the income statements included in the Company
Financial Statements presents fairly the results of its operations for the
periods indicated thereon. Since the dates of the Company Financial Statements,
there have been no material changes in the Companies' accounting policies other
than as requested by USFloral to conform the Companies accounting policies to
GAAP.
4.11 Liabilities and Obligations.
(a) The Companies are not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) Set forth on Schedule 4.11(b) is, in the case of those liabilities
which are not fixed or are contested, a reasonable estimate of the maximum
amount which may be payable.
(c) Schedule 4.11(c) also includes a summary description of all
current plans or projects involving the opening of new operations, expansion of
any existing operations or the acquisition of any real property or existing
business, to which management of the Companies have made any material
expenditure in the two-year period prior to the date of this Agreement, which if
pursued by the Companies would require additional material expenditures of
capital.
(d) For purposes of this Section 4.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate,
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liquidated or unliquidated, secured or unsecured. Schedule 4.11(d) contains a
complete list of all indebtedness of the Companies as of the Closing Date.
4.12 Accounts and Notes Receivable. The Companies have delivered to
USFloral a complete and accurate list, as of a date not more than two (2)
business days prior to the date hereof, of the accounts and notes receivable of
the Companies (including without limitation receivables from and advances to
employees, the Stockholders and affiliates), which includes an aging of all
accounts and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). All Accounts Receivable represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. The Accounts Receivable are
current and collectible net of any respective reserves shown on the Companies'
books and records (which reserves are adequate and calculated consistent with
past practice). Subject to such reserves, each of the Accounts Receivable will
be collected in full, without any set-off, within ninety (90) days after the day
on which it first became due and payable. There is no contest, claim, or right
of set-off, other than rebates and returns in the ordinary course of business,
under any contract with any obligor of an Account Receivable relating to the
amount or validity of such Account Receivable.
4.13 Books and Records. The Companies have made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Companies. The Companies have not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
4.14 Permits. The Companies own or hold all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of their respective business as it is currently being
conducted (the "Permits"). The Permits are valid, and the Companies have not
received any notice that any governmental authority intends to modify, cancel,
terminate or fail to renew any Permit. No present or former officer, manager,
member or employee of the Companies or any affiliate thereof, or any other
person, firm, corporation or other entity, owns or has any proprietary,
financial or other interest (direct or indirect) in any Permits. The Companies
have conducted and are conducting their business in compliance with the
requirements, standards, criteria and conditions set forth in the Permits and
other applicable orders, approvals, variances, rules and regulations and is not
in violation of any of the foregoing. The transactions contemplated by this
Agreement will not result in a default under, or a breach or violation of, or
adversely affect the rights and benefits afforded to the Companies by, any
Permit.
4.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements
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thereon, owned or used by the Companies, together with any additions thereto or
replacements thereof.
(b) Schedule 4.15(b) contains a complete and accurate description of
all Real Property (including street address, owner and Companies' use thereof)
and, to the Companies' knowledge, any Liens on such Real Property. Schedule
4.15(b) indicates whether the Real Property is owned or leased. The Real
Property listed on Schedule 4.15 includes all interests in real property
necessary to conduct the business and operations of the Companies.
(c) Except as set forth in Schedule 4.15(c):
(i) The Companies do not own any Real Property.
(ii) The Companies have good and valid rights of ingress and
egress to and from all Real Property from and to the public street systems for
all usual street, road and utility purposes.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the use
and operation of the Real Property in the conduct of the Companies' business are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property in
the operation of the Companies' business and to permit full compliance with the
requirements of all laws in the operation of such business. No fact or
condition exists which could result in the termination or material reduction of
the current access from the Real Property to existing roads or to sewer or other
utility services presently serving the Real Property.
(iv) The Real Property and all present uses and operations of the
Real Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Companies have obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the use, occupation and operation of the Real Property.
(v) There are no pending or, to the Companies' knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
affect the current use, occupancy or value thereof, nor have the Companies or
any of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
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(vi) No portion of the Real Property has suffered any damage by
fire or other casualty which has not heretofore been completely repaired and
restored to its original condition.
(vii) There are no parties other than the Companies in possession
of any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
(viii) There are no service contracts or other agreements relating
to the use or operation of the Real Property.
(ix) No portion of the Real Property is located in a wetlands
area, as defined by Laws, or in a designated or recognized flood plain, flood
plain district, flood hazard area or area of similar characterization. No
commercial use of any portion of the Real Property will violate any requirement
of the United States Corps of Engineers or Laws relating to wetlands areas.
(x) All written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Companies
lease from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Companies have provided USFloral with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
options granted to such party under such Lease. The Companies do not have any
oral leases. The Leases and the Companies' interests thereunder are free of all
Liens, except as set forth on Schedule 4.15.
(xi) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
4.1 Personal Property.
(a) Schedule 4.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Companies with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder or of the Companies.
(b) The Companies currently own or lease all personal property
necessary to conduct the business and operations of the Companies as they are
currently being conducted.
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(c) All of the trucks and other material machinery and equipment of
the Companies, including those listed on Schedule 4.16(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 4.16(a) are in full force and effect and constitute valid and binding
agreements of the Companies, and the Companies are not in breach of any of their
terms. All fixed assets used by the Companies that are material to the
operation of its business are either owned by the Companies or leased under an
agreement listed on Schedule 4.16(a).
4.17 Intellectual Property.
(a) The Companies are the true and lawful owner of, or are licensed or
otherwise possess legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 4.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Companies now own or
use in connection with their businesses. Except with respect to those Marks
shown as licensed on Schedule 4.17(a), the Companies own all of the registered
and unregistered trademarks, service marks, and trade names that they use. The
Marks listed on Schedule 4.17(a) will not cease to be valid rights of the
Companies by reason of the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby. For purposes of
this Section 4.17, the term "Mark" shall mean all right, title and interest in
and to any United States or foreign trademarks, service marks and trade names
now held by the Companies, including any registration or application for
registration of any trademarks and services marks in the PTO or the equivalent
thereof in any state of the United States or in any foreign country, as well as
any unregistered marks used by the Companies, and any trade dress (including
logos, designs, company names, business names, fictitious names and other
business identifiers) used by the Companies in the United States or any foreign
country.
(b) The Companies are the true and lawful owner of, or are licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 4.17(b)(i) and in the Copyright registrations listed on
Schedule 4.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Companies now own or are licensed to use. The Companies
own or are licensed to practice under all patents and copyright registrations
that the Companies now own or use in connection with their businesses. For
purposes of this Section 4.17, the term "Patent" shall mean any United States or
foreign patent to which the Companies have title as of the date of this
Agreement, as well as any application for a United States or foreign patent made
by the Companies; the term "Copyright" shall mean any United States or foreign
copyright owned by the Companies as of the date of this Agreement, including any
registration of copyrights, in the United States Copyright Office or the
equivalent thereof in any foreign country, as well as any application for a
United States or foreign copyright registration made by the Companies.
(c) The Companies are the true and lawful owner of, or are licensed or
otherwise possess legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights
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(collectively, "Other Rights"). Those Other Rights constitute all of the Other
Rights that the Companies now own or are licensed to use. The Companies own or
are licensed to practice under all trade secrets, franchises or similar rights
that they own, use or practice under.
(d) The Marks, Patents and Copyrights listed on Schedules 4.17(a),
4.17(b)(i) and 4.17(b)(ii), and the Other Rights are referred to collectively
herein as the "Intellectual Property." The Intellectual Property owned by the
Companies are referred to herein collectively as the "Company Intellectual
Property." All other Intellectual Property is referred to herein collectively
as the "Third Party Intellectual Property." Except as indicated on Schedule
4.17(d), the Companies have no obligations to compensate any person for the use
of any Intellectual Property nor have the Companies granted to any person any
license, option or other rights to use in any manner any Intellectual Property,
whether requiring the payment of royalties or not.
(e) The Companies are not, nor will they be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 4.17(a), (b) or (c). No claims
with respect to the Company Intellectual Property or Third Party Intellectual
Property are currently pending or, to the knowledge of the Companies, are
threatened by any person, nor, to the Companies' knowledge, do any grounds for
any claims exist: (i) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Companies infringe on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by the Companies of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Companies' businesses as
currently conducted by the Companies; (iii) challenging the ownership, validity
or effectiveness of any of the Company Intellectual Property or other trade
secret material to the Companies; or (iv) challenging the Companies' license or
legally enforceable right to use of the Third Party Intellectual Property. To
the Companies' knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Companies nor any of their subsidiaries (x) have been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim or infringement of trade secrets, patents, trademarks, service
marks, or copyrights and which has not been finally terminated or been informed
or notified by any third party that the Companies may be engaged in such
infringement or (y) have knowledge of any infringement liability with respect
to, or infringement by, the Companies or any of their subsidiaries of any trade
secret, patent, trademark, service mark, or copyright of another.
(f) All Intellectual Property in the form of computer software that is
utilized by the Companies in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries.
4.18 Material Contracts and Commitments.
(a) Schedule 4.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the
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Companies are a party or by which they or their properties are bound (including
without limitation, joint venture or partnership agreements, contracts with any
labor organizations, employment agreements, consulting agreements, loan
agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements) (i) to which the
Companies and any affiliate of the Companies or any officer, director or
stockholder of the Companies are parties ("Related Party Agreements"); or (ii)
that may give rise to obligations or liabilities exceeding, during the current
term thereof, $20,000, or that may generate revenues or income exceeding, during
the current term thereof, $20,000 (collectively with the Related Party
Agreements, the "Material Contracts"). The Companies have delivered to USFloral
true, complete and correct copies of the Material Contracts that are in writing.
The Companies have complied with all of their commitments and obligations and
are not in default under any of the Material Contracts, and no notice of default
has been received with respect to any thereof, and there are no Material
Contracts that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 6.4, is valid and binding on the Companies and is in full force and
effect and is not subject to any default thereunder by any party obligated to
the Companies pursuant thereto. The Companies have obtained all necessary
consents, waivers and approvals of parties to any Material Contracts that are
required in connection with any of the transactions contemplated hereby, or are
required by any governmental agency or other third party or are advisable in
order that any such Material Contract remain in effect without modification
after the Stock Purchase and without giving rise to any right to termination,
cancellation or acceleration or loss of any right or benefit ("Third Party
Consents"). All Third Party Consents are listed on Schedule 4.18(b).
(c) The outstanding balances on all loans or credit agreements either
(i) between the Companies and any Person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Companies for the benefit of any
Person in which any of the Stockholders owns a material interest, are set forth
in Schedule 4.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially all
of the Companies' assets (including, without limitation, a pledge of the
Companies' contract rights under any Material Contract) will not, except as set
forth on Schedule 4.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Companies (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 4.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which the Companies are a party or by which the property of the
Companies are bound.
4.19 Government Contracts.
(a) Except as set forth on Schedule 4.19, neither of the Companies are
a party to any government contracts.
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(b) Neither of the Companies has been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of the Companies, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Companies' suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 4.19, neither of the Companies has
been, nor is it now being, audited, or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any
government agency or instrumentality, nor, to the knowledge of the Companies,
has such audit or investigation been threatened.
(d) Neither of the Companies has any dispute pending before a
contracting office of, nor any current claim (other than the Accounts
Receivable) pending against, any agency or instrumentality of the United States
Government or any state or local government, relating to a contract.
(e) Neither of the Companies have, with respect to any government
contract, received a cure notice advising the Companies that they are or were in
default or would, if they failed to take remedial action, be in default under
such contract.
(f) Neither of the Companies has submitted any inaccurate, untruthful,
or misleading cost or pricing data, certification, bid, proposal, report, claim,
or any other information relating to a contract to any agency or instrumentality
of the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate of
either of the Companies is in receipt or possession of any competitor or
government proprietary or procurement sensitive information related to the
Companies business under circumstances where there is reason to believe that
such receipt or possession is unlawful or unauthorized.
(h) Each of the Companies' government contracts has been issued,
awarded or novated to the Companies in the Companies' name.
4.20 Insurance. Schedule 4.20 sets forth a complete and accurate list of
all insurance policies carried by the Companies and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Companies have delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Companies are
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Companies. The insurance carried
by the Companies with respect to its properties, assets and business is, to the
Companies' knowledge, with financially sound insurers. To the knowledge of the
Companies, there
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have been no threatened terminations of, or material premium increases with
respect to, any of such policies.
4.21 Labor and Employment Matters. With respect to employees of and
service providers to the Companies:
(a) the Companies are and have been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and have not and are not
engaged in any unfair labor practice;
(b) there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Companies pending or, to the
Companies' knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Companies'
knowledge, threatened, against or directly affecting the Companies;
(d) to the Companies' knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Companies' knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Companies are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Companies or currently being negotiated by the
Companies; and
(g) all persons classified by the Companies as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
the Companies have fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
4.22 Employee Benefit Plans. Attached hereto as Schedule 4.22 are complete
and accurate copies of all employee benefit plans, all employee welfare benefit
plans, all employee pension benefit plans, all multi-employer plans and all
multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2), (37)
and (40), respectively, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), which are currently maintained and/or sponsored by the
Companies, or to which the Companies currently contribute, or have an obligation
to contribute in the future (including, without limitation, employment
agreements and any other agreements containing "golden parachute" provisions and
deferred compensation agreements), together with
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copies of any trusts related thereto and a classification of employees covered
thereby (collectively, the "Plans"). Schedule 4.22 sets forth all of the Plans
that have been terminated within the past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 4.22. To the extent that any
Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) the Stockholders; (ii) any Plan; or (iii) the
Companies have engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No Plan has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Companies do not currently have (nor at the
Closing Date will have) any direct or indirect liability whatsoever (including
being subject to any statutory lien to secure payment of any such liability), to
the Pension Benefit Guaranty Corporation ("PBGC") with respect to any such Plan
under Title IV of ERISA or to the Internal Revenue Service for any excise tax or
penalty; and neither of the Companies nor any member of a "controlled group" (as
defined in ERISA Section 4001(a)(14)) currently has (or at the Closing Date will
have) any obligation whatsoever to contribute to any "multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections 4201,
4202, 4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in
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accordance with the assumptions contained in the Regulations of the PBGC
governing the funding of terminated defined benefit plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by "COBRA"), the Companies
and the Stockholders have complied (and on the Closing Date will have complied),
in all respects with all reporting, disclosure, notice, election and other
benefit continuation requirements imposed thereunder as and when applicable to
such plans, and the Companies have no (and will incur no) direct or indirect
liability and are not (and will not be) subject to any loss, assessment, excise
tax penalty, loss of federal income tax deduction or other sanction, arising on
account of or in respect of any direct or indirect failure by the Companies or
the Stockholders, at any time prior to the Closing Date, to comply with any such
federal or state benefit continuation requirement, which is capable of being
assessed or asserted before or after the Closing Date directly or indirectly
against the Companies or the Stockholders with respect to such group health
plans;
(f) the Companies are not now nor have they been within the past five
years a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Companies' knowledge, there is
no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Company Financial Statements as of the Balance Sheet Date
reflect the approximate total pension, medical and other benefit expense for all
Plans, and no material funding changes or irregularities are reflected thereon
which would cause such Company Financial Statements to be not representative of
most prior periods; and
(i) the Companies have not incurred liability under Section 4062 of
ERISA.
4.23 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 4.23(a), the Companies are not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect. The Companies have conducted and are conducting their business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
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(b) No Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud, gross
negligence or moral turpitude; (iii) filed for personal bankruptcy; or (iv) been
an officer, director, manager, trustee or controlling shareholder of a company
that filed for bankruptcy or Chapter 11 protection while he held such position
or within two years thereafter.
(c) Except as set forth on Schedule 4.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Companies,
threatened against or affecting the Companies at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Companies or against any of their respective
properties or business.
4.24 Taxes.
(a)
(i) The Companies have timely filed all Tax Returns due on or
before the Closing Date and all such Tax Returns are true, correct and complete
in all respects.
(ii) The Companies have paid in full on a timely basis all Taxes
owed by them, whether or not shown on any Tax Return.
(iii) The amount of the Companies' liability for unpaid Taxes as
of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Companies' liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for Deferred Taxes) as such accruals are reflected on the books and
records of the Companies on the Closing Date.
(iv) There are no ongoing examinations or claims against the
Companies for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) The Companies have had a taxable year ended on June 30, in
each year commencing January 4, 1982.
(vi) The Companies currently utilize the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past 10 years. The Companies have not agreed to, and are not and will
not be required to, make any adjustments under Code Section 481(a) as a result
of a change in accounting methods.
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(vii) The Companies have withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Companies for the last five fiscal years have been delivered to
USFloral.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Companies relating to or
attributable to Taxes.
(x) To the Companies' knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Companies or otherwise
have a Material Adverse Effect.
(xi) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Companies that, individually or
collectively, could give rise to any payment (or portion thereof) that would not
be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xii) Except as set forth on Schedule 4.24, the Companies are
not, and have not been at any time, a party to a tax sharing, tax indemnity or
tax allocation agreement, and the Companies have not assumed the tax liability
of any other person under contract.
(xiii) The Companies' tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Companies' tax books and records.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar governmental
charge, impost or levy (including without limitation income taxes, franchise
taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt taxes,
value added taxes, employment taxes, excise taxes, ad valorem taxes, property
taxes, withholding taxes, payroll taxes, minimum taxes or windfall profit taxes)
together with any related penalties, fines, additions to tax or interest imposed
by the United States or any state, county, local or foreign government or
subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
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4.25 Absence of Changes. Since the Balance Sheet Date, the Companies have
conducted their businesses in the ordinary course and, except as contemplated
herein or as set forth on Schedule 4.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Companies;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Companies;
(c) any change in the authorized capital of the Companies or in their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Companies;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Companies to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Companies to any person, including
without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Companies, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Companies may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Companies or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Companies;
(k) any waiver of any material rights or claims of the Companies;
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(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Companies are a party;
(m) any transaction by the Companies outside the ordinary course of
business;
(n) any capital commitment by the Companies, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Companies or
the revaluation by the Companies of any of their assets;
(p) any creation or assumption by the Companies of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Companies of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Companies in excess of
$25,000;
(r) any loan by the Companies to any person or entity, incurring by
the Companies, of any indebtedness, guaranteeing by the Companies of any
indebtedness, issuance or sale of any debt securities of the Companies or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the Companies,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Companies or any of its affairs; or
(t) any negotiation or agreement by Saint Ann or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with USFloral and its representatives
regarding the transactions contemplated by this Agreement).
4.26 Deposit Accounts; Powers of Attorney. Schedule 4.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Companies have
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
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(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Companies and a description of
the terms of such power.
4.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 4.27(a),
no underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state, local or
other applicable law to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a "Hazardous Material"), are
present in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that the Companies have at any time
owned, operated, occupied or leased. Schedule 4.27(a) identifies all underground
and aboveground storage tanks, and the capacity, age, and contents of such
tanks, located on Real Property owned or leased by the Companies.
(b) Hazardous Materials Activities. The Companies have not
transported, stored, used, manufactured, disposed of or released, or exposed
their employees or others to, Hazardous Materials in violation of any law in
effect on or before the Closing Date, nor have the Companies disposed of,
transported, sold, or manufactured any product containing a Hazardous Material
(collectively, "Company Hazardous Materials Activities") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Companies currently hold all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of Company Hazardous Material Activities and
other business of the Companies as such activities and business are currently
being conducted. All Environmental Permits are in full force and effect. The
Companies (A) are in compliance in all material respects with all terms and
conditions of the Environmental Permits and (B) are in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Companies' knowledge, there are no circumstances
that may prevent or interfere with such compliance in the future. Schedule
4.27(d) includes a listing and description of all Environmental Permits
currently held by the Companies.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Companies,
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threatened concerning any Environmental Permit, Hazardous Material or any
Company Hazardous Materials Activity. There are no past or present actions,
activities, circumstances, conditions, events, or incidents that could involve
the Companies (or any person or entity whose liability the Companies have
retained or assumed, either by contract or operation of law) in any
environmental litigation, or impose upon the Companies (or any person or entity
whose liability the Companies have retained or assumed, either by contract or
operation of law) any environmental liability including, without limitation,
common law tort liability.
4.28 Relations with Governments. The Companies have not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Companies to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any law of similar effect.
4.29 Disclosure. The Companies have delivered to USFloral true and
complete copies of each agreement, contract, commitment or other document (or
summaries thereof) that is referred to in the Schedules or that has been
requested in writing by USFloral. Without limiting any exclusion, exception or
other limitation contained in any of the representations and warranties made
herein, this Agreement, the Schedules hereto and all other documents and
information furnished to USFloral and its representatives pursuant hereto do not
and will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading. If any
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Companies, the Stockholder shall
immediately give notice of such fact or circumstance to USFloral. However, such
notification shall not relieve the Companies or the Stockholder of their
respective obligations under this Agreement, and at the sole option of USFloral,
the truth and accuracy of any and all warranties and representations of the
Stockholders, at the date of this Agreement and as of the Closing Date, shall be
a precondition to the consummation of this Agreement.
4.30 USFloral Prospectus; Securities Representations. Each Stockholder has
received and reviewed a copy of the prospectus dated March 18, 1998 including
all supplements thereto (as supplemented, the "USFloral Prospectus") contained
in USFloral's shelf registration statement on Form S-1 (File No. 333-39969).
Each Stockholder (a) has such knowledge, sophistication and experience in
business and financial matters that such Stockholder is capable of evaluating
the merits and risks of an investment in the shares of USFloral Common Stock,
(b) fully understands the nature, scope, and duration of the limitations on
transfer contained herein, and under applicable law, and (c) can bear the
economic risk of any investment in the shares of USFloral Common Stock and can
afford a complete loss of such investment. Each Stockholder has had an adequate
opportunity to ask questions and receive answers (and has asked such questions
and received answers to its satisfaction) from the officers of USFloral
concerning the business, operations and financial condition of USFloral. None of
the Stockholders has any contract, undertaking, agreement or arrangement,
written or oral, with any other person to sell, transfer or grant participation
in any shares of USFloral Common Stock to be acquired by such Stockholder in the
Stock Purchase. Each Stockholder acknowledges and agrees that USFloral has not
and will not provide such Stockholder or any other party with a prospectus for
such Stockholder's use in selling USFloral Common Stock.
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4.31 Affiliates. The Stockholders are the only persons who are, in the
reasonable judgment of Saint Ann and each of the Stockholders, affiliates of the
Companies within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
4.32 Location of Chief Executive Offices. Schedule 4.32 sets forth the
location of Saint Ann's or Selecta's chief executive offices.
4.33 Location of Equipment and Inventory. All Inventory and Equipment held
on the date hereof by the Companies are located at one of the locations shown on
Schedule 4.33. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code as
in effect on October 16, 1997 in the State of New York (the "N.Y.U.C.C.") owned
by the Companies as of the date hereof, and, in any event, shall include, but
shall not be limited to, all merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production, and all proceeds therefrom; and (b)
the term "Equipment" shall mean any "equipment," as such term is defined in the
N.Y.U.C.C. in effect as of October 16, 1997, owned by the Companies, and, in any
event, shall include, but shall not be limited to, all machinery, equipment,
furnishings, fixtures and vehicles owned by the Companies, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
5. REPRESENTATIONS OF USFLORAL
To induce the Companies and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, USFloral represents and
warrants to the Companies and the Stockholders as follows:
5.1 Due Organization. USFloral is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the
places and in the manner as now conducted, except where the failure to be so
authorized, qualified or licensed would not have a material adverse effect on
USFloral. Copies of the Certificate of Incorporation and the Bylaws, each as
amended, of USFloral (collectively, the "USFloral Charter Documents") have been
made available to Saint Ann. USFloral is not in violation of any USFloral
Charter Document.
5.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholders at the Closing Date, when delivered in accordance
with the terms of this Agreement, will be valid and legally issued shares of
USFloral capital stock, fully paid and nonassessable.
5.3 Authorization; Validity of Obligations. The representatives of
USFloral executing this Agreement have all requisite corporate power and
authority to enter into and bind USFloral to
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the terms of this Agreement. USFloral has the full legal right, power and
corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by USFloral
and the performance by USFloral of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of USFloral, and this
Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of USFloral
enforceable in accordance with its terms.
5.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject, until the time of Closing, to compliance with any
agreements between USFloral and its lenders, conflict with, or result in a
default (or would constitute a default but for a requirement of notice or lapse
of time or both) under any document, agreement or other instrument to which
USFloral is a party or by which U.S. Floral is bound, or result in the creation
or imposition of any lien, charge or encumbrance on any of USFloral's properties
pursuant to (i) any law or regulation to which USFloral or any of its property
is subject, or (ii) any judgment, order or decree to which USFloral is bound or
any of its property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral is subject, or by which USFloral is bound,
(including, without limitation, the HSR Act, together with all rules and
regulations promulgated thereunder).
5.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. All of
the shares of USFloral Common Stock to be issued to the Stockholders in
accordance herewith will be offered, issued, sold and delivered by USFloral in
compliance with all applicable state and federal laws concerning the issuance of
securities and none of such shares was or will be issued in violation of the
preemptive rights of any stockholder of USFloral.
6. COVENANTS
6.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
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(i) The Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Companies for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the
Surviving Corporation on or before the due date of such Tax Returns the amount
of all Taxes shown as due on such Tax Returns to the extent that such Taxes are
not reflected in the current liability accruals for Taxes (excluding reserves
for deferred Taxes) shown on Saint Ann's books and records as of the Closing
Date. Such Returns shall be prepared and filed in accordance with applicable law
and in a manner consistent with past practices and shall be subject to the
reasonable review and approval by USFloral. To the extent reasonably requested
by the Stockholders or required by law, USFloral and the Surviving Corporation
shall participate in the filing of any Tax Returns filed pursuant to this
paragraph.
(ii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholders
shall pay to the Surviving Corporation within fifteen (15) days after the date
on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Companies' books and records as of the Closing Date. For purposes of this
Section 6.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Surviving Corporation.
(iii) USFloral and the Surviving Corporation on one hand and the
Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 6.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Companies for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to tax matters pertinent to
the Companies that is in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
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(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporation will join in the execution of any such
Tax Returns and other documentation.
6.2 Accounts Receivable. USFloral and the Surviving Corporation will use
their reasonable best efforts to collect the Accounts Receivable. Any amounts
received by the Surviving Corporation for a particular Account Receivable (i)
that was not originally collected within ninety (90) days after the day on which
it became due and payable and (ii) for which USFloral or the Surviving
Corporation has not received indemnification pursuant to Article 9, shall be
applied against amounts due on that particular Account Receivable and such
amount shall be subtracted from the aggregate amount of Damages on the date of
collection of such Account Receivable. Any amounts received by the Surviving
Corporation for a particular Account Receivable (i) that was not originally
collected within ninety (90) days after the day on which it became due and
payable and (ii) for which USFloral or the Surviving Corporation has received
indemnification pursuant to Article 9, shall be remitted to the Stockholders
within fifteen (15) days of receipt by the Surviving Corporation.
6.3 [Intentionally Omitted]
6.4 Related Party Agreements. The Companies and/or the Stockholders, as
the case may be, shall terminate any Related Party Agreements which USFloral
requests the Companies or Stockholders to terminate in writing.
6.5 Cooperation.
(a) The Companies, the Stockholders and USFloral shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the
Companies shall execute any documentation reasonably required by USFloral's
independent public accountants (in connection with such accountants' audit of
the Companies) or the Nasdaq National Market.
(b) The Stockholders and the Companies shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Companies cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby.
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(d) The Companies, the Stockholders and USFloral shall file all
notices and other information and documents required under the HSR Act (as
defined in Section 4.3) as promptly as practicable after the date hereof.
6.6 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, each of the Companies will (except as requested or agreed by
USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Stockholders) in accordance with past
practice.
6.7 Access to Information. Between the date of this Agreement and the
Closing Date, the Companies will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Companies and (ii) such additional financial and operating
data and other information as to the business and properties of the Companies as
USFloral may from time to time reasonably request, including without limitation,
access upon reasonable request to the Companies' employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 6.7
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shall affect or be deemed to modify any representation or warranty contained in
this Agreement or the conditions to the obligations of the parties to consummate
the Stock Purchase.
6.8 Prohibited Activities. Between the date hereof and the Closing Date,
the Companies will not, without the prior written consent of USFloral:
(a) make any change in their Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to their securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property) in respect of its stock whether now or hereafter
outstanding, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice, in
an amount in excess of $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by stock purchase,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Companies;
(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
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(j) waive any material rights or claims of the Companies, provided
that the Companies may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Companies or any
officer, director or Stockholder of the Companies or (ii) outside the ordinary
course of business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns, withholding
tax returns or sales tax returns) or any amendment to a Tax Return, enter into
any closing agreement, settle any tax claim or assessment, or consent to any tax
claim or assessment, without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 6.8(a) through (o) above, or any action which
would make any of the representations and warranties of the Companies and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 7 and 8 not being satisfied.
6.9 Notice to Bargaining Agents. Prior to the Closing Date, the Companies
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral in writing, and shall provide USFloral with proof that any required
notice has been sent.
6.10 Sales of USFloral Common Stock.
(a) No Stockholder will, directly or indirectly, offer, sell, contract
to sell, pledge or otherwise dispose of one-half of the shares of USFloral
Common Stock to be received by such Stockholder in the Stock Purchase prior to
the date that is, (i) with respect to one-third of the shares, eighteen months
from the Closing Date, (ii) with respect to two-thirds of the shares, twelve
months from the Closing Date and (iii) with respect to all of the shares, six
months from the Closing Date.
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(b) Each Stockholder acknowledges and agrees that USFloral will not
provide such Stockholder with a prospectus for such Stockholder's use in selling
the shares of USFloral Common Stock to be received by such Stockholder in the
Stock Purchase, and agrees to sell such shares only in accordance with the
requirements, if any, of Rule 145(d) promulgated under the 1933 Act. USFloral
acknowledges that the provisions of this Section 6.10(b) will be satisfied as to
any sale by a Stockholder of the USFloral Common Stock Stockholder may acquire
pursuant to the Stock Purchase pursuant to Rule 145(d) under the Securities Act,
by a broker's letter and a letter from the Stockholder with respect to that sale
stating that the applicable requirements of Rule 145(d)(1) have been met or are
inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3) provided, however,
that USFloral has no reasonable basis to believe that such sales were not made
in compliance with such provisions of Rule 145(d) and subject to any changes in
Rule 145 after the date of this Agreement.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Stockholders in the Stock Purchase will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED
PURSUANT TO A REGISTRATION STATEMENT COVERING THE TRANSFER OF SUCH
SHARES OR A VALID EXEMPTION FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
CONTRACTUAL HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN
STOCK PURCHASE AGREEMENT, DATED AS OF APRIL 3, 1998, AMONG THE ISSUER
AND THE STOCKHOLDERS OF SAINT ANN TRADING CORPORATION, A FLORIDA
CORPORATION. PRIOR TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH
SHARES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR
ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING PERIOD
HAS EXPIRED.
*** Certificates representing one-third of the shares of USFloral Common Stock
issued will read "October 3, 1998," one-third will read "April 3, 1999" and one-
third will read "October 3, 1999."
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6.11 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 6.25% of the Purchase Price
provided for in Section 1.2 above shall be available for issuance to the key
employees of the Surviving Corporation after the Closing, as determined by the
Surviving Corporation's President (or other officer or director designated by
the Surviving Corporation and acceptable to USFloral) in accordance with
USFloral's policies, and authorized and issued under the terms of USFloral's
1997 Long-Term Incentive Plan.
6.12 Other Covenants.
(a) The Companies shall transfer to Juan Mejia the vehicle leases for
the 1996 Mercedes SL600 vehicle and the 1997 Saab 900SE Convertible vehicle upon
Closing.
(b) Selecta shall offer Juan Mejia the option to purchase any life
insurance policies on the life of Juan Mejia at a cash surrender value to be
reasonably agreed to by both Juan Mejia and Selecta.
(c) Within twenty-one (21) days after Closing, USFloral shall have
received an opinion from counsel in Panama that this agreement is duly executed
and enforceable under the laws of Panama.
(d) The Stockholders will not use the assets of the Companies located
in Colombia for any purpose except for use in connection with their work for the
Companies unless they receive the consent of the Companies.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL
The obligation of USFloral to effect the Stock Purchase is subject to the
satisfaction or waiver, at or before the Closing Date, of the following
conditions and deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Companies
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants, agreements
and conditions of this Agreement to be complied with, performed or satisfied by
the Companies and the Stockholders on or before the Closing Date shall have been
duly complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Companies and by each
of the Stockholders shall have been delivered to USFloral.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Companies, or limiting or restricting
USFloral's conduct or operation of the business of the Companies (or their own
businesses)
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following the Stock Purchase shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened against USFloral or the Companies, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the Companies.
7.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Companies, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by each Stockholder dated
the Closing Date to such effect.
7.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Companies and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Stock Purchase under the HSR Act shall
have expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
7.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to Saint Ann and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to USFloral.
7.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of the Companies certified by an appropriate authority
in their respective state of incorporation and (b) a copy of the Bylaws of the
Companies certified by the Secretary of the Companies, and such documents shall
be in form and substance reasonably acceptable to USFloral.
7.7 Quarterly Financial Statements. USFloral shall have received from the
Companies completed quarterly financial statements through December 31, 1997 in
a form reasonably satisfactory to USFloral, and the Stock Purchase shall have
been approved by USFloral's lenders.
7.8 Due Diligence Review. The Companies shall have made such deliveries
as are called for by this Agreement. USFloral shall be fully satisfied in its
sole discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Companies.
7.9 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of Selecta and by each of the Stockholders,
setting forth:
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(a) the net worth of Selecta as of the last day of its most recent
fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of Selecta as of the Closing Date (the "Certified
Closing Net Worth");
(c) the earnings of Selecta before interest and taxes (after the
addition of "add-backs" set forth on Schedule 4.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of Selecta financial conditions set forth in
Section 4.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth and the Certified Closing EBIT, Saint Ann shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after June 30,
1997.
7.10 [Intentionally Omitted]
7.11 Employment Agreements. Cecilia Vicente shall have entered into an
employment agreement with Selecta in a form reasonably satisfactory to USFloral.
7.12 Stockholders' Release. The Stockholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Companies and
USFloral from any and all claims of such Stockholder against the Companies
(except as otherwise specified in such release).
7.13 Related Party Agreements. The Companies shall have delivered to
USFloral:
(a) an executed Flower Supply Agreement, in the form of Annex I
-------
attached hereto, between the Companies and those farms in which the Stockholders
have an interest which are listed on Schedule 7.13(a) attached hereto; and
(b) evidence of repayment of all amounts due from, or due to, Juecla,
the Stockholders and all entities in which the Stockholders have an interest.
Such amounts shall include all accounts receivable.
7.14 Termination of Payments for Add-Backs. USFloral shall have received a
certificate, dated as of the Closing Date, signed on behalf of the Companies
that no payments are required to be made by the Surviving Corporation, from and
after the Closing Date, in respect of those items set forth on Schedule 4.9(b)
hereof.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANIES AND THE
STOCKHOLDERS
The obligation of the Stockholders and the Companies to effect the Stock
Purchase are subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral contained in this Agreement shall
be true, correct and complete on and as of the Closing Date with the same effect
as though such representations and warranties had been made as of such date; all
of the terms, covenants, agreements and conditions of this Agreement to be
complied with, performed or satisfied by USFloral on or before the Closing Date
shall have been duly complied with, performed or satisfied; and a certificate to
the foregoing effects dated the Closing Date and signed by the President or any
Vice President of USFloral shall have been delivered to Saint Ann and the
Stockholders.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of Selecta, or limiting or restricting
USFloral's conduct or operation of the business of the Companies (or their own
businesses) following the Stock Purchase shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened, against USFloral or the Companies, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the USFloral and its
subsidiaries taken as a whole.
8.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral of the transactions contemplated herein, shall have been obtained
and made. Any waiting period applicable to the consummation of the Stock
Purchase under the HSR Act shall have expired or been terminated, and no action
by the Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the consummation of the transactions contemplated hereby shall be
pending.
8.4 Employment Agreements. Selecta shall have afforded Cecilia Vicente an
opportunity to enter into an employment agreement with Selecta in a form
reasonably satisfactory to USFloral.
9. INDEMNIFICATION
9.1 General Indemnification by the Stockholders. Each Stockholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless USFloral and the Surviving Corporation and their respective
officers, directors, employees, stockholders, assigns,
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successors and affiliates (individually, an "Indemnified Party" and
collectively, "Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Companies set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Companies in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing Date, the Companies, under this Agreement;
or
(iii) the business, operations or assets of the Companies prior
to the Closing Date or the actions or omissions of Saint Ann's directors,
officers, shareholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Saint Ann Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 4.23 (conformity with
law; litigation), 4.24 (taxes) and 4.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 9.1.
(c) Amounts due and payable for anti-dumping duties for periods prior
to March 1, 1998 in amounts in excess of reserve for such anti-dumping duties
and any rebates received before or after Closing relating to anti-dumping review
by the United States Department of Commerce.
9.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 9.1
unless, and solely to the extent that, the aggregate amount of Damages (such
aggregate amount shall not include any Damages resulting from a breach of
representations and warranties in Section 4.9(a)) exceeds $75,000 (the
"Indemnification Threshold"); provided, however, that the Indemnification
Threshold shall not apply to (i) adjustments to the Purchase Price as set forth
in Sections 1.2 and 2.1; (ii) Damages arising out of any breaches of the
covenants of the Stockholders set forth in this Agreement or representations and
warranties made in Sections 4.4 (capital stock of Saint Ann), 4.5 (transactions
in capital stock), 4.9 (Saint Ann financial conditions), 4.18 (material
contracts and commitments),
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4.23 (conformity with law; litigation), 4.24 (taxes) and 4.27 (environmental
matters); or (iii) Damages described in Sections 9.1(a)(iv) and 9.1(c).
(b) the aggregate amount of the Stockholders' liability under this
Article 9 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 4.24 (taxes) or 4.27 (environmental matters) or
Damages described in Sections 9.1(a)(ii), 9.1(a)(iv) and 9.1(c) shall not be
subject to such limitation;
(c) the indemnification obligations under this Article 9, or under any
certificate or writing furnished in connection herewith, shall terminate at the
date that is the later of clause (i) or (ii) of this Section 9.2(c):
(i)
(1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 9.2(c), the first
anniversary of the Closing Date, or
(2) with respect to representations and warranties
contained in Sections 4.22 (employee benefit plans), 4.24 (taxes), 4.27
(environmental matters), and the indemnification set forth in Section
9.1(a)(ii), (iii) or (iv), on (A) the date that is six (6) months after the
expiration of the longest applicable federal or state statute of limitation
(including extensions thereof), or (B) if there is no applicable statute of
limitation, (x) ten (10) years after the Closing Date if the Claim is related to
the cost of investigating, containing, removing, or remediating a release of
Hazardous Material into the environment, or (y) five (5) years after the Closing
Date for any other Claim covered by clause (i)(2)(B) of this Section 9.2(c); or
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 9.2(c) (such claims
referred to as "Pending Claims").
9.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 9 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 9.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 9.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter, attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such
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Claims (and, if the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty days from the date of delivery of
the Claim Notice to notify the Indemnified Party (A) whether the Indemnifying
Party disputes liability to the Indemnified Party hereunder with respect to the
Third Party Claim, and, if so, the basis for such a dispute, and (B) if such
party does not dispute liability, whether or not the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend against the
Third Party Claim, provided that the Indemnified Party is hereby authorized (but
not obligated) to file any motion, answer or other pleading and to take any
other action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Surviving Corporation or any subsidiary, the Indemnified Party shall have the
right to control or assume (as the case may be) the defense of any such Third
Party Claim and the amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of the indemnification
obligations of the Indemnifying Party hereunder. If the Indemnified Party elects
to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third Party Claim at the
sole cost and expense of the Indemnifying Party.
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(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 9.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 9.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 9, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
9.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Companies, the
Stockholders, and USFloral in or pursuant to this Agreement or in any document
delivered pursuant hereto shall be deemed to have been made on the date of this
Agreement (except as otherwise provided herein) and, if a Closing occurs, as of
the Closing Date. The representations of the Companies and the Stockholders
will survive the Closing and will remain in effect until, and will expire upon,
the termination of the indemnification obligations as provided in Section 9.2.
The representations of USFloral will survive the Closing and will remain in
effect until, and will expire upon the first anniversary of the Closing date.
9.5 Remedies Cumulative. The remedies set forth in this Article 9 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
9.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 9.3 to be owed to USFloral by the Stockholders
under Section 9.1 hereof.
10. NONCOMPETITION
10.1 Prohibited Activities. The Stockholders agree that for a period of
three years following the Closing, they shall not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including,
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without limitation, hardgoods), or any business engaging in the consolidation of
the floral industry, within the United States of America (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, Saint Ann within the Territory for the purpose of
soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, the Companies; or
(e) disclose customers, whether in existence or proposed, of the
Companies to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholders 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 USFloral shall have provided its prior written consent,
including, without limitation, pursuant to the Supply Agreement.
10.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders agree that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
10.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 10 impose a reasonable restraint on the Stockholders
in light of the activities and business of USFloral on the date of the execution
of this Agreement and the current and future plans of USFloral and the Surviving
Corporation (as successors to the businesses of Saint Ann).
10.4 Severability; Reformation. The covenants in this Article 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
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10.5 Independent Covenant. All of the covenants in this Article 10 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholders
against the Companies, the Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of two
years stated above, shall be computed by excluding from such computation any
time during which any Stockholder is in violation of any provision of this
Article 10 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action USFloral or
the Surviving Corporation seeks to enforce the agreements and covenants of the
Stockholders or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement; provided, however, that if any Stockholder is found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
10.6 Materiality. The Companies and each Stockholder hereby agree that the
covenants set forth in this Article 10 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 Stockholders. The Stockholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of Saint Ann, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Companies and the Companies' business. The
Stockholders agree that they will not disclose any confidential information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except to authorized representatives of USFloral, unless the
Stockholders can show that such information has become known to the public
generally through no fault of the Stockholders. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Article 11,
USFloral and the Surviving Corporation shall be entitled to an injunction
restraining the Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
11.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of Saint Ann, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the Companies and the Companies' business. USFloral agrees that it will not
disclose any confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, prior to the
Closing Date without prior written consent of the Stockholders. In the event of
a breach or threatened breach by USFloral of the provisions of this Article 11,
the Stockholders shall be entitled to an injunction restraining USFloral from
disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as
43
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prohibiting the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
11.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, USFloral, the Surviving Corporation and the Stockholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
12. GENERAL
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Companies; or
(b) by the Stockholders and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April 6, 1998, provided that the right to terminate this Agreement under
this Section 12.1(b) shall not be available to either party (with the
Stockholders and the Companies deemed to be a single party for this purpose)
whose material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Companies deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Stock
Purchase; or there shall be any action taken, or any statute, rule regulation or
order enacted, promulgated or issued or deemed applicable to the Stock Purchase
by any governmental entity which would make the consummation of the Stock
Purchase illegal.
12.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 12.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 12 shall remain in full
force
44
<PAGE>
and effect and survive any termination of this Agreement; (ii) each party shall
remain liable for any breach of this Agreement prior to its termination; and
(iii) in the event of termination of this Agreement pursuant to Section 12.1(c)
above, then notwithstanding the provisions of Section 12.7 below, the breaching
party (with the Stockholders and the Companies deemed to be a single party for
purposes of this Article 12), shall be liable to the other party to the extent
of the expenses incurred by such other party in connection with this Agreement
and the transactions contemplated hereby, as well as any damages in accordance
with applicable law.
12.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholders.
12.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 12.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
12.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
12.6 Brokers and Agents. Each of USFloral, on the one hand, and the
Stockholders and the Companies (as a group), on the other hand, represents and
warrants to the other that it has not employed any broker or agent in connection
with the transactions contemplated by this Agreement and agrees to indemnify the
other against all losses, damages or expenses relating to or arising out of
claims for fees or commission of any broker or agent employed or alleged to have
been employed by such party.
12.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Stockholders (and not the Companies) have and will pay the fees, expenses and
disbursements of the Stockholders, the Companies, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
12.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation
45
<PAGE>
by any of them of any of the covenants or agreements contained in this
Agreement, including without limitation, the noncompetition provisions set forth
in Article 10 and the confidentiality obligations set forth in Article 11. It is
accordingly agreed that, in addition to any other remedies which may be
available upon the breach of any such covenants or agreements, each party hereto
shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties, covenants and agreements contained in this Agreement.
12.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral or the Surviving Corporation, to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W., Suite 600 West
Washington, D.C. 20007
Attn: Robert J. Poirier,
Chairman, President and Chief Executive Officer
(Telefax: 202-333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
(Telefax: 412-560-3399)
If to any Stockholder or the Stockholder Representative, to:
Juan Mejia
5260 N.E. 28 Avenue
Fort Lauderdale, Florida 33308
(Telefax: 954-772-9435)
with a required copy to:
Steven H. Hagen, Esquire
Holland & Knight LLP
701 Brickell Avenue
Miami, Florida 33131
(Telefax: 305-789-7799)
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or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
12.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
12.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 11.4.
12.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
12.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
12.14 Accounting Terms. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
[Execution Page Following]
47
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
--------------------------------------------
Robert J. Poirier
Chairman, President and CEO
SELECTA FARMS, INC.
By: /s/ Juan Mejia
--------------------------------------------
Juan Mejia, President
SAINT ANN TRADING CORPORATION
By: /s/ Juan Mejia
--------------------------------------------
Name: Juan Mejia
Title: President
STOCKHOLDER:
JUECLA INVESTMENT CORPORATION
By: /s/ Juan Mejia
--------------------------------------------
Stockholders of Juecla Investment Corporation
/s/ Juan Mejia
--------------------------------------------
Juan Mejia
/s/ Olga Kopp de Samper
--------------------------------------------
Olga Kopp de Samper
48
<PAGE>
SCHEDULES
SCHEDULE 1.2 [Adjustments to Purchase Price]
SCHEDULE 2.1 [Post-Closing Audit Checklist]
SCHEDULES TO ARTICLE 4 [Schedules of exceptions to the representations and
warranties]
SCHEDULE 7.13 [List of Farms]
ANNEXES
ANNEX I [Form of Flower Supply Agreement]
The Schedules and Annexes to this Agreement will be provided to the Commission
supplementally upon request.
49
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Exhibit 2.19
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
U.S.A. Floral Products, Inc.,
SAB Acquisition Corp.,
Master Flowers Inc.
d/b/a Sabana Farms
and
The Stockholders Named Herein
dated April 3, 1998
<PAGE>
Table of Contents
Page
----
1. THE MERGER.................................................................1
1.1 The Merger.........................................................1
1.2 Articles of Incorporation; Bylaws, Directors and Officers..........1
1.3 Effects of the Merger..............................................2
2. CONVERSION AND EXCHANGE OF STOCK...........................................2
2.1 Manner of Conversion...............................................2
2.2 Merger Consideration...............................................3
2.3 Exchange of Certificates and Payment of Cash.......................4
3. POST-CLOSING ADJUSTMENT; PLEDGED ASSETS....................................5
3.1 Post-Closing Adjustment............................................5
3.2 Pledged Assets.....................................................7
3.3 Stockholders' Representative.......................................9
4. CLOSING....................................................................9
4.1 Location and Date..................................................9
4.2 Effect............................................................10
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS........10
5.1 Due Organization..................................................10
5.2 Authorization; Validity...........................................10
5.3 No Conflicts......................................................11
5.4 Capital Stock of the Company......................................11
5.5 Transactions in Capital Stock.....................................12
5.6 Subsidiaries, Stock, and Notes....................................12
5.7 Predecessor Status................................................12
5.8 Absence of Claims Against the Company.............................12
5.9 Company Financial Conditions......................................12
5.10 Financial Statements..............................................13
5.11 Liabilities and Obligations.......................................13
5.12 Accounts and Notes Receivable.....................................14
5.13 Books and Records.................................................14
5.14 Permits...........................................................14
5.15 Real Property.....................................................15
5.16 Personal Property.................................................17
5.17 Intellectual Property.............................................17
5.18 Material Contracts and Commitments................................19
5.19 Government Contracts..............................................20
5.20 Insurance.........................................................21
5.21 Labor and Employment Matters......................................21
5.22 Employee Benefit Plans............................................22
<PAGE>
5.23 Conformity with Law; Litigation...................................24
5.24 Taxes.............................................................24
5.25 Absence of Changes................................................26
5.26 Deposit Accounts; Powers of Attorney..............................28
5.27 Environmental Matters.............................................28
5.28 Relations with Governments........................................29
5.29 Disclosure........................................................29
5.30 USFloral Prospectus; Securities Representations...................30
5.31 Affiliates........................................................30
5.32 Location of Chief Executive Offices...............................30
5.33 Location of Equipment and Inventory...............................30
6. REPRESENTATIONS OF USFLORAL AND NEWCO.....................................31
6.1 Due Organization..................................................31
6.2 USFloral Common Stock.............................................31
6.3 Authorization; Validity of Obligations............................31
6.4 No Conflicts......................................................31
6.5 Capitalization of USFloral and Ownership of USFloral Stock........32
7. COVENANTS.................................................................32
7.1 Tax Matters.......................................................32
7.2 Related Party Agreements..........................................33
7.3 Cooperation.......................................................33
7.4 Conduct of Business Pending Closing...............................34
7.5 Access to Information.............................................35
7.6 Prohibited Activities.............................................35
7.7 Notice to Bargaining Agents.......................................37
7.8 Sales of USFloral Common Stock....................................37
7.9 USFloral Stock Options............................................38
7.10 Qualification.....................................................38
7.11 Consent of Lessor.................................................38
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO.............38
8.1 Representations and Warranties; Performance of Obligations........39
8.2 No Litigation.....................................................39
8.3 No Material Adverse Change........................................39
8.4 Consents and Approvals............................................39
8.5 Opinion of Counsel................................................39
8.6 Charter Documents.................................................39
8.7 Quarterly Financial Statements....................................40
8.8 Due Diligence Review..............................................40
8.9 Delivery of Closing Financial Certificate.........................40
8.10 Intentionally omitted.............................................40
ii
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8.11 Employment Agreements.............................................40
8.12 Stockholders' Release.............................................40
8.13 Related Party Agreements..........................................40
8.14 Termination of Payments for Add-Backs.............................41
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS..............................................................41
9.1 Representations and Warranties; Performance of Obligations........41
9.2 No Litigation.....................................................41
9.3 Consents and Approvals............................................41
9.4 Employment Agreements.............................................42
10. INDEMNIFICATION...........................................................42
10.1 General Indemnification by the Stockholders.......................42
10.2 Limitation and Expiration.........................................43
10.3 Indemnification Procedures........................................44
10.4 Survival of Representations Warranties and Covenants..............45
10.5 Remedies Cumulative...............................................45
10.6 Right to Set Off..................................................46
11. NONCOMPETITION............................................................46
11.1 Prohibited Activities.............................................46
11.2 Damages...........................................................46
11.3 Reasonable Restraint..............................................47
11.4 Severability; Reformation.........................................47
11.5 Independent Covenant..............................................47
11.6 Materiality.......................................................47
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................47
12.1 Stockholders......................................................47
12.2 USFloral..........................................................48
12.3 Damages...........................................................48
13. GENERAL...................................................................48
13.1 Termination.......................................................48
13.2 Effect of Termination.............................................49
13.3 Successors and Assigns............................................49
13.4 Entire Agreement; Amendment; Waiver...............................49
13.5 Counterparts......................................................50
13.6 Brokers and Agents................................................50
13.7 Expenses..........................................................50
13.8 Specific Performance; Remedies....................................50
13.9 Notices...........................................................50
13.10 Governing Law.....................................................51
iii
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13.11 Severability......................................................52
13.12 Absence of Third Party Beneficiary Rights.........................52
13.13 Further Representations...........................................52
13.14 Accounting Terms..................................................52
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 3 day of April, 1998, by and among U.S.A. Floral Products,
Inc., a Delaware corporation ("USFloral"), SAB Acquisition Corp., a Florida
corporation and a newly-formed, wholly-owned subsidiary of USFloral ("Newco"),
Master Flowers Inc., d/b/a Sabana Farms, a Florida corporation (the "Company"),
and Juan Manuel Holguin, Pablo Ortega, Eduardo Salazar and Ricardo Valenzuela
(each a "Stockholder" and collectively, the "Stockholders").
BACKGROUND
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are sometimes referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that the Company merge with and into Newco (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the State of Florida.
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 4.2), the
Company shall be merged with and into Newco pursuant to this Agreement and a
plan of merger (the "Plan of Merger") substantially in the form attached as
Schedule 1.1 hereto, and the separate corporate existence of the Company shall
cease. Newco, as it exists from and after the Effective Time, is sometimes
referred to as the "Surviving Corporation."
1.2 Articles of Incorporation; Bylaws, Directors and Officers. At the
Effective Time:
(a) The Articles of Incorporation of the Surviving Corporation from
and after the Effective Time shall be the Articles of Incorporation of Newco
until thereafter amended in accordance with the provisions therein and as
provided by the applicable provisions of the Florida Business Corporation Act.
(b) The Bylaws of the Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco in effect immediately prior to the
Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the Florida Business Corporation.
<PAGE>
(c) The initial director of the Surviving Corporation shall be Robert
J. Poirier until his successor is elected and qualified, and the initial
officers of the Surviving Corporation shall be the officers of the Company
immediately prior to the Effective Time, with the addition of Robert J. Poirier
as Vice President and Assistant Secretary of the Surviving Corporation, in each
case until their successors are duly elected and qualified.
1.3 Effects of the Merger. The Merger shall have the effects provided
therefor by the Florida Business Corporation Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time (i) all
the rights, privileges, immunities, powers and franchises, of a public as well
as of a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including without limitation subscriptions to
shares, and all other choses in action, and all and every other interest of or
belonging to or due to the Company or Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, immunities, powers and franchises
and all and every other interest shall be thereafter as effectually the property
of the Surviving Corporation, as they were of the Company and Newco, and (ii)
all debts, liabilities, duties and obligations of the Company and Newco, subject
to the terms hereof, shall become the debts, liabilities and duties of the
Surviving Corporation and the Surviving Corporation shall thenceforth be
responsible and liable for all the debts, liabilities, duties and obligations of
the Company and Newco and neither the rights of creditors nor any liens upon the
property of the Company or Newco shall be impaired by the Merger, and may be
enforced against the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 Manner of Conversion. At the Effective Time, by virtue of the Merger
and without any action on the part of USFloral, Newco, the Company or any
Stockholder, the shares of capital stock of each of the Constituent Corporations
shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one share of validly issued, fully paid and non-assessable Common
Stock of the Surviving Corporation. Each stock certificate of Newco evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Company.
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of USFloral or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Section
2.1(d), and Sections 2.2, 3.1 and 3.2, each issued and outstanding share of
common stock of the Company, $1.00 par value per share ("Company Common Stock")
(other than shares to be canceled pursuant to Section 2.1(b)), that is issued
and outstanding immediately prior to the Effective Time shall automatically be
canceled and extinguished and converted, without any action on the part of the
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holder thereof, into the right to receive (i) an amount of cash equal to the
cash portion of the Initial Consideration (as defined in Section 2.2) divided by
the number of shares of Company Common Stock outstanding immediately prior to
the Effective Time, (ii) that number of shares of USFloral common stock, $.001
par value ("USFloral Common Stock"), valued at the Merger Price (as defined in
Section 2.2), that is equal in value to the USFloral Common Stock portion of the
Initial Consideration divided by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time and (iii) that number of
shares of USFloral Common Stock, valued at the Earn-Out Price (as defined in
Section 2.2), that is equal in value to the Earn-Out Consideration (as defined
in Section 2.2) divided by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the consideration therefor
upon the surrender of such certificate in accordance with Section 2.3 of this
Agreement.
(d) Fractional Shares. No fractional shares of USFloral Common Stock
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of
USFloral Common Stock shall receive from USFloral an amount of cash equal to the
Merger Price, as defined in Section 2.2(a), multiplied by the fraction of a
share of USFloral Common Stock to which such holder would otherwise be entitled.
The fractional share interests of each Stockholder shall be aggregated, so that
no Stockholder shall receive cash in an amount greater than the value of one
full share of USFloral Common Stock.
2.2 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall
include the Initial Consideration and the Earn-Out Consideration. The "Initial
Consideration" shall be $2,650,000, less the aggregate amount of the long-term
indebtedness of the Company, including the current portion thereof, adjusted
pursuant to this Section 2.2 and Section 3.1. Of the Initial Consideration,
$662,500, less long-term debt shall be paid in cash at Closing in immediately
available funds. The remaining $1,987,500 of the Initial Consideration shall be
paid in shares of USFloral Common Stock valued at $22.62 per share (the "Merger
Price"). For each $1.00 by which the Company's and the Surviving Corporation's
earnings before interest and taxes ("EBIT") for the twelve months ending May 31,
1998 (the "1998 EBIT") exceeds $531,000, USFloral shall pay to the Stockholders
$5.00 (the "Earn-Out Consideration"). The Earn-Out Consideration shall not
exceed $2,500,000. The Earn-Out Consideration shall be paid in USFloral Common
Stock valued at the average closing price on the Nasdaq National Market per
share of USFloral Common Stock for each trading day during the thirty calendar
day period ending May 31,1998 (the "Earn-Out Price"). The Earn-Out
Consideration, if any, shall be paid within thirty days of the determination by
Price Waterhouse of the 1998 EBIT. In calculating the 1998 EBIT, Price
Waterhouse LLP (i) shall add to EBIT any amounts paid by the Company in respect
of those items set forth on Schedule 5.9(b)(ii) hereof during the period
beginning on June 1, 1997 and ending on the Closing Date, and (ii) shall not
take into consideration any amount attributable to charges for corporate
overhead imposed upon the Surviving Corporation by USFloral in excess of the
amounts expended (including,
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without limitation and as applicable, salaries, benefits, rent, utilities and
other charges, costs and expenses) by the Company in the fiscal year ended May
31, 1997 for corresponding functions and services. The shares of USFloral Common
Stock to be issued (subject to adjustment as provided in this Section 2.2 and
Section 3.1) shall be registered under the Securities Act of 1933, as amended
(the "1933 Act").
(b) The Merger Consideration has been calculated based upon several
factors, including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $961,000 (the "Net Worth
Target") as of the Closing.
(c) If, on the Closing Financial Certificate (as defined in Section
8.9), the Certified Closing Net Worth (as defined in Section 8.9) is less than
the Net Worth Target, then the Merger Consideration to be delivered to the
Stockholders may, at USFloral's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in Section 3.1),
by the difference between the Net Worth Target and the Certified Closing Net
Worth set forth on the Closing Financial Certificate (which reduction shall be
pro rata in cash and in USFloral Common Stock valued at the Merger Price in the
same proportions as the cash and USFloral Common Stock components of the Merger
Consideration as provided in Section 2.2(a)).
(d) The Earn-Out Consideration has been calculated based upon several
factors, including the assumption that the Surviving Corporation's earnings
before interest and taxes for the year ended May 31, 1999 (the "1999 EBIT") will
be no less than the 1998 EBIT. For each $1.00 by which the 1999 EBIT is less
than the lesser of (i) 1998 EBIT or (ii) $1,031,000, the Stockholders will repay
USFloral $5.00 in USFloral Common Stock, valued at the Earn-Out Price, up to the
amount of the Earn-Out Consideration received by the Stockholders.
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for the
outstanding shares of capital stock of the Company, USFloral shall cause to be
made available to the Stockholders the Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.2(d)), as adjusted pursuant to Section 2.2 and Section 3.1. The
certificates evidencing the USFloral Common Stock component of the Merger
Consideration shall bear appropriate legends pursuant to the terms of this
Agreement, and USFloral shall be entitled to issue appropriate stop transfer
instructions to its transfer agent consistent with the terms of this Agreement.
(b) Certificate Delivery Requirements. At the Effective Time, the
Stockholders shall deliver to USFloral the certificates (the "Certificates")
representing Company Common Stock, accompanied by blank stock powers duly
executed by the Stockholders and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders shall promptly cure any deficiencies with respect to the stock
powers accompanying such Certificates. The Certificates so delivered shall
forthwith be canceled. Until
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delivered as contemplated by this Section 2.3(b), each Certificate shall be
deemed at any time after the Effective Time to represent the right to receive
upon such surrender the number of shares of USFloral Common Stock and the amount
of cash as provided by this Article 2 and the applicable provisions of the State
Corporation Laws.
(c) No Further Ownership Rights in Capital Stock of the Company. All
USFloral Common Stock and cash to be delivered (including USFloral Common Stock
delivered pursuant to Section 3.2(b) but withheld) upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and following the Effective
Time the Certificates shall have no further rights to, or ownership in, shares
of capital stock of the Company. There shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 2.3.
(d) Lost, Stolen or Destroyed Certificates. If any certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, then USFloral shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of USFloral Common Stock and cash as
provided in Section 2.1; provided, however that USFloral may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
USFloral with respect to the certificates alleged to have been lost, stolen or
destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 2.3, none of the Surviving Corporation or any party hereto shall be
liable to a holder of shares of Company Common Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3. POST-CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 Post-Closing Adjustment.
(a) The Merger Consideration shall be subject to adjustment after the
Closing Date as specified in this Section 3.1.
(b) Within one hundred twenty (120) days following the Effective Time,
USFloral shall cause Price Waterhouse LLP ("USFloral's Accountant") to audit the
Surviving Company's books at USFloral's expense to determine the accuracy of the
information set forth on the Closing Financial Certificate (the "Post-Closing
Audit"). The parties acknowledge and agree that for purposes of determining the
net worth of the Company as of the Closing Date, the value of the assets of the
Company shall, except with the prior written consent of USFloral, be calculated
as provided
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in the last paragraph of Section 8.9. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with USFloral and USFloral's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to USFloral's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. In the event that USFloral's Accountant determines
that the actual Company net worth as of the Closing Date was less than the
Certified Closing Net Worth, USFloral shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholders' Representative, as defined
in Section 3.3, setting forth (i) the determination made by USFloral's
Accountant of the actual Company net worth (the "Actual Company Net Worth"),
(ii) the amount of the Merger Consideration that would have been payable at
Closing pursuant to Section 2.2(c) had the Actual Company Net Worth been
reflected on the Closing Financial Certificate instead of the Certified Closing
Net Worth, and (iii) the amount by which the number of shares issued as the
Merger Consideration would have been reduced at Closing had the Actual Company
Net Worth been used in the calculations pursuant to Section 2.2(c) (the "Merger
Consideration Adjustment"). The Merger Consideration Adjustment shall take
account of the reduction, if any, to the Merger Consideration already taken
pursuant to Section 2.2(c)(i).
(c) The Stockholders' Representative shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify USFloral if the
Stockholders dispute such Financial Adjustment Notice. If USFloral has not
received notice of such a dispute within such 30-day period, USFloral shall be
entitled to receive from the Stockholders (which may, at USFloral's sole
discretion, be from the Pledged Assets as defined in Section 3.2) the Merger
Consideration Adjustment. If, however, the Stockholders' Representative has
delivered notice of such a dispute to USFloral within such 30-day period, then
USFloral's Accountant shall select an independent accounting firm that has not
represented any of the parties hereto within the preceding two (2) years to
review the Surviving Corporation's books, Closing Financial Certificate and
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the Merger Consideration Adjustment. Such independent accounting
firm shall be confirmed by the Stockholders' Representative and USFloral within
five (5) days of its selection, unless there is an actual conflict of interest.
The independent accounting firm shall be directed to consider only those
agreements, contracts, commitments or other documents (or summaries thereof)
that were either (i) delivered or made available to USFloral's Accountant in
connection with the transactions contemplated hereby, or (ii) reviewed by
USFloral's Accountant during the course of the Post-Closing Audit. The
independent accounting firm shall make its determination of the Merger
Consideration Adjustment, if any, within thirty (30) days of its selection. The
determination made by the independent accounting firm shall be final and binding
on the parties hereto, and upon such determination, USFloral shall be entitled
to receive from the Stockholders (which may, at USFloral's sole discretion, be
from the Pledged Assets as defined in Section 3.2) the Merger Consideration
Adjustment. The costs of the independent accounting firm shall be borne by the
party (either USFloral or the Stockholders as a group) whose determination of
the Company's net worth at Closing was further from the determination of the
independent accounting firm, or equally by USFloral and the Stockholders in the
event that the determination by the independent accounting firm is equidistant
between the Certified Closing Net Worth and the Actual Company Net Worth.
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(d) Within one hundred twenty days following May 31, 1999 USFloral
shall cause USFloral's Accountant to determine the 1999 EBIT. In calculating
1999 EBIT, shall not take into consideration any amount attributable to charges
for corporate overhead imposed upon the Surviving Corporation by USFloral in
excess of the amounts expended (including, without limitation and as applicable,
salaries, benefits, rent, utilities and other charges, costs and expenses) by
the Company in the fiscal year ended May 31, 1997 for corresponding functions
and services. In the event that USFloral's Accountant determines that the 1999
EBIT was less than the 1998 EBIT, USFloral shall deliver a written notice (the
"Earn-out Adjustment Notice") to the Stockholders' Representative, setting forth
(i) the determination made by USFloral's Accountant of the 1999 EBIT, (ii) the
amount of the Earn-out Consideration that would have been payable had the Earn-
out Consideration been calculated based on the 1999 EBIT rather than the 1998
EBIT and (iii) the amount by which the number of shares issued as the Earn-out
Consideration would have been reduced at Closing had the 1999 EBIT been used to
calculate the Earn-out Consideration (the "Earn-out Consideration Adjustment").
(e) The Stockholders' Representative shall have thirty (30) days from
the receipt of the Earn-out Adjustment Notice to notify USFloral if the
Stockholders dispute such Earn-out Adjustment Notice. Such notice shall include
the Stockholders' determination of the amount of 1999 EBIT. If USFloral has not
received notice of such a dispute within such 30-day period, USFloral shall be
entitled to receive from the Stockholders the Earn-out Consideration Adjustment.
If, however, the Stockholders' Representative has delivered notice of such a
dispute to USFloral within such 30-day period, then USFloral's Accountant shall
select an independent accounting firm that has not represented any of the
parties hereto within the preceding two (2) years to review the Surviving
Corporation's books and Earn-out Adjustment Notice (and related information) to
determine the amount, if any, of the Earn-out Consideration Adjustment. Such
independent accounting firm shall be confirmed by the Stockholders'
Representative and USFloral within five (5) days of its selection, unless there
is an actual conflict of interest. The independent accounting firm shall make
its determination of the Earn-out Consideration Adjustment, if any, within
thirty (30) days of its selection. The determination made by the independent
accounting firm shall be final and binding on the parties hereto, and upon such
determination, USFloral shall be entitled to receive from the Stockholders the
Earn-out Consideration Adjustment. The costs of the independent accounting firm
shall be borne by the party (either USFloral or the Stockholders as a group)
whose determination of 1999 EBIT was further from the determination of the
independent accounting firm, or equally by USFloral and the Stockholders in the
event that the determination by the independent accounting firm is equidistant
between USFloral's and the Stockholders' determination of 1999 EBIT.
3.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Merger Consideration under Section 3.1, or any indemnification
obligations of the Stockholders pursuant to Article 10, the Stockholders shall,
and by execution hereof do hereby, transfer, pledge and assign to USFloral, for
the benefit of USFloral, a security interest in the following assets (the
"Pledged Assets"):
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(i) at the Closing, that number of shares of USFloral Common
Stock with a value, based on the Merger Price, equal to ten percent (10%) of
each Stockholder's share of the Initial Consideration as the same may have been
adjusted pursuant to Section 2.2 or Section 3.1 hereof, and the certificates and
instruments, if any, representing or evidencing each such Stockholder's Pledged
Assets; upon determination of the Earn-Out Consideration, that number of shares
of USFloral Common Stock with a value, based on the Earn-Out Price, equal to ten
percent (10%) of each Stockholder's share of the Earn-Out Consideration, and the
certificates and instruments, if any, representing or evidencing each such
Stockholder's Pledged Assets;
(ii) upon determination of the Earn-Out Consideration, that
number of shares of USFloral Common Stock with a value, based on the Earn-Out
Price equal to fifty percent (50%) of each Stockholder's share of the Earn-Out
Consideration (the "Earn-Out Pledged Assets");
(iii) all securities hereafter delivered to such Stockholder with
respect to or in substitution for such Stockholder's Pledged Assets, all
certificates and instruments representing or evidencing such securities, and all
cash and non-cash dividends and other property at any time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and in the event such Stockholder receives any such property, such Stockholder
shall hold such property in trust for USFloral and shall immediately deliver
such property to USFloral to be held hereunder as Pledged Assets; and
(iv) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Stockholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to USFloral
directly by the transfer agent, such certificate bearing no restrictive or
cautionary legend other than those imprinted by the transfer agent at USFloral's
request. Each Stockholder shall, at the Closing, deliver to USFloral, for each
such certificate, a stock power duly signed in blank by him or her. Any cash
comprising a Stockholder's Pledged Assets shall be withheld by USFloral from
distribution to such Stockholder.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Merger Consideration pursuant to Section 3.1 and any
indemnification obligations of the Stockholders pursuant to Article 10 until the
date which is one year after the Effective Time (the "Release Date"). Promptly
following the Release Date, USFloral shall return or cause to be returned to the
Stockholders the Pledged Assets, less Pledged Assets having an aggregate value
equal to the amount of (i) any post-Closing adjustment to the Merger
Consideration under Section 3.1, (ii) any pending claim for indemnification made
in good faith by any Indemnified Party (as defined in Article 10), and (iii) any
indemnification obligations of the Stockholders pursuant to Article 10.
Notwithstanding the preceding two sentences the Earn-out Pledged Assets shall be
available to satisfy any adjustment to the Earn-out Consideration until the
determination by USFloral's Accountant's of the 1999 EBIT. Promptly following
such determination, USFloral shall cause to be returned to the Stockholders the
Earn-out Pledged Assets, less Earn-out Pledged Assets having an aggregate value
equal to the amount of any adjustment to the Earn-out Consideration under
Section
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3.1. For purposes of this Section 3.2(c) and Article 10, the USFloral Common
Stock held as Pledged Assets shall be valued at (x) the Merger Price with
respect to any post-Closing adjustment to the Merger Consideration under Section
3.1, (y) the Earn-out Price with respect to any adjustment to the Earn-out
Consideration and (z) the average of the closing price on the Nasdaq National
Market per share of USFloral Common Stock for the five trading days prior to the
satisfaction of an indemnification obligation (the "Market Value") with respect
to indemnification obligations pursuant to Article 10.
3.3 Stockholders' Representative.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates Juan Manuel Holguin or, in the event that Juan Manuel Holguin is
unable or unwilling to serve, Ricardo Valenzuela to be the Stockholders'
Representative for purposes of this Agreement. The Stockholders shall be bound
by any and all actions taken by the Stockholders' Representative on their
behalf.
(b) USFloral and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All communications or writings to be sent to Stockholders pursuant to this
Agreement may be addressed to the Stockholders' Representative and any
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder. The Stockholders hereby consent and agree that the
Stockholders' Representative is authorized to accept deliveries, including any
notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative, and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 10 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to and coupled
with the interest of the other Stockholders hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of any Stockholder, by operation of law,
whether by such Stockholder's death or any other event.
4. CLOSING
4.1 Location and Date. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Morgan, Lewis & Bockius LLP, on April 3, 1998, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as USFloral, the Company and the Stockholders may mutually agree, which
date shall be referred to as the "Closing Date."
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4.2 Effect. On the Closing Date, the articles of merger, certificate of
merger, or other appropriate documents executed in accordance with the Florida
Business Corporation Act (the "Merger Documents"), together with any required
officers' certificates, shall be filed with the Secretary of the State of
Florida in accordance with the provisions of the Florida Business Corporation
Act. The Merger shall become effective upon such filings or at such later time
as may be specified in such filings (the "Effective Time").
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce USFloral and Newco to enter into this Agreement and consummate
the transactions contemplated hereby, each of the Company and each Stockholder,
jointly and severally, represents and warrants to USFloral and Newco as follows
(for purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
Stockholders and the directors and officers of the Company, including facts of
which the directors and officers, in the reasonably prudent exercise of their
duties, should be aware):
5.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Company ("Material Adverse Effect"). Schedule 5.1 hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
The Company is in good standing as a foreign corporation in each jurisdiction it
which it does business. The Company has delivered to USFloral true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
The minute books of the Company have been made available to USFloral (and shall
have been delivered at Closing, along with the Company's original stock ledger
and corporate seal, to USFloral) and are correct and, except as set forth in
Schedule 5.1, complete in all material respects.
5.2 Authorization; Validity. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
this Agreement. The Company has the full legal right, corporate power and
authority to enter into this Agreement and the transactions contemplated hereby.
Each Stockholder has the full legal right and authority to enter into this
Agreement and the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the performance by the Company of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of the Company and the Stockholders, and this Agreement has
been duly and validly authorized by all necessary corporate
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action. This Agreement is a legal, valid and binding obligation of the Company
and each Stockholder, enforceable in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Company or any
Stockholder is a party or by which the Company or any Stockholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Company's properties pursuant to (i) any law or regulation to which the
Company or any Stockholder or any of their respective property is subject, or
(ii) any judgment, order or decree to which the Company or any Stockholder is
bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
5.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 100,000 shares of common stock, $1.00 par value, of which
52,600 shares are issued and outstanding. All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record and
beneficially by the Stockholders in the amounts set forth in Schedule 5.4 free
and clear of all Liens (defined below). All of the issued and outstanding
shares of the capital stock of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of the Company. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the
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filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
5.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral, which may obligate the Company to issue, sell or
otherwise cause to become outstanding any shares of capital stock. The Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. As a result of the
Merger, USFloral will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
5.6 Subsidiaries, Stock, and Notes.
(a) The Company has no subsidiaries.
(b) The Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, nor is the Company, directly or indirectly, a participant in
any joint venture, partnership or other noncorporate entity.
(c) There are no promissory notes that have been issued to, or are
held by, the Company.
5.7 Predecessor Status. Schedule 5.7 sets forth a list of all names of
all predecessor companies of the Company, including the names of any entities
from which the Company previously acquired significant assets. The Company has
never been a subsidiary or division of another corporation, nor has it been a
part of an acquisition that was later rescinded.
5.8 Absence of Claims Against the Company. No Stockholder has any claims
against the Company.
5.9 Company Financial Conditions.
(a) The Company's net worth (i) as of the end of its most recent
fiscal year was not less than $961,000, and (ii) as of the Closing will not be
less than the Net Worth Target. For purposes of this Section 5.9(a),
calculation of amounts as of the Closing shall be made in accordance with the
last paragraph of Section 8.9.
(b) The Company's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)(i)) for its most recent
fiscal year was not less than $522,000.
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5.10 Financial Statements. Schedule 5.10 includes (a) true, complete and
correct copies of the Company's audited balance sheet as of May 31, 1997 (the
end of its most recently completed fiscal year), and income statement for the
year then ended (collectively, the "Audited Financials") and (b) true, complete
and correct copies of the Company's unaudited balance sheet (the "Interim
Balance Sheet") as of February 28, 1998 (the "Balance Sheet Date") and income
statement, for the nine-month period then ended (collectively, the "Interim
Financials," and together with the Audited Financials, the "Company Financial
Statements"). Except as noted on the auditors' report accompanying the Audited
Financials, the Company Financial Statements have been prepared in accordance
with GAAP consistently applied, subject to, in the case of the Interim
Financials, (i) normal year-end audit adjustments, which individually or in the
aggregate will not be material, (ii) the exceptions stated on Schedule 5.10, and
(iii) the omission of footnote information. Each balance sheet included in the
Company Financial Statements presents fairly the financial condition of the
Company as of the date indicated thereon, and each of the income statements
included in the Company Financial Statements presents fairly the results of its
operations for the periods indicated thereon. Since the dates of the Company
Financial Statements, there have been no material changes in the Company's
accounting policies other than as requested by USFloral to conform the Company's
accounting policies to GAAP.
5.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities except
for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) The Company has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 5.11(c) also includes a summary description of all plans
or projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any real property or existing business, to
which management of the Company has made any material expenditure in the two-
year period prior to the date of this Agreement, which if pursued by the Company
or the Surviving Corporation would require additional material expenditures of
capital.
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(d) For purposes of this Section 5.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 5.11(d)
contains a complete list of all indebtedness of the Company.
5.12 Accounts and Notes Receivable. The Company has delivered to USFloral
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). On the Closing Date, the Company will deliver to USFloral a
complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are collectible net of any respective reserves shown on the Company's books and
records (which reserves are adequate and calculated consistent with past
practice). Subject to such reserves, each of the Accounts Receivable will be
collected in full, without any set-off, within ninety (90) days after the
Closing. There is no contest, claim, or right of set-off, other than rebates,
credits and returns in the ordinary course of business, under any contract with
any obligor of an Account Receivable relating to the amount or validity of such
Account Receivable.
5.13 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
5.14 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any Permit.
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5.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 5.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
owner, and Company's use thereof) and, to the Company's knowledge, any Liens.
Schedule 5.15(b) indicates whether the Real Property is owned or leased. The
Real Property listed on Schedule 5.15(b) includes all interests in real property
necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 5.15(c):
(i) The Company has good and valid rights of ingress and egress
to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.
(ii) To the Company's knowledge, all structures and all
structural, mechanical and other physical systems thereof that constitute part
of the Real Property, including but not limited to the walls, roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facility included therein, and other material
items at the Real Property (collectively, the "Tangible Assets"), are free of
defects and in good operating condition and repair. For purposes of this
Section, a defect shall mean a condition relating to the structures or any
structural, mechanical or physical system which requires an expenditure of more
than $1,000 to correct. No maintenance or repair to the Real Property,
Structures or any Tangible Asset has been unreasonably deferred. There is no
water, chemical or gaseous seepage, diffusion or other intrusion into said
buildings, including any subterranean portions, that would impair beneficial use
of the Real Property, Structures or any Tangible Asset.
(iii) To the Company's knowledge, all water, sewer, gas,
electric, telephone and drainage facilities, and all other utilities required by
any applicable law or by the use and operation of the Real Property in the
conduct of the business of the Company's business are installed to the property
lines of the Real Property, are connected pursuant to valid permits to municipal
or public utility services or proper drainage facilities, are fully operable and
are adequate to service the Real Property in the operation of the Company's
business and to permit full compliance with the requirements of all laws in the
operation of such business. No fact or condition exists which could result in
the termination or material reduction of the current access from the Real
Property to existing roads or to sewer or other utility services presently
serving the Real Property.
(iv) To the Company's knowledge, the Real Property and all
present uses and operations of the Real Property comply with all applicable
statutes, rules, regulations,
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ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the use, occupation and operation of the Real Property.
(v) To the Company's knowledge, none of the Structures, the
appurtenances thereto or the equipment therein or the operation or maintenance
thereof, or the conduct of the Company's business, violates any restrictive
covenant or encroaches on any property owned by others or any easement, right of
way or other Lien or restriction affecting such Real Property in any respect.
The Real Property and its continued use, occupancy and operation as used,
occupied and operated in the conduct of the Company's business does not
constitute a nonconforming use and is not the subject of a special use permit
under any applicable Law.
(vi) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vii) No portion of the Real Property or the Structures has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
(viii) There are no parties other than the Company in possession
of any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
(ix) There are no outstanding options or rights of first refusal
to purchase the Real Property, or any portion thereof or interest therein. The
Company has not transferred any air rights or development rights relating to the
Real Property.
(x) There are no service contracts or other agreements relating
to the use or operation of the Real Property, other than as set forth in the
lease for office premises.
(xi) No portion of the Real Property is located in a wetlands
area, as defined by Laws, or in a designated or recognized flood plain, flood
plain district, flood hazard area or area of similar characterization. No
commercial use of any portion of the Real Property will violate any requirement
of the United States Corps of Engineers or Laws relating to wetlands areas.
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(xii) All real property taxes and assessments that are due and
payable with respect to the Real Property have been paid or will be paid at or
prior to Closing.
(xiii) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Company
leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided USFloral with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens, except statutory landlord liens
under Florida law.
(xiv) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
5.16 Personal Property.
(a) Schedule 5.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
the Company, including those listed on Schedule 5.16(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 5.16(a) are in full force and effect and constitute valid and binding
agreements of the Company, and the Company is not in breach of any of their
terms. All fixed assets used by the Company that are material to the operation
of its business are either owned by the Company or leased under an agreement
listed on Schedule 5.16(a).
5.17 Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 5.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Company now owns or
uses in connection with its
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business. Except with respect to those Marks shown as licensed on Schedule
5.17(a), the Company owns all of the registered and unregistered trademarks,
service marks, and trade names that it uses. The Marks listed on Schedule
5.17(a) will not cease to be valid rights of the Company by reason of the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. For purposes of this Section 5.17, the term
"Mark" shall mean all right, title and interest in and to any United States or
foreign trademarks, service marks and trade names now held by the Company,
including any registration or application for registration of any trademarks and
services marks in the PTO or the equivalent thereof in any state of the United
States or in any foreign country, as well as any unregistered marks used by the
Company, and any trade dress (including logos, designs, company names, business
names, fictitious names and other business identifiers) used by the Company in
the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 5.17(b)(i) and in the Copyright registrations listed on
Schedule 5.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Company now owns or is licensed to use. The Company
owns or is licensed to practice under all patents and copyright registrations
that the Company now owns or uses in connection with its business. For purposes
of this Section 5.17, the term "Patent" shall mean any United States or foreign
patent to which the Company has title as of the date of this Agreement, as well
as any application for a United States or foreign patent made by the Company;
the term "Copyright" shall mean any United States or foreign copyright owned by
the Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 5.17(c). Those Other Rights constitute all of the Other Rights that
the Company now owns or is licensed to use. The Company owns or is licensed to
practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 5.17(a), 5.17(b)(i), 5.17(b)(ii), and 5.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 5.17(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 5.17(a), 5.17(b)(i), 5.17(b)(ii), or 5.17(c). No
claims with respect to the Company Intellectual Property or Third Party
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Intellectual Property are currently pending or, to the knowledge of the Company,
are threatened by any person, nor, to the Company's knowledge, do any grounds
for any claims exist: (i) to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or proposed for use, sale or
license by the Company infringes on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by the Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted by the Company; (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property or other trade secret
material to the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
(f) All Intellectual Property in the form of computer software that is
utilized by the Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries, or can be made capable within 90 days and at an aggregate cost not in
excess of $15,000.
5.18 Material Contracts and Commitments.
(a) Schedule 5.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Company, on the one hand, and any affiliate of the
Company or any officer, director or stockholder of the Company, on the other
hand, are parties ("Related Party Agreements"); or (ii) that may give rise to
obligations or liabilities exceeding, during the current term thereof, $15,000,
or that may generate revenues or income exceeding, during the current term
thereof, $15,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to USFloral true, complete and correct
copies of the Material Contracts. The Company has complied with all of its
commitments and obligations and is not in default under any of the Material
Contracts, and no notice of default has been received with respect to any
thereof, and, except as otherwise set forth on Schedule 5.18(a), there are no
Material Contracts that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 7.4, is valid and binding on the Company and is in full force and effect
and is not subject to any default
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thereunder by any party obligated to the Company pursuant thereto. The Company
will obtain prior to the Closing Date all necessary consents, waivers and
approvals of parties to any Material Contracts that are required in connection
with any of the transactions contemplated hereby, or are required by any
governmental agency or other third party or are advisable in order that any such
Material Contract remain in effect without modification after the Merger and
without giving rise to any right to termination, cancellation or acceleration or
loss of any right or benefit ("Third Party Consents"). All Third Party Consents
are listed on Schedule 5.18(b).
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
Person in which any of the Stockholders owns a material interest, are set forth
in Schedule 5.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially all
of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 5.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 5.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
5.19 Government Contracts.
(a) The Company is not a party to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) Except as set forth in Schedule 5.19, the Company has not been,
nor is it now being, audited, or investigated by any government agency, or the
inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
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(e) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
5.20 Insurance. Schedule 5.20 sets forth a complete and accurate list of
all insurance policies carried by the Company and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Company has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Company. The insurance carried by
the Company with respect to its properties, assets and business is, to the
Company's knowledge, with financially sound insurers. To the knowledge of the
Company, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies.
5.21 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and has not and is not engaged in
any unfair labor practice;
(b) except as set forth on Schedule 5.21(b), there is not now, nor
within the past three years has there been, any unfair labor practice complaint
against the Company pending or, to the Company's knowledge, threatened, before
the National Labor Relations Board or any other comparable authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened, against or directly affecting the Company;
(d) except as set forth on Schedule 5.21(d) and to the Company's
knowledge, no labor representation organization effort exists nor has there been
any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
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(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) all persons classified by the Company as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
the Company has fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
5.22 Employee Benefit Plans. Attached hereto as Schedule 5.22 are
complete and accurate copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the Company, or to which the Company currently contributes, or has an obligation
to contribute in the future (including, without limitation, employment
agreements and any other agreements containing "golden parachute" provisions and
deferred compensation agreements), together with copies of any trusts related
thereto and a classification of employees covered thereby (collectively, the
"Plans"). Schedule 5.22 sets forth all of the Plans that have been terminated
within the past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 5.22. To the extent that any
Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) the Stockholders; (ii) any Plan; or (iii) the
Company has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No Plan has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company does not currently have (nor at the
Closing Date will have) any direct or indirect liability whatsoever (including
being subject to any statutory lien to secure payment of any such liability), to
the Pension Benefit Guaranty Corporation ("PBGC") with respect to any such Plan
under Title IV of ERISA or to the Internal Revenue Service for any excise tax or
penalty; and neither the Company nor any member of a "controlled group" (as
defined in ERISA Section 4001(a)(14)) currently has (or at the Closing Date will
have) any obligation whatsoever to contribute to any "multi-employer pension
plan" (as defined in ERISA
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Section 4001(a)(14), nor has any withdrawal liability whatsoever (whether or not
yet assessed) arising under or capable of assertion under Title IV of ERISA
(including, but not limited to, Sections 4201, 4202, 4203, 4204, or 4205
thereof) been incurred by any Plan. Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), the Company and the Stockholders have complied (and on the Closing
Date will have complied), in all respects with all reporting, disclosure,
notice, election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the Company has no (and will incur no)
direct or indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the Company or the Stockholders, at any time prior to the Closing Date, to
comply with any such federal or state benefit continuation requirement, which is
capable of being assessed or asserted before or after the Closing Date directly
or indirectly against the Company or the Stockholders with respect to such group
health plans;
(f) the Company is not now nor has it been within the past five years
a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Stockholders' knowledge, there
is no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Financial Statements as of the Balance Sheet Date reflect the
approximate total pension, medical and other benefit expense for all Plans, and
no material funding changes or irregularities are reflected thereon which would
cause such Financial Statements to be not representative of most prior periods;
and
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(i) the Company has not incurred liability under Section 4062 of
ERISA.
5.23 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 5.23(a), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect on the Company.
(b) No Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 5.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
business.
5.24 Taxes.
(a)
(i) The Company has timely filed all Tax Returns due on or
before the Closing Date and all such Tax Returns are true, correct and complete
in all respects.
(ii) The Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes as
of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for Deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
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(iv) There are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) The Company has a taxable year ended on May 31, in each
year since 1988.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past 10 years. The Company has not agreed to, and is not and will not be
required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last five fiscal years have been made available
to USFloral.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(xii) The Company is not, and has not been at any time, a party
to a tax sharing, tax indemnity or tax allocation agreement, and the Company has
not assumed the tax liability of any other person under contract.
(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(b) For purposes of this Agreement:
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(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
5.25 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 5.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company, other than the
sale of real property located at 3081 N.W. 74th Avenue, Miami, Florida;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers
directors, Stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Company to any person, including
without limitation the Stockholders and their affiliates, other than the sale of
real property located at 3081 N.W. 74th Avenue, Miami, Florida;
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(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party, other
than that arising from the sale of real property located at 3081 N.W. 74th
Avenue, Miami, Florida;
(m) any transaction by the Company outside the ordinary course of
business, other than the sale of real property located at 3081 N.W. 74th Avenue,
Miami, Florida;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
$25,000;
(r) any loan by the Company to any person or entity, incurring by the
Company, of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
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(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with USFloral and its representatives regarding the
transactions contemplated by this Agreement).
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Company and a description of the
terms of such power.
5.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 5.27(a),
no underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state, local or
other applicable law to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a "Hazardous Material"), are
present in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that the Company has at any time owned,
operated, occupied or leased. Schedule 5.27(a) identifies all underground and
aboveground storage tanks, and the capacity, age, and contents of such tanks,
located on Real Property owned or leased by the Company.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of or released, or exposed its employees or
others to, Hazardous Materials in violation of any law in effect on or before
the Closing Date, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively, "Company
Hazardous Materials Activities") in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
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(c) Permits. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Material Activities and
other business of the Company as such activities and business are currently
being conducted. All Environmental Permits are in full force and effect. The
Company (A) is in compliance in all material respects with all terms and
conditions of the Environmental Permits and (B) is in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
the laws of all Governmental Entities relating to pollution or protection of the
environment or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder. To
the Company's knowledge, there are no circumstances that may prevent or
interfere with such compliance in the future. Schedule 5.27(c) includes a
listing and description of all Environmental Permits currently held by the
Company.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
5.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. The Company has delivered to USFloral and Newco true and
complete copies of each agreement, contract, commitment or other document (or
summaries thereof) that is referred to in the Schedules or that has been
requested by USFloral. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement, the schedules hereto and all other documents and information
furnished to USFloral and its representatives pursuant hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. If any
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholder shall immediately
give notice of such fact or circumstance to USFloral. However, such notification
shall not relieve the Company or the Stockholder of their respective obligations
under this Agreement, and at the sole option of USFloral, the truth and accuracy
of any and all warranties and representations of the Stockholders, at the date
of this Agreement and as of the Closing date, shall be a precondition to the
consummation of this transaction.
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5.30 USFloral Prospectus; Securities Representations. Each Stockholder
has received and reviewed a copy of the prospectus dated March 30, 1998
including all supplements thereto (as supplemented, the "USFloral Prospectus")
contained in USFloral's shelf registration statement on Form S-1 (File No. 333-
39969). Each Stockholder (a) has such knowledge, sophistication and experience
in business and financial matters that they are capable of evaluating the merits
and risks of an investment in the shares of USFloral Common Stock, (b) fully
understands the nature, scope, and duration of the limitations on transfer
contained herein, and under applicable law, and (c) can bear the economic risk
of any investment in the shares of USFloral Common Stock and can afford a
complete loss of such investment. Each Stockholder has had an adequate
opportunity to ask questions and receive answers (and has asked such questions
and received answers to its satisfaction) from the officers of USFloral
concerning the business, operations and financial condition of USFloral. None of
the Stockholders has any contract, undertaking, agreement or arrangement,
written or oral, with any other person to sell, transfer or grant participation
in any shares of USFloral Common Stock to be acquired by such Stockholder in the
Merger. Each Stockholder acknowledges and agrees that USFloral has not and will
not provide such Stockholder or any other party with a prospectus for such
Stockholder's use in selling USFloral Common Stock.
5.31 Affiliates. The Stockholders are the only persons who are, in the
reasonable judgment of the Company and each of the Stockholders, affiliates of
the Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
5.32 Location of Chief Executive Offices. Schedule 5.32 sets forth the
location of the Company's chief executive offices.
5.33 Location of Equipment and Inventory. All Inventory and Equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 5.33. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code as
in effect on October 16, 1997 in the State of New York (the "N.Y.U.C.C.") owned
by the Company as of the date hereof, and, in any event, shall include, but
shall not be limited to, all merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production, and all proceeds therefrom; and (b)
the term "Equipment" shall mean any "equipment" as such term is defined in the
N.Y.U.C.C. owned by the Company as of October 16, 1997, and, in any event, shall
include, but shall not be limited to, all machinery, equipment, furnishings,
fixtures and vehicles owned by the Company, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
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6. REPRESENTATIONS OF USFLORAL AND NEWCO
To induce the Company and the Stockholders to enter into this Agreement and
consummate the transactions contemplated hereby, each of USFloral and Newco
represents and warrants to the Company and the Stockholders as follows:
6.1 Due Organization. Each of USFloral and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation, and each is duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their respective businesses in the places and in the
manner as now conducted, except where the failure to be so authorized, qualified
or licensed would not have a Material Adverse Effect. Copies of the Certificate
of Incorporation and the Bylaws, each as amended, of USFloral and Newco
(collectively, the "USFloral Charter Documents") have been made available to the
Company. Neither USFloral nor Newco is in violation of any USFloral Charter
Document.
6.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholders at the Effective Time, when delivered in
accordance with the terms of this Agreement, will be valid and legally issued
shares of USFloral capital stock, fully paid and nonassessable.
6.3 Authorization; Validity of Obligations. The representatives of
USFloral and Newco executing this Agreement have all requisite corporate power
and authority to enter into and bind USFloral and Newco to the terms of this
Agreement. USFloral and Newco have the full legal right, power and corporate
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by USFloral and Newco and the
performance by each of USFloral and Newco of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of USFloral and Newco, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of each of USFloral and Newco enforceable in accordance
with its terms.
6.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and its
lenders, conflict with, or result in a default (or would constitute a default
but for a requirement of notice or lapse of time or both) under any document,
agreement or other instrument to which either USFloral or Newco is a party, or
result in the creation or imposition of any lien, charge or encumbrance on any
of USFloral's or Newco's properties pursuant to (i) any law or regulation to
which either USFloral
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or Newco or any of their respective property is subject, or (ii) any judgment,
order or decree to which USFloral or Newco is bound or any of their respective
property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral or
Newco; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral or Newco is subject, or by which USFloral or Newco
is bound, (including, without limitation, the HSR Act, together with all rules
and regulations promulgated thereunder).
6.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. The
authorized capital stock of Newco consists of 1,000 shares of Common Stock, of
which 100 shares are outstanding. All of the issued and outstanding shares of
Newco are owned beneficially, and of record by USFloral. All of the shares of
USFloral Common Stock to be issued to the Stockholders in accordance herewith
will be offered, issued, sold and delivered by USFloral in compliance with all
applicable state and federal securities laws and none of such shares was or will
be issued in violation of the preemptive rights of any stockholder of USFloral.
7. COVENANTS
7.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(i) The Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the
Surviving Corporation on or before the due date of such Tax Returns the amount
of all Taxes shown as due on such Tax Returns to the extent that such Taxes are
not reflected in the current liability accruals for Taxes (excluding reserves
for deferred Taxes) shown on the Company's books and records as of the Closing
Date. Such Returns shall be prepared and filed in accordance with applicable law
and in a manner consistent with past practices and shall be subject to review
and approval by USFloral. To the extent reasonably requested by the Stockholders
or required by law, USFloral and the Surviving Corporation shall participate in
the filing of any Tax Returns filed pursuant to this paragraph.
(ii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholders
shall pay to the Surviving Corporation within fifteen
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(15) days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the current liability accruals for Taxes (excluding reserves for
deferred Taxes) shown on the Company's books and records as of the Closing Date.
For purposes of this Section 7.1, in the case of any Taxes that are imposed on a
periodic basis and are payable for a taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such taxable period ending on the Closing Date shall (x) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire taxable period multiplied by a fraction
the numerator of which is the number of days in the taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Closing Date. Any credits relating to a taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Surviving Corporation.
(iii) USFloral and the Surviving Corporation on one hand and the
Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 7.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to Tax matters pertinent to
the Company that is in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporation will join in the execution of any such
Tax Returns and other documentation.
7.2 Related Party Agreements. The Company and/or the Stockholders, as the
case may be, shall terminate any Related Party Agreements which USFloral
requests the Company or Stockholders to terminate.
7.3 Cooperation.
(a) The Company, the Stockholders, USFloral and Newco shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief financial officer of
the Company shall execute any documentation reasonably required by USFloral's
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independent public accountants (in connection with such accountants' audit of
the Company) or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
(d) The Company, the Stockholders and USFloral shall file all notices
and other information and documents required under the HSR Act (as defined in
Section 5.3) as promptly as practicable after the date hereof.
7.4 Conduct of Business Pending Closing. Between the date hereof and the
Effective Time, the Company will (except as requested or agreed by USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities (other than the real
property located at 3081 N.W. 74th Avenue, Miami, Florida, which the Company
shall sell prior to Closing) including those held under leases, in as good
working order and condition as at present, ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments (other than those
arising from the real property located at 3081 N.W. 74th Avenue, Miami, Florida)
and not enter into new or amended debt or lease instruments; and
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(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Stockholders) in accordance with past
practice.
7.5 Access to Information. Between the date of this Agreement and the
Closing Date, the Company will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Company and (ii) such additional financial and operating data
and other information as to the business and properties of the Company as
USFloral may from time to time reasonably request, including without limitation,
access upon reasonable request to the Company's employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 7.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
7.6 Prohibited Activities. Between the date hereof and the Effective
Time, the Company will not, without the prior written consent of USFloral:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property; provided, however, that the Company may sell the real
property located at 3081 N.W. 74th Avenue, Miami, Florida prior to Closing) in
respect of its stock whether now or hereafter outstanding, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or purchase, redeem or otherwise acquire or retire for value any
shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
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(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice (other than the real property located at 3081 N.W. 74th
Avenue, Miami, Florida, which the Company shall sell prior to Closing;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right (other than the amendment or termination of any
material agreement arising from the sale of real property located at 3081 N.W.
74th Avenue, Miami, Florida prior to Closing);
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice (other than the sale of real property
located at 3081 N.W. 74th Avenue, Miami, Florida, which the Company shall sell
prior to Closing) or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
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(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 7.7(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
7.7 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral, and shall provide USFloral with proof that any required notice has
been sent.
7.8 Sales of USFloral Common Stock.
(a) No Stockholder will, directly or indirectly, offer, sell, contract
to sell, pledge or otherwise dispose of one-half of the shares of USFloral
Common Stock to be received by such Stockholder in the Merger prior to the date
that is, (i) with respect to one-third of the shares, twenty-four months from
the Closing Date or the date of determination of the Earn-Out Consideration, as
the case may be, (ii) with respect to two-thirds of the shares, eighteen months
from the Closing Date or the date of determination of the Earn-Out
Consideration, as the case may be and (iii) with respect to all of the shares,
twelve months from the Closing Date or the date of determination of the Earn-Out
Consideration, as the case may be.
(b) Each Stockholder acknowledges and agrees that USFloral will not
provide such Stockholder with a prospectus for such Stockholder's use in selling
the shares of USFloral Common Stock to be received by such Stockholder in the
Merger, and agrees to sell such shares only in accordance with the requirements,
if any, of Rule 145(d) promulgated under the 1933 Act. USFloral acknowledges
that the provisions of this Section 7.9(b) will be satisfied as to any sale by a
Stockholder of the USFloral Common Stock Stockholder may acquire pursuant to the
Merger pursuant to Rule 145(d) under the Securities Act, by a broker's letter
and a letter from the Stockholder with respect to that sale stating that the
applicable requirements of Rule 145(d)(1) have been met or are inapplicable by
virtue of Rule 145(d)(2) or Rule 145(d)(3) provided, however, that USFloral has
no reasonable basis to believe that such sales were not made in compliance with
such provisions of Rule 145(d) and subject to any changes in Rule 145 after the
date of this Agreement.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Stockholders in the Merger will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN
OF REORGANIZATION, DATED AS OF APRIL 3, 1998, AMONG THE ISSUER AND THE
STOCKHOLDERS OF MASTER FLOWER, INC., A FLORIDA CORPORATION. PRIOR TO THE
EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING
PERIOD HAS EXPIRED.
*** With respect to the Initial Consideration, certificates representing one-
third of the shares of USFloral Common Stock issued will read "April 3, 1999,"
one-third will read "October 3, 1999" and one-third will read "April 3, 2000."
7.9 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 4.5% of the Merger
Consideration provided for in Section 2.2 above shall be available for issuance
to the key employees of the Surviving Corporation after the Closing, as
determined by the Surviving Corporation's President (or other officer or
director designated by the Surviving Corporation and acceptable to USFloral) in
accordance with USFloral's policies, and authorized and issued under the terms
of USFloral's 1997 Long-Term Incentive Plan.
7.10 Qualification. Each party agrees to use reasonable best efforts not
to take any action which could cause the underlying transaction to fail to
qualify as a reorganization pursuant to the provisions of Section 368(a)(2)(D)
of the Code.
7.11 Consent of Lessor. Prior to April 17, 1998, the Stockholders shall
obtain and provide evidence to the Surviving Corporation of MICC Venture's
written consent to the assignment of that certain Industrial Lease between MICC
Venture, a Florida general partnership and the Company, dated June 23, 1997 for
the premises located at 8181 NW 14 Street, Suite 250, Miami, Florida from the
Company to the Surviving Corporation.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO
The obligation of USFloral and Newco to effect the Merger is subject to the
satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
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8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to USFloral.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit claim or proceeding of any nature
pending or threatened against USFloral, Newco or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the Company.
8.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Company, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by each Stockholder dated
the Closing Date to such effect.
8.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
8.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in
substantially the form attached hereto as Exhibit A.
8.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to USFloral.
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8.7 Quarterly Financial Statements. USFloral shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to USFloral, and the Merger shall have been approved by USFloral's
lenders.
8.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. USFloral shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
8.9 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of the Company as of the last day of its most recent
fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(c) the earnings of the Company before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the Company financial conditions set forth
in Section 5.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth and the Certified Closing EBIT, the Company shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after May 31,
1997.
8.10 Intentionally omitted.
8.11 Employment Agreements. Andres Kiger shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to
USFloral.
8.12 Stockholders' Release. The Stockholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Company from any and
all claims of such Stockholder against the Company in substantially the form
attached hereto as Exhibit B.
8.13 Related Party Agreements. The Company shall have delivered to
USFloral:
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(a) an executed Flower Supply Agreement, in the form of Exhibit C
attached hereto, between the Company and those farms in which the Stockholders
have an interest which are listed on Schedule 8.13(a) attached hereto; and
(b) evidence of repayment of all amounts due from the Stockholders and
all entities in which the Stockholders have an interest.
8.14 Termination of Payments for Add-Backs. USFloral shall have received
a certificate, dated as of the Closing Date, signed on behalf of the Surviving
Corporation that no payments shall be made by the Surviving Corporation, from
and after the Closing Date, in respect of those items set forth on Schedule
5.9(b) hereof.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS
The obligation of the Stockholders and the Company to effect the Merger are
subject to the satisfaction or waiver, at or before the Effective Time, of the
following conditions and deliveries:
9.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral and Newco contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by USFloral and Newco on
or before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of USFloral shall have been
delivered to the Company and the Stockholders.
9.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against USFloral, Newco or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the USFloral and its subsidiaries taken as a
whole.
9.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral and Newco of the transactions contemplated herein, shall have been
obtained and made. Any waiting
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period applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
9.4 Employment Agreements. The Company shall have afforded Andres Kiger
an opportunity to enter into an employment agreement with the Company in a form
reasonably satisfactory to USFloral.
10. INDEMNIFICATION
10.1 General Indemnification by the Stockholders. Each Stockholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless USFloral, Newco and the Surviving Corporation and their respective
officers, directors, employees, stockholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Effective Time, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Company Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 5.23 (conformity with
law; litigation), 5.24 (taxes), 5.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.1; and
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(c) any and all Damages incident to anti-dumping liabilities in excess
of the reserves shown on the Company's Audited Financials.
10.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 10.1
unless, and solely to the extent that, the aggregate amount of Damages exceeds
(i) prior to the determination of the Earn-Out Consideration, $50,000; or (ii)
upon determination of the Earn-Out Consideration, the sum of $50,000 plus one-
percent of the Earn-Out Consideration (the "Indemnification Threshold");
provided, however, that the Indemnification Threshold shall not apply to (i)
adjustments to the Merger Consideration as set forth in Sections 2.2 and 3.1;
(ii) Damages arising out of any breaches of the covenants of the Stockholders
set forth in this Agreement or representations and warranties made in Sections
5.4 (capital stock of the Company), 5.5 (transactions in capital stock), 5.9
(Company financial conditions), 5.18 (material contracts and commitments), 5.23
(conformity with law; litigation), 5.24 (taxes) or 5.27 (environmental matters),
or (iii) Damages described in Section 10.1(a)(iv) or Section 10.1(c);
(b) the aggregate amount of the Stockholders' liability under this
Article 10 shall not exceed the Merger Consideration; provided, however, that
the Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 5.24 (taxes) or 5.27 (environmental matters) or
Damages described in Section 10.1(a)(ii) and Section 10.1(a)(iv) shall not be
subject to such limitation;
(c) the indemnification obligations under this Article 10, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 10.2(c):
(i)
(1) except as to representations, warranties, and covenants
specified in clause (i)(2) of this Section 10.2(c), the first anniversary of the
Closing Date, or
(2) with respect to representations and warranties
contained in Sections 5.22 (employee benefit plans), 5.24 (taxes), 5.27
(environmental matters), and the indemnification set forth in Section
10.1(a)(ii), (iii) or (iv), on (A) the date that is six (6) months after the
expiration of the longest applicable federal or state statute of limitation
(including extensions thereof), or (B) if there is no applicable statute of
limitation, (x) ten (10) years after the Closing Date if the Claim is related to
the cost of investigating, containing, removing, or remediating a release of
Hazardous Material into the environment, or (y) five (5) years after the Closing
Date for any other Claim covered by clause (i)(2)(B) of this Section 10.2(c); or
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 10.2(c) (such claims
referred to as "Pending Claims").
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10.3 Indemnification Procedures. All claims or demands for
indemnification under this Article 10 ("Claims") shall be asserted and resolved
as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 10.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 10.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter, attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such Claims (and, if the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty days from the date of delivery of
the Claim Notice to notify the Indemnified Party (A) whether the Indemnifying
Party disputes liability to the Indemnified Party hereunder with respect to the
Third Party Claim, and, if so, the basis for such a dispute, and (B) if such
party does not dispute liability, whether or not the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend against the
Third Party Claim, provided that the Indemnified Party is hereby authorized (but
not obligated) to file any motion, answer or other pleading and to take any
other action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment
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and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Surviving Corporation or any subsidiary, the Indemnified Party shall have the
right to control or assume (as the case may be) the defense of any such Third
Party Claim and the amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of the indemnification
obligations of the Indemnifying Party hereunder. If the Indemnified Party elects
to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third Party Claim at the
sole cost and expense of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 10.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 10.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 10, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
10.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
USFloral and Newco in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Stockholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 10.2. The
representations of USFloral and Newco will survive the Closing and will remain
in effect until, and will expire upon the first anniversary of the Closing date.
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10.5 Remedies Cumulative. The remedies set forth in this Article 10 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
10.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 10.3 to be owed to USFloral by the Stockholders
under Section 10.1 hereof.
11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholders agree that for a period of
three years following the Merger Effective Date, they shall not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including, without limitation, hardgoods), or any business engaging in
the consolidation of the floral industry within the United States of America
(the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, the Company within the Territory for the purpose of
soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, the Company; or
(e) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholders from (i) acquiring as an investment not more than two
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, (ii) engaging in
any activity to which USFloral shall have provided its prior written consent or
(iii) performing his duties as an officer or employee of the Surviving
Corporation.
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<PAGE>
11.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders agree that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
11.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 11 impose a reasonable restraint on the Stockholders
in light of the activities and business of USFloral on the date of the execution
of this Agreement and the current and future plans of USFloral and the Surviving
Corporation (as successors to the businesses of the Company).
11.4 Severability; Reformation. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.5 Independent Covenant. All of the covenants in this Article 11 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholders
against the Company, the Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of
three years stated above, shall be computed by excluding from such computation
any time during which any Stockholder is in violation of any provision of this
Article 11 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action USFloral or
the Surviving Corporation seeks to enforce the agreements and covenants of the
Stockholders or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement; provided, however, that if any Stockholder is found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
11.6 Materiality. The Company and each Stockholder hereby agree that the
covenants set forth in this Article 11 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
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12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Stockholders. The Stockholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company and the Company's business. The Stockholders
agree that they will not disclose any confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of USFloral, unless the
Stockholders can show that such information has become known to the public
generally through no fault of the Stockholders. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Article 12,
USFloral and the Surviving Corporation shall be entitled to an injunction
restraining the Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
12.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the Company and the Company's business. USFloral agrees that it will not
disclose any confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, prior to the
Closing Date without prior written consent of the Stockholders. In the event of
a breach or threatened breach by USFloral of the provisions of this Article 12,
the Stockholders shall be entitled to an injunction restraining USFloral from
disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
12.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, USFloral, the Surviving Corporation and the Stockholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
13. GENERAL
13.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Company; or
48
<PAGE>
(b) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April 10, 1998, provided that the right to terminate this Agreement under
this Section 13.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Merger; or
there shall be any action taken, or any statute,
(e) rule regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity which would make the
consummation of the Merger illegal.
13.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 13.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 13 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
13.1(c) above, then notwithstanding the provisions of Section 13.7 below, the
breaching party (with the Stockholders and the Company deemed to be a single
party for purposes of this Article 13), shall be liable to the other party to
the extent of the expenses incurred by such other party in connection with this
Agreement and the transactions contemplated hereby, as well as any damages in
accordance with applicable law.
13.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholders.
13.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the
49
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Schedules to this Agreement is incorporated herein by this reference and
expressly made a part hereof. Any and all previous agreements and understandings
between or among the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement. This Agreement shall not be
amended or modified except by a written instrument duly executed by each of the
parties hereto, or in accordance with Section 11.4. Any extension or waiver by
any party of any provision hereto shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
13.6 Brokers and Agents. USFloral and Newco (as a group) and the Company
and each Stockholder (as a group) each represents and warrants to the other that
it has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
13.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and Newco and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement. The Stockholders (and not the Company) have and will pay the fees,
expenses and disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
13.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 11 and the confidentiality
obligations set forth in Article 12. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
13.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral, Newco or the Surviving Corporation to:
50
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U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
(Telefax: (412) 560-3399)
If to any Stockholder to:
Juan Manuel Holguin
3 Grove Isle Drive
Apt. 508
Coconut Grove, FL 33133
(Telefax: (305) 857-9943)
with a required copy to:
Noel H. Nation, Esquire
Baker & McKenzie
Barnett Tower, Suite 1600
701 Brickell Avenue
Miami, FL 33131-2827
(Telefax: (305) 789-8953)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
13.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
All parties hereto: agree that any legal action or proceeding under this
51
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Agreement may be brought in the courts of the State of Florida located in Dade
County or in the United States District Court for the Southern District of
Florida; (b) irrevocably submit to the jurisdiction of such courts; (c) agree
not to assert any claim or defense that it is not personally subject to the
jurisdiction of such courts, and that any such forum is not convenient or the
venue thereof is improper, or that this Agreement or the subject matter hereof
may not be enforced in such courts; and (d) agree to accept service of process
on it by certified or registered mail or by any other method authorized by law.
13.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 11.4.
13.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
13.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
13.14 Accounting Terms. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
[Execution Page Follows]
52
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By:__________________________________
Robert J. Poirier
Chairman, President and CEO
SAB ACQUISITION CORP.
By:__________________________________
Robert J. Poirier
President
MASTER FLOWERS INC.
d/b/a SABANA FARMS
By:__________________________________
Juan Manuel Holguin
President
STOCKHOLDERS:
__________________________________
Juan Manuel Holguin
__________________________________
Pablo Ortega
__________________________________
Eduardo Salazar
__________________________________
Ricardo Valenzuela
<PAGE>
SCHEDULES
SCHEDULE 1.1 [Plan of Merger]
SCHEDULES TO ARTICLE 5 [Schedules of exceptions to the representations and
warranties]
SCHEDULE 8.13 [List of Farms]
EXHIBITS
EXHIBIT A [Form of Opinion of Counsel]
EXHIBIT B [Form of Stockholders' Release]
EXHIBIT C [Form of Flower Supply Agreement]
The Schedules and Exhibits to this Agreement will be provided to the Commission
supplementally upon request.
<PAGE>
Exhibit 2.20
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
U.S.A. Floral Products, Inc.,
FFI Acquisition Corp.,
Edfrancar, Inc.
d/b/a Florafresh International
and
The Stockholders Named Therein
dated April 3, 1998
<PAGE>
Table of Contents
Page
----
1. THE MERGER................................................................1
1.1 The Merger.....................................................1
1.2 Articles of Incorporation; Bylaws, Directors and Officers......1
1.3 Effects of the Merger..........................................2
2. CONVERSION AND EXCHANGE OF STOCK..........................................2
2.1 Manner of Conversion...........................................2
2.2 Merger Consideration...........................................3
2.3 Exchange of Certificates and Payment of Cash...................4
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS...................................5
3.1 Post-Closing Adjustment........................................5
3.2 Pledged Assets.................................................7
3.3 Stockholders' Representative...................................8
4. CLOSING...................................................................9
4.1 Location and Date..............................................9
4.2 Effect.........................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS........9
5.1 Due Organization...............................................9
5.2 Authorization; Validity.......................................10
5.3 No Conflicts..................................................10
5.4 Capital Stock of the Company..................................10
5.5 Transactions in Capital Stock.................................11
5.6 Subsidiaries, Stock, and Notes................................11
5.7 Predecessor Status............................................11
5.8 Absence of Claims Against the Company.........................11
5.9 Company Financial Conditions..................................12
5.10 Financial Statements..........................................12
5.11 Liabilities and Obligations...................................12
5.12 Accounts and Notes Receivable.................................13
5.13 Books and Records.............................................13
5.14 Permits.......................................................13
5.15 Real Property.................................................14
5.16 Personal Property.............................................15
5.17 Intellectual Property.........................................15
5.18 Material Contracts and Commitments............................17
5.19 Government Contracts..........................................18
5.20 Insurance.....................................................19
5.21 Labor and Employment Matters..................................19
5.22 Employee Benefit Plans........................................20
<PAGE>
5.23 Conformity with Law; Litigation...............................21
5.24 Taxes.........................................................22
5.25 Absence of Changes............................................24
5.26 Deposit Accounts; Powers of Attorney..........................26
5.27 Environmental Matters.........................................26
5.28 Relations with Governments....................................27
5.29 Disclosure....................................................27
5.30 USFloral Prospectus; Securities Representations...............28
5.31 Affiliates....................................................28
5.32 Location of Chief Executive Offices...........................28
5.33 Location of Equipment and Inventory...........................28
6. REPRESENTATIONS OF USFLORAL AND NEWCO....................................29
6.1 Due Organization..............................................29
6.2 USFloral Common Stock.........................................29
6.3 Authorization; Validity of Obligations........................29
6.4 No Conflicts..................................................29
6.5 Capitalization of USFloral and Ownership of USFloral Stock....30
7. COVENANTS................................................................30
7.1 Tax Matters...................................................30
7.2 Related Party Agreements......................................31
7.3 Cooperation...................................................32
7.4 Conduct of Business Pending Closing...........................32
7.5 Access to Information.........................................33
7.6 Prohibited Activities.........................................33
7.7 Notice to Bargaining Agents...................................35
7.8 Sales of USFloral Common Stock................................35
7.9 USFloral Stock Options........................................36
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO............36
8.1 Representations and Warranties; Performance of Obligations....36
8.2 No Litigation.................................................36
8.3 No Material Adverse Change....................................37
8.4 Consents and Approvals........................................37
8.5 Opinion of Counsel............................................37
8.6 Charter Documents.............................................37
8.7 Quarterly Financial Statements................................37
8.8 Due Diligence Review..........................................37
8.9 Delivery of Closing Financial Certificate.....................38
8.10 Employment Agreements.........................................38
8.11 Stockholders' Release.........................................38
8.12 Supply Agreements.............................................38
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8.13 Repayment of Indebtedness.....................................38
8.14 Termination of Payments for Add-Backs.........................38
8.15 Lease.........................................................38
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.............................................................39
9.1 Representations and Warranties; Performance of Obligations....39
9.2 No Litigation.................................................39
9.3 Consents and Approvals........................................39
9.4 Employment Agreements.........................................39
9.5 Lease.........................................................39
10. INDEMNIFICATION..........................................................40
10.1 General Indemnification by the Stockholders...................40
10.2 Limitation and Expiration.....................................40
10.3 Indemnification Procedures....................................41
10.4 Survival of Representations Warranties and Covenants..........43
10.5 Remedies Cumulative...........................................43
10.6 Right to Set Off..............................................43
11. NONCOMPETITION...........................................................43
11.1 Prohibited Activities.........................................43
11.2 Damages.......................................................44
11.3 Reasonable Restraint..........................................44
11.4 Severability; Reformation.....................................44
11.5 Independent Covenant..........................................45
11.6 Materiality...................................................45
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................45
12.1 Stockholders..................................................45
12.2 USFloral......................................................45
12.3 Damages.......................................................46
13. GENERAL..................................................................46
13.1 Termination...................................................46
13.2 Effect of Termination.........................................47
13.3 Successors and Assigns........................................47
13.4 Entire Agreement; Amendment; Waiver...........................47
13.5 Counterparts..................................................47
13.6 Brokers and Agents............................................47
13.7 Expenses......................................................47
13.8 Specific Performance; Remedies................................48
13.9 Notices.......................................................48
13.10 Governing Law.................................................49
iii
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13.11 Severability..................................................49
13.12 Absence of Third Party Beneficiary Rights.....................49
13.13 Further Representations.......................................49
13.14 Accounting Terms..............................................49
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 3rd day of April, 1998, by and among U.S.A. Floral Products,
Inc., a Delaware corporation ("USFloral"), FFI Acquisition Corp., a Florida
corporation and a newly-formed, wholly-owned subsidiary of USFloral ("Newco"),
Edfrancar, Inc. d/b/a Florafresh International, a Florida corporation (the
"Company"), and Edgar Lozano and Carlos Lozano (each a "Stockholder" and
collectively, the "Stockholders").
BACKGROUND
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are sometimes referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that the Company merge with and into Newco (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the State of Florida.
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 4.2), the
Company shall be merged with and into Newco pursuant to this Agreement and a
plan of merger (the "Plan of Merger") substantially in the form attached as
Schedule 1.1 hereto, and the separate corporate existence of the Company shall
cease. Newco, as it exists from and after the Effective Time, is sometimes
referred to as the "Surviving Corporation."
1.2 Articles of Incorporation; Bylaws, Directors and Officers. At the
Effective Time:
(a) The Articles of Incorporation of the Surviving Corporation from
and after the Effective Time shall be the Articles of Incorporation of Newco
until thereafter amended in accordance with the provisions therein and as
provided by the applicable provisions of the Florida Business Corporation Act.
(b) The Bylaws of the Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco in effect immediately prior to the
Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the Florida Business Corporation Act.
<PAGE>
(c) The initial director of the Surviving Corporation shall be Robert
J. Poirier until his successor is elected and qualified, and the initial
officers of the Surviving Corporation shall be the officers of the Company
immediately prior to the Effective Time, with the addition of Robert J. Poirier
as Vice President and Assistant Secretary of the Surviving Corporation, in each
case until their successors are duly elected and qualified.
1.3 Effects of the Merger. The Merger shall have the effects provided
therefor by the Florida Business Corporation Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time (i) all
the rights, privileges, immunities, powers and franchises, of a public as well
as of a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including without limitation subscriptions to
shares, and all other choses in action, and all and every other interest of or
belonging to or due to the Company or Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, immunities, powers and franchises
and all and every other interest shall be thereafter as effectually the property
of the Surviving Corporation, as they were of the Company and Newco, and (ii)
all debts, liabilities, duties and obligations of the Company and Newco, subject
to the terms hereof, shall become the debts, liabilities and duties of the
Surviving Corporation and the Surviving Corporation shall thenceforth be
responsible and liable for all the debts, liabilities, duties and obligations of
the Company and Newco and neither the rights of creditors nor any liens upon the
property of the Company or Newco shall be impaired by the Merger, and may be
enforced against the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 Manner of Conversion. At the Effective Time, by virtue of the Merger
and without any action on the part of USFloral, Newco, the Company or any
Stockholder, the shares of capital stock of each of the Constituent Corporations
shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one share of validly issued, fully paid and non-assessable Common
Stock of the Surviving Corporation. Each stock certificate of Newco evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Company.
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of USFloral or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Section
2.1(d), and Sections 2.2, 3.1 and 3.2, each issued and outstanding share of
common stock of the Company,$__ par value per share ("Company Common Stock")
(other than shares to be canceled pursuant to Section 2.1(b)), that is issued
and outstanding immediately prior to the Effective Time shall
2
<PAGE>
automatically be canceled and extinguished and converted, without any action on
the part of the holder thereof, into the right to receive (i) an amount of cash
equal to the cash portion of the Merger Consideration divided by the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time and (ii) that number of shares of USFloral common stock, $.001 par value
("USFloral Common Stock"), valued at the Merger Price (as defined in Section
2.2), that is equal in value to the USFloral Common Stock portion of the Merger
Consideration (as defined in Section 2.2) divided by the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
consideration therefor upon the surrender of such certificate in accordance with
Section 2.3 of this Agreement.
(d) Fractional Shares. No fractional shares of USFloral Common Stock
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of
USFloral Common Stock shall receive from USFloral an amount of cash equal to the
Merger Price, as defined in Section 2.2(a), multiplied by the fraction of a
share of USFloral Common Stock to which such holder would otherwise be entitled.
The fractional share interests of each Stockholder shall be aggregated, so that
no Stockholder shall receive cash in an amount greater than the value of one
full share of USFloral Common Stock.
2.2 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall
be $7,890,000 adjusted pursuant to this Section 2.2 and Section 3.1. Of the
Merger Consideration, $3,945,000 shall be paid in cash at Closing in immediately
available funds. The remaining $3,945,000 of the Merger Consideration shall be
paid in shares of USFloral Common Stock valued at $22.813 per share (the "Merger
Price"). The 172,918 shares of USFloral Common Stock to be issued (subject to
adjustment as provided in this Section 2.2 and Section 3.1) shall be registered
under the Securities Act of 1933, as amended (the "1933 Act").
(b) The Merger Consideration has been calculated based upon several
factors, including the assumptions that (i) the net worth of the Company,
calculated in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than negative $524,000 (the "Net
Worth Target") as of the Closing and (ii) the Surviving Corporation's earnings
before interest and taxes ("EBIT") for the twelve months ended December 31, 1998
(the "1998 EBIT") will equal or exceed the Company's EBIT for the twelve months
ended December 31, 1997 (as adjusted for the "add-backs" set forth on Schedule
5.9(b) hereof, the "1997 EBIT").
(c) If, on the Closing Financial Certificate (as defined in Section
8.9), the Certified Closing Net Worth (as defined in Section 8.9) is less than
the Net Worth Target, then the Merger Consideration to be delivered to the
Stockholders may, at USFloral's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in Section 3.1),
by the difference between the Net Worth Target and the Certified Closing Net
Worth set forth on the
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Closing Financial Certificate (which reduction shall be pro rata in cash and in
USFloral Common Stock valued at the Merger Price in the same proportions as the
cash and USFloral Common Stock components of the Merger Consideration as
provided in Section 2.2(a)). For each $1.00 by which the 1998 EBIT is less than
the 1997 EBIT, the Stockholders will repay USFloral $5.00 in USFloral Common
Stock, valued at the Merger Price.
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for the
outstanding shares of capital stock of the Company, USFloral shall cause to be
made available to the Stockholders the Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.2(d)), as adjusted pursuant to Section 2.2 and Section 3.1. The
certificates evidencing the USFloral Common Stock component of the Merger
Consideration shall bear appropriate legends pursuant to the terms of this
Agreement, and USFloral shall be entitled to issue appropriate stop transfer
instructions to its transfer agent consistent with the terms of this Agreement.
(b) Certificate Delivery Requirements. At the Effective Time, the
Stockholders shall deliver to USFloral the certificates (the "Certificates")
representing Company Common Stock, accompanied by blank stock powers duly
executed by the Stockholders and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders shall promptly cure any deficiencies with respect to the stock
powers accompanying such Certificates. The Certificates so delivered shall
forthwith be canceled. Until delivered as contemplated by this Section 2.3(b),
each Certificate shall be deemed at any time after the Effective Time to
represent the right to receive upon such surrender the number of shares of
USFloral Common Stock and the amount of cash as provided by this Article 2 and
the applicable provisions of the Florida Business Corporation Act.
(c) No Further Ownership Rights in Capital Stock of the Company. All
USFloral Common Stock and cash to be delivered (including USFloral Common Stock
delivered pursuant to Section 3.2(b) but withheld) upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and following the Effective
Time the Certificates shall have no further rights to, or ownership in, shares
of capital stock of the Company. There shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 2.3.
(d) Lost, Stolen or Destroyed Certificates. If any certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, then USFloral shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of USFloral Common Stock and cash as
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provided in Section 2.1; provided, however that USFloral may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
USFloral with respect to the certificates alleged to have been lost, stolen or
destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 2.3, none of the Surviving Corporation or any party hereto shall be
liable to a holder of shares of Company Common Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 Post-Closing Adjustment.
(a) The Merger Consideration shall be subject to adjustment after the
Closing Date as specified in this Section 3.1.
(b) Within one hundred twenty (120) days following the Effective Time,
USFloral shall cause Price Waterhouse LLP ("USFloral's Accountant") to audit the
Surviving Company's books to determine the accuracy of the information set forth
on the Closing Financial Certificate (the "Post-Closing Audit"). The parties
acknowledge and agree that for purposes of determining the net worth of the
Company as of the Closing Date, the value of the assets of the Company shall,
except with the prior written consent of USFloral, be calculated as provided in
the last paragraph of Section 8.9. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with USFloral and USFloral's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to USFloral's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. Without limiting the generality of the foregoing,
within two weeks after the Closing the Stockholders shall provide USFloral's
Accountant with the information and/or documents requested on the Post-Closing
Audit Checklist set forth as Schedule 3.1 hereto. In the event that USFloral's
Accountant determines that the actual Company net worth as of the Closing Date
was less than the Certified Closing Net Worth, USFloral shall deliver a written
notice (the "Financial Adjustment Notice") to the Stockholders' Representative,
as defined in Section 3.3, setting forth (i) the determination made by
USFloral's Accountant of the actual Company net worth (the "Actual Company Net
Worth"), (ii) the amount of the Merger Consideration that would have been
payable at Closing pursuant to Section 2.2(c) had the Actual Company Net Worth
been reflected on the Closing Financial Certificate instead of the Certified
Closing Net Worth, and (iii) the amount by which the number of shares issued as
the Merger Consideration would have been reduced at Closing had the Actual
Company Net Worth been used in the calculations pursuant to Section 2.2(c) (the
"Merger Consideration Adjustment"). The Merger Consideration Adjustment shall
take account of the reduction, if any, to the Merger Consideration already taken
pursuant to Section 2.2(c)(i).
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(c) The Stockholders' Representative shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify USFloral if the
Stockholders dispute such Financial Adjustment Notice. If USFloral has not
received notice of such a dispute within such 30-day period, USFloral shall be
entitled to receive from the Stockholders (which may, at USFloral's sole
discretion, be from the Pledged Assets as defined in Section 3.2) the Merger
Consideration Adjustment. If, however, the Stockholders' Representative has
delivered notice of such a dispute to USFloral within such 30-day period, then
Deloitte & Touche LLP (the "Independent Accounting Firm") shall review the
Surviving Corporation's books, Closing Financial Certificate and Financial
Adjustment Notice (and related information) to determine the amount, if any, of
the Merger Consideration Adjustment. The Independent Accounting Firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to USFloral's Accountant in connection with the transactions
contemplated hereby, or (ii) reviewed by USFloral's Accountant during the course
of the Post-Closing Audit. The Independent Accounting Firm shall make its
determination of the Merger Consideration Adjustment, if any, within thirty (30)
days of its selection. The determination made by the Independent Accounting Firm
shall be final and binding on the parties hereto, and upon such determination,
USFloral shall be entitled to receive from the Stockholders (which may, at
USFloral's sole discretion, be from the Pledged Assets as defined in Section
3.2) the Merger Consideration Adjustment. The costs of the Independent
Accounting Firm shall be borne by the party (either USFloral or the Stockholders
as a group) whose determination of the Company's net worth at Closing was
further from the determination of the Independent Accounting Firm, or equally by
USFloral and the Stockholders in the event that the determination by the
Independent Accounting Firm is equidistant between the Certified Closing Net
Worth and the Actual Company Net Worth.
(d) Within one hundred twenty days following December 31, 1998
USFloral shall cause USFloral's Accountant to determine the 1998 EBIT. In
calculating the 1998 EBIT, USFloral's Accountant shall (i) employ procedures
consistent with those used to calculate 1997 EBIT and (ii) add to EBIT any
amounts paid by the Company in respect of those items set forth on Schedule
5.9(b)(ii) hereof during the period beginning on January 1, 1998 and ending on
the Closing Date. In the event that USFloral's Accountant determines that the
1998 EBIT was less than the 1997 EBIT, USFloral shall deliver a written notice
(the "EBIT Adjustment Notice") to the Stockholders' Representative, setting
forth (i) the determination made by USFloral's Accountant of the 1998 EBIT, (ii)
the amount of the Merger Consideration that would have been payable had the
Merger Consideration been calculated based on the 1998 EBIT rather than the 1997
EBIT and (iii) the amount by which the amount of cash paid and the number of
shares issued as the Merger Consideration would have been reduced at Closing had
the 1998 EBIT been used to calculate the Merger Consideration (the "EBIT
Consideration Adjustment"). Provided however, the EBIT Consideration Adjustment
shall not exceed $3,945,000 the lesser of (i) $3,945,000 or (ii) the number of
shares issued in the Merger.
(e) After delivery of the EBIT Adjustment Notice, USFloral shall make
available to the Stockholders' Representative the books and records of the
Company. The Stockholders' Representative shall have thirty (30) days from the
receipt of the EBIT Adjustment Notice to notify USFloral if the Stockholders
dispute such EBIT Adjustment Notice. Such notice shall include the
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Stockholders' determination of the amount of 1998 EBIT. If USFloral has not
received notice of such a dispute within such 30-day period, USFloral shall be
entitled to receive from the Stockholders the EBIT Consideration Adjustment.
If, however, the Stockholders' Representative has delivered notice of such a
dispute to USFloral within such 30-day period, then the Independent Accounting
Firm shall review the Surviving Corporation's books and EBIT Adjustment Notice
(and related information) to determine the amount, if any, of the EBIT
Consideration Adjustment. The Independent Accounting Firm shall make its
determination of the EBIT Consideration Adjustment, if any, within thirty (30)
days of its selection. The determination made by the Independent Accounting Firm
shall be final and binding on the parties hereto, and upon such determination,
USFloral shall be entitled to receive from the Stockholders the EBIT
Consideration Adjustment. The costs of the Independent Accounting Firm shall be
borne by the party (either USFloral or the Stockholders as a group) whose
determination of 1998 EBIT was further from the determination of the
Independent Accounting Firm, or equally by USFloral and the Stockholders in the
event that the determination by the Independent Accounting Firm is equidistant
between USFloral's and the Stockholders' determination of 1998 EBIT.
3.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Merger Consideration under Section 3.1, or any indemnification
obligations of the Stockholders pursuant to Article 10, the Stockholders shall,
and by execution hereof do hereby, transfer, pledge and assign to USFloral, for
the benefit of USFloral, a security interest in the following assets (the
"Pledged Assets"):
(i) that number of shares of USFloral Common Stock with a value,
based on the Merger Price, equal to ten percent (10%) of each Stockholder's
share of the Merger Consideration as the same may have been adjusted pursuant to
Section 2.2 or Section 3.1 hereof, and the certificates and instruments, if any,
representing or evidencing each such Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to such Stockholder with
respect to or in substitution for such Stockholder's Pledged Assets, all
certificates and instruments representing or evidencing such securities, and all
cash and non-cash dividends and other property at any time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and in the event such Stockholder receives any such property, such Stockholder
shall hold such property in trust for USFloral and shall immediately deliver
such property to USFloral to be held hereunder as Pledged Assets; and
(iii) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Stockholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to USFloral
directly by the transfer agent, such
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certificate bearing no restrictive or cautionary legend other than those
imprinted by the transfer agent at USFloral's request. Each Stockholder shall,
at the Closing, deliver to USFloral, for each such certificate, a stock power
duly signed in blank by him or her. Any cash comprising a Stockholder's Pledged
Assets shall be withheld by USFloral from distribution to such Stockholder.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Merger Consideration pursuant to Section 3.1 and any
indemnification obligations of the Stockholders pursuant to Article 10 until the
date which is one year after the Effective Time (the "Release Date"). Promptly
following the Release Date, USFloral shall return or cause to be returned to the
Stockholders the Pledged Assets, less Pledged Assets having an aggregate value
equal to the amount of (i) any post-Closing adjustment to the Merger
Consideration under Section 3.1, (ii) any pending claim for indemnification made
by any Indemnified Party (as defined in Article 10), and (iii) any
indemnification obligations of the Stockholders pursuant to Article 10. For
purposes of the preceding sentence and Article 10, the USFloral Common Stock
held as Pledged Assets shall be valued at (x) the Merger Price with respect to
any post-Closing adjustment to the Merger Consideration under Section 3.1 and
(y) the average of the closing price on the Nasdaq National Market per share of
USFloral Common Stock for the five trading days prior to the satisfaction of an
indemnification obligation (the "Market Value") with respect to indemnification
obligations pursuant to Article 10.
3.3 Stockholders' Representative.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates Edgar Lozano or, in the event that Edgar Lozano is unable or
unwilling to serve, Carlos Lozano to be the Stockholders' Representative for
purposes of this Agreement. The Stockholders shall be bound by any and all
actions taken by the Stockholders' Representative on their behalf.
(b) USFloral and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All communications or writings to be sent to Stockholders pursuant to this
Agreement may be addressed to the Stockholders' Representative and any
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder. The Stockholders hereby consent and agree that the
Stockholders' Representative is authorized to accept deliveries, including any
notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative, and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 10 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to and coupled
with the interest of the other Stockholders hereunder and in consideration of
the mutual covenants and agreements made
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herein, and shall be irrevocable and shall not be terminated by any act of any
Stockholder, by operation of law, whether by such Stockholder's death or any
other event.
4. CLOSING
4.1 Location and Date. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Morgan, Lewis & Bockius LLP, on April 3, 1998, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as USFloral, the Company and the Stockholders may mutually agree, which
date shall be referred to as the "Closing Date."
4.2 Effect. On the Closing Date, the articles of merger, certificate of
merger, or other appropriate documents executed in accordance with the Florida
Business Corporation Act (the "Merger Documents"), together with any required
officers' certificates, shall be filed with the Secretary of the State of the
State of Florida in accordance with the provisions of the Florida Business
Corporation Act. The Merger shall become effective upon such filings or at such
later time as may be specified in such filings (the "Effective Time").
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce USFloral and Newco to enter into this Agreement and consummate
the transactions contemplated hereby, each of the Company and each Stockholder,
jointly and severally, represents and warrants to USFloral and Newco as follows
(for purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
Stockholders and the directors and officers of the Company, including facts of
which the directors and officers, in the reasonably prudent exercise of their
duties, should be aware):
5.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Company ("Material Adverse Effect"). Schedule 5.l hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
The Company is in good standing as a foreign corporation in each jurisdiction it
which it does business. The Company has delivered to USFloral true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
The minute books of the Company have been made available to USFloral (and have
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been delivered, along with the Company's original stock ledger and corporate
seal, to USFloral) and are correct and, except as set forth in Schedule 5.1,
complete in all material respects.
5.2 Authorization; Validity. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
this Agreement. The Company has the full legal right, corporate power and
authority to enter into this Agreement and the transactions contemplated hereby.
Each Stockholder has the full legal right and authority to enter into this
Agreement and the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the performance by the Company of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of the Company and the Stockholders and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) except as set forth on Schedule 5.3(b) conflict with, or result in
a default (or an event that would constitute a default but for any requirement
of notice or lapse of time or both) under, any document, agreement or other
instrument to which the Company or any Stockholder is a party or by which the
Company or any Stockholder is bound, or result in the creation or imposition of
any lien, charge or encumbrance on any of the Company's properties pursuant to
(i) any law or regulation to which the Company or any Stockholder or any of
their respective property is subject, or (ii) any judgment, order or decree to
which the Company or any Stockholder is bound or any of their respective
property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
5.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 100 shares of common stock, no par value, all of which
shares are issued and outstanding. All of the issued and outstanding shares of
the capital stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable and are owned of record and beneficially by the
Stockholders in the amounts set forth in Schedule 5.4 free and clear of all
Liens (defined below). All of the issued and outstanding shares of the capital
stock of the Company were
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offered, issued, sold and delivered by the Company in compliance with all
applicable state and federal laws concerning the issuance of securities.
Further, none of such shares was issued in violation of any preemptive rights.
There are no voting agreements or voting trusts with respect to any of the
outstanding shares of the capital stock of the Company. For purposes of this
Agreement, "Lien" means any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge, preference, priority or other security agreement, option, warrant,
attachment, right of first refusal, preemptive, conversion, put, call or other
claim or right, restriction on transfer (other than restrictions imposed by
federal and state securities laws), or preferential arrangement of any kind or
nature whatsoever (including any restriction on the transfer of any assets, any
conditional sale or other title retention agreement, any financing lease
involving substantially the same economic effect as any of the foregoing and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
5.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral, which may obligate the Company to issue, sell or
otherwise cause to become outstanding any shares of capital stock. The Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. As a result of the
Merger, USFloral will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
5.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 5.6(a), the Company has no
subsidiaries.
(b) Except as set forth on Schedule 5.6(b), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
(c) Except as set forth on Schedule 5.6(c), there are no promissory
notes that have been issued to, or are held by, the Company.
5.7 Predecessor Status. Schedule 5.7 sets forth a list of all names of
all predecessor companies of the Company, including the names of any entities
from which the Company previously acquired significant assets. The Company has
never been a subsidiary or division of another corporation, nor has it been a
part of an acquisition that was later rescinded.
5.8 Absence of Claims Against the Company. No Stockholder has any claims
against the Company.
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5.9 Company Financial Conditions.
(a) The Company's net worth (i) as of the end of its most recent
fiscal year was not less than negative $524,000 and (ii) as of the Closing will
not be less than the Net Worth Target. For purposes of this Section 5.9(a),
calculation of amounts as of the Closing shall be made in accordance with the
last paragraph of Section 8.9.
(b) The Company's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)) for (i) its most recent
fiscal year was not less than $1,980,000.
5.10 Financial Statements. Schedule 5.10 includes true, complete and
correct copies of the Company's balance sheet as of December 31, 1997 (the
"Balance Sheet Date"), and income statement for the year then ended
(collectively, the "Company Financial Statements"). The Company Financial
Statements have been prepared in accordance with GAAP consistently applied. Each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each of
the income statements included in the Company Financial Statements presents
fairly the results of its operations for the periods indicated thereon. Since
the dates of the Company Financial Statements, there have been no material
changes in the Company's accounting policies other than as requested by USFloral
to conform the Company's accounting policies to GAAP.
5.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities except
for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) The Company has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 5.11(c) also includes a summary description of all plans
or projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any real property or existing business, to
which management of the Company has made any material
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expenditure in the two-year period prior to the date of this Agreement, which if
pursued by the Company or the Surviving Corporation would require additional
material expenditures of capital.
(d) For purposes of this Section 5.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 5.11(d)
contains a complete list of all indebtedness of the Company.
5.12 Accounts and Notes Receivable. The Company has delivered to USFloral
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). On the Closing Date, the Company will deliver to USFloral a
complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are current and collectible net of any respective reserves shown on the
Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within one-hundred
twenty (120) days after the day on which it first became due and payable. There
is no contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
5.13 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
5.14 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and the Company has not received any notice
that any governmental authority intends to modify, cancel, terminate or fail to
renew any Permit. No present or former officer, manager, member or employee of
the Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of
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the foregoing. The transactions contemplated by this Agreement will not result
in a default under, or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any Permit.
5.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 5.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
owner, and Company's use thereof) and, to the Company's knowledge, any Liens.
Schedule 5.15(b) indicates whether the Real Property is owned or leased. The
Real Property listed on Schedule 5.15 includes all interests in real property
necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 5.15(c):
(i) The Real Property and all present uses and operations of the
Real Property substantially comply with all applicable statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
licenses and permits) required in connection with the use, occupation and
operation of the Real Property.
(ii) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or the
Stockholder received notice of any pending or threatened special assessment
proceedings affecting any portion of the Real Property.
(iii) Except as set forth on Schedule 5.15(c), there are no
parties other than the Company in possession of any of the Real Property or any
portion thereof, and there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of the Real Property or any portion thereof.
(iv) All real property taxes and assessments that are due and
payable with respect to the Real Property have been paid or will be paid prior
to becoming delinquent.
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(v) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Company
leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided USFloral with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. Except as set forth on
Schedule 5.15(c), the Leases and the Company's interests thereunder are free of
all Liens.
(vi) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
5.16 Personal Property.
(a) Schedule 5.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value in excess of
$10,000 both (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date, including in each case true, complete and correct copies of
leases for material equipment and an indication as to which assets are currently
owned, or were formerly owned, by any Stockholder or business or personal
affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
the Company, including those listed on Schedule 5.16(a), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
Schedule 5.16(a) are in full force and effect and constitute valid and binding
agreements of the Company, and the Company is not in breach of any of their
terms. All fixed assets used by the Company that are material to the operation
of its business are either owned by the Company or leased under an agreement
listed on Schedule 5.16(a).
5.17 Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 5.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Company now owns or
uses in connection with its business. Except with respect to those Marks shown
as licensed on Schedule 5.17(a), the Company owns all of the registered and
unregistered trademarks, service marks, and trade names that it uses. The Marks
listed on Schedule 5.17(a) will not cease to be valid rights of the Company by
reason of
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the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby. For purposes of this Section 5.17, the
term "Mark" shall mean all right, title and interest in and to any United States
or foreign trademarks, service marks and trade names now held by the Company,
including any registration or application for registration of any trademarks and
services marks in the PTO or the equivalent thereof in any state of the United
States or in any foreign country, as well as any unregistered marks used by the
Company, and any trade dress (including logos, designs, company names, business
names, fictitious names and other business identifiers) used by the Company in
the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 5.17(b)(i) and in the Copyright registrations listed on
Schedule 5.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Company now owns or is licensed to use. The Company
owns or is licensed to practice under all patents and copyright registrations
that the Company now owns or uses in connection with its business. For purposes
of this Section 5.17, the term "Patent" shall mean any United States or foreign
patent to which the Company has title as of the date of this Agreement, as well
as any application for a United States or foreign patent made by the Company;
the term "Copyright" shall mean any United States or foreign copyright owned by
the Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 5.17(c). Those Other Rights constitute all of the Other Rights that
the Company now owns or is licensed to use. The Company owns or is licensed to
practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 5.17(a), 5.17(b)(i), 5.17(b)(ii), and 5.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 5.17(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 5.17(a), (b), or (c). No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license
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by the Company infringes on any copyright, patent, trademark, service mark or
trade secret; (ii) against the use by the Company of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the Company's business as currently
conducted by the Company; (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property or other trade secret
material to the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither the Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that the Company may be engaged in such infringement
or (y) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
(f) All Intellectual Property in the form of computer software that is
utilized by the Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries, or can be rendered capable of processing such data by the expenditure
of not more than $10,000.
5.18 Material Contracts and Commitments.
(a) Schedule 5.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Company and any affiliate of the Company or any
officer, director or stockholder of the Company are parties ("Related Party
Agreements"); or (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, $25,000, or that may generate
revenues or income exceeding, during the current term thereof, $25,000
(collectively with the Related Party Agreements, the "Material Contracts"). The
Company has delivered to USFloral true, complete and correct copies of the
Material Contracts. The Company has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
notice of default has been received with respect to any thereof, and there are
no Material Contracts that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 7.4, is valid and binding on the Company and is in full force and effect
and is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company [has obtained/will obtain prior to the
Closing Date] all necessary consents, waivers and approvals of parties to any
Material Contracts that are required in connection with any of the transactions
contemplated hereby, or are required by any governmental agency or other third
party or are
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advisable in order that any such Material Contract remain in effect without
modification after the Merger and without giving rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
5.18(b).
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
Person in which any of the Stockholders owns a material interest, are set forth
in Schedule 5.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially all
of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 5.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 5.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
5.19 Government Contracts.
(a) The Company is not a party to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) The Company has not been, nor is it now being, audited, or
investigated by any government agency, or the inspector general or auditor
general or similar functionary of any agency or instrumentality, nor, to the
knowledge of the Company, has such audit or investigation been threatened.
(d) The Company has no dispute pending before a contracting office of,
nor any current claim (other than the Accounts Receivable) pending against, any
agency or instrumentality of the United States Government or any state or local
government, relating to a contract.
(e) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
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5.20 Insurance. Schedule 5.20 sets forth a complete and accurate list of
all insurance policies carried by the Company and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Company has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts adequate to insure the risks of the
business conducted by the Company. The insurance carried by the Company with
respect to its properties, assets and business is, to the Company's knowledge,
with financially sound insurers. To the knowledge of the Company, there have
been no threatened terminations of, or material premium increases with respect
to, any of such policies.
5.21 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and has not and is not engaged in
any unfair labor practice;
(b) except as set forth on Schedule 5.21(b) attached hereto, there is
not now, nor within the past three years has there been, any unfair labor
practice complaint against the Company pending or, to the Company's knowledge,
threatened, before the National Labor Relations Board or any other comparable
authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Company, at any time while employed by the
Company, are not and have never been represented by any labor union, and no
collective bargaining agreement is binding and in force against the Company or
currently being negotiated by the Company; and
(g) all persons classified by the Company as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
the Company has fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
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5.22 Employee Benefit Plans. Attached hereto as Schedule 5.22 are complete
and accurate copies of all employee benefit plans, all employee welfare benefit
plans, all employee pension benefit plans, all multi-employer plans and all
multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2), (37)
and (40), respectively, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), which are currently maintained and/or sponsored by the
Company, or to which the Company currently contributes, or has an obligation to
contribute in the future (including, without limitation, employment agreements
and any other agreements containing "golden parachute" provisions and deferred
compensation agreements), together with copies of any trusts related thereto and
a classification of employees covered thereby (collectively, the "Plans").
Schedule 5.22 sets forth all of the Plans that have been terminated within the
past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 5.22. To the extent that any
Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) the Stockholders; (ii) any Plan; or (iii) the
Company has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No Plan has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company does not currently have (nor at the
Closing Date will have) any direct or indirect liability whatsoever (including
being subject to any statutory lien to secure payment of any such liability), to
the Pension Benefit Guaranty Corporation ("PBGC") with respect to any such Plan
under Title IV of ERISA or to the Internal Revenue Service for any excise tax or
penalty; and neither the Company nor any member of a "controlled group" (as
defined in ERISA Section 4001(a)(14)) currently has (or at the Closing Date will
have) any obligation whatsoever to contribute to any "multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
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(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), the Company and the Stockholders have complied (and on the Closing
Date will have complied), in all respects with all reporting, disclosure,
notice, election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the Company has no (and will incur no)
direct or indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the Company or the Stockholders, at any time prior to the Closing Date, to
comply with any such federal or state benefit continuation requirement, which is
capable of being assessed or asserted before or after the Closing Date directly
or indirectly against the Company or the Stockholders with respect to such group
health plans;
(f) the Company is not now nor has it been within the past five years
a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Company's knowledge, there is
no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Financial Statements as of the Balance Sheet Date reflect the
approximate total pension, medical and other benefit expense for all Plans, and
no material funding changes or irregularities are reflected thereon which would
cause such Financial Statements to be not representative of most prior periods;
and
(i) the Company has not incurred liability under Section 4062 of
ERISA.
5.23 Conformity with Law; Litigation.
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(a) Except as set forth on Schedule 5.23(a), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect on the Company.
(b) No Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud,
dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 5.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
business.
5.24 Taxes.
(a)
(i) The Company has timely filed all Tax Returns due on or before
the Closing Date and all such Tax Returns are true, correct and complete in all
respects.
(ii) The Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes as
of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for Deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
(iv) There are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
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(v) The Company has a taxable year ended on December 31, in each
year commencing January 1, 1996.
(vi) The Company currently utilizes the cash method of
accounting for income Tax purposes and such method of accounting has not changed
in the past five years. The Company has not agreed to, and is not and will not
be required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last five fiscal years have been delivered to
USFloral.
(ix) There are (and as of immediately following the Closing there
will be) no Liens on the assets of the Company relating to or attributable to
Taxes.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(xii) The Company is not, and has not been at any time, a party
to a tax sharing, tax indemnity or tax allocation agreement, and the Company has
not assumed the tax liability of any other person under contract.
(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(b)
(i) The Company has, since December 31, 1995, been an S
corporation within the meaning of Section 1361 of the Code.
(ii) The Company does not have a net recognized built-in gain
within the meaning of Section 1374 of the Code
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(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar governmental
charge, impost or levy (including without limitation income taxes, franchise
taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt taxes,
value added taxes, employment taxes, excise taxes, ad valorem taxes, property
taxes, withholding taxes, payroll taxes, minimum taxes or windfall profit taxes)
together with any related penalties, fines, additions to tax or interest imposed
by the United States or any state, county, local or foreign government or
subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
(d) The Merger qualifies as a reorganization pursuant to the
provisions of Section 368(a)(2)(D) of the Code.
5.25 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 5.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company, other than the
distribution of those items listed on Schedule 5.25(d) attached hereto
immediately prior to the Closing;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers
directors, Stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
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(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Company to any person, including
without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
$25,000, other than purchases and sales of inventory in the ordinary course of
business, which purchases and sales are not subject to a written agreement;
(r) any loan by the Company to any person or entity, incurring by the
Company, of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
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(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with USFloral and its representatives regarding the
transactions contemplated by this Agreement).
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Company and a description of the
terms of such power.
5.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 5.27(a),
no underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state, local or
other applicable law to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a "Hazardous Material"), are
present in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that the Company has at any time owned,
operated, occupied or leased. Schedule 5.27(a) identifies all underground and
aboveground storage tanks, and the capacity, age, and contents of such tanks,
located on Real Property owned or leased by the Company.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of or released, or exposed its employees or
others to, Hazardous Materials in violation of any law in effect on or before
the Closing Date, nor has the Company
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disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively, "Company Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Material Activities and
other business of the Company as such activities and business are currently
being conducted. All Environmental Permits are in full force and effect. The
Company (A) is in compliance in all material respects with all terms and
conditions of the Environmental Permits and (B) is in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
the laws of all Governmental Entities relating to pollution or protection of the
environment or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder. To
the Company's knowledge, there are no circumstances that may prevent or
interfere with such compliance in the future. Schedule 5.27(d) includes a
listing and description of all Environmental Permits currently held by the
Company.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
5.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. The Company has delivered to USFloral and Newco true and
complete copies of each agreement, contract, commitment or other document (or
summaries thereof) that is referred to in the Schedules or that has been
requested by USFloral. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement, the schedules hereto and all other documents and information
furnished to USFloral and its representatives pursuant hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. If any
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholder shall immediately
give notice of such fact or circumstance to USFloral. However, such notification
shall not relieve the Company or the Stockholder of their respective
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obligations under this Agreement, and at the sole option of USFloral, the truth
and accuracy of any and all warranties and representations of the Stockholders,
at the date of this Agreement and as of the Closing date, shall be a
precondition to the consummation of this transaction.
5.30 USFloral Prospectus; Securities Representations. Each Stockholder has
received and reviewed a copy of the prospectus dated March 18, 1998 including
all supplements thereto (as supplemented, the "USFloral Prospectus") contained
in USFloral's shelf registration statement on Form S-1 (File No. 333-39969).
Each Stockholder (a) has such knowledge, sophistication and experience in
business and financial matters that they are capable of evaluating the merits
and risks of an investment in the shares of USFloral Common Stock, (b) fully
understands the nature, scope, and duration of the limitations on transfer
contained herein, and under applicable law, and (c) can bear the economic risk
of any investment in the shares of USFloral Common Stock and can afford a
complete loss of such investment. Each Stockholder has had an adequate
opportunity to ask questions and receive answers (and has asked such questions
and received answers to its satisfaction) from the officers of USFloral
concerning the business, operations and financial condition of USFloral. None of
the Stockholders has any contract, undertaking, agreement or arrangement,
written or oral, with any other person to sell, transfer or grant participation
in any shares of USFloral Common Stock to be acquired by such Stockholder in the
Merger. Each Stockholder acknowledges and agrees that USFloral has not and will
not provide such Stockholder or any other party with a prospectus for such
Stockholder's use in selling USFloral Common Stock.
5.31 Affiliates. The Stockholders are the only persons who are, in the
reasonable judgment of the Company and each of the Stockholders, affiliates of
the Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
5.32 Location of Chief Executive Offices. Schedule 5.32 sets forth the
location of the Company's chief executive offices.
5.33 Location of Equipment and Inventory. All Inventory and Equipment held
on the date hereof by the Company is located at one of the locations shown on
Schedule 5.33. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code as
in effect on October 16, 1997 in the State of New York (the "N.Y.U.C.C.") owned
by the Company as of the date hereof, and, in any event, shall include, but
shall not be limited to, all merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production, and all proceeds therefrom; and (b)
the term "Equipment" shall mean any "equipment" as such term is defined in the
N.Y.U.C.C. owned by the Company as of October 16, 1997, and, in any event, shall
include, but shall not be limited to, all machinery, equipment, furnishings,
fixtures and vehicles owned by the Company, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
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6. REPRESENTATIONS OF USFLORAL AND NEWCO
To induce the Company and the Stockholders to enter into this Agreement and
consummate the transactions contemplated hereby, each of USFloral and Newco
represents and warrants to the Company and the Stockholders as follows:
6.1 Due Organization. Each of USFloral and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and each is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective businesses in the places and in the manner as now
conducted, except where the failure to be so authorized, qualified or licensed
would not have a Material Adverse Effect. Copies of the Certificate of
Incorporation and the Bylaws, each as amended, of USFloral and Newco
(collectively, the "USFloral Charter Documents") have been made available to the
Company. Neither USFloral nor Newco is in violation of any USFloral Charter
Document.
6.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholder at the Effective Time shall be registered under the
1933 Act and, when delivered in accordance with the terms of this Agreement,
will be valid and legally issued shares of USFloral capital stock, fully paid
and nonassessable, and prior to the time such shares may be transferred in
accordance with the provisions of Section 7.9 hereof, will be approved for
quotation on the Nasdaq National Market.
6.3 Authorization; Validity of Obligations. The representatives of
USFloral and Newco executing this Agreement have all requisite corporate power
and authority to enter into and bind USFloral and Newco to the terms of this
Agreement. USFloral and Newco have the full legal right, power and corporate
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by USFloral and Newco and the
performance by each of USFloral and Newco of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of USFloral and Newco, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of each of USFloral and Newco enforceable in accordance
with its terms.
6.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and its
lenders, conflict with, or result in a default (or would constitute a default
but for a requirement of notice or lapse of time or both) under any document,
agreement or other instrument to which either USFloral or Newco is a party, or
result in the creation or imposition of any lien, charge or encumbrance on any
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of USFloral's or Newco's properties pursuant to (i) any law or regulation to
which either USFloral or Newco or any of their respective property is subject,
or (ii) any judgment, order or decree to which USFloral or Newco is bound or any
of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral or
Newco; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral or Newco is subject, or by which USFloral or Newco
is bound, (including, without limitation, the HSR Act, together with all rules
and regulations promulgated thereunder).
6.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. The
authorized capital stock of Newco consists of 1,000 shares of Common Stock, of
which 100 shares are outstanding. All of the issued and outstanding shares of
Newco are owned beneficially, and of record by USFloral. All of the shares of
USFloral Common Stock to be issued to the Stockholders in accordance herewith
will be offered, issued, sold and delivered by USFloral in compliance with all
applicable state and federal laws concerning the issuance of securities and none
of such shares was or will be issued in violation of the preemptive rights of
any stockholder of USFloral.
7. COVENANTS
7.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(i) The Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the
Surviving Corporation on or before the due date of such Tax Returns the amount
of all Taxes shown as due on such Tax Returns to the extent that such Taxes are
not reflected in the current liability accruals for Taxes (excluding reserves
for deferred Taxes) shown on the Company's books and records as of the Closing
Date. Such Returns shall be prepared and filed in accordance with applicable law
and in a manner consistent with past practices and shall be subject to review
and approval by USFloral. To the extent reasonably requested by the Stockholders
or required by law, USFloral and the Surviving Corporation shall participate in
the filing of any Tax Returns filed pursuant to this paragraph.
(ii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and
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end after the Closing Date. The Stockholders shall pay to the Surviving
Corporation within fifteen (15) days after the date on which Taxes are paid with
respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such taxable period ending on the Closing Date to the
extent such Taxes are not reflected in the current liability accruals for Taxes
(excluding reserves for deferred Taxes) shown on the Company's books and records
as of the Closing Date. For purposes of this Section 7.1, in the case of any
Taxes that are imposed on a periodic basis and are payable for a taxable period
that includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such taxable period ending on the Closing Date
shall (x) in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire
taxable period multiplied by a fraction the numerator of which is the number of
days in the taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant taxable period ended on the
Closing Date. Any credits relating to a taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Surviving Corporation.
(iii) USFloral and the Surviving Corporation on one hand and the
Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns
pursuant to this Section 7.1 and any audit, litigation or other proceeding with
respect to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating Tax matters pertinent to the
Company that is in their possession or under their control until the expiration
of any applicable statute of limitations or extensions thereof.
(iv) The Stockholders shall timely pay all transfer, documentary,
sales, use, stamp, registration and other Taxes and fees arising from or
relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporation will join in the execution of any such
Tax Returns and other documentation.
(b) The Company shall, prior to the Closing, maintain its status as an
S Corporation for federal and state income tax purposes.
7.2 Related Party Agreements. The Company and/or the Stockholders, as the
case may be, shall terminate any Related Party Agreements which USFloral
requests the Company or Stockholders to terminate.
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7.3 Cooperation.
(a) The Company, the Stockholders, USFloral and Newco shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief financial officer of
the Company shall execute any documentation reasonably required by USFloral's
independent public accountants (in connection with such accountants' audit of
the Company) or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
(d) The Company, the Stockholders and USFloral shall file all notices
and other information and documents required under the HSR Act (as defined in
Section 5.3) as promptly as practicable after the date hereof.
7.4 Conduct of Business Pending Closing. Between the date hereof and the
Effective Time, the Company will (except as requested or agreed by USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
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(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Stockholders) in accordance with past
practice.
7.5 Access to Information. Between the date of this Agreement and the
Closing Date, the Company will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Company and (ii) such additional financial and operating data
and other information as to the business and properties of the Company as
USFloral may from time to time reasonably request, including without limitation,
access upon reasonable request to the Company's employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 7.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
7.6 Prohibited Activities. Between the date hereof and the Effective
Time, the Company will not, without the prior written consent of USFloral:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property), other than the distribution of those items listed on
Schedule 5.25(d) attached hereto immediately prior to the Closing, in respect of
its stock whether now or hereafter outstanding, or split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or purchase, redeem or otherwise acquire or retire for value any
shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice, in
an amount in excess of $25,000, including contracts to provide services to
customers;
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(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice and other than the distribution of those items listed on
Schedule 5.25(d) attached hereto immediately prior to the Closing;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
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returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 7.7(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
7.7 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral, and shall provide USFloral with proof that any required notice has
been sent.
7.8 Sales of USFloral Common Stock.
(a) No Stockholder will, directly or indirectly, offer, sell, contract
to sell, pledge or otherwise dispose of one-half of the shares of USFloral
Common Stock to be received by such Stockholder in the Merger prior to the date
that is, (i) with respect to one-third of the shares, eighteen months from the
Closing Date, (ii) with respect to two-thirds of the shares, twelve months from
the Closing Date and (iii) with respect to all of the shares, six months from
the Closing Date.
(b) Each Stockholder acknowledges and agrees that USFloral will not
provide such Stockholder with a prospectus for such Stockholder's use in selling
the shares of USFloral Common Stock to be received by such Stockholder in the
Merger, and agrees to sell such shares only in accordance with the requirements,
if any, of Rule 145(d) promulgated under the 1933 Act. USFloral acknowledges
that the provisions of this Section 7.9(b) will be satisfied as to any sale by a
Stockholder of the USFloral Common Stock Stockholder may acquire pursuant to the
Merger pursuant to Rule 145(d) under the Securities Act, by a broker's letter
and a letter from the Stockholder with respect to that sale stating that the
applicable requirements of Rule 145(d)(1) have been met or are inapplicable by
virtue of Rule 145(d)(2) or Rule 145(d)(3) provided, however, that USFloral has
no reasonable basis to believe that such sales were not made in compliance with
such provisions of Rule 145(d) and subject to any changes in Rule 145 after the
date of this Agreement.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Stockholders in the Merger will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN
OF REORGANIZATION, DATED AS OF APRIL __, 1998, AMONG THE ISSUER AND THE
STOCKHOLDERS OF EDFRANCAR, INC. d/b/a FLORAFRESH INTERNATIONAL, A FLORIDA
CORPORATION. PRIOR TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT. UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) WHEN THE HOLDING PERIOD HAS EXPIRED.
*** Certificates representing one-third of the shares of USFloral Common Stock
issued will read "October 3, 1998," one-third will read "April 3, 1999" and one-
third will read "October 3, 1999."
7.9 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 4.5% of the Merger
Consideration provided for in Section 2.2 above shall be available for issuance
to the key employees of the Surviving Corporation after the Closing, as
determined by the Surviving Corporation's President (or other officer or
director designated by the Surviving Corporation and acceptable to USFloral) in
accordance with USFloral's policies, and authorized and issued under the terms
of USFloral's 1997 Long-Term Incentive Plan.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO
The obligation of USFloral and Newco to effect the Merger is subject to the
satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to USFloral.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or
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provision challenging USFloral's proposed acquisition of the Company, or
limiting or restricting USFloral's conduct or operation of the business of the
Company (or its own business) following the Merger shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit claim or proceeding of
any nature pending or threatened against USFloral, Newco or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company.
8.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Company, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by each Stockholder dated
the Closing Date to such effect.
8.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
8.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to USFloral.
8.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to USFloral.
8.7 Quarterly Financial Statements. USFloral shall have received from the
Company completed quarterly financial statements in a form reasonably
satisfactory to USFloral, and the Merger shall have been approved by USFloral's
lenders.
8.8 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. USFloral shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
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8.9 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of the Company as of the last day of its most recent
fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(c) the earnings of the Company before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the Company financial conditions set forth
in Section 5.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth and the Certified Closing EBIT, the Company shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after December 31,
1997.
8.10 Employment Agreements. Edgar Lozano and Carlos Lozano shall have
entered into an employment agreement with the Company in a form reasonably
satisfactory to USFloral.
8.11 Stockholders' Release. The Stockholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Company from any and
all claims of such Stockholder against the Company.
8.12 Supply Agreements. The Company shall have delivered to USFloral an
executed Flower Supply Agreement, in the form of Annex I attached hereto,
-------
between the Company and those farms in listed on Schedule 8.12 attached hereto.
-------------
8.13 Repayment of Indebtedness. The Company shall have delivered to
USFloral evidence of repayment of all amounts due from the Stockholders and all
entities in which the Stockholders have an interest.
8.14 Termination of Payments for Add-Backs. USFloral shall have received a
certificate, dated as of the Closing Date, signed on behalf of the Surviving
Corporation that no payments shall be made by the Surviving Corporation, from
and after the Closing Date, in respect of those items set forth on Schedule
5.9(b) hereof.
8.15 Lease. The Company shall have delivered to USFloral an executed Lease
in the form of Annex II attached hereto.
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9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS
The obligation of the Stockholders and the Company to effect the Merger are
subject to the satisfaction or waiver, at or before the Effective Time, of the
following conditions and deliveries:
9.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral and Newco contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by USFloral and Newco on
or before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of USFloral shall have been
delivered to the Company and the Stockholders.
9.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against USFloral, Newco or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the USFloral and its subsidiaries taken as a
whole.
9.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral and Newco of the transactions contemplated herein, shall have been
obtained and made. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no action by
the Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the transactions contemplated hereby shall be
pending.
9.4 Employment Agreements. The Company shall have afforded Edgar Lozano
and Carlos Lozano an opportunity to enter into an employment agreement with the
Company in a form reasonably satisfactory to USFloral.
9.5 Lease. The Company shall have delivered to USFloral an executed Lease
in the form of Annex II attached hereto.
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10. INDEMNIFICATION
10.1 General Indemnification by the Stockholders. Each Stockholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless USFloral, Newco and the Surviving Corporation and their respective
officers, directors, employees, stockholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Effective Time, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Company Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 5.23 (conformity with
law; litigation), 5.24 (taxes), and 5.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.1.
10.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 10.1
unless, and solely to the extent that, the aggregate amount of Damages exceeds
$145,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Merger
Consideration as set forth in Sections 2.2 and 3.1; (ii) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 5.4 (capital stock of the
Company), 5.5 (transactions in capital stock), 5.9 (Company financial
conditions), 5.18 (material contracts and commitments), 5.23 (conformity with
law; litigation), 5.24 (taxes), or 5.27 (environmental matters); (iii) Damages
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described in Section 10.1(a)(iv); or (v) Damages for liability for anti-dumping
duties in excess of reserves therefor on the balance sheets of the Company as of
the Closing Date (regardless of whether or not disclosed on any schedule to this
Agreement);
(b) the aggregate amount of the Stockholders' liability under this
Article 10 shall not exceed the Merger Consideration; provided, however, that
the Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 5.24 (taxes) or 5.27 (environmental matters) or
Damages described in Section 10.1(a)(ii) and Section 10.1(a)(iv) shall not be
subject to such limitation;
(c) the indemnification obligations under this Article 10, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 10.2(c):
(i)
(1) except as to representations, warranties, and covenants
specified in clause (i)(2) of this Section 10.2(c), the first anniversary of the
Closing Date, or
(2) with respect to representations and warranties contained
in Sections 5.22 (employee benefit plans), 5.24 (taxes), 5.27 (environmental
matters), and the indemnification set forth in Section 10.1(a)(ii), (iii) or
(iv), on (A) the date that is six (6) months after the expiration of the longest
applicable federal or state statute of limitation (including extensions
thereof), or (B) if there is no applicable statute of limitation, (x) ten (10)
years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 10.2(c); or
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 10.2(c) (such claims
referred to as "Pending Claims").
10.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 10 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 10.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 10.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter,
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attempt in good faith to agree upon the rights of the respective parties with
respect to each of such Claims (and, if the parties should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties).
(b)
(i) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty days from the date of delivery of
the Claim Notice to notify the Indemnified Party (A) whether the Indemnifying
Party disputes liability to the Indemnified Party hereunder with respect to the
Third Party Claim, and, if so, the basis for such a dispute, and (B) if such
party does not dispute liability, whether or not the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend against the
Third Party Claim, provided that the Indemnified Party is hereby authorized (but
not obligated) to file any motion, answer or other pleading and to take any
other action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the
Stockholders' Representative, any Third Party Claim seeks material prospective
relief which could have an adverse effect on any Indemnified Party or the
Surviving Corporation or any subsidiary, the Indemnified Party shall have the
right to control or assume (as the case may be) the defense of any such Third
Party Claim and the amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of the indemnification
obligations of the Indemnifying Party hereunder. If the Indemnified Party elects
to exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third Party Claim at the
sole cost and expense of the Indemnifying Party.
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(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 10.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 10.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 10, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
10.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
USFloral and Newco in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Stockholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 10.2. The
representations of USFloral and Newco will survive the Closing and will remain
in effect until, and will expire upon the first anniversary of the Closing date.
10.5 Remedies Cumulative. The remedies set forth in this Article 10 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
10.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 10.3 to be owed to USFloral by the Stockholders
under Section 10.1 hereof.
11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholders agree that for a period of
two years following the Merger Effective Date, they shall not:
(a) 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
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the Surviving Corporation or USFloral, including without limitation the
importing, brokerage, manufacture, assembly, packaging, distribution, shipping
or marketing of floral products (including, without limitation, hardgoods), or
any business engaging in the consolidation of the floral industry within the
United States of America (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, the Company within the Territory for the purpose of
soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, the Company; or
(e) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholders 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, (ii) engaging in
any activity to which USFloral shall have provided its prior written consent or
(iii) engaging in business on behalf of those Farms listed on Schedule 8.12
hereof to the same extent the Stockholder engaged in such business prior to the
Closing Date.
11.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders agree that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
11.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 11 impose a reasonable restraint on the Stockholders
in light of the activities and business of USFloral on the date of the execution
of this Agreement and the current and future plans of USFloral and the Surviving
Corporation (as successors to the businesses of the Company).
11.4 Severability; Reformation. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties
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that such restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
11.5 Independent Covenant. All of the covenants in this Article 11 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholders
against the Company, the Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of two
years stated above, shall be computed by excluding from such computation any
time during which any Stockholder is in violation of any provision of this
Article 11 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action USFloral or
the Surviving Corporation seeks to enforce the agreements and covenants of the
Stockholders or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement; provided, however, that if any Stockholder is found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
11.6 Materiality. The Company and each Stockholder hereby agree that the
covenants set forth in this Article 11 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Stockholders. The Stockholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company and the Company's business. The Stockholders
agree that they will not disclose any confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of USFloral, unless the
Stockholders can show that such information has become known to the public
generally through no fault of the Stockholders. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Article 12,
USFloral and the Surviving Corporation shall be entitled to an injunction
restraining the Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
12.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the Company and the Company's business. USFloral agrees that it will not
disclose any confidential information to any person, firm, corporation,
association, or other entity
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for any purpose or reason whatsoever, prior to the Closing Date without prior
written consent of the Stockholders. In the event of a breach or threatened
breach by USFloral of the provisions of this Article 12, the Stockholders shall
be entitled to an injunction restraining USFloral from disclosing, in whole or
in part, such confidential information. Nothing contained herein shall be
construed as prohibiting the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
12.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, USFloral, the Surviving Corporation and the Stockholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
13. GENERAL
13.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Company; or
(b) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April 15, 1998, provided that the right to terminate this Agreement under
this Section 13.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Merger; or
there shall be any action taken, or any statute, rule regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would make the consummation of the Merger illegal.
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13.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 13.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 13 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
13.1(c) above, then notwithstanding the provisions of Section 13.7 below, the
breaching party (with the Stockholders and the Company deemed to be a single
party for purposes of this Article 13), shall be liable to the other party to
the extent of the expenses incurred by such other party in connection with this
Agreement and the transactions contemplated hereby, as well as any damages in
accordance with applicable law.
13.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholders.
13.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 11.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
13.6 Brokers and Agents. USFloral and Newco (as a group) and the Company
and each Stockholder (as a group) each represents and warrants to the other that
it has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
13.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and Newco and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement. The Stockholders (and not the Company) have and will pay the fees,
expenses and disbursements of the Stockholders, the Company, and their
47
<PAGE>
agents, representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
13.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 11 and the confidentiality
obligations set forth in Article 12. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
13.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral, Newco or the Surviving Corporation to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Thirty-Second Floor
Pittsburgh, PA 15219
(Telefax: (412) 560-3399)
If to any Stockholder to:
Edgar Lozano
830 Lakeview Drive
Miami Beach, Florida 33140
(Telefax: (305) 864-1597)
48
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with a required copy to:
Nicolas Fernandez, Esq.
Marquez & Fernandez, P.A.
782 N.W. Le Jeune Road, Suite 548
Miami, Florida 33126
(Telefax: (305) 461-0410)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
13.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
13.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 11.4.
13.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
13.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
13.14 Accounting Terms. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
-----------------------------------------------
Robert J. Poirier
Chairman, President and CEO
FFI ACQUISITION CORP.
By: /s/ Robert J. Poirier
-----------------------------------------------
Robert J. Poirier
President
EDFRANCAR, INC.
d/b/a FLORAFRESH INTERNATIONAL
By: /s/ Edgar Lozano
-----------------------------------------------
Edgar Lozano
President
STOCKHOLDERS:
/s/ Edgar Lozano
-----------------------------------------------
Edgar Lozano
/s/ Carlos Lozano
-----------------------------------------------
Carlos Lozano
50
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SCHEDULES
SCHEDULE 1.1 [Plan of Merger]
SCHEDULE 3.1 [Post-Closing Audit Checklist]
SCHEDULES TO ARTICLE 5 [Schedules of exceptions to the representations and
warranties]
SCHEDULE 8.12 [List of Farms]
ANNEXES
ANNEX I [Form of Flower Supply Agreement]
The Schedules and Annexes to this Agreement will be provided to the Commission
supplementally upon request.
51
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Exhibit 2.21
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
U.S.A. Floral Products, Inc.,
ASG Acquisition Corp.,
AFB Marketing, Inc.
d/b/a Allan Stanley Greenhouses
and
The Stockholders Named Therein
dated April 3, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C> <C>
1. THE MERGER 1
1.1 The Merger............................................ 1
1.2 Articles of Incorporation; Bylaws,
Directors and Officers.............................. 1
1.3 Effects of the Merger................................. 2
2. CONVERSION AND EXCHANGE OF STOCK........................... 2
2.1 Manner of Conversion.................................. 2
2.2 Merger Consideration.................................. 3
2.3 Exchange of Certificates and Payment of Cash.......... 5
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS.................... 6
3.1 Post-Closing Adjustment............................... 6
3.2 Pledged Assets........................................ 8
3.3 Stockholders' Representative.......................... 9
4. CLOSING 10
4.1 Location and Date.....................................10
4.2 Effect................................................10
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS...............................................10
5.1 Due Organization.....................................11
5.2 Authorization; Validity..............................11
5.3 No Conflicts.........................................11
5.4 Capital Stock of the Company.........................12
5.5 Transactions in Capital Stock........................12
5.6 Subsidiaries, Stock, and Notes.......................12
5.7 Predecessor Status...................................13
5.8 Absence of Claims Against the Company................13
5.9 Company Financial Conditions.........................13
5.10 Financial Statements.................................13
5.11 Liabilities and Obligations..........................13
5.12 Accounts and Notes Receivable........................14
5.13 Books and Records....................................15
5.14 Permits..............................................15
5.15 Real Property........................................15
5.16 Personal Property....................................17
5.17 Intellectual Property................................17
5.18 Material Contracts and Commitments...................19
5.19 Government Contracts.................................20
5.20 Insurance............................................21
5.21 Labor and Employment Matters.........................21
5.22 Employee Benefit Plans...............................22
5.23 Conformity with Law; Litigation......................23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C> <C>
5.24 Taxes................................................24
5.25 Absence of Changes...................................26
5.26 Deposit Accounts; Powers of Attorney.................27
5.27 Environmental Matters................................28
5.28 Relations with Governments...........................29
5.29 Disclosure...........................................29
5.30 USFloral Prospectus; Securities Representations......29
5.31 Affiliates...........................................30
5.32 Location of Chief Executive Offices..................30
5.33 Location of Equipment and Inventory..................30
6. REPRESENTATIONS OF USFLORAL AND NEWCO......................30
6.1 Due Organization......................................30
6.2 USFloral Common Stock.................................31
6.3 Authorization; Validity of Obligations................31
6.4 No Conflicts..........................................31
6.5 Capitalization of USFloral and Ownership of
USFloral Stock........................................32
7. COVENANTS.................................................32
7.1 Tax Matters..........................................32
7.2 Related Party Agreements.............................33
7.3 Cooperation..........................................33
7.4 Conduct of Business Pending Closing..................34
7.5 Access to Information................................34
7.6 Prohibited Activities................................35
7.7 Notice to Bargaining Agents..........................36
7.8 Sales of USFloral Common Stock.......................36
7.9 USFloral Stock Options...............................38
7.10 Conduct of Business of Surviving Corporation.........38
7.11 Post-Closing Access to Books and Records.............38
7.12 Compliance with Rule 144.............................38
7.13 Release of Personal Guarantees.......................38
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
USFLORAL AND NEWCO.........................................39
8.1 Representations and Warranties; Performance
of Obligations.......................................39
8.2 No Litigation........................................39
8.3 No Material Adverse Change...........................39
8.4 Consents and Approvals...............................39
8.5 Opinion of Counsel...................................39
8.6 Charter Documents....................................40
8.7 Due Diligence Review.................................40
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C> <C>
8.8 Delivery of Closing Financial Certificate............40
8.9 Employment Agreements................................40
8.10 Stockholders' Release................................40
8.11 Related Party Agreements.............................40
8.12 Termination of Payments for Add-Backs................41
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY AND THE STOCKHOLDERS...............................41
9.1 Representations and Warranties; Performance
of Obligations......................................41
9.2 No Litigation.......................................41
9.3 Consents and Approvals..............................41
9.4 Employment Agreements...............................42
10. INDEMNIFICATION............................................42
10.1 General Indemnification by the Stockholders.........42
10.2 Limitation and Expiration...........................42
10.3 Indemnification Procedures..........................44
10.4 Survival of Representations Warranties and
Covenants...........................................46
10.5 Remedies Cumulative.................................46
10.6 Right to Set Off....................................46
11. NONCOMPETITION.............................................46
11.1 Prohibited Activities...............................46
11.2 Damages.............................................47
11.3 Reasonable Restraint................................47
11.4 Severability; Reformation...........................47
11.5 Independent Covenant................................47
11.6 Materiality.........................................48
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..................48
12.1 Stockholders........................................48
12.2 USFloral............................................48
12.3 Damages.............................................48
13. GENERAL....................................................48
13.1 Termination.........................................49
13.2 Effect of Termination...............................49
13.3 Successors and Assigns..............................49
13.4 Entire Agreement; Amendment; Waiver.................50
13.5 Counterparts........................................50
13.6 Brokers and Agents..................................50
13.7 Expenses............................................50
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C> <C>
13.8 Specific Performance; Remedies......................50
13.9 Notices.............................................50
13.10 Governing Law.......................................51
13.11 Severability........................................52
13.12 Absence of Third Party Beneficiary Rights...........52
13.13 Further Representations.............................52
13.14 Accounting Terms....................................52
13.15 Legal Expenses......................................52
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 3rd day of April, 1998, by and among U.S.A. Floral Products,
Inc., a Delaware corporation ("USFloral"), ASG Acquisition Corp., a Delaware
corporation and a newly-formed, wholly-owned subsidiary of USFloral ("Newco"),
AFB Marketing, Inc., a California corporation d/b/a Allan Stanley Greenhouses
(the "Company"), and John Allan and Peter Stanley (each a "Stockholder" and
collectively, the "Stockholders").
BACKGROUND
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are sometimes referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that the Company merge with and into Newco (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the States of California and Delaware.
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 4.2), the
Company shall be merged with and into Newco pursuant to this Agreement and a
plan of merger (the "Plan of Merger") substantially in the form attached as
Schedule 1.1 hereto, and the separate corporate existence of the Company shall
cease. Newco, as it exists from and after the Effective Time, is sometimes
referred to as the "Surviving Corporation."
1.2 Articles of Incorporation; Bylaws, Directors and Officers. At the
Effective Time:
(a) The Articles of Incorporation of the Surviving Corporation from
and after the Effective Time shall be the Articles of Incorporation of Newco
until thereafter amended in accordance with the provisions therein and as
provided by the applicable provisions of the State Corporation Laws.
(b) The Bylaws of the Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco in effect immediately prior to the
Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the Delaware and California Corporation Laws.
<PAGE>
(c) The initial director of the Surviving Corporation shall be Robert
J. Poirier until his successor is elected and qualified, and the initial
officers of the Surviving Corporation shall be the officers of the Company
immediately prior to the Effective Time, with the addition of Robert J. Poirier
as Vice President and Assistant Secretary of the Surviving Corporation, in each
case until their successors are duly elected and qualified.
1.3 Effects of the Merger. The Merger shall have the effects provided
therefor by the California and Delaware Corporation Laws. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time (i) all
the rights, privileges, immunities, powers and franchises, of a public as well
as of a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including without limitation subscriptions to
shares, and all other choses in action, and all and every other interest of or
belonging to or due to the Company or Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, immunities, powers and franchises
and all and every other interest shall be thereafter as effectually the property
of the Surviving Corporation, as they were of the Company and Newco, and (ii)
all debts, liabilities, duties and obligations of the Company and Newco, subject
to the terms hereof, shall become the debts, liabilities and duties of the
Surviving Corporation and the Surviving Corporation shall thenceforth be
responsible and liable for all the debts, liabilities, duties and obligations of
the Company and Newco and neither the rights of creditors nor any liens upon the
property of the Company or Newco shall be impaired by the Merger, and may be
enforced against the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 Manner of Conversion. At the Effective Time, by virtue of the Merger
and without any action on the part of USFloral, Newco, the Company or any
Stockholder, the shares of capital stock of each of the Constituent Corporations
shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one share of validly issued, fully paid and non-assessable Common
Stock of the Surviving Corporation. Each stock certificate of Newco evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Company.
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of USFloral or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Section
2.1(d), and Sections 2.2, 3.1 and 3.2, each issued and outstanding share of
capital stock of the Company (without par value) ("Company Common Stock") (other
than shares to be canceled pursuant to Section 2.1(b)), that is issued and
outstanding immediately prior to the Effective Time shall
2
<PAGE>
automatically be canceled and extinguished and converted, without any action on
the part of the holder thereof, into the right to receive from USFloral (i) an
amount of cash equal to the cash portion of the Initial Consideration (as
defined in Section 2.2) divided by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time, (ii) that number of shares
of USFloral common stock, $.001 par value ("USFloral Common Stock"), valued at
the Merger Price (as defined in Section 2.2), that is equal in value to the
USFloral Common Stock portion of the Initial Consideration divided by the number
of shares of Company Common Stock outstanding immediately prior to the Effective
Time, (iii) an amount of cash equal to the cash portion of the Earn-Out
Consideration (as defined in Section 2.2) divided by the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time, and
(iv) that number of shares of USFloral Common Stock, valued at the Earn-Out
Price (as defined in Section 2.2), that is equal in value to the USFloral Common
Stock portion of the Earn-Out Consideration divided by the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
consideration therefor upon the surrender of such certificate in accordance with
Section 2.3 of this Agreement.
(d) Fractional Shares. No fractional shares of USFloral Common Stock
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of
USFloral Common Stock shall receive from USFloral an amount of cash equal to the
Merger Price, as defined in Section 2.2(a), multiplied by the fraction of a
share of USFloral Common Stock to which such holder would otherwise be entitled.
The fractional share interests of each Stockholder shall be aggregated, so that
no Stockholder shall receive cash in an amount greater than the value of one
full share of USFloral Common Stock.
2.2 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall
include the Initial Consideration and the Earn-Out Consideration. The "Initial
Consideration" shall be $3,850,000, less the aggregate amount of the long-term
indebtedness of the Company, including any current portion thereof, adjusted
pursuant to this Section 2.2 and Section 3.1. Of the Initial Consideration,
$1,925,000 less long-term debt shall be paid in cash at Closing in immediately
available funds. The remaining $1,925,000 of the Initial Consideration shall be
paid within 10 days after the Closing Date in shares of USFloral Common Stock
valued at $22.7438 per share (the "Merger Price"). For each $1.00 by which the
Company's and the Surviving Corporation's earnings before interest and taxes
("EBIT") for the twelve months ending March 31, 1999 (the "1999 EBIT") exceeds
$755,000, USFloral shall pay to the Stockholder $6.00 (the "Earn-Out
Consideration"). The Earn-Out Consideration shall not exceed $6,000,000. Of
the Earn-Out Consideration, 50% shall be paid in cash and 50% shall be paid in
USFloral Common Stock valued at the average closing price on the Nasdaq National
Market per share of USFloral Common Stock for each trading day during the thirty
calendar day period ending March 31, 1999 (the "Earn-Out Price"). The Earn-Out
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Consideration, if any, shall be paid within thirty days of the determination by
Price Waterhouse LLP ("USFloral's Accountant") of the 1999 EBIT.
(b) The Merger Consideration has been calculated based upon several
factors, including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $123,000 (the "Net Worth
Target") as of the Closing.
(c) If, on the Closing Financial Certificate (as defined in Section
8.9), the Certified Closing Net Worth (as defined in Section 8.9) is less than
the Net Worth Target, then the Merger Consideration to be delivered to the
Stockholders may, at USFloral's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in Section 3.1),
by the difference between the Net Worth Target and the Certified Closing Net
Worth set forth on the Closing Financial Certificate (which reduction shall be
pro rata in cash and in USFloral Common Stock valued at the Merger Price in the
same proportions as the cash and USFloral Common Stock components of the Merger
Consideration as provided in Section 2.2(a)).
(d) The Earn-Out Consideration has been calculated based upon several
factors, including the assumption that the Surviving Corporation's earnings
before interest and taxes for the twelve months ended March 31, 2000 (the "2000
EBIT") will be no less than the 1999 EBIT. For each $1.00 by which the 2000
EBIT is less than the lesser of (i) 1999 EBIT or (ii) $1,755,000, the
Stockholders will repay USFloral $3.00 in cash and $3.00 in USFloral Common
Stock, valued at the Earn-Out Price, up to the amount of the Earn-Out
Consideration.
(i) Within ninety (90) days following March 31, 1999, USFloral shall
cause Price Waterhouse LLP ("USFloral's Accountant"), to audit the Company's
books to determine the 1999 EBIT. In calculating the 1999 EBIT, USFloral's
Accountant shall add to EBIT any amounts expensed by the Company in respect of
those items set forth on Schedule 5.9(b)(ii) hereof during the period beginning
on April 1, 1998 and ending on the Closing Date. Within ten (10) days of
USFloral's Accountant's determination of the 1999 EBIT, USFloral shall deliver
to the Stockholders' Representative a written notice (the "Earn-Out
Determination Notice"), setting forth (i) the determination made by USFloral's
Accountant of the 1999 EBIT, (ii) the amount of the Earn-Out Consideration, if
any and (iii) the number of shares of USFloral Common Stock to be issued in
payment of the Earn-Out Consideration, if any. The Earn-Out Consideration, if
any, shall be paid within thirty days of the determination by USFloral's
Accountant of the 1999 EBIT.
(ii After delivery of the Earn-Out Determination Notice,
USFloral shall make available to the Stockholders' Representative, at the
Stockholders' Representative's request, the books and records of the Company.
The Stockholders' Representative shall have thirty (30) days from the receipt of
the Earn-Out Determination Notice to notify USFloral if the Stockholders dispute
such Earn-Out Determination Notice. Any notice from the Stockholders'
Representative to USFloral regarding the Earn-Out Consideration shall include
the Stockholders' determination of the 1999 EBIT. If the Stockholders'
Representative has delivered notice of such a dispute to USFloral within such
30-day period, then the Independent Accounting Firm shall review the Surviving
Corporation's
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books, Closing Financial Certificate and Financial Adjustment Notice (and
related information) to determine the amount, if any, of the Earn-Out
Consideration. The Independent Accounting Firm shall be directed to consider
only those agreements, contracts, commitments or other documents (or summaries
thereof) that were either (i) delivered or made available to USFloral's
Accountant in connection with the transactions contemplated hereby, or (ii)
reviewed by USFloral's Accountant during the course of its determination of 1999
EBIT. The Independent Accounting Firm shall make its determination of the Earn-
Out Consideration, if any, within thirty (30) days of its selection. The
determination made by the Independent Accounting Firm shall be final and binding
on the parties hereto. The costs of the Independent Accounting Firm shall be
borne by the party (either USFloral or the Stockholders as a group) whose
determination of the Company's 1999 EBIT was further from the determination of
the independent accounting firm, or equally by USFloral and the Stockholders in
the event that the determination by the Independent Accounting Firm is
equidistant between the determination made by USFloral and the determination
made by the Stockholders.
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for the
outstanding shares of capital stock of the Company, USFloral shall cause to be
made available to the Stockholders the Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.2(d)), as adjusted pursuant to Section 2.2 and Section 3.1. The
certificates evidencing the USFloral Common Stock component of the Merger
Consideration shall bear appropriate legends pursuant to the terms of this
Agreement and USFloral shall be entitled to issue appropriate stop transfer
instructions to its transfer agent consistent with the terms of this Agreement.
(b) Certificate Delivery Requirements. At the Effective Time, the
Stockholders shall deliver to USFloral the certificates (the "Certificates")
representing Company Common Stock, accompanied by blank stock powers duly
executed by the Stockholders and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders shall promptly cure any deficiencies with respect to the stock
powers accompanying such Certificates. The Certificates so delivered shall
forthwith be canceled. Until delivered as contemplated by this Section 2.3(b),
each Certificate shall be deemed at any time after the Effective Time to
represent the right to receive upon such surrender that portion of the Merger
Consideration as provided by this Article 2 and the applicable provisions of the
California and Delaware Corporation Laws.
(c) No Further Ownership Rights in Capital Stock of the Company. All
USFloral Common Stock and cash to be delivered (including the cash and USFloral
Common Stock, if any, to be delivered in payment of the Earn-Out Consideration
and the USFloral Common Stock delivered pursuant to Section 3.2(b) but withheld)
upon the surrender for exchange of shares of Company Common Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and following the Effective Time the Certificates shall have no further rights
to, or ownership in, shares of capital stock of the Company. There shall be no
further registration of transfers on the stock
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transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Section
2.3.
(d) Lost, Stolen or Destroyed Certificates. If any certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, then USFloral shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of USFloral Common Stock and cash as
provided in Section 2.1; provided, however that USFloral may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
USFloral with respect to the certificates alleged to have been lost, stolen or
destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 2.3, none of the Surviving Corporation or any party hereto shall be
liable to a holder of shares of Company Common Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 Post-Closing Adjustment.
(a) The Merger Consideration shall be subject to adjustment after the
Closing Date as specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, USFloral
shall cause Price Waterhouse LLP ("USFloral's Accountant") to audit the
Surviving Company's books to determine the accuracy of the information set forth
on the Closing Financial Certificate (the "Post-Closing Audit"). The parties
acknowledge and agree that for purposes of determining the net worth of the
Company as of the Closing Date, the value of the assets of the Company shall,
except with the prior written consent of USFloral, be calculated as provided in
the last paragraph of Section 8.9. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with USFloral and USFloral's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to USFloral's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. In the event that USFloral's Accountant determines
that the actual Company net worth as of the Closing Date was less than the
Certified Closing Net Worth, USFloral shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholders' Representative, as defined
in Section 3.3, setting forth (i) the determination made by USFloral's
Accountant of the actual Company net worth (the "Actual Company Net Worth") with
accompanying related balance sheet, (ii) the amount of the Merger Consideration
that would have been payable at Closing pursuant to Section 2.2(c) had the
Actual Company Net Worth been reflected on the Closing Financial Certificate
instead of the
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Certified Closing Net Worth, and (iii) the amount by which the number of shares
issued as the Merger Consideration would have been reduced at Closing had the
Actual Company Net Worth been used in the calculations pursuant to Section
2.2(c) (the "Merger Consideration Adjustment"). The Merger Consideration
Adjustment shall take account of the reduction, if any, to the Merger
Consideration already taken pursuant to Section 2.2(c)(i).
(c) The Stockholders' Representative shall have forty-five (45) days
from the receipt of the Financial Adjustment Notice to notify USFloral if the
Stockholders dispute such Financial Adjustment Notice. If USFloral has not
received notice of such a dispute within such 45-day period, USFloral shall be
entitled to receive from the Stockholders (which may, at USFloral's sole
discretion, be from the Pledged Assets as defined in Section 3.2; provided
however if the Merger Consideration Adjustment does not exceed $25,000, the
Merger Consideration Adjustment shall be paid from the Pledged Assets) the
Merger Consideration Adjustment as the sole remedy for any difference between
the Certified Closing Net Worth and the Actual Company Net Worth. If, however,
the Stockholders' Representative has delivered notice of such a dispute to
USFloral within such 45-day period, then McGladrey & Pullen LLP (the
"Independent Accounting Firm") shall review the Surviving Corporation's books,
Closing Financial Certificate and Financial Adjustment Notice (and related
information) to determine the amount, if any, of the Merger Consideration
Adjustment. The Independent Accounting Firm shall be directed to consider only
those agreements, contracts, commitments or other documents (or summaries
thereof) that were either (i) delivered or made available to USFloral's
Accountant in connection with the transactions contemplated hereby, or (ii)
reviewed by USFloral's Accountant during the course of the Post-Closing Audit.
The Independent Accounting Firm shall make its determination of the Merger
Consideration Adjustment, if any, within thirty (30) days of its selection. The
determination made by the Independent Accounting Firm shall be final and binding
on the parties hereto, and upon such determination, USFloral shall be entitled
to receive from the Stockholders (which may, at USFloral's sole discretion, be
from the Pledged Assets as defined in Section 3.2) the Merger Consideration
Adjustment. The costs of the Independent Accounting Firm shall be borne by the
party (either USFloral or the Stockholders as a group) whose determination of
the Company's net worth at Closing was further from the determination of the
Independent Accounting Firm, or equally by USFloral and the Stockholders in the
event that the determination by the Independent Accounting Firm is equidistant
between the Certified Closing Net Worth and the Actual Company Net Worth.
(d) Within ninety (90) days following March 31, 2000 USFloral shall
cause USFloral's Accountant to determine the 2000 EBIT. In the event that
USFloral's Accountant determines that the 2000 EBIT was less than the 1999 EBIT,
USFloral shall deliver a written notice (the "Earn-Out Adjustment Notice") to
the Stockholders' Representative, setting forth (i) the determination made by
USFloral's Accountant of the 2000 EBIT, (ii) the amount of the Earn-Out
Consideration that would have been payable had the Earn-Out Consideration been
calculated based on the 2000 EBIT rather than the 1999 EBIT and (iii) the amount
by which the amount of cash and number of shares issued as the Earn-out
Consideration would have been reduced had the 2000 EBIT been used to calculate
the Earn-Out Consideration (the "Earn-Out Consideration Adjustment").
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(e) After delivery of the Earn-Out Adjustment Notice, USFloral shall
make available to the Stockholders' Representative, at the Stockholders'
Representative's request, the books and records of the Company. The
Stockholders' Representative shall have forty-five (45) days from the receipt of
the Earn-Out Adjustment Notice to notify USFloral if the Stockholders dispute
such Earn-Out Adjustment Notice. Such notice shall include the Stockholders'
determination of the amount of 2000 EBIT. If USFloral has not received notice of
such a dispute within such 45-day period, USFloral shall be entitled to receive
from the Stockholders the Earn-Out Consideration Adjustment. If, however, the
Stockholders' Representative has delivered notice of such a dispute to USFloral
within such 45-day period, then the Independent Accounting Firm shall review the
Surviving Corporations' books and Earn-Out Adjustment Notice (and related
information) to determine the amount, if any, of the Earn-Out Consideration
Adjustment. The Independent Accounting Firm shall make its determination of the
Earn-Out Consideration Adjustment, if any, within thirty (30) days of its
selection. The determination made by the Independent Accounting Firm shall be
final and binding on the parties hereto, and upon such determination, USFloral
shall be entitled to receive from the Stockholders the Earn-Out Consideration
Adjustment. The costs of the Independent Accounting Firm shall be borne by the
party (either USFloral or the Stockholders) whose determination of 1999 EBIT was
further from the determination of the Independent Accounting Firm, or equally by
USFloral and the Stockholders in the event that the determination by the
Independent Accounting Firm is equidistant between USFloral's and the
Stockholders' determination of 1999 EBIT.
3.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Merger Consideration under Section 3.1, or any indemnification
obligations of the Stockholders pursuant to Article 10, the Stockholders shall,
and by execution hereof do hereby, transfer, pledge and assign to USFloral, for
the benefit of USFloral, a security interest in the following assets (the
"Pledged Assets"):
(i) at the Closing, that number of shares of USFloral Common Stock
with a value, based on the Merger Price, equal to ten percent (10%) of each
Stockholder's share of the Initial Consideration as the same may have been
adjusted pursuant to Section 2.2 or Section 3.1 hereof, and the certificates and
instruments, if any, representing or evidencing each such Stockholder's Pledged
Assets;
(ii) upon determination of the Earn-Out Consideration, that
number of shares of USFloral Common Stock with a value, based on the Earn-Out
Price equal to fifty percent (50%) of each Stockholder's share of the Earn-Out
Consideration (the "Earn-Out Pledged Assets");
(iii) all securities hereafter delivered to such Stockholder with
respect to or in substitution for such Stockholder's Pledged Assets, all
certificates and instruments representing or evidencing such securities, and all
cash and non-cash dividends and other property at any time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and in the event such Stockholder receives any such property, such Stockholder
shall hold such property
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in trust for USFloral and shall immediately deliver such property to USFloral to
be held hereunder as Pledged Assets; and
(iv) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Stockholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to USFloral
directly by the transfer agent, such certificate bearing no restrictive or
cautionary legend other than those imprinted by the transfer agent at USFloral's
request. Each Stockholder shall, at the Closing, deliver to USFloral, for each
such certificate, a stock power duly signed in blank by him or her. Any cash
comprising a Stockholder's Pledged Assets shall be withheld by USFloral from
distribution to such Stockholder.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Merger Consideration pursuant to Section 3.1 and any
indemnification obligations of the Stockholders pursuant to Article 10 until the
date which is one year after the Effective Time (the "Release Date"). Promptly
following the Release Date, USFloral shall return or cause to be returned to the
Stockholders the Pledged Assets, less Pledged Assets having an aggregate value
equal to the amount of (i) any post-Closing adjustment to the Merger
Consideration under Section 3.1, (ii) any pending claim for indemnification made
by any Indemnified Party (as defined in Article 10), and (iii) any
indemnification obligations of the Stockholders pursuant to Article 10.
Notwithstanding the preceding two sentences the Earn-out Pledged Assets shall be
available to satisfy any adjustment to the Earn-out Consideration until the
determination by USFloral's Accountant's of the 2000 EBIT. Promptly following
such determination, and upon repayment by the Stockholders of the cash portion
of the Earn-Out Consideration Adjustment, if any, USFloral shall cause to be
returned to the Stockholders the Earn-out Pledged Assets, less Earn-out Pledged
Assets having an aggregate value equal to the amount of the stock portion of the
Earn-out Consideration Adjustment under Section 3.1. For purposes of this
Section 3.2(c) and Article 10, the USFloral Common Stock held as Pledged Assets
shall be valued at (x) the Merger Price with respect to any post-Closing
adjustment to the Merger Consideration under Section 3.1, (y) the Earn-out Price
with respect to any adjustment to the Earn-out Consideration and (z) the average
of the closing price on the Nasdaq National Market per share of USFloral Common
Stock for the five trading days prior to the satisfaction of an indemnification
obligation (the "Market Value") with respect to indemnification obligations
pursuant to Article 10.
3.3 Stockholders' Representative.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates John Allan or, in the event that John Allan is unable or unwilling to
serve, Peter Stanley to be the Stockholders' Representative for purposes of this
Agreement. The Stockholders shall be bound by any and all actions taken by the
Stockholders' Representative on their behalf.
(b) USFloral and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All communications or writings
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to be sent to Stockholders pursuant to this Agreement may be addressed to the
Stockholders' Representative and any communication or writing so sent shall be
deemed notice to all of the Stockholders hereunder. The Stockholders hereby
consent and agree that the Stockholders' Representative is authorized to accept
deliveries, including any notice, on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative, and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with Article 10 of this Agreement. This power of
attorney and all authority hereby conferred is granted subject to and coupled
with the interest of the other Stockholders hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of any Stockholder, by operation of law,
whether by such Stockholder's death or any other event.
4. CLOSING
4.1 Location and Date. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Morgan, Lewis & Bockius LLP, on April 3, 1998, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as USFloral, the Company and the Stockholders may mutually agree, which
date shall be referred to as the "Closing Date."
4.2 Effect. On the Closing Date, the articles of merger, certificate of
merger, or other appropriate documents executed in accordance with the
California and Delaware Corporation Laws (the "Merger Documents"), together with
any required officers' certificates, shall be filed with the Secretary of the
States of California and Delaware in accordance with the provisions of the
California and Delaware Corporation Laws. The Merger shall become effective
upon such filings or at such later time as may be specified in such filings (the
"Effective Time").
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
To induce USFloral and Newco to enter into this Agreement and consummate
the transactions contemplated hereby, each of the Company and each Stockholder,
jointly and severally, represents and warrants to USFloral and Newco as follows
(for purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
Stockholders and the current directors and officers of the Company, including
facts of which the directors and officers, in the reasonably prudent exercise of
their duties, should be aware):
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5.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Company ("Material Adverse Effect"). Schedule 5.l hereto contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
Except as provided in Schedule 5.1 the Company is in good standing as a foreign
corporation in each jurisdiction it which it does business. The Company has
delivered to USFloral true, complete and correct copies of the Articles of
Incorporation and Bylaws of the Company. Such Articles of Incorporation and
Bylaws are collectively referred to as the "Charter Documents." The Company is
not in violation of any Charter Documents. The minute books of the Company have
been made available to USFloral (and as of the Closing Date have been delivered,
along with the Company's original stock ledger and corporate seal, to USFloral)
and are correct and, except as set forth in Schedule 5.1, complete in all
material respects.
5.2 Authorization; Validity. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
this Agreement. The Company has the full legal right, corporate power and
authority to enter into this Agreement and the transactions contemplated hereby.
Each Stockholder has the full legal right and authority to enter into this
Agreement and the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the performance by the Company of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of the Company and the Stockholders and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Company or any
Stockholder is a party or by which the Company or any Stockholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Company's properties pursuant to (i) any law or regulation to which the
Company or any Stockholder or any of their respective property is subject, or
(ii) any judgment, order or decree to which the Company or any Stockholder is
bound or any of their respective property is subject;
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(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
5.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of 100,000 shares of capital stock, without par value, of which
20,000 shares are issued and outstanding. All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record and
beneficially by the Stockholders in the amounts set forth in Schedule 5.4 free
and clear of all Liens (defined below). All of the issued and outstanding
shares of the capital stock of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of the Company. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
5.5 Transactions in Capital Stock. Except as set forth on Schedule 5.5,
no option, warrant, call, subscription right, conversion right or other contract
or commitment of any kind exists of any character, written or oral, which may
obligate the Company to issue, sell or otherwise cause to become outstanding any
shares of capital stock. The Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. As a result of the Merger, USFloral will be the record and
beneficial owner of all outstanding capital stock of the Surviving Corporation
and rights to acquire capital stock of the Surviving Corporation.
5.6 Subsidiaries, Stock, and Notes.
(a) The Company has no subsidiaries.
(b) The Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity
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interest in any corporation, association or business entity, nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
(c) Except as set forth on Schedule 5.6(c), there are no promissory
notes that have been issued to, or are held by, the Company.
5.7 Predecessor Status. Schedule 5.7 sets forth a list of all names of
all predecessor companies of the Company, including the names of any entities
from which the Company previously acquired significant assets. Except as set
forth on Schedule 5.7, the Company has never been a subsidiary or division of
another corporation, nor has it been a part of an acquisition that was later
rescinded.
5.8 Absence of Claims Against the Company. No Stockholder has any claims
against the Company.
5.9 Company Financial Conditions.
(a) The Company's net worth as of the end of its most recent fiscal
year was not less than $153,000 (including the addition of $240,000 relating to
the contribution of certain personal property to the Company) in accordance with
Schedule 5.9(a). For purposes of this Section 5.9(a), calculation of amounts as
of the Closing shall be made in accordance with the last paragraph of Section
8.8.
(b) The Company's earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)) for its most recent fiscal
year was not less than $755,000.
5.10 Financial Statements. Schedule 5.10 includes (a) true, complete and
correct copies of the Company's unaudited balance sheet as of August 31, 1997
(the end of its most recently completed fiscal year), and income statement for
the year then ended (collectively, the "Year-End Financials") and (b) true,
complete and correct copies of the Company's unaudited balance sheet (the
"Interim Balance Sheet") as of February 28, 1998 (the "Balance Sheet Date") and
income statement, for the six-month period then ended (collectively, the
"Interim Financials," and together with the Year-End Financials, the "Company
Financial Statements"). Except as set forth on Schedule 5.10, each balance
sheet included in the Company Financial Statements presents fairly the financial
condition of the Company as of the date indicated thereon, and each of the
income statements included in the Company Financial Statements presents fairly
the results of its operations for the periods indicated thereon. Since the dates
of the Company Financial Statements, there have been no material changes in the
Company's accounting policies other than as requested by USFloral to conform the
Company's accounting policies to GAAP.
5.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities except
for:
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(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
(b) The Company has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 5.11(c) also includes a summary description of all future
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company or the Surviving Corporation would require additional material
expenditures of capital.
(d) For purposes of this Section 5.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 5.11(d)
contains a complete list of all indebtedness of the Company.
5.12 Accounts and Notes Receivable. The Company has delivered to USFloral
a complete and accurate list, as of a date not more than three (3) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). All Accounts Receivable represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. The Accounts Receivable are collectible net of any respective
reserves shown on the Company's books and records (which reserves are adequate
and calculated consistent with past practice). Subject to such reserves, except
as set forth on Schedule 5.12, each of the Accounts Receivable will be collected
in full, without any set-off, within one-hundred twenty (120) days after the day
on which it first became due and payable. There is no contest, claim, or right
of set-off, other than rebates and returns in the ordinary course of business,
under any contract with any obligor of an Account Receivable relating to the
amount or validity of such Account Receivable. Notwithstanding anything herein
to the contrary, no party
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hereto shall be damaged by any inaccuracy in this Section 5.12 until an Account
Receivable is actually written off by the Surviving Corporation, and Damages
shall then be limited to the amount of the write-off.
5.13 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
5.14 Permits. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"); (ii) the Permits are valid, and the Company has not received any
notice that any governmental authority intends to modify, cancel, terminate or
fail to renew any Permit. No present or former officer, manager, member or
employee of the Company or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any Permits; (iii) the Company has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits and other applicable orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing; and (iv) the transactions contemplated by this Agreement will not
result in a default under, or a breach or violation of, or adversely affect the
rights and benefits afforded to the Company by, any Permit.
5.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 5.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
owner, and Company's use thereof) and, to the Company's knowledge, any Liens.
Schedule 5.15(b) indicates whether the Real Property is owned or leased. The
Real Property listed on Schedule 5.15 includes all interests in real property
necessary to conduct the business and operations of the Company as presently
conducted.
(c) Except as set forth in Schedule 5.15(c):
(i) To the Company's knowledge, all structures and all structural,
mechanical and other physical systems thereof that constitute part of the Real
Property, including but not limited to the walls, roofs and structural elements
thereof and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking
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equipment, systems and facility included therein, and other material items at
the Real Property (collectively, the "Tangible Assets"), are free of defects and
in good operating condition and repair. For purposes of this Section, a defect
shall mean a condition relating to the structures or any structural, mechanical
or physical system which requires an expenditure of more than $3,000 to correct.
No maintenance or repair to the Real Property, Structures or any Tangible Asset
has been unreasonably deferred. There is no water, chemical or gaseous seepage,
diffusion or other intrusion into said buildings, including any subterranean
portions, that would impair beneficial use of the Real Property, Structures or
any Tangible Asset.
(ii) The Company's use and operation of the Real Property comply
with all applicable statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards or restrictions of any government entity
applicable to the Company having jurisdiction over any portion of the Real
Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required to be obtained
by the Company in connection with the use, occupation and operation of the Real
Property.
(iii) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(iv) There are no parties other than the Company in possession of
any of the Real Property or any portion thereof, and to the Company's knowledge
there are no leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any party or parties the right of use or occupancy
of any portion of the Real Property or any portion thereof.
(v) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Company
leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided USFloral with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. The Company's interests in
the Leases are free of all Liens.
(vi) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
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5.16 Personal Property.
(a) Schedule 5.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
the Company, including those listed on Schedule 5.16(a), are in reasonable
working order and condition, ordinary wear and tear excepted. All leases set
forth on Schedule 5.16(a) are in full force and effect and constitute valid and
binding agreements of the Company, and the Company is not in breach of any of
their terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on Schedule 5.16(a).
5.17 Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 5.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Company now owns or
uses in connection with its business. Except with respect to those Marks shown
as licensed on Schedule 5.17(a), the Company owns all of the registered and
unregistered trademarks, service marks, and trade names that it uses. The Marks
listed on Schedule 5.17(a) will not cease to be valid rights of the Company by
reason of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. For purposes of this
Section 5.17, the term "Mark" shall mean all right, title and interest in and to
any United States or foreign trademarks, service marks and trade names now held
by the Company, including any registration or application for registration of
any trademarks and services marks in the PTO or the equivalent thereof in any
state of the United States or in any foreign country, as well as any
unregistered marks used by the Company, and any trade dress (including logos,
designs, company names, business names, fictitious names and other business
identifiers) used by the Company in the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 5.17(b)(i) and in the Copyright registrations listed on
Schedule 5.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Company now owns or is licensed to use. The Company
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owns or is licensed to practice under all patents and copyright registrations
that the Company now owns or uses in connection with its business. For purposes
of this Section 5.17, the term "Patent" shall mean any United States or foreign
patent to which the Company has title as of the date of this Agreement, as well
as any application for a United States or foreign patent made by the Company;
the term "Copyright" shall mean any United States or foreign copyright owned by
the Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 5.17(c). Those Other Rights constitute all of the Other Rights that
the Company now owns or is licensed to use. The Company owns or is licensed to
practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 5.17(a), 5.17(b)(i), 5.17(b)(ii), and 5.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 5.17(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 5.17(a), (b), or (c). No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property or other trade secret material to the Company;
or (iv) challenging the Company's license or legally enforceable right to use of
the Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor any of its
subsidiaries (x) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, or copyrights and which
has not been finally terminated or been informed or notified by any third party
that the Company may be engaged in such infringement or (y) has knowledge of any
infringement liability with respect to, or infringement by,
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the Company or any of its subsidiaries of any trade secret, patent, trademark,
service mark, or copyright of another.
(f) All Intellectual Property in the form of computer software that is
utilized by the Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first centuries
or can be rendered capable of processing such data by the expenditure of not
more than $25,000.
5.1 Material Contracts and Commitments.
(a) Schedule 5.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Company and any affiliate of the Company or any
officer, director or stockholder of the Company are parties ("Related Party
Agreements"); or (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, $25,000, or that may generate
revenues or income exceeding, during the current term thereof, $25,000
(collectively with the Related Party Agreements, the "Material Contracts"). The
Company has delivered to USFloral true, complete and correct copies of written,
and summaries of any oral Material Contracts. The Company has complied with all
of its commitments and obligations and is not in default under any of the
Material Contracts, and no notice of default has been received with respect to
any thereof, and there are no Material Contracts that were not negotiated at
arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 7.4, is valid and binding on the Company and is in full force and effect
and is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company shall obtain all necessary consents,
waivers and approvals of parties to any Material Contracts, including those set
forth on Schedule 5.18(b), that are required in connection with any of the
transactions contemplated hereby, or are required by any governmental agency or
other third party or are advisable in order that any such Material Contract
remain in effect without modification after the Merger and without giving rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit ("Third Party Consents"). All Third Party Consents are listed on
Schedule 5.18(b).
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
Person in which any of the Stockholders owns a material interest, are set forth
in Schedule 5.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially all
of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 5.18(d), (i) result in the breach or
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violation of, (ii) constitute a default under, (iii) create a right of
termination under, or (iv) result in the creation or imposition of (or the
obligation to create or impose) any lien upon any of the assets of the Company
(other than a lien created pursuant to the pledge, hypothecation or mortgage
described at the start of this Section 5.18(d)) pursuant to any of the terms and
provisions of, any Material Contract to which the Company is a party or by which
the property of the Company is bound.
5.19 Government Contracts.
(a) Except as set forth on Schedule 5.19, the Company is not a party
to any government contracts.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) Except as set forth in Schedule 5.19, the Company has not been,
nor is it now being, audited, or investigated by any government agency, or the
inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting office of,
nor any current claim (other than the Accounts Receivable) pending against, any
agency or instrumentality of the United States Government or any state or local
government, relating to a contract.
(e) The Company has not, with respect to any government contract,
received a cure notice advising the Company that it is or was in default or
would, if it failed to take remedial action, be in default under such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate of
the Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to the Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
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5.20 Insurance. Schedule 5.20 sets forth a complete and accurate list of
all insurance policies presently carried by the Company and all insurance loss
runs or workmen's compensation claims received for the past two policy years.
The Company has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Company. The insurance carried by
the Company with respect to its properties, assets and business is, to the
Company's knowledge, with financially sound insurers. To the knowledge of the
Company, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies.
5.21 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and has not and is not engaged in
any unfair labor practice;
(b) there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
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(g) all persons classified by the Company as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
the Company has fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
5.2 Employee Benefit Plans. The Company has previously provided to
USFloral complete and accurate copies of all employee benefit plans, all
employee welfare benefit plans, all employee pension benefit plans, all multi-
employer plans and all multi-employer welfare arrangements (as defined in
Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), which are currently
maintained and/or sponsored by the Company, or to which the Company currently
contributes, or has an obligation to contribute in the future (including,
without limitation, employment agreements and any other agreements containing
"golden parachute" provisions and deferred compensation agreements), together
with copies of any trusts related thereto and a classification of employees
covered thereby (collectively, the "Plans"). Schedule 5.22 sets forth all of
the Plans that have been terminated within the past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 5.22. To the extent that any
Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) the Stockholders; (ii) any Plan; or (iii) the
Company has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No Plan has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company does not currently have (nor at the
Closing Date will have) any direct or indirect liability whatsoever (including
being subject to any statutory lien to secure payment of any such liability), to
the Pension Benefit Guaranty Corporation ("PBGC") with respect to any such Plan
under Title IV of ERISA or to the Internal Revenue Service for any excise tax or
penalty; and neither the Company nor any member of a "controlled group" (as
defined in ERISA Section 4001(a)(14)) currently has (or at the Closing Date will
have) any obligation whatsoever to contribute to any "multi-employer pension
plan" (as defined in ERISA Section 4001(a)(14), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
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(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), the Company and the Stockholders have complied (and on the Closing
Date will have complied), in all respects with all reporting, disclosure,
notice, election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the Company has no (and will incur no)
direct or indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the Company or the Stockholders, at any time prior to the Closing Date, to
comply with any such federal or state benefit continuation requirement, which is
capable of being assessed or asserted before or after the Closing Date directly
or indirectly against the Company or the Stockholders with respect to such group
health plans;
(f) the Company is not now nor has it been within the past five years
a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Stockholders' knowledge, there
is no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Financial Statements as of the Balance Sheet Date reflect the
approximate total pension, medical and other benefit expense for all Plans, and
no material funding changes or irregularities are reflected thereon which would
cause such Financial Statements to be not representative of most prior periods;
and
(i) the Company has not incurred liability under Section 4062 of
ERISA.
5.2 Conformity with Law; Litigation.
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(a) Except as set forth on Schedule 5.23(a), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect on the Company.
(b) No Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud or gross
negligence; (iii) filed for personal bankruptcy; or (iv) been an officer,
director, manager, trustee or controlling shareholder of a company that filed
for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 5.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
business.
5.2 Taxes.
(a) Except as set forth on Schedule 5.24:
(i) The Company has timely filed all Tax Returns due on or before the
Closing Date and all such Tax Returns are true, correct and complete in all
respects.
(ii) The Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes as
of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for Deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
(iv) There are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
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(v) The Company has a taxable year ended on August 31, in each
year commencing since August 19, 1992.
(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes. The Company converted from the cash method
of accounting to the accrual method for the year ended August 31, 1997.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last five fiscal years have been delivered to
USFloral.
(ix) There are (and as of immediately following the Closing there
will be) no Liens on the assets of the Company relating to or attributable to
Taxes.
(x) To the Company's knowledge, there is no basis for the assertion of
any claim relating to or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company or otherwise have an
adverse effect on the Company or its business.
(xi) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(xii) The Company is not, and has not been at any time, a party to
a tax sharing, tax indemnity or tax allocation agreement, and the Company has
not assumed the tax liability of any other person under contract.
(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar governmental
charge, impost or levy (including without limitation income taxes, franchise
taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt taxes,
value added taxes, employment taxes, excise taxes, ad valorem taxes, property
taxes, withholding taxes, payroll taxes, minimum taxes or windfall profit
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taxes) together with any related penalties, fines, additions to tax or interest
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
5.2 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 5.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers
directors, Stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Company to any person, including
without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
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(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
$25,000;
(r) any loan by the Company to any person or entity, incurring by the
Company, of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with USFloral and its representatives regarding the
transactions contemplated by this Agreement).
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
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(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Company and a description of the
terms of such power.
5.2 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 5.27(a),
no underground storage tanks and no amount of any substance that has been
designated by any governmental entity or by applicable federal, state, local or
other applicable law to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a "Hazardous Material"), are
present in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that the Company has at any time owned,
operated, occupied or leased. Schedule 5.27(a) identifies all underground and
aboveground storage tanks, and the capacity, age, and contents of such tanks,
located on Real Property owned or leased by the Company.
(b) Hazardous Materials Activities. Except as set forth on Schedule
5.27(b), the Company has not transported, stored, used, manufactured, disposed
of or released, or exposed its employees or others to, Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has the
Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively, "Company Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
governmental entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Except as set forth on Schedule 5.27(c), the Company
currently holds all environmental approvals, permits, licenses, clearances and
consents (the "Environmental Permits") necessary for the conduct of the
Company's Hazardous Material Activities and other business of the Company as
such activities and business are currently being conducted. All Environmental
Permits are in full force and effect. The Company (A) is in compliance in all
material respects with all terms and conditions of the Environmental Permits and
(B) is in compliance in all
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material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Company's knowledge, there are no circumstances that
may prevent or interfere with such compliance in the future. Schedule 5.27(d)
includes a listing and description of all Environmental Permits currently held
by the Company.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
5.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. The Company has delivered to USFloral and Newco true and
complete copies of each agreement, contract, commitment or other document (or
summaries thereof) that is referred to in the Schedules or that has been
requested by USFloral in writing. Without limiting any exclusion, exception or
other limitation contained in any of the representations and warranties made
herein, this Agreement, the schedules hereto and all other documents and
information furnished to USFloral and its representatives pursuant hereto do not
and will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading. If any
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholder shall immediately
give notice of such fact or circumstance to USFloral. However, such
notification shall not relieve the Company or the Stockholder of their
respective obligations under this Agreement, and at the sole option of USFloral,
the truth and accuracy of any and all warranties and representations of the
Stockholders, at the date of this Agreement and as of the Closing date, shall be
a precondition to the consummation of this transaction.
5.30 USFloral Prospectus; Securities Representations. Each Stockholder has
received and reviewed a copy of the prospectus dated March 18, 1998 including
all supplements thereto (as supplemented, the "USFloral Prospectus") contained
in USFloral's shelf registration statement on Form S-1 (File No. 333-39969).
Each Stockholder (a) has such knowledge, sophistication and experience in
business and financial matters that they are capable of evaluating the merits
and risks
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of an investment in the shares of USFloral Common Stock, (b) fully
understands the nature, scope, and duration of the limitations on transfer
contained herein, in the Affiliate Agreement (if applicable), and under
applicable law, and (c) can bear the economic risk of any investment in the
shares of USFloral Common Stock and can afford a complete loss of such
investment. Each Stockholder has had an adequate opportunity to ask questions
and receive answers (and has asked such questions and received answers to its
satisfaction) from the officers of USFloral concerning the business, operations
and financial condition of USFloral. None of the Stockholders has any contract,
undertaking, agreement or arrangement, written or oral, with any other person to
sell, transfer or grant participation in any shares of USFloral Common Stock to
be acquired by such Stockholder in the Merger. Each Stockholder acknowledges and
agrees that USFloral has not and will not provide such Stockholder or any other
party with a prospectus for such Stockholder's use in selling USFloral Common
Stock.
5.31 Affiliates. The Stockholders are the only persons who are, in the
reasonable judgment of the Company and each of the Stockholders, affiliates of
the Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
5.32 Location of Chief Executive Offices. Schedule 5.32 sets forth the
location of the Company's chief executive offices.
5.33 Location of Equipment and Inventory. All Inventory and Equipment
held on the date hereof by the Company is located at one of the locations shown
on Schedule 5.33. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code as
in effect on October 16, 1997 in the State of New York (the "N.Y.U.C.C.") owned
by the Company as of the date hereof, and, in any event, shall include, but
shall not be limited to, all merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production, and all proceeds therefrom; and (b)
the term "Equipment" shall mean any "equipment" as such term is defined in the
N.Y.U.C.C. owned by the Company as of October 16, 1997, and, in any event, shall
include, but shall not be limited to, all machinery, equipment, furnishings,
fixtures and vehicles owned by the Company, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
6. REPRESENTATIONS OF USFLORAL AND NEWCO
To induce the Company and the Stockholders to enter into this Agreement and
consummate the transactions contemplated hereby, each of USFloral and Newco
represents and warrants to the Company and the Stockholders as follows:
6.1 Due Organization. Each of USFloral and Newco is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and each is
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duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on their
respective businesses in the places and in the manner as now conducted, except
where the failure to be so authorized, qualified or licensed would not have a
Material Adverse Effect. Copies of the Certificate of Incorporation and the
Bylaws, each as amended, of USFloral and Newco (collectively, the "USFloral
Charter Documents") have been made available to the Company. Neither USFloral
nor Newco is in violation of any USFloral Charter Document.
6.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholders at the Effective Time and upon payment of the
Earn-Out Consideration shall be registered under the 1933 Act and, when
delivered in accordance with the terms of this Agreement, will be valid and
legally issued shares of USFloral capital stock, fully paid and nonassessable,
and prior to the time such shares may be transferred in accordance with the
provisions of Section 7.8 hereof, will be approved for quotation on the Nasdaq
National Market.
6.3 Authorization; Validity of Obligations. The representatives of
USFloral and Newco executing this Agreement have all requisite corporate power
and authority to enter into and bind USFloral and Newco to the terms of this
Agreement. USFloral and Newco have the full legal right, power and corporate
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by USFloral and Newco and the
performance by each of USFloral and Newco of the transactions contemplated
herein have been duly and validly authorized by the respective Boards of
Directors of USFloral and Newco, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of each of USFloral and Newco enforceable in accordance
with its terms.
6.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and its
lenders, conflict with, or result in a default (or would constitute a default
but for a requirement of notice or lapse of time or both) under any document,
agreement or other instrument to which either USFloral or Newco is a party, or
result in the creation or imposition of any lien, charge or encumbrance on any
of USFloral's or Newco's properties pursuant to (i) any law or regulation to
which either USFloral or Newco or any of their respective property is subject,
or (ii) any judgment, order or decree to which USFloral or Newco is bound or any
of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral or
Newco; or
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(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral or Newco is subject, or by which USFloral or Newco
is bound, (including, without limitation, the HSR Act, together with all rules
and regulations promulgated thereunder).
6.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on March 18, 1998. The
authorized capital stock of Newco consists of 1,000 shares of Common Stock, of
which 100 shares are outstanding. All of the issued and outstanding shares of
Newco are owned beneficially, and of record by USFloral. All of the shares of
USFloral Common Stock to be issued to the Stockholders in accordance herewith
will be offered, issued, sold and delivered by USFloral in compliance with all
applicable state and federal laws concerning the issuance of securities and none
of such shares was or will be issued in violation of the preemptive rights of
any stockholder of USFloral.
7. COVENANTS
7.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(i) The Stockholders shall prepare or cause to be prepared and file or
cause to be filed, within the time and in the manner provided by law, all Tax
Returns of the Company for all periods ending on or before the Closing Date that
are due after the Closing Date. Stockholders shall pay to the Surviving
Corporation on or before the due date of such Tax Returns the amount of all
Taxes shown as due on such Tax Returns to the extent that such Taxes are not
reflected in the current liability accruals for Taxes (excluding reserves for
deferred Taxes) shown on the Company's books and records as of the Closing Date.
Such Returns shall be prepared and filed in accordance with applicable law and
in a manner consistent with past practices and shall be subject to review and
approval by USFloral. To the extent reasonably requested by the Stockholders or
required by law, USFloral and the Surviving Corporation shall participate in the
filing of any Tax Returns filed pursuant to this paragraph.
(ii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholders
shall pay to the Surviving Corporation within fifteen (15) days after the date
on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. For purposes of this
Section 7.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such
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Tax which relates to the portion of such taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
taxable period multiplied by a fraction the numerator of which is the number of
days in the taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant taxable period ended on the
Closing Date. Any credits relating to a taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company.
(iii) USFloral and the Surviving Corporation on one hand and the
Stockholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns
pursuant to this Section 7.1 and any audit, litigation or other proceeding with
respect to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating Tax matters pertinent to the
Company that is in their possession or under their control until the expiration
of any applicable statute of limitations or extensions thereof.
(iv) The Stockholders shall timely pay all transfer, documentary,
sales, use, stamp, registration and other Taxes and fees arising from or
relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporation will join in the execution of any such
Tax Returns and other documentation.
7.2 Related Party Agreements. The Company and/or the Stockholders, as the
case may be, shall terminate any Related Party Agreements which USFloral
requests the Company or Stockholders to terminate.
7.3 Cooperation.
(a) The Company, the Stockholders, USFloral and Newco shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief financial officer of
the Company shall execute any documentation reasonably required by USFloral's
independent public accountants (in connection with such accountants' audit of
the Company) or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other
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assistance in connection with any filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
(d) The Company, the Stockholders and USFloral shall file all notices
and other information and documents required under the HSR Act (as defined in
Section 5.3) as promptly as practicable after the date hereof.
7.4 Conduct of Business Pending Closing. Between the date hereof and the
Effective Time, the Company will (except as requested or agreed by USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Stockholders) in accordance with past
practice.
7.5 Access to Information. Between the date of this Agreement and the
Closing Date, the Company will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of the Company and (ii) such additional financial and
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operating data and other information as to the business and properties of the
Company as USFloral may from time to time reasonably request, including without
limitation, access upon reasonable request to the Company's employees,
customers, vendors, suppliers and creditors for due diligence inquiry. No
information or knowledge obtained in any investigation pursuant to this Section
7.6 shall affect or be deemed to modify any representation or warranty contained
in this Agreement or the conditions to the obligations of the parties to
consummate the Merger.
7.6 Prohibited Activities. Between the date hereof and the Effective
Time, the Company will not, without the prior written consent of USFloral:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property) in respect of its stock whether now or hereafter
outstanding, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
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(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 7.7(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
7.7 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral, and shall provide USFloral with proof that any required notice has
been sent.
7.8 Sales of USFloral Common Stock.
(a) No Stockholder will, directly or indirectly, offer, sell, contract
to sell, pledge or otherwise dispose of the shares of USFloral Common Stock to
be received by such Stockholder
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in the Merger prior to, (i) with respect to one-third of the shares, eighteen
months from the Closing Date, or the payment of the Earn-Out Consideration, as
the case may be, (ii) with respect to two-thirds of the shares, twelve months
from the Closing Date, or the payment of the Earn-Out Consideration, as the case
may be and (iii) with respect to all of the shares, six months from the Closing
Date, or the payment of the Earn-Out Consideration, as the case may be.
(b) Each Stockholder acknowledges and agrees that USFloral will not
provide such Stockholder with a prospectus for such Stockholder's use in selling
the shares of USFloral Common Stock to be received by such Stockholder in the
Merger, and agrees to sell such shares only in accordance with the requirements,
if any, of Rule 145(d) promulgated under the 1933 Act. USFloral acknowledges
that the provisions of this Section 7.9(b) will be satisfied as to any sale by a
Stockholder of the USFloral Common Stock Stockholder may acquire pursuant to the
Merger pursuant to Rule 145(d) under the Securities Act, by a broker's letter
and a letter from the Stockholder with respect to that sale stating that the
applicable requirements of Rule 145(d)(1) have been met or are inapplicable by
virtue of Rule 145(d)(2) or Rule 145(d)(3) provided, however, that USFloral has
no reasonable basis to believe that such sales were not made in compliance with
such provisions of Rule 145(d) and subject to any changes in Rule 145 after the
date of this Agreement.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Stockholders in the Merger will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN
OF REORGANIZATION, DATED AS OF APRIL 3, 1998, AMONG THE ISSUER AND THE
STOCKHOLDERS OF AFB MARKETING, INC. A CALIFORNIA CORPORATION d/b/a ALLAN
STANLEY GREENHOUSES. PRIOR TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH
SHARES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT. UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) WHEN THE HOLDING PERIOD HAS EXPIRED.
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*** With respect to the Initial Consideration, certificates representing one-
third of the shares of USFloral Common Stock issued will read "October 3, 1998,"
one-third will read "April 3, 1999" and one-third will read "October 3, 1999."
7.9 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 4.5% of the Merger
Consideration provided for in Section 2.2 above shall be available for issuance
to the key employees of the Surviving Corporation after the Closing, as
determined by the Surviving Corporation's President (or other officer or
director designated by the Surviving Corporation and acceptable to USFloral) in
accordance with USFloral's policies, and authorized and issued under the terms
of USFloral's 1997 Long-Term Incentive Plan.
7.10 Conduct of Business of Surviving Corporation. During the period
commencing on the Closing Date and ending March 31, 2000, for purposes of
providing the Stockholders with a reasonable opportunity to be entitled to the
Earn-Out Consideration, USFloral shall (i) cause the Surviving Corporation to be
managed and operated in substantially the same manner as the Company was managed
prior to the Merger, (ii) not allocate to the Surviving Corporation any charge
or expense for the amortization of goodwill or any charges for corporate
overhead in excess of the amounts expended (including, without limitation and as
applicable, salaries, benefits, rent, utilities and other charges, costs and
expenses) by the Company in the twelve months ended March 31, 1998 (after giving
effect to the "add-backs" pursuant to Schedule 5.9(b)(i)) for the corresponding
functions and services, less amounts for such services incurred directly by the
Company, and (iii) act fairly and in good faith in dealings with the
Stockholders and the Surviving Corporation.
7.11 Post-Closing Access to Books and Records. Following the Closing,
USFloral will afford, and will cause the Surviving Corporation to afford, to the
Stockholders, their counsel and their accountants, during normal business hours,
reasonable access to the books, records, other data and personnel of the
Surviving Corporation with respect to periods prior to the Closing. USFloral
shall, and shall cause the Surviving Corporation to, preserve substantially all
the material books, records and other data with respect to the business and
operations of the Company prior to the Closing (the "Records"), until the
respective tax returns for which the years to which such Records pertain are
closed, and USFloral shall, prior to the disposition of any Records, provide
thirty days notice to the Stockholders.
7.12 Compliance with Rule 144. For a period of two years following the
Closing Date, USFloral shall make available to the public such information as
will enable the Stockholders to make sales of Common Stock pursuant to Rule 144
under the 1933 Act, as such Rule may be amended from time to time.
7.13 Release of Personal Guarantees. US Floral shall cause the
Stockholders to be released from their personal guarantees of the Penske leases
described on Schedule 5.11(4) within 90 days after the Closing Date.
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7.14 Qualification. Each party agrees to use reasonable best efforts not
to take any action which could cause the underlying transaction to fail to
qualify as a reorganization pursuant to the provisions of Section 368(a)(2)(D)
of the Code.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO
The obligation of USFloral and Newco to effect the Merger is subject to the
satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to USFloral.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit claim or proceeding of any nature
pending or threatened against USFloral, Newco or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the Company.
8.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of the Company, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by each Stockholder dated
the Closing Date to such effect.
8.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
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8.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to USFloral.
8.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to USFloral.
8.7 Due Diligence Review. The Company shall have made such deliveries as
are called for by this Agreement. USFloral shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
8.8 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the net worth of the Company as of the last day of its most recent
fiscal year (the "Certified Year-End Net Worth");
(b) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(c) the earnings of the Company before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the Company financial conditions set forth
in Section 5.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth, the Company shall not take account of any increase in
intangible assets (including without limitation goodwill, franchises and
intellectual property) accounted for after August 31, 1997.
8.9 Employment Agreements. Each of John Allan and Peter Stanley shall
have entered into an employment agreement with the Company in the form attached
as Annex I hereto.
8.10 Stockholders' Release. The Stockholders shall each have delivered to
USFloral an instrument dated the Closing Date releasing the Company from any and
all claims of such Stockholder against the Company in the form attached as Annex
II hereto.
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8.11 Related Party Agreements. The Company shall have delivered to
USFloral:
(a) an executed Flower Supply Agreement, in the form of Annex III
attached hereto, between the Company and those farms in which the Stockholders
have an interest which are listed on Schedule 8.11(a) attached hereto; and
(b) evidence of repayment of all amounts due from the Stockholders and
all entities in which the Stockholders have an interest.
8.12 Termination of Payments for Add-Backs. USFloral shall have received a
certificate, dated as of the Closing Date, signed on behalf of the Surviving
Corporation in the form attached hereto as Annex IV.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS
The obligation of the Stockholders and the Company to effect the Merger are
subject to the satisfaction or waiver, at or before the Effective Time, of the
following conditions and deliveries:
9.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral and Newco contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by USFloral and Newco on
or before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of USFloral shall have been
delivered to the Company and the Stockholders.
9.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against USFloral, Newco or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the USFloral and its subsidiaries taken as a
whole.
9.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral and Newco of the transactions contemplated herein, shall have been
obtained and made. Any waiting
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period applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
9.4 Employment Agreements. The Company shall have afforded John Allan and
Peter Stanley an opportunity to enter into an employment agreement with the
Company in a form reasonably satisfactory to USFloral.
10. INDEMNIFICATION
10.1 General Indemnification by the Stockholders. Each Stockholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless USFloral, Newco and the Surviving Corporation and their respective
officers, directors, employees, stockholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the Stockholders
or the Company set forth in this Agreement or any Schedule or certificate,
delivered by or on behalf of any Stockholder or the Company in connection
herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Effective Time, the Company, under this Agreement;
or
(iii) the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date, other
than Damages arising from matters expressly disclosed in the Company Financial
Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 5.23 (conformity with
law; litigation), 5.24 (taxes), and 5.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.1.
10.2 Limitation and Expiration. Notwithstanding the above:
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(a) there shall be no liability for indemnification under Section 10.1
unless, and solely to the extent that, the aggregate amount of Damages not paid
by the Stockholders exceeds: (i) until determination of the Earn-Out
Consideration, $75,000; and (ii) upon determination of the Earn-Out
Consideration, $75,000 plus one and one-half percent of the Earn-Out
Consideration (the "Indemnification Threshold"); provided, however, that to the
extent the Stockholders pay Damages in excess of the threshold determined in
clause (i) that would not have been paid under clause (ii), the Stockholders
shall be reimbursed for such excess amount; provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Merger
Consideration as set forth in Sections 2.2 and 3.1; (ii) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 5.4 (capital stock of the
Company), 5.5 (transactions in capital stock), 5.9 (Company financial
conditions), 5.18 (material contracts and commitments), 5.23 (conformity with
law; litigation), 5.24 (taxes), 5.27 (environmental matters), or (iii) Damages
described in Section 10.1(a)(iv);
(b) the aggregate amount of the Stockholders' liability under this
Article 10 shall not exceed the Merger Consideration (net of any adjustments
pursuant to Section 2.2 and 3.1); provided, however, that the Stockholders'
liability for Damages arising out of any breaches of the representations made in
Sections 5.24 (taxes) or 5.27 (environmental matters) or Damages described in
Section 10.1(a)(ii) (except to the extent any covenant may relate to the
accuracy of Stockholders' representations and warranties hereunder) and Section
10.1(a)(iv) shall not be subject to such limitation;
(c) the indemnification obligations under this Article 10, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 10.2(c):
(i)
(1) except as to representations, warranties, and covenants specified
in clause (i)(2) of this Section 10.2(c), the first anniversary of the Closing
Date, or
(2) with respect to representations and warranties contained in
Sections 5.22 (employee benefit plans), 5.24 (taxes), 5.27 (environmental
matters), and the indemnification set forth in Section 10.1(a)(ii), (iii) or
(iv), on (A) the date that is six (6) months after the expiration of the longest
applicable federal or state statute of limitation (including extensions
thereof), or (B) if there is no applicable statute of limitation, (x) ten (10)
years after the Closing Date if the Claim is related to the cost of
investigating, containing, removing, or remediating a release of Hazardous
Material into the environment, or (y) five (5) years after the Closing Date for
any other Claim covered by clause (i)(2)(B) of this Section 10.2(c); or
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 10.2(c) (such claims
referred to as "Pending Claims").
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10.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 10 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 10.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 10.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter, attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such Claims (and, if the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying Party would
be liable to an Indemnified Party hereunder is asserted against an Indemnified
Party by a third party (a "Third Party Claim"), the Indemnified Party shall
deliver a Claim Notice to the Stockholders' Representative. The Stockholders'
Representative shall have thirty days from the date of delivery of the Claim
Notice to notify the Indemnified Party (A) whether the Indemnifying Party
disputes liability to the Indemnified Party hereunder with respect to the Third
Party Claim, and, if so, the basis for such a dispute, and (B) if such party
does not dispute liability, whether or not the Indemnifying Party desires, at
the sole cost and expense of the Indemnifying Party, to defend against the Third
Party Claim, provided that the Indemnified Party is hereby authorized (but not
obligated) to file any motion, answer or other pleading and to take any other
action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party
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shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment and, on an ongoing basis, all indemnifiable costs and
expenses of the Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the Indemnified
Party, notice of which shall be given in writing to the Stockholders'
Representative, any Third Party Claim seeks material prospective relief which
could have an adverse effect on any Indemnified Party or the Surviving
Corporation or any subsidiary, the Indemnified Party shall have the right to
control or assume (as the case may be) the defense of any such Third Party Claim
and the amount of any judgment or settlement and the reasonable costs and
expenses of defense shall be included as part of the indemnification obligations
of the Indemnifying Party hereunder. If the Indemnified Party elects to exercise
such right, the Indemnifying Party shall have the right to participate in, but
not control, the defense of such Third Party Claim at the sole cost and expense
of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 10.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 10.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 10, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
(f) In the event the Indemnified Party believes that it has the right
to seek indemnification from the Stockholder as the result of the Stockholder's
breach of any representation or covenant herein which is curable, the
Indemnified Party shall allow the Stockholder a reasonable opportunity to cure
the condition giving rise to such breach (the "Condition"), unless the
Indemnified Party in its good faith judgment does not believe the Stockholder is
capable of effecting a cure in compliance with the terms hereof on a timely
basis. As long as the Stockholder is diligently pursuing a cure of the
Condition (and provided that the Stockholder's cure is in compliance with all
laws and regulations applicable to the Condition and all parties affected by the
Condition and its cure, and that such actions are reasonably expected to cure
the Condition), the Indemnified Party shall not itself cure the Condition.
Notwithstanding the foregoing, however, if at any time the Stockholder is not so
diligently pursuing such a cure or, in the Indemnified Party's good faith
judgment, the Indemnified Party determines at any time that the Stockholder will
not be able to
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effect a cure on a timely basis, Indemnified Party shall so notify the
Stockholder and may itself immediately undertake such cure, without forfeiting
any rights to indemnification.
10.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
USFloral and Newco in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Stockholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 10.2. The
representations of USFloral and Newco will survive the Closing and will remain
in effect until, and will expire upon the first anniversary of the Closing Date,
except with respect to the representations set forth in Section 6.2 hereof which
will remain in effect until, and will expire upon the third anniversary of the
Closing Date.
10.5 Remedies Cumulative. The remedies set forth in this Article 10 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
10.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 10.3 to be owed to USFloral by the Stockholders
under Section 10.1 hereof.
11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholders agree that for a period of
two years following the Merger Effective Date, they shall not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including, without limitation, hardgoods), or any business engaging in
the consolidation of the floral industry within the United States of America
(the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
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(c) 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 USFloral or any
subsidiaries of USFloral, the Company within the Territory for the purpose of
soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, the Company; or
(e) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholders 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 ; (ii) engaging
in any activity to which USFloral shall have provided its prior written consent;
or (iii) engaging in activities on behalf of Peter Hesse International, LLC or
Creative Horticulture Inc. consistent with past practice.
11.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders agree that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
11.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 11 impose a reasonable restraint on the Stockholders
in light of the activities and business of USFloral on the date of the execution
of this Agreement and the current and future plans of USFloral and the Surviving
Corporation (as successors to the businesses of the Company).
11.4 Severability; Reformation. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.5 Independent Covenant. All of the covenants in this Article 11 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholders
against the Company, the Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of two
years stated above, shall be computed by excluding from such computation any
time during which any Stockholder is
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in violation of any provision of this Article 11 and any time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any judgment) brought by any person, whether or not a party to this
Agreement, in which action USFloral or the Surviving Corporation seeks to
enforce the agreements and covenants of the Stockholders or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement; provided, however, that if
any Stockholder is found not to be in violation of the agreements or covenants
in any such activity the period during which the action was pending shall not be
excluded from such computation.
11.6 Materiality. The Company and each Stockholder hereby agree that the
covenants set forth in this Article 11 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Stockholders. The Stockholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company and the Company's business. The Stockholders
agree that they will not disclose any confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of USFloral, unless the
Stockholders can show that such information has become known to the public
generally through no fault of the Stockholders. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Article 12,
USFloral and the Surviving Corporation shall be entitled to an injunction
restraining the Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
12.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the Company and the Company's business. USFloral agrees that it will not
disclose any confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, prior to the
Closing Date without prior written consent of the Stockholders. In the event of
a breach or threatened breach by USFloral of the provisions of this Article 12,
the Stockholders shall be entitled to an injunction restraining USFloral from
disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
12.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would
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be caused for which they would have no other adequate remedy, USFloral, the
Surviving Corporation and the Stockholders agree that, in the event of a breach
by any of them of the foregoing covenant, the covenant may be enforced against
them by injunctions and restraining orders.
13. GENERAL
13.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Company; or
(b) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April 3, 1998, provided that the right to terminate this Agreement under
this Section 13.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Merger; or
there shall be any action taken, or any statute, rule regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would make the consummation of the Merger illegal.
13.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 13.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 13 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
13.1(c) above, then notwithstanding the provisions of Section 13.7 below, the
breaching party (with the Stockholders and the Company deemed to be a single
party for purposes of this Article 13), shall be liable to the other party to
the extent of the expenses incurred by such other party in connection with this
Agreement and the transactions contemplated hereby.
49
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13.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholders.
13.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 11.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
13.6 Brokers and Agents. USFloral and Newco (as a group) and the Company
and each Stockholder (as a group) each represents and warrants to the other that
it has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
13.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and Newco and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement. The Stockholders (and not the Company) have and will pay the fees,
expenses and disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
13.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 11 and the confidentiality
obligations set forth in Article 12. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
50
<PAGE>
13.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to USFloral, Newco or the Surviving Corporation to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
(Telefax: (412) 560-3330)
If to any Stockholder to:
John Allan Peter Stanley
2964 Greenwich Street 3130 Camino Crest Drive
Carlsbad, CA 92008 Oceanside, CA 92056
(Telefax: (760) 720-2234) (Telefax: (720) 722-1644)
with a required copy to:
Craig Sapin
Procopio, Cory, Hargreaves & Savitch
530 B Street, Suite 2100
San Diego, CA 92101-4469
(Telefax: (619) 235-0398)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
51
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13.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
13.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 11.4.
13.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
13.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
13.14 Accounting Terms. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
13.15 Legal Expenses. The prevailing Party in any legal action brought by
one Party against the other and arising out of this Agreement shall be entitled,
in addition to any other rights and remedies it may have, to reimbursement for
its expenses, including court costs and reasonable attorneys' fees.
[Execution Page Following]
52
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
----------------------------------------------
Robert J. Poirier
Chairman, President and CEO
ASG ACQUISITION CORP.
By: /s/ Robert J. Poirier
----------------------------------------------
Robert J. Poirier
President
AFB MARKETING, INC.
d/b/a ALLAN STANLEY GREENHOUSES
By: /s/ John Allan, President
----------------------------------------------
STOCKHOLDERS:
/s/ John Allan
----------------------------------------------
John Allan
/s/ Peter Stanley
----------------------------------------------
Peter Stanley
53
<PAGE>
SCHEDULES
SCHEDULE 1.1 [Form of Plan of Merger]
SCHEDULES TO ARTICLE 5 [Schedules of exceptions to the representations
and warranties]
SCHEDULE 8.11 [Related Party Agreements]
ANNEXES
ANNEX I [Form of Employment Agreement]
ANNEX II [Form of Stockholders' Release]
ANNEX III [Form of Flower Supply Agreement]
ANNEX IV [Form of Certificate regarding Termination
of Payment]
The Schedules and Annexes to this Agreement will be provided to the Commission
Supplementally upon request.
54
<PAGE>
Exhibit 2.22
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
U.S.A. Floral Products, Inc.,
PFW Acquisition Corp.,
RCF Acquisition Corp.,
Pacific Floral Wholesale, Inc.
Rose City Floral, Inc.
and
The Stockholder Named Herein
dated as of April 3, 1998
<PAGE>
Table of Contents
Page
----
1. THE MERGERS.......................................................... 1
1.1 The Mergers................................................. 1
1.2 Articles of Incorporation; Bylaws, Directors and Officers... 1
1.3 Effects of the Mergers...................................... 2
2. CONVERSION AND EXCHANGE OF STOCK..................................... 2
2.1 Manner of Conversion........................................ 2
2.2 Merger Consideration........................................ 3
2.3 Exchange of Certificates and Payment of Cash................ 4
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS.............................. 5
3.1 Post-Closing Adjustment..................................... 5
3.2 Pledged Assets.............................................. 7
4. CLOSING.............................................................. 9
4.1 Location and Date........................................... 9
4.2 Effect...................................................... 9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE STOCKHOLDER.. 9
5.1 Due Organization........................................... 9
5.2 Authorization; Validity....................................10
5.3 No Conflicts...............................................10
5.4 Capital Stock of the Companies.............................10
5.5 Transactions in Capital Stock..............................11
5.6 Subsidiaries, Stock, and Notes.............................11
5.7 Predecessor Status.........................................11
5.8 Absence of Claims Against the Companies....................11
5.9 Financial Conditions.......................................12
5.10 Financial Statements.......................................12
5.11 Liabilities and Obligations................................12
5.12 Accounts and Notes Receivable..............................13
5.13 Books and Records..........................................13
5.14 Permits....................................................13
5.15 Real Property..............................................14
5.16 Personal Property..........................................16
5.17 Intellectual Property......................................17
5.18 Material Contracts and Commitments.........................18
5.19 Government Contracts.......................................19
5.20 Insurance..................................................20
5.21 Labor and Employment Matters...............................20
5.22 Employee Benefit Plans.....................................21
5.23 Conformity with Law; Litigation............................23
<PAGE>
5.24 Taxes.......................................................24
5.25 Absence of Changes..........................................26
5.26 Deposit Accounts; Powers of Attorney........................27
5.27 Environmental Matters.......................................28
5.28 Relations with Governments..................................29
5.29 Disclosure..................................................29
5.30 USFloral Prospectus; Securities Representations.............29
5.31 Affiliates..................................................30
5.32 Location of Chief Executive Offices.........................30
5.33 Location of Equipment and Inventory.........................30
6. REPRESENTATIONS OF USFLORAL AND THE NEWCOS............................30
6.1 Due Organization............................................30
6.2 USFloral Common Stock.......................................30
6.3 Authorization; Validity of Obligations......................31
6.4 No Conflicts................................................31
6.5 Capitalization of USFloral and Ownership of USFloral Stock..31
7. COVENANTS.............................................................32
7.1 Tax Matters.................................................32
7.2 Intentionally Omitted.......................................33
7.3 Related Party Agreements....................................33
7.4 Cooperation.................................................33
7.5 Conduct of Business Pending Closing.........................34
7.6 Access to Information.......................................34
7.7 Prohibited Activities.......................................35
7.8 Notice to Bargaining Agents.................................36
7.9 Sales of USFloral Common Stock..............................36
7.10 USFloral Stock Options......................................38
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND THE NEWCOS....38
8.1 Representations and Warranties; Performance of Obligations..38
8.2 No Litigation...............................................38
8.3 No Material Adverse Change..................................38
8.4 Consents and Approvals......................................39
8.5 Opinion of Counsel..........................................39
8.6 Charter Documents...........................................39
8.7 Quarterly Financial Statements..............................39
8.8 Due Diligence Review........................................39
8.9 Delivery of Closing Financial Certificate...................39
8.10 Intentionally Omitted.......................................40
8.11 Employment Agreements.......................................40
8.12 Stockholder's Release.......................................40
ii
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8.13 Termination of Payments for Add-Backs.......................40
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANIES AND THE
STOCKHOLDER...........................................................40
9.1 Representations and Warranties; Performance of Obligations..40
9.2 No Litigation...............................................40
9.3 Consents and Approvals......................................41
9.4 Employment Agreements.......................................41
10. INDEMNIFICATION..................................................41
10.1 General Indemnification by the Stockholder..................41
10.2 Limitation and Expiration...................................42
10.3 Indemnification Procedures..................................43
10.4 Survival of Representations Warranties and Covenants........44
10.5 Remedies Cumulative.........................................45
10.6 Right to Set Off............................................45
11. NONCOMPETITION...................................................45
11.1 Prohibited Activities.......................................45
11.2 Damages.....................................................46
11.3 Reasonable Restraint........................................46
11.4 Severability; Reformation...................................46
11.5 Independent Covenant........................................46
11.6 Materiality.................................................46
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........................47
12.1 The Stockholder.............................................47
12.2 USFloral....................................................47
12.3 Damages.....................................................47
13. GENERAL..........................................................47
13.1 Termination................................................47
13.2 Effect of Termination......................................48
13.3 Successors and Assigns.....................................48
13.4 Entire Agreement; Amendment; Waiver........................48
13.5 Counterparts...............................................49
13.6 Brokers and Agents.........................................49
13.7 Expenses...................................................49
13.8 Specific Performance; Remedies.............................49
13.9 Notices....................................................49
13.10 Governing Law..............................................50
13.11 Severability...............................................51
13.12 Absence of Third Party Beneficiary Rights..................51
13.13 Further Representations....................................51
iii
<PAGE>
13.14 Accounting Terms...........................................51
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 3rd day of April, 1998, by and among U.S.A. Floral Products,
Inc., a Delaware corporation ("USFloral"), PFW Acquisition Corp., a Delaware
corporation and a newly-formed, wholly-owned subsidiary of USFloral, RCF
Acquisition Corp., a Delaware corporation and a newly-formed, wholly-owned
subsidiary of USFloral (each a "Newco" and together the "Newcos"), Pacific
Floral Wholesale, Inc., an Oregon corporation ("Pacific Floral"), Rose City
Floral, Inc., an Oregon corporation ("Rose City" and each a "Company" and
together, the "Companies") and Michael S. Kryder, the sole stockholder of the
Companies (the "Stockholder").
BACKGROUND
WHEREAS, the respective Boards of Directors of the Newcos and the
Companies (which together are sometimes referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that Pacific Floral merge with
and into PFW Acquisition Corp. and that Rose City merge with and into RCF
Acquisition Corp. (each a "Merger" and together, the "Mergers") pursuant to this
Agreement, the Plans of Merger (defined below) and the applicable provisions of
the laws of the State of Oregon and the State of Delaware.
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGERS
1.1 The Mergers. At the Effective Time (as defined in Section 4.2),
Pacific Floral shall be merged with and into PFW Acquisition Corp. and Rose City
shall be merged with and into RCF Acquisition Corp. pursuant to this Agreement
and the plans of merger (the "Plans of Merger") substantially in the form
attached as Schedule 1.1 hereto, and the separate corporate existence of the
Companies shall cease. Each Newco, as it exists from and after the Effective
Time, is sometimes referred to as a "Surviving Corporation."
1.2 Articles of Incorporation; Bylaws, Directors and Officers. At the
Effective Time:
(a) The Certificate of Incorporation of each Surviving Corporation
from and after the Effective Time shall be the Certificate of Incorporation of
the respective Newco until thereafter amended in accordance with the provisions
therein and as provided by the applicable provisions of the State Corporation
Laws.
<PAGE>
(b) The Bylaws of each Surviving Corporation from and after the
Effective Time shall be the Bylaws of the respective Newco in effect immediately
prior to the Effective Time, continuing until thereafter amended in accordance
with their terms and the Certificate of Incorporation of the Surviving
Corporation and as provided by the State Corporation Laws (as defined in Section
1.3).
(c) The initial director of each Surviving Corporation shall be Robert
J. Poirier until his successor is elected and qualified, and the initial
officers of each Surviving Corporation shall be the officers of the respective
Company immediately prior to the Effective Time, with the addition of Robert J.
Poirier as Vice President and Assistant Secretary of each Surviving Corporation,
in each case until their successors are duly elected and qualified.
1.3 Effects of the Mergers. The Mergers shall have the effects provided
therefor by the Oregon Business Corporation Act and the Delaware General
Corporation Law (collectively, the "State Corporation Laws"). Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time (i)
all the rights, privileges, immunities, powers and franchises, of a public as
well as of a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including without limitation subscriptions to
shares, and all other choses in action, and all and every other interest of or
belonging to or due to each Company or Newco shall be taken and deemed to be
transferred to, and vested in, the respective Surviving Corporation without
further act or deed; and all property, rights and privileges, immunities, powers
and franchises and all and every other interest shall be thereafter as
effectually the property of such Surviving Corporation, as they were of the
Company and Newco, and (ii) all debts, liabilities, duties and obligations of
each Company and Newco, subject to the terms hereof, shall become the debts,
liabilities and duties of the respective Surviving Corporation and such
Surviving Corporation shall thenceforth be responsible and liable for all the
debts, liabilities, duties and obligations of the Company and Newco and neither
the rights of creditors nor any liens upon the property of the Company or Newco
shall be impaired by the Mergers, and may be enforced against the Surviving
Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 Manner of Conversion. At the Effective Time, by virtue of the Mergers
and without any action on the part of USFloral, the Newcos, the Companies or the
Stockholder, the shares of capital stock of each of the Constituent Corporations
shall be converted as follows:
(a) Capital Stock of the Newcos. Each issued and outstanding share of
capital stock of each Newco shall continue to be issued and outstanding and
shall be converted into one share of validly issued, fully paid and non-
assessable Common Stock of the respective Surviving Corporation. Each stock
certificate of Newco evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
2
<PAGE>
(b) Cancellation of Certain Shares of Capital Stock of the Companies.
All shares of capital stock of either Company that are owned directly or
indirectly by such Company shall be canceled and no stock of USFloral or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Companies. Subject to Section
2.1(d), and Sections 2.2, 3.1 and 3.2, each issued and outstanding share of
common stock of the Companies ("Company Common Stock") (other than shares to be
canceled pursuant to Section 2.1(b)), that is issued and outstanding immediately
prior to the Effective Time shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the right
to receive (i) an amount of cash equal to the cash portion of the Merger
Consideration divided by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time and (ii) that number of
shares of USFloral common stock, $.001 par value ("USFloral Common Stock"),
valued at the Merger Price (as defined in Section 2.2), that is equal in value
to the USFloral Common Stock portion of the Merger Consideration (as defined in
Section 2.2) divided by the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time. All such shares of Company Common
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the consideration therefor upon the
surrender of such certificate in accordance with Section 2.3 of this Agreement.
(d) Fractional Shares. No fractional shares of USFloral Common Stock
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of
USFloral Common Stock shall receive from USFloral an amount of cash equal to the
Merger Price, as defined in Section 2.2(a), multiplied by the fraction of a
share of USFloral Common Stock to which such holder would otherwise be entitled.
The fractional share interests of each Stockholder shall be aggregated, so that
no Stockholder shall receive cash in an amount greater than the value of one
full share of USFloral Common Stock.
2.2 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall
include the Initial Consideration and the Earn-Out Consideration. The "Initial
Consideration" shall be $400,000, less the aggregate amount of the long-term
indebtedness of the Company, including any current portion thereof, adjusted
pursuant to this Section 2.2 and Section 3.1. Of the Initial Consideration,
$160,000 less long-term debt shall be paid in cash at Closing in immediately
available funds. The remaining $240,000 of the Initial Consideration shall be
paid in shares of USFloral Common Stock valued at $22.57 per share (the "Merger
Price"). For each $1.00 by which the Company's and the Surviving Corporation's
earnings before interest and taxes ("EBIT") for the twelve months ending
December 31, 1998 (the "1998 EBIT") exceeds $108,000, USFloral shall pay to the
Stockholder $6.00 (the "Earn-Out Consideration"). For purposes of calculating
1998 EBIT, moving costs, tenant improvements and lease buyouts incurred in 1998
shall be amortized in equal straight line deductions over five years. The Earn-
Out Consideration shall not exceed $850,000. The Earn-Out Consideration shall
be paid in USFloral Common Stock valued at the average closing price on the
3
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Nasdaq National Market per share of USFloral Common Stock for each trading day
during the thirty calendar day period ending December 31,1998 (the "Earn-Out
Price"). The Earn-Out Consideration, if any, shall be paid within thirty days
of the determination by Price Waterhouse LLP ("USFloral's Accountant") of the
1998 EBIT. In calculating the 1998 EBIT, USFloral's Accountant shall add to EBIT
any amounts paid by the Company in respect of those items set forth on Schedule
5.9(b)(ii) hereof during the period beginning on January 1, 1998 and ending on
the Closing Date.
(b) The Merger Consideration has been calculated based upon several
factors, including the assumption that the net worth of the Company, calculated
in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $125,000 (the "Net Worth
Target") as of the Closing.
(c) If, on the Closing Financial Certificate (as defined in Section
8.9), the Certified Closing Net Worth (as defined in Section 8.9) is less than
the Net Worth Target, then the Merger Consideration to be delivered to the
Stockholders may, at USFloral's election, be reduced either (i) at the Closing,
or (ii) after completion of the Post-Closing Audit (as defined in Section 3.1),
by the difference between the Net Worth Target and the Certified Closing Net
Worth set forth on the Closing Financial Certificate (which reduction shall be
pro rata in cash and in USFloral Common Stock valued at the Merger Price in the
same proportions as the cash and USFloral Common Stock components of the Merger
Consideration as provided in Section 2.2(a)).
(d) The Earn-Out Consideration has been calculated based upon several
factors, including the assumption that the Surviving Corporation's earnings
before interest and taxes for the year ended December 31, 1999 (the "1999 EBIT")
will be no less than the 1998 EBIT. For each $1.00 by which the 1999 EBIT is
less than the lesser of (i) 1998 EBIT or (ii) $249,667, the Stockholders will
repay USFloral $6.00 in USFloral Common Stock, valued at the Earn-Out Price, up
to the amount of the Earn-Out Consideration received by the Stockholder.
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for the
outstanding shares of capital stock of the Company, USFloral shall cause to be
made available to the Stockholder the Merger Consideration (including cash in an
amount sufficient for payment in lieu of fractional shares pursuant to Section
1.2(d)), as adjusted pursuant to Section 2.2 and Section 3.1. The certificates
evidencing the USFloral Common Stock component of the Merger Consideration shall
bear appropriate legends pursuant to the terms of this Agreement, and USFloral
shall be entitled to issue appropriate stop transfer instructions to its
transfer agent consistent with the terms of this Agreement.
(b) Certificate Delivery Requirements. At the Effective Time, the
Stockholder shall deliver to USFloral the certificates (the "Certificates")
representing Company Common Stock, accompanied by blank stock powers duly
executed by the Stockholder and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholder's expense, affixed and canceled.
The Stockholder shall promptly cure any deficiencies with respect to the stock
powers accompanying
4
<PAGE>
such Certificates. The Certificates so delivered shall forthwith be canceled.
Until delivered as contemplated by this Section 2.3(b), each Certificate shall
be deemed at any time after the Effective Time to represent the right to receive
upon such surrender the number of shares of USFloral Common Stock and the amount
of cash as provided by this Article 2 and the applicable provisions of the State
Corporation Laws.
(c) No Further Ownership Rights in Capital Stock of the Company. All
USFloral Common Stock and cash to be delivered (including USFloral Common Stock
delivered pursuant to Section 3.2(b) but withheld) upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and following the Effective
Time the Certificates shall have no further rights to, or ownership in, shares
of capital stock of the Company. There shall be no further registration of
transfers on the stock transfer books of the Surviving Corporations of the
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to a
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 2.3.
(d) Lost, Stolen or Destroyed Certificates. If any certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, then USFloral shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of USFloral Common Stock and cash as
provided in Section 2.1; provided, however that USFloral may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
USFloral with respect to the certificates alleged to have been lost, stolen or
destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 2.3, no Surviving Corporation or any party hereto shall be liable to a
holder of shares of Company Common Stock for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 Post-Closing Adjustment.
(a) The Merger Consideration shall be subject to adjustment after the
Closing Date as specified in this Section 3.1.
(b) Within one hundred twenty (120) days following the Effective Time,
USFloral shall cause USFloral's Accountant to audit the Surviving Corporations'
books to determine the accuracy of the information set forth on the Closing
Financial Certificate (the "Post-Closing Audit"). The parties acknowledge and
agree that for purposes of determining the net worth of the Companies as of the
Closing Date, the value of the assets of the Companies shall, except with the
prior written
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consent of USFloral, be calculated as provided in the last paragraph of Section
8.9. The Stockholder shall cooperate and shall use their reasonable efforts to
cause the officers and employees of the Companies to cooperate with USFloral and
USFloral's Accountant after the Closing Date in furnishing information,
documents, evidence and other assistance to USFloral's Accountant to facilitate
the completion of the Post-Closing Audit within the aforementioned time period.
In the event that USFloral's Accountant determines that the actual net worth of
the Companies (the "Actual Net Worth") as of the Closing Date was less than the
Certified Closing Net Worth, USFloral shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholder, setting forth (i) the
determination made by USFloral's Accountant of the Actual Net Worth, (ii) the
amount of the Merger Consideration that would have been payable at Closing
pursuant to Section 2.2(c) had the Actual Net Worth been reflected on the
Closing Financial Certificate instead of the Certified Closing Net Worth, and
(iii) the amount by which the amount of cash and number of shares issued as the
Merger Consideration would have been reduced at Closing had the Actual Net Worth
been used in the calculations pursuant to Section 2.2(c) (the "Merger
Consideration Adjustment"). The Merger Consideration Adjustment shall take
account of the reduction, if any, to the Merger Consideration already taken
pursuant to Section 2.2(c)(i).
(c) The Stockholder shall have thirty (30) days from the receipt of
the Financial Adjustment Notice to notify USFloral if the Stockholder disputes
such Financial Adjustment Notice. If USFloral has not received notice of such a
dispute within such 30-day period, USFloral shall be entitled to receive from
the Stockholder (which may, at USFloral's sole discretion, be from the Pledged
Assets as defined in Section 3.2) the Merger Consideration Adjustment. If,
however, the Stockholder has delivered notice of such a dispute to USFloral
within such 30-day period, then USFloral's Accountant shall select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years to review the Surviving Corporations' books,
Closing Financial Certificate and Financial Adjustment Notice (and related
information) to determine the amount, if any, of the Merger Consideration
Adjustment. Such independent accounting firm shall be confirmed by the
Stockholder and USFloral within five (5) days of its selection, unless there is
an actual conflict of interest. The independent accounting firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to USFloral's Accountant in connection with the transactions
contemplated hereby, or (ii) reviewed by USFloral's Accountant during the course
of the Post-Closing Audit. The independent accounting firm shall make its
determination of the Merger Consideration Adjustment, if any, within thirty (30)
days of its selection. The determination made by the independent accounting firm
shall be final and binding on the parties hereto, and upon such determination,
USFloral shall be entitled to receive from the Stockholder (which may, at
USFloral's sole discretion, be from the Pledged Assets as defined in Section
3.2) the Merger Consideration Adjustment. The costs of the independent
accounting firm shall be borne by the party (either USFloral or the Stockholder)
whose determination of the Companies' net worth at Closing was further from the
determination of the independent accounting firm, or equally by USFloral and the
Stockholder in the event that the determination by the independent accounting
firm is equidistant between the Certified Closing Net Worth and the Actual Net
Worth.
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(d) Within one hundred twenty days following December 31, 1999
USFloral shall cause USFloral's Accountant to determine the 1999 EBIT. In the
event that USFloral's Accountant determines that the 1999 EBIT was less than the
1998 EBIT, USFloral shall deliver a written notice (the "Earn-out Adjustment
Notice") to the Stockholder, setting forth (i) the determination made by
USFloral's Accountant of the 1999 EBIT, (ii) the amount of the Earn-out
Consideration that would have been payable had the Earn-out Consideration been
calculated based on the 1999 EBIT rather than the 1998 EBIT and (iii) the amount
by which the number of shares issued as the Earn-out Consideration would have
been reduced at Closing had the 1999 EBIT been used to calculate the Earn-out
Consideration (the "Earn-out Consideration Adjustment").
(e) The Stockholder shall have thirty (30) days from the receipt of
the Earn-out Adjustment Notice to notify USFloral if the Stockholder disputes
such Earn-out Adjustment Notice. Such notice shall include the Stockholder's
determination of the amount of 1999 EBIT. If USFloral has not received notice of
such a dispute within such 30-day period, USFloral shall be entitled to receive
from the Stockholder the Earn-out Consideration Adjustment. If, however, the
Stockholder has delivered notice of such a dispute to USFloral within such 30-
day period, then USFloral's Accountant shall select an independent accounting
firm that has not represented any of the parties hereto within the preceding two
(2) years to review the Surviving Corporations' books and Earn-out Adjustment
Notice (and related information) to determine the amount, if any, of the Earn-
out Consideration Adjustment. Such independent accounting firm shall be
confirmed by the Stockholder and USFloral within five (5) days of its selection,
unless there is an actual conflict of interest. The independent accounting firm
shall make its determination of the Earn-out Consideration Adjustment, if any,
within thirty (30) days of its selection. The determination made by the
independent accounting firm shall be final and binding on the parties hereto,
and upon such determination, USFloral shall be entitled to receive from the
Stockholder the Earn-out Consideration Adjustment. The costs of the independent
accounting firm shall be borne by the party (either USFloral or the Stockholder)
whose determination of 1999 EBIT was further from the determination of the
independent accounting firm, or equally by USFloral and the Stockholder in the
event that the determination by the independent accounting firm is equidistant
between USFloral's and the Stockholder's determination of 1999 EBIT.
3.2 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Merger Consideration under Section 3.1, or any indemnification
obligations of the Stockholders pursuant to Article 10, the Stockholders shall,
and by execution hereof do hereby, transfer, pledge and assign to USFloral, for
the benefit of USFloral, a security interest in the following assets (the
"Pledged Assets"):
(i) at the Closing, that number of shares of USFloral Common
Stock with a value, based on the Merger Price, equal to ten percent (10%) of the
Initial Consideration as the same may have been adjusted pursuant to Section 2.2
or Section 3.1 hereof, and the certificates and instruments, if any,
representing or evidencing the Stockholder's Pledged Assets; upon determination
of the Earn-Out Consideration, that number of shares of USFloral Common Stock
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with a value, based on the Earn-Out Price, equal to ten percent (10%) of the
Earn-Out Consideration, and the certificates and instruments, if any,
representing or evidencing such Pledged Assets;
(ii) upon determination of the Earn-Out Consideration, that
number of shares of USFloral Common Stock with a value, based on the Earn-Out
Price equal to fifty percent (50%) of the Earn-Out Consideration (the "Earn-Out
Pledged Assets"), and the certificates and instruments, if any, representing or
evidencing the Earn-Out Pledged Assets;
(iii) all securities hereafter delivered to the Stockholder with
respect to or in substitution for the Pledged Assets, all certificates and
instruments representing or evidencing such securities, and all cash and non-
cash dividends and other property at any time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof; and in the
event the Stockholder receives any such property, the Stockholder shall hold
such property in trust for USFloral and shall immediately deliver such property
to USFloral to be held hereunder as Pledged Assets; and
(iv) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing the Stockholder's Pledged
Assets issued in his name in the Merger shall be delivered to USFloral directly
by the transfer agent, such certificate bearing no restrictive or cautionary
legend other than those imprinted by the transfer agent at USFloral's request.
The Stockholder shall, at the Closing, deliver to USFloral, for each such
certificate, a stock power duly signed in blank by him. Any cash comprising the
Stockholder's Pledged Assets shall be withheld by USFloral from distribution to
the Stockholder.
(c) The Pledged Assets shall be available to satisfy any post-Closing
adjustment to the Merger Consideration pursuant to Section 3.1 and any
indemnification obligations of the Stockholder pursuant to Article 10 until the
date which is one year after the Effective Time (the "Release Date"). Promptly
following the Release Date, USFloral shall return or cause to be returned to the
Stockholder the Pledged Assets, less Pledged Assets having an aggregate value
equal to the amount of (i) any post-Closing adjustment to the Merger
Consideration under Section 3.1, (ii) any pending claim for indemnification made
by any Indemnified Party (as defined in Article 10), and (iii) any
indemnification obligations of the Stockholder pursuant to Article 10.
Notwithstanding the preceding two sentences the Earn-out Pledged Assets shall be
available to satisfy any adjustment to the Earn-out Consideration until the
determination by USFloral's Accountant's of the 1999 EBIT. Promptly following
such determination, USFloral shall cause to be returned to the Stockholder the
Earn-out Pledged Assets, less Earn-out Pledged Assets having an aggregate value
equal to the amount of any adjustment to the Earn-out Consideration under
Section 3.1. For purposes of this Section 3.2(c) and Article 10, the USFloral
Common Stock held as Pledged Assets shall be valued at (x) the Merger Price with
respect to any post-Closing adjustment to the Merger Consideration under Section
3.1, (y) the Earn-out Price with respect to any adjustment to the Earn-out
Consideration and (z) the average of the closing price on the Nasdaq National
Market per share of
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USFloral Common Stock for the five trading days prior to the satisfaction of an
indemnification obligation (the "Market Value") with respect to indemnification
obligations pursuant to Article 10.
4. CLOSING
4.1 Location and Date. The consummation of the Mergers and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Morgan, Lewis & Bockius LLP, on April 3, 1998, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as USFloral, the Company and the Stockholders may mutually agree, which
date shall be referred to as the "Closing Date."
4.2 Effect. On the Closing Date, the articles of merger, certificate of
merger, or other appropriate documents executed in accordance with the State
Corporation Laws (the "Merger Documents"), together with any required officers'
certificates, shall be filed with the Secretary of the State of the States of
Oregon and Delaware in accordance with the provisions of the State Corporation
Laws. The Mergers shall become effective upon such filings or at such later
time as may be specified in such filings (the "Effective Time").
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE STOCKHOLDER
To induce USFloral and the Newcos to enter into this Agreement and
consummate the transactions contemplated hereby, each Company and each
Stockholder, jointly and severally, represents and warrants to USFloral and the
Newcos as follows (for purposes of this Agreement, the phrases "knowledge of the
Company" or the "Company's knowledge," or words of similar import, mean the
knowledge of the Stockholder and the directors and officers of each Company,
including facts of which the directors and officers, in the reasonably prudent
exercise of their duties, should be aware):
5.1 Due Organization. Each Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of such
Company ("Material Adverse Effect"). Schedule 5.l hereto contains a list of all
jurisdictions in which each Company is authorized or qualified to do business.
Each Company is in good standing as a foreign corporation in each jurisdiction
it which it does business. Each Company has delivered to USFloral true, complete
and correct copies of the Articles of Incorporation and Bylaws of such Company.
Such Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." No Company is in violation of any Charter Documents. The
minute books of each Company have been made available to USFloral (and have
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been delivered, along with each Company's original stock ledger and corporate
seal, to USFloral) and are correct and, except as set forth in Schedule 5.1,
complete in all material respects.
5.2 Authorization; Validity. Each Company has all requisite corporate
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. Each Company has the full legal right, corporate power
and authority to enter into this Agreement and the transactions contemplated
hereby. The Stockholder has the full legal right and authority to enter into
this Agreement and the transactions contemplated hereby. The execution and
delivery of this Agreement by each Company and the performance by each Company
of the transactions contemplated herein have been duly and validly authorized by
the Board of Directors of such Company and the Stockholder and this Agreement
has been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of each Company and the
Stockholder, enforceable in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which any Company or the
Stockholder is a party or by which any Company or the Stockholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
Company's properties pursuant to (i) any law or regulation to which any Company
or the Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which any Company or the Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of any Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which any Company or the Stockholder is subject or by which any
Company or the Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
5.4 Capital Stock of the Companies. The authorized capital stock of
Pacific Floral consists of 1,000 shares of common stock, no par value, of which
1,000 shares are issued and outstanding. The authorized capital stock of Rose
City consists of 1,000 shares of common stock, no par value, of which 1,000
shares are issued and outstanding. All of the issued and
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outstanding shares of the capital stock of the Companies have been duly
authorized and validly issued, are fully paid and nonassessable and are owned of
record and beneficially by the Stockholder in the amounts set forth in Schedule
5.4 free and clear of all Liens (defined below). All of the issued and
outstanding shares of the capital stock of each Company were offered, issued,
sold and delivered by such Company in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
was issued in violation of any preemptive rights. There are no voting agreements
or voting trusts with respect to any of the outstanding shares of the capital
stock of any Company. For purposes of this Agreement, "Lien" means any mortgage,
security interest, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge, preference, priority or
other security agreement, option, warrant, attachment, right of first refusal,
preemptive, conversion, put, call or other claim or right, restriction on
transfer (other than restrictions imposed by federal and state securities laws),
or preferential arrangement of any kind or nature whatsoever (including any
restriction on the transfer of any assets, any conditional sale or other title
retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
5.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral, which may obligate any Company to issue, sell or
otherwise cause to become outstanding any shares of its capital stock. No
Company has an obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. As a result of
the Mergers, USFloral will be the record and beneficial owner of all outstanding
capital stock of each Company and rights to acquire capital stock of each
Company.
5.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 5.6(a), no Company has any
subsidiaries.
(b) Except as set forth on Schedule 5.6(b), no Company presently owns,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity, nor is any Company, directly or
indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
(c) Except as set forth on Schedule 5.6(c), there are no promissory
notes that have been issued to, or are held by, any Company.
5.7 Predecessor Status. Schedule 5.7 sets forth a list of all names of
all predecessor companies of each Company, including the names of any entities
from which each Company previously acquired significant assets. No Company has
ever been a subsidiary or division of another corporation, nor has it been a
part of an acquisition that was later rescinded.
5.8 Absence of Claims Against the Companies. The Stockholder has no
claims against any Company.
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5.9 Financial Conditions.
(a) The Companies' net worth (i) as of the end of the most recent
fiscal year was not less than $125,000, and (ii) as of the Closing will not be
less than the Net Worth Target. For purposes of this Section 5.9(a),
calculation of amounts as of the Closing shall be made in accordance with the
last paragraph of Section 8.9.
(b) The Companies' earnings before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)(i)) for the most recent
fiscal year was not less than $108,000.
5.10 Financial Statements. Schedule 5.10 includes (a) true, complete and
correct copies of the Companies' balance sheet as of December 31, 1997 (the end
of the most recently completed fiscal year), and income statement for the year
then ended (collectively, the "1997 Financials") and (b) true, complete and
correct copies of the Companies' unaudited balance sheet (the "Interim Balance
Sheet") as of February 28, 1998 (the "Balance Sheet Date") and income statement,
for the two-month period then ended (collectively, the "Interim Financials," and
together with the 1997 Financials, the "Company Financial Statements"). Except
as noted on the 1997 Financials, the Company Financial Statements have been
prepared in accordance with GAAP consistently applied, subject to, in the case
of the Interim Financials, (i) normal year-end audit adjustments, which
individually or in the aggregate will not be material, (ii) the exceptions
stated on Schedule 5.10, and (iii) the omission of footnote information. Each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each of
the income statements included in the Company Financial Statements presents
fairly the results of its operations for the periods indicated thereon. Since
the dates of the Company Financial Statements, there have been no material
changes in the Company's accounting policies other than as requested by USFloral
to conform the Company's accounting policies to GAAP.
5.11 Liabilities and Obligations.
(a) No Company is liable for or subject to any liabilities except for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice, which liabilities
are not, individually or in the aggregate, material.
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(b) Each Company has delivered to USFloral, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 5.11(c) also includes a summary description of all plans
or projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any real property or existing business, to
which management of any Company has made any material expenditure in the two-
year period prior to the date of this Agreement, which if pursued by such
Company or the respective Surviving Corporation would require additional
material expenditures of capital.
(d) For purposes of this Section 5.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 5.11(d)
contains a complete list of all indebtedness of any Company.
5.12 Accounts and Notes Receivable. Each Company has delivered to USFloral
a complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of such Company
(including without limitation receivables from and advances to employees and the
Stockholder), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). On the Closing Date, each Company will deliver to USFloral a
complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are current and collectible net of any respective reserves shown on the
Companies' books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within ninety (90)
days after the day on which it first became due and payable. There is no
contest, claim, or right of set-off, other than rebates and returns in the
ordinary course of business, under any contract with any obligor of an Account
Receivable relating to the amount or validity of such Account Receivable.
5.13 Books and Records. Each Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of such Company. No Company has engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
5.14 Permits. Each Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"). The Permits are valid, and no Company has received any notice that
any governmental
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authority intends to modify, cancel, terminate or fail to renew any Permit. No
present or former officer, manager, member or employee of any Company or any
affiliate thereof, or any other person, firm, corporation or other entity, owns
or has any proprietary, financial or other interest (direct or indirect) in any
Permits. Each Company has conducted and is conducting its business in compliance
with the requirements, standards, criteria and conditions set forth in the
Permits and other applicable orders, approvals, variances, rules and regulations
and is not in violation of any of the foregoing. The transactions contemplated
by this Agreement will not result in a default under, or a breach or violation
of, or adversely affect the rights and benefits afforded to any Company by, any
Permit.
5.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by any Company, together with any additions thereto or
replacements thereof.
(b) Schedule 5.15(b) contains a complete and accurate description of
all Real Property (including street address, legal description (where known),
owner, and Company's use thereof) and, to the Company's knowledge, any Liens.
Schedule 5.15(b) indicates whether the Real Property is owned or leased. The
Real Property listed on Schedule 5.15(b) includes all interests in real property
necessary to conduct the business and operations of any Company.
(c) Except as set forth in Schedule 5.15(c):
(i) Each Company has good and valid rights of ingress and egress
to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.
(ii) All structures and all structural, mechanical and other
physical systems thereof that constitute part of the Real Property, including
but not limited to the walls, roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facility
included therein, and other material items at the Real Property (collectively,
the "Tangible Assets"), are free of defects and in good operating condition and
repair. For purposes of this Section, a defect shall mean a condition relating
to the structures or any structural, mechanical or physical system which
requires an expenditure of more than $1,000 to correct. No maintenance or
repair to the Real Property, Structures or any Tangible Asset has been
unreasonably deferred. There is no water, chemical or gaseous seepage,
diffusion or other intrusion into said buildings, including any subterranean
portions, that would impair beneficial use of the Real Property, Structures or
any Tangible Asset.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the use
and operation of the Real Property in
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the conduct of the business of the Companies' respective businesses are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property in
the operation of the Companies' respective businesses and to permit full
compliance with the requirements of all laws in the operation of such business.
No fact or condition exists which could result in the termination or material
reduction of the current access from the Real Property to existing roads or to
sewer or other utility services presently serving the Real Property.
(iv) The Real Property and all present uses and operations of the
Real Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. Each
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the construction, ownership, use, occupation and operation of the Real
Property.
(v) None of the Structures, the appurtenances thereto or the equipment
therein or the operation or maintenance thereof, or the conduct of any Company's
business, violates any restrictive covenant or encroaches on any property owned
by others or any easement, right of way or other Lien or restriction affecting
such Real Property in any respect. The Real Property and its continued use,
occupancy and operation as used, occupied and operated in the conduct of any
Company's business does not constitute a nonconforming use and is not the
subject of a special use permit under any applicable Law.
(vi) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has any Company or the
Stockholder received notice of any pending or threatened special assessment
proceedings affecting any portion of the Real Property.
(vii) No portion of the Real Property or the Structures has
suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
(viii) There are no parties other than a Company in possession of
any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
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(ix) There are no outstanding options or rights of first refusal
to purchase the Real Property, or any portion thereof or interest therein. No
Company has transferred any air rights or development rights relating to the
Real Property.
(x) There are no service contracts or other agreements relating
to the use or operation of the Real Property.
(xi) No portion of the Real Property is located in a wetlands
area, as defined by Laws, or in a designated or recognized flood plain, flood
plain district, flood hazard area or area of similar characterization. No
commercial use of any portion of the Real Property will violate any requirement
of the United States Corps of Engineers or Laws relating to wetlands areas.
(xii) All real property taxes and assessments that are due and
payable with respect to the Real Property have been paid or will be paid at or
prior to Closing.
(xiii) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which any Company
leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. Each Company has provided USFloral with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. The Leases and each Company's
interests thereunder are free of all Liens.
(xiv) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
5.16 Personal Property.
(a) Schedule 5.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by any Company with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by the Stockholder or business or personal affiliates of
the Stockholder or of any Company.
(b) Each Company currently owns or leases all personal property
necessary to conduct the business and operations of such Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
any Company, including those listed on Schedule 5.16(a), are in good working
order and condition,
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ordinary wear and tear excepted. All leases set forth on Schedule 5.16(a) are in
full force and effect and constitute valid and binding agreements of the Company
that entered into such lease, and such Company is not in breach of any of their
terms. All fixed assets used by any Company that are material to the operation
of its business are either owned by such Company or leased under an agreement
listed on Schedule 5.16(a).
5.17 Intellectual Property.
(a) Each Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 5.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that such Company now owns or
uses in connection with its business. Except with respect to those Marks shown
as licensed on Schedule 5.17(a), each Company owns all of the registered and
unregistered trademarks, service marks, and trade names that it uses. The Marks
listed on Schedule 5.17(a) will not cease to be valid rights of such Company by
reason of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. For purposes of this
Section 5.17, the term "Mark" shall mean all right, title and interest in and to
any United States or foreign trademarks, service marks and trade names now held
by any Company, including any registration or application for registration of
any trademarks and services marks in the PTO or the equivalent thereof in any
state of the United States or in any foreign country, as well as any
unregistered marks used by any Company, and any trade dress (including logos,
designs, company names, business names, fictitious names and other business
identifiers) used by any Company in the United States or any foreign country.
(b) Each Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 5.17(b)(i) and in the Copyright registrations listed on
Schedule 5.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Company now owns or is licensed to use. The Company
owns or is licensed to practice under all patents and copyright registrations
that the Company now owns or uses in connection with its business. For purposes
of this Section 5.17, the term "Patent" shall mean any United States or foreign
patent to which any Company has title as of the date of this Agreement, as well
as any application for a United States or foreign patent made by any Company;
the term "Copyright" shall mean any United States or foreign copyright owned by
the Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign county, as well as any application for a United States or foreign
copyright registration made by any Company.
(c) Each Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights") listed on
Schedule 5.17(c). Those Other Rights constitute all of the Other Rights that
such Company now owns or is licensed to use. Each Company owns or is licensed
to practice under all trade secrets, franchises or similar rights that it owns,
uses or practices under.
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(d) The Marks, Patents, Copyrights, and Other Rights listed on
Schedules 5.17(a), 5.17(b)(i), 5.17(b)(ii), and 5.17(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by any Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 5.17(d), no Company has any obligations to compensate any person for
the use of any Intellectual Property nor has any Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) No Company is, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 5.17(a), 5.17(b)(i), 5.17(b)(ii), or 5.17(c). No
claims with respect to the Company Intellectual Property or Third Party
Intellectual Property are currently pending or, to the knowledge of the Company,
are threatened by any person, nor, to the Company's knowledge, do any grounds
for any claims exist: (i) to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or proposed for use, sale or
license by any Company infringes on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by any Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in each Company's business as
currently conducted by such Company; (iii) challenging the ownership, validity
or effectiveness of any of the Company Intellectual Property or other trade
secret material to any Company; or (iv) challenging any Company's license or
legally enforceable right to use of the Third Party Intellectual Property. To
the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Neither any Company nor any of its subsidiaries (x) has been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim or infringement of trade secrets, any patents, trademarks, service marks,
or copyrights and which has not been finally terminated or been informed or
notified by any third party that such Company may be engaged in such
infringement or (y) has knowledge of any infringement liability with respect to,
or infringement by, any Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
(f) All Intellectual Property in the form of computer software that is
utilized by any Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries, or can be made capable within 30 days and at an aggregate cost not in
excess of $10,000.
5.1 Material Contracts and Commitments.
(a) Schedule 5.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which any Company is a party or by which it or its
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages,
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options to purchase land, liens, pledges or other security agreements) (i) to
which any Company and any affiliate of any Company or any officer, director or
stockholder of any Company are parties ("Related Party Agreements"); or (ii)
that may give rise to obligations or liabilities exceeding, during the current
term thereof, $10,000, or that may generate revenues or income exceeding, during
the current term thereof, $10,000 (collectively with the Related Party
Agreements, the "Material Contracts"). Each Company has delivered to USFloral
true, complete and correct copies of the Material Contracts. Each Company has
complied with all of its commitments and obligations and is not in default under
any of the Material Contracts, and no notice of default has been received with
respect to any thereof, and there are no Material Contracts that were not
negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 7.4, is valid and binding on the Company that entered into such Material
Contract and is in full force and effect and is not subject to any default
thereunder by any party obligated to such Company pursuant thereto. Each
Company has obtained all necessary consents, waivers and approvals of parties to
any Material Contracts that are required in connection with any of the
transactions contemplated hereby, or are required by any governmental agency or
other third party or are advisable in order that any such Material Contract
remain in effect without modification after the Mergers and without giving rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit ("Third Party Consents"). All Third Party Consents are listed on
Schedule 5.18(b).
(c) The outstanding balance on all loans or credit agreements either
(i) between any Company and any Person in which the Stockholder owns a material
interest, or (ii) guaranteed by the Company for the benefit of any Person in
which any Stockholder owns a material interest, are set forth in Schedule
5.18(c).
(d) The pledge, hypothecation or mortgage of all or substantially all
of any Company's assets (including, without limitation, a pledge of any
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 5.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of such Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 5.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which any Company is a party or by which the property of any Company
is bound.
5.19 Government Contracts.
(a) Except as set forth on Schedule 5.19, no Company is a party to any
government contracts.
(b) No Company has been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for any Company's suspension or debarment from
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bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 5.19, no Company has been, nor is
it now being, audited, or investigated by any government agency, or the
inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) No Company has a dispute pending before a contracting office of,
nor any current claim (other than the Accounts Receivable) pending against, any
agency or instrumentality of the United States Government or any state or local
government, relating to a contract.
(e) No Company has, with respect to any government contract, received
a cure notice advising such Company that it is or was in default or would, if it
failed to take remedial action, be in default under such contract.
(f) No Company has submitted any inaccurate, untruthful, or misleading
cost or pricing data, certification, bid, proposal, report, claim, or any other
information relating to a contract to any agency or instrumentality of the
United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or affiliate of
any Company is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to such Company's
business under circumstances where there is reason to believe that such receipt
or possession is unlawful or unauthorized.
5.20 Insurance. Schedule 5.20 sets forth a complete and accurate list of
all insurance policies carried by each Company and all insurance loss runs or
workmen's compensation claims received for the past two policy years. Each
Company has delivered to USFloral true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and each Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of each Company. The insurance carried by
each Company with respect to its properties, assets and business is, to the
Company's knowledge, with financially sound insurers. To the knowledge of the
Company, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies.
5.21 Labor and Employment Matters. With respect to employees of and
service providers to any Company:
(a) each Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration
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Reform and Control Act, and occupational safety and health requirements, and has
not and is not engaged in any unfair labor practice;
(b) there is not now, nor within the past three years has there been,
any unfair labor practice complaint against any Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened, against or directly affecting any Company;
(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Companies are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against any Company or currently being negotiated by any
Company; and
(g) all persons classified by any Company as independent contractors
do satisfy and have satisfied the requirements of law to be so classified, and
each Company has fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
5.22 Employee Benefit Plans. Attached hereto as Schedule 5.22 are complete
and accurate copies of all employee benefit plans, all employee welfare benefit
plans, all employee pension benefit plans, all multi-employer plans and all
multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2), (37)
and (40), respectively, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), which are currently maintained and/or sponsored by any
Company, or to which any Company currently contributes, or has an obligation to
contribute in the future (including, without limitation, employment agreements
and any other agreements containing "golden parachute" provisions and deferred
compensation agreements), together with copies of any trusts related thereto and
a classification of employees covered thereby (collectively, the "Plans").
Schedule 5.22 sets forth all of the Plans that have been terminated within the
past three years.
All Plans are in substantial compliance with all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the current plan determination letters, most recent actuarial
valuation reports, if any, most recent Form
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5500, or, as applicable, Form 5500-C/R filed with respect to each such Qualified
Plan or employee welfare benefit plan and most recent trustee or custodian
report, are included as part of Schedule 5.22. To the extent that any Qualified
Plans have not been amended to comply with applicable law, the remedial
amendment period permitting retroactive amendment of such Qualified Plans has
not expired and will not expire within 120 days after the Closing Date. All
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, annual reports, summary annual reports, actuarial reports, PBGC-1 Forms,
audits or tax returns) have been timely filed or distributed. None of: (i) the
Stockholder; (ii) any Plan; or (iii) any Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and no Company currently
has (nor at the Closing Date will have) any direct or indirect liability
whatsoever (including being subject to any statutory lien to secure payment of
any such liability), to the Pension Benefit Guaranty Corporation ("PBGC") with
respect to any such Plan under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty; and neither the Company nor any member of
a "controlled group" (as defined in ERISA Section 4001(a)(14)) currently has (or
at the Closing Date will have) any obligation whatsoever to contribute to any
"multi-employer pension plan" (as defined in ERISA Section 4001(a)(14), nor has
any withdrawal liability whatsoever (whether or not yet assessed) arising under
or capable of assertion under Title IV of ERISA (including, but not limited to,
Sections 4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan.
Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), each Company and the Stockholder have complied (and on the Closing
Date will have complied), in all respects with all reporting, disclosure,
notice, election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and no Company has (nor will incur) direct
or indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by any Company or the Stockholder, at any time prior to the Closing Date, to
comply with any such federal
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or state benefit continuation requirement, which is capable of being assessed or
asserted before or after the Closing Date directly or indirectly against the
Company or the Stockholders with respect to such group health plans;
(f) no Company is now nor has it been within the past five years a
member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Company's knowledge, there is
no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Financial Statements as of the Balance Sheet Date reflect the
approximate total pension, medical and other benefit expense for all Plans, and
no material funding changes or irregularities are reflected thereon which would
cause such Financial Statements to be not representative of most prior periods;
and
(i) no Company has incurred liability under Section 4062 of ERISA.
5.23 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 5.23(a), no Company is in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on any Company. Each Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect on such Company.
(b) The Stockholder has not, at any time: (i) committed any criminal
act (except for minor traffic violations, if any); (ii) engaged in acts of
fraud, dishonesty, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 5.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting any Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against any Company or against any of its properties or
business.
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5.24 Taxes.
(a)
(i) Each Company has timely filed all Tax Returns due on or
before the Closing Date and all such Tax Returns are true, correct and complete
in all respects.
(ii) Each Company has paid in full on a timely basis all Taxes
owed by it, whether or not shown on any Tax Return.
(iii) The amount of each Company's liability for unpaid Taxes as
of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for Deferred Taxes) as such accruals are reflected on the books and
records of such Company on the Closing Date.
(iv) There are no ongoing examinations or claims against any
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) Pacific Floral has a taxable year ended on December 31, in
each year commencing December, 1993. Rose City has a taxable year ended on
December 31, in each year commencing March, 1998.
(vi) Each Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past ____ years. No Company has agreed to, and is not and will not be
required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vii) Each Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of each Company for the last five fiscal years have been delivered to
USFloral.
(ix) There are (and as of immediately following the Closing there
will be) no Liens on the assets of any Company relating to or attributable to
Taxes.
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(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of any Company or otherwise
have an adverse effect on any Company or its business.
(xi) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of any Company that, individually or collectively,
could give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(xii) No Company is, nor has any Company been at any time, a
party to a tax sharing, tax indemnity or tax allocation agreement, and no
Company has assumed the tax liability of any other person under contract.
(xiii) Each Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on such Company's tax books and records.
(b)
(i) Pacific Floral has, since December, 1993, been an S
corporation within the meaning of Section 1361 of the Code. Rose City has, since
March, 1998, been an S corporation within the meaning of Section 1361 of the
Code.
(ii) No Company has a net recognized built-in gain within the
meaning of Section 1374 of the Code.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar governmental
charge, impost or levy (including without limitation income taxes, franchise
taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt taxes,
value added taxes, employment taxes, excise taxes, ad valorem taxes, property
taxes, withholding taxes, payroll taxes, minimum taxes or windfall profit taxes)
together with any related penalties, fines, additions to tax or interest imposed
by the United States or any state, county, local or foreign government or
subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
(d) The Mergers qualify as reorganizations pursuant to the provisions
of Section 368(a)(2)(D) of the Code.
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5.2 Absence of Changes. Since the Balance Sheet Date, each Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 5.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of any Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of any Company;
(c) any change in the authorized capital of any Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments; provided,
however, the Companies may make a distribution to the Stockholder for the sole
purpose of paying income taxes attributable to the Companies' S Corporation
earnings, so long as such combined distribution to the Stockholder shall not
exceed $17,500 in the aggregate;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of any Company;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by any Company to any of its officers
directors, Stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of any Company to any person, including
without limitation the Stockholder and his affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to any Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates, provided
that any Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of any Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of any Company;
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(k) any waiver of any material rights or claims of any Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which any Company is a party;
(m) any transaction by any Company outside the ordinary course of
business;
(n) any capital commitment by any Company, either individually or in
the aggregate, exceeding $10,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by any Company or the
revaluation by any Company of any of its assets;
(p) any creation or assumption by any Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by any Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by any Company in excess of
$10,000;
(r) any loan by any Company to any person or entity, incurring by any
Company, of any indebtedness, guaranteeing by any Company of any indebtedness,
issuance or sale of any debt securities of any Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, any Company or any of its affairs; or
(t) negotiation or agreement by any Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with USFloral and its representatives regarding the
transactions contemplated by this Agreement).
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which any Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
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(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from any Company and a description of the
terms of such power.
5.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 5.27(a),
no underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state, local or
other applicable law to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a "Hazardous Material"), are
present in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that any Company has at any time owned,
operated, occupied or leased. Schedule 5.27(a) identifies all underground and
aboveground storage tanks, and the capacity, age, and contents of such tanks,
located on Real Property owned or leased by any Company.
(b) Hazardous Materials Activities. No Company has transported,
stored, used, manufactured, disposed of or released, or exposed its employees or
others to, Hazardous Materials in violation of any law in effect on or before
the Closing Date, nor has any Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively, "Company
Hazardous Materials Activities") in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. Each Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of such Company's Hazardous Material
Activities and other business of such Company as such activities and business
are currently being conducted. All Environmental Permits are in full force and
effect. Each Company (A) is in compliance in all material respects with all
terms and conditions of the Environmental Permits and (B) is in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Company's knowledge, there are no circumstances
that may prevent or interfere with such compliance in the future. Schedule
5.27(c) includes a listing and description of all Environmental Permits
currently held by any Company.
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(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve any Company (or any person or entity whose
liability any Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon any Company (or any
person or entity whose liability any Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
5.28 Relations with Governments. No Company has made, offered or agreed to
offer anything of value to any governmental official, political party or
candidate for government office, nor has it otherwise taken any action that
would cause any Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. Each Company has delivered to USFloral and Newco true and
complete copies of each agreement, contract, commitment or other document (or
summaries thereof) that is referred to in the Schedules or that has been
requested by USFloral. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement, the schedules hereto and all other documents and information
furnished to USFloral and its representatives pursuant hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. If the
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of the Stockholder in this Agreement or any
representation made on behalf of any Company, the Stockholder shall immediately
give notice of such fact or circumstance to USFloral. However, such notification
shall not relieve any Company or the Stockholder of their respective obligations
under this Agreement, and at the sole option of USFloral, the truth and accuracy
of any and all warranties and representations of the Stockholder, at the date of
this Agreement and as of the Closing Date, shall be a precondition to the
consummation of this transaction.
5.30 USFloral Prospectus; Securities Representations. The Stockholder has
received and reviewed a copy of the prospectus dated March 18, 1998 including
all supplements thereto (as supplemented, the "USFloral Prospectus") contained
in USFloral's shelf registration statement on Form S-1 (File No. 333-39969). The
Stockholder (a) has such knowledge, sophistication and experience in business
and financial matters that he is capable of evaluating the merits and risks of
an investment in the shares of USFloral Common Stock, (b) fully understands the
nature, scope, and duration of the limitations on transfer contained herein, and
under applicable law, and (c) can bear the economic risk of any investment in
the shares of USFloral Common Stock and can afford a complete loss of such
investment. The Stockholder has had an adequate opportunity to ask questions and
receive answers (and has asked such questions and received answers to his
satisfaction) from the officers of USFloral concerning the business, operations
and financial condition of USFloral. The Stockholder does not have any contract,
undertaking, agreement or arrangement, written or oral, with any other person to
sell, transfer or grant participation in any shares of USFloral Common Stock to
be acquired by the Stockholder in the Mergers. The Stockholder acknowledges and
agrees that
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USFloral has not and will not provide the Stockholder or any other party with a
prospectus for his use in selling USFloral Common Stock.
5.31 Affiliates. The Stockholder is the only person who is, in the
reasonable judgment of each Company and the Stockholder, affiliates of any
Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
5.32 Location of Chief Executive Offices. Schedule 5.32 sets forth the
location of each Company's chief executive offices.
5.33 Location of Equipment and Inventory. All Inventory and Equipment held
on the date hereof by any Company is located at one of the locations shown on
Schedule 5.33. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code as
in effect on October 16, 1997 in the State of New York (the "N.Y.U.C.C.") owned
by any Company as of the date hereof, and, in any event, shall include, but
shall not be limited to, all merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production, and all proceeds therefrom; and (b)
the term "Equipment" shall mean any "equipment" as such term is defined in the
N.Y.U.C.C. owned by any Company as of October 16, 1997, and, in any event, shall
include, but shall not be limited to, all machinery, equipment, furnishings,
fixtures and vehicles owned by any Company, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
6. REPRESENTATIONS OF USFLORAL AND THE NEWCOS
To induce each Company and the Stockholder to enter into this Agreement and
consummate the transactions contemplated hereby, each of USFloral and each Newco
represents and warrants to each Company and the Stockholder as follows:
6.1 Due Organization. Each of USFloral and each Newco is a corporation
duly organized, validly existing and in good standing under the laws of
jurisdiction of its incorporation, and each is duly authorized and qualified to
do business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on their respective businesses in the places and in
the manner as now conducted, except where the failure to be so authorized,
qualified or licensed would not have a Material Adverse Effect. Copies of the
Certificate of Incorporation and the Bylaws, each as amended, of USFloral and
the Newcos (collectively, the "USFloral Charter Documents") have been made
available to the Companies. Neither USFloral nor any Newco is in violation of
any USFloral Charter Document.
6.2 USFloral Common Stock. The shares of USFloral Common Stock to be
delivered to the Stockholder at the Effective Time, when delivered in
accordance with the terms of this
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Agreement, will be valid and legally issued shares of USFloral capital stock,
fully paid and nonassessable.
6.3 Authorization; Validity of Obligations. The representatives of
USFloral and the Newcos executing this Agreement have all requisite corporate
power and authority to enter into and bind USFloral and the Newcos to the terms
of this Agreement. USFloral and the Newcos have the full legal right, power and
corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by USFloral
and the Newcos and the performance by each of USFloral and the Newcos of the
transactions contemplated herein have been duly and validly authorized by the
respective Boards of Directors of USFloral and the Newcos, and this Agreement
has been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of each of USFloral and each
Newco enforceable in accordance with its terms.
6.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the USFloral
Charter Documents;
(b) subject to compliance with any agreements between USFloral and its
lenders, conflict with, or result in a default (or would constitute a default
but for a requirement of notice or lapse of time or both) under any document,
agreement or other instrument to which either USFloral or Newco is a party, or
result in the creation or imposition of any lien, charge or encumbrance on any
of USFloral's or any Newco's properties pursuant to (i) any law or regulation to
which either USFloral or any Newco or any of their respective property is
subject, or (ii) any judgment, order or decree to which USFloral or any Newco is
bound or any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of USFloral or any
Newco; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral or any Newco is subject, or by which USFloral or any
Newco is bound, (including, without limitation, the HSR Act, together with all
rules and regulations promulgated thereunder).
6.5 Capitalization of USFloral and Ownership of USFloral Stock. The
authorized capital stock of USFloral consists of 100,000,000 shares of Common
Stock, of which 12,924,193 shares were outstanding on February 27, 1998. The
authorized capital stock of each Newco consists of 1,000 shares of Common Stock,
of which 100 shares are outstanding. All of the issued and outstanding shares
of each Newco are owned beneficially, and of record by USFloral. All of the
shares of USFloral Common Stock to be issued to the Stockholders in accordance
herewith will be offered, issued, sold and delivered by USFloral in compliance
with all applicable state and federal
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laws concerning the issuance of securities and none of such shares was or will
be issued in violation of the preemptive rights of any stockholder of USFloral.
7. COVENANTS
7.1 Tax Matters.
(a) The following provisions shall govern the allocation of
responsibility as between the Stockholder, on the one hand, and the Surviving
Corporations, on the other, for certain tax matters following the Closing Date:
(i) The Stockholder shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of each Company for all periods ending on or before the Closing
Date that are due after the Closing Date. The Stockholder shall pay to the
Surviving Corporations on or before the due date of such Tax Returns the amount
of all Taxes shown as due on such Tax Returns to the extent that such Taxes are
not reflected in the current liability accruals for Taxes (excluding reserves
for deferred Taxes) shown on the Companies' books and records as of the Closing
Date. Such Returns shall be prepared and filed in accordance with applicable law
and in a manner consistent with past practices and shall be subject to review
and approval by USFloral. To the extent reasonably requested by the Stockholder
or required by law, USFloral and the Surviving Corporations shall participate in
the filing of any Tax Returns filed pursuant to this paragraph.
(ii) The Surviving Corporations shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Stockholder
shall pay to the Surviving Corporations within fifteen (15) days after the date
on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Companies' books and records as of the Closing Date. For purposes of this
Section 7.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Surviving Corporations.
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(iii) USFloral and the Surviving Corporations on one hand and
the Stockholder on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 7.1 and any audit, litigation or other proceeding with respect
to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to each
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating Tax matters pertinent to
each Company that is in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
(iv) The Stockholder shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
USFloral and the Surviving Corporations will join in the execution of any such
Tax Returns and other documentation.
(b) Each Company shall, prior to the Closing, maintain its status as
an S Corporation for federal and state income tax purposes.
7.2 Intentionally Omitted.
7.3 Related Party Agreements. Each Company and/or the Stockholder, as the
case may be, shall terminate any Related Party Agreements which USFloral request
such Company or the Stockholder to terminate.
7.4 Cooperation.
(a) Each Company, the Stockholder, USFloral and each Newco shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief financial officer of
the Company shall execute any documentation reasonably required by USFloral's
independent public accountants (in connection with such accountants' audit of
the Company) or the Nasdaq National Market.
(b) The Stockholder and each Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of each
Company cooperate with USFloral on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby
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(d) Each Company, the Stockholder and USFloral shall file all notices
and other information and documents required under the HSR Act (as defined in
Section 5.3) as promptly as practicable after the date hereof.
7.5 Conduct of Business Pending Closing. Between the date hereof and the
Effective Time, each Company will (except as requested or agreed by USFloral):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees
(other than employees who are also Stockholder) in accordance with past
practice.
7.6 Access to Information. Between the date of this Agreement and the
Closing Date, each Company will afford to the officers and authorized
representatives of USFloral access to (i) all of the sites, properties, books
and records of such Company and (ii) such additional financial and operating
data and other information as to the business and properties of such Company as
USFloral may from time to time reasonably request, including without limitation,
access upon reasonable request to such Company's employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 7.6 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Mergers.
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7.7 Prohibited Activities. Between the date hereof and the Effective
Time, no Company will, without the prior written consent of USFloral:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property) in respect of its stock whether now or hereafter
outstanding, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock; provided,
however, the Companies may make a distribution to the Stockholder for the sole
purpose of paying income taxes attributable to the Companies' S Corporation
earnings, so long as such combined distribution to the Stockholder shall not
exceed $17,500 in the aggregate;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $10,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to such
Company;
(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
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(j) waive any material rights or claims of any Company, provided that
each Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with any Company or any officer,
director or Stockholder of any Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of USFloral; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 7.7(a) through (o) above, or any action which
would make any of the representations and warranties of any Company and the
Stockholder contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
7.8 Notice to Bargaining Agents. Prior to the Closing Date, each Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by USFloral, and shall provide USFloral with proof that any required notice has
been sent.
7.9 Sales of USFloral Common Stock.
(a) The Stockholder will not, directly or indirectly, offer, sell,
contract to sell, pledge or otherwise dispose of one-half of the shares of
USFloral Common Stock to be received by the Stockholder in the Mergers prior to
the date that is (i) with respect to one-third of the shares issued in payment
of the Merger Consideration and one-third of the shares issued in payment of the
Earn-Out Consideration, twenty-four months from the Closing Date, or the payment
of the Earn-Out Consideration, as the case may be, (ii) with respect to two-
thirds of the shares, eighteen months
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from the Closing Date, or the payment of the Earn-Out Consideration, as the case
may be and (iii) with respect to all of the shares, twelve months from the
Closing Date, or the payment of the Earn-Out Consideration, as the case may be.
(b) The Stockholder acknowledges and agrees that USFloral will not
provide the Stockholder with a prospectus for the Stockholder's use in selling
the shares of USFloral Common Stock to be received by the Stockholder in the
Mergers, and agrees to sell such shares only in accordance with the
requirements, if any, of Rule 145(d) promulgated under the 1933 Act. USFloral
acknowledges that the provisions of this Section 7.9(b) will be satisfied as to
any sale by the Stockholder of the USFloral Common Stock the Stockholder may
acquire pursuant to the Mergers pursuant to Rule 145(d) under the Securities
Act, by a broker's letter and a letter from the Stockholder with respect to that
sale stating that the applicable requirements of Rule 145(d)(1) have been met or
are inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3) provided,
however, that USFloral has no reasonable basis to believe that such sales were
not made in compliance with such provisions of Rule 145(d) and subject to any
changes in Rule 145 after the date of this Agreement.
(c) The certificate or certificates evidencing the shares of USFloral
Common Stock to be delivered to the Stockholder in the Mergers will bear
restrictive legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THESE SHARES MAY ONLY BE TRANSFERRED PURSUANT TO A REGISTRATION
STATEMENT COVERING THE TRANSFER OF SUCH SHARES OR A VALID EXEMPTION FROM
REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
HOLDING PERIOD EXPIRING ON ***, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN
OF REORGANIZATION, DATED AS OF APRIL 3, 1998, AMONG THE ISSUER AND THE
STOCKHOLDER OF PACIFIC FLORAL WHOLESALE, INC., AN OREGON CORPORATION AND
ROSE CITY FLORAL BOUQUET, INC., AN OREGON CORPORATION. PRIOR TO THE
EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING
PERIOD HAS EXPIRED.
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*** With respect to the Initial Consideration, certificates representing one-
third of the shares of USFloral Common Stock issued will read "April 3, 1999,"
one-third will read "October 3, 1999" and one-third will read "April 3, 2000."
7.10 USFloral Stock Options. As soon as practicable after the Closing,
options to purchase such number of shares of USFloral Common Stock as shall have
a fair market value as of the Closing Date equal to 4.5% of the Merger
Consideration provided for in Section 2.2 above shall be available for issuance
to the key employees of each Surviving Corporation after the Closing, as
determined by Michael S. Kryder (or other officer or director designated by the
Surviving Corporations and acceptable to USFloral) in accordance with USFloral's
policies, and authorized and issued under the terms of USFloral's 1997 Long-Term
Incentive Plan.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND THE NEWCOS
The obligation of USFloral and the Newcos to effect the Mergers is subject
to the satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholder and each Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by each
Company and the Stockholder on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of each Company and by the
Stockholder shall have been delivered to USFloral.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of any Company, or limiting or restricting
USFloral's conduct or operation of the business of any Company (or its own
business) following the Mergers shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit claim or proceeding of any nature
pending or threatened against USFloral, the Newcos or any Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of any Company.
8.3 No Material Adverse Change. There shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of any Company, taken as a whole, since the Balance Sheet Date;
and USFloral shall have received a certificate signed by the Stockholder dated
the Closing Date to such effect.
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8.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by each Company and the Stockholder of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Mergers under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
8.5 Opinion of Counsel. USFloral shall have received an opinion from
counsel to the Companies and the Stockholder, dated the Closing Date, in a form
reasonably satisfactory to USFloral.
8.6 Charter Documents. USFloral shall have received (a) a copy of the
Articles of Incorporation of each Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of each Company
certified by the Secretary of such Company, and such documents shall be in form
and substance reasonably acceptable to USFloral.
8.7 Quarterly Financial Statements. USFloral shall have received from
each Company completed quarterly financial statements in a form reasonably
satisfactory to USFloral, and the Mergers shall have been approved by USFloral's
lenders.
8.8 Due Diligence Review. Each Company shall have made such deliveries as
are called for by this Agreement. USFloral shall be fully satisfied in its sole
discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of such
Company.
8.9 Delivery of Closing Financial Certificate. USFloral shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of each Company and by the Stockholder, setting
forth:
(a) the net worth of the Companies as of the last day of its most
recent fiscal year (the "Certified Year-End Net Worth");
(b) that the net worth of the Companies as of the Closing Date (the
"Certified Closing Net Worth") is no less than the Certified Year-End Net Worth;
(c) the earnings of the Companies before interest and taxes (after the
addition of "add-backs" set forth on Schedule 5.9(b)(i)) for the most recent
fiscal year preceding the Closing Date (the "Certified Year-End EBIT"); and
(d) a statement that all of the financial conditions set forth in
Section 5.9 of the Agreement are satisfied as of the Closing Date.
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The parties acknowledge and agree that for purposes of determining the Certified
Closing Net Worth and the Certified Closing EBIT, the Companies shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after December 31,
1997.
8.10 Intentionally Omitted. The Stockholder shall have delivered to
USFloral a properly executed statement in a form reasonably acceptable to
USFloral for purposes of satisfying USFloral's obligations under Treas. Reg. (S)
1.1445-2(b).
8.11 Employment Agreements. Michael S. Kryder shall have entered into an
employment agreement with Pacific Floral in a form reasonably satisfactory to
USFloral.
8.12 Stockholder's Release. The Stockholder shall have delivered to
USFloral an instrument dated the Closing Date releasing the Company from any and
all claims of such Stockholder against the Company.
8.13 Termination of Payments for Add-Backs. USFloral shall have received a
certificate, dated as of the Closing Date, signed on behalf of the Surviving
Corporation by Michael S. Kryder, as President, that no payments shall be made
by the Surviving Corporation, from and after the Closing Date, in respect to
those items set forth on Schedule 5.9(b)(i).
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANIES AND THE
STOCKHOLDER
The obligation of the Stockholder and the Companies to effect the Mergers
is subject to the satisfaction or waiver, at or before the Effective Time, of
the following conditions and deliveries:
9.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of USFloral and the Newcos contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by USFloral and Newco on
or before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of USFloral shall have been
delivered to the Companies and the Stockholder.
9.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
USFloral's proposed acquisition of any Company, or limiting or restricting
USFloral's conduct or operation of the business of any Company (or its own
business) following the Mergers shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any
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of the foregoing be pending. There shall be no action, suit, claim or proceeding
of any nature pending or threatened, against USFloral, the Newcos or any
Company, their respective properties or any of their officers or directors, that
could materially and adversely affect the business, assets, liabilities,
financial condition, results of operations or prospects of the USFloral and its
subsidiaries taken as a whole.
9.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by USFloral and the Newcos of the transactions contemplated herein, shall have
been obtained and made. Any waiting period applicable to the consummation of
the Mergers under the HSR Act shall have expired or been terminated, and no
action by the Department of Justice or Federal Trade Commission challenging or
seeking to enjoin the consummation of the transactions contemplated hereby shall
be pending.
9.4 Employment Agreements. The Companies shall have afforded Michael S.
Kryder an opportunity to enter into an employment agreement with Pacific Floral
in a form reasonably satisfactory to USFloral.
10. INDEMNIFICATION
10.1 General Indemnification by the Stockholder. The Stockholder covenants
and agrees to indemnify, defend, protect and hold harmless USFloral, the Newcos
and the Surviving Corporations and their respective officers, directors,
employees, stockholders, assigns, successors and affiliates (individually, an
"Indemnified Party" and collectively, "Indemnified Parties") from, against and
in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholder or any Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of the Stockholder or any Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholder or, prior to the Effective Time, any Company, under this Agreement;
or
(iii) the business, operations or assets of any Company prior to
the Closing Date or the actions or omissions of any Company's directors,
officers, shareholders, employees or
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agents prior to the Closing Date, other than Damages arising from matters
expressly disclosed in the Company Financial Statements, this Agreement or the
Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 5.23 (conformity with
law; litigation), 5.24 (taxes), and 5.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.1.
10. Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 10.1
unless, and solely to the extent that, the aggregate amount of Damages exceeds
$5,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) adjustments to the Merger
Consideration as set forth in Sections 2.2 and 3.1; (ii) Damages arising out of
any breaches of the covenants of the Stockholder set forth in this Agreement or
representations and warranties made in Sections 5.4 (capital stock of the
Company), 5.5 (transactions in capital stock), 5.9 (Company financial
conditions), 5.18 (material contracts and commitments), 5.23 (conformity with
law; litigation), 5.24 (taxes), 5.27 (environmental matters), or (iii) Damages
described in Section 10.1(a)(iv);
(b) the aggregate amount of the Stockholder's liability under this
Article 10 shall not exceed the Merger Consideration; provided, however, that
the Stockholder's liability for Damages arising out of any breaches of the
representations made in Sections 5.24 (taxes) or 5.27 (environmental matters) or
Damages described in Section 10.1(a)(ii) and Section 10.1(a)(iv) shall not be
subject to such limitation;
(c) the indemnification obligations under this Article 10, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 10.2(c):
(i)
(1) except as to representations, warranties, and covenants
specified in clause (i)(2) of this Section 10.2(c), the first anniversary of the
Closing Date, or
(2) with respect to representations and warranties
contained in Sections 5.22 (employee benefit plans), 5.24 (taxes), 5.27
(environmental matters), and the indemnification set forth in Section
10.1(a)(ii), (iii) or (iv), on (A) the date that is six (6) months after the
expiration of the longest applicable federal or state statute of limitation
(including extensions thereof), or (B) if there is no applicable statute of
limitation, (x) ten (10) years after the Closing Date if the Claim is related to
the cost of investigating, containing, removing, or remediating a release of
Hazardous Material into the environment, or (y) five (5) years after the Closing
Date for any other Claim covered by clause (i)(2)(B) of this Section 10.2(c); or
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(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 10.2(c) (such claims
referred to as "Pending Claims").
10.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 10 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 10.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholder of such Claim, specifying the
nature of such Claim and the amount or the estimated amount thereof to the
extent then feasible (the "Claim Notice"). If the Stockholder does not notify
the Indemnified Party within thirty days after the date of delivery of the Claim
Notice that the Indemnifying Party disputes such Claim, with a detailed
statement of the basis of such position, the amount of such Claim shall be
conclusively deemed a liability of the Indemnifying Party hereunder. In case an
objection is made in writing in accordance with this Section 10.3(a), the
Indemnified Party shall respond in a written statement to the objection within
thirty days and, for sixty days thereafter, attempt in good faith to agree upon
the rights of the respective parties with respect to each of such Claims (and,
if the parties should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholder. The Stockholder shall
have thirty days from the date of delivery of the Claim Notice to notify the
Indemnified Party (A) whether the Indemnifying Party disputes liability to the
Indemnified Party hereunder with respect to the Third Party Claim, and, if so,
the basis for such a dispute, and (B) if such party does not dispute liability,
whether or not the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend against the Third Party Claim, provided that
the Indemnified Party is hereby authorized (but not obligated) to file any
motion, answer or other pleading and to take any other action which the
Indemnified Party shall deem necessary or appropriate to protect the Indemnified
Party's interests.
(ii) In the event that Stockholder timely notifies the Indemnified
Party that the Indemnifying Party does not dispute the Indemnifying Party's
obligation to indemnify with respect to the Third Party Claim, the Indemnifying
Party shall defend the Indemnified Party against such Third Party Claim by
appropriate proceedings, provided that, unless the Indemnified Party otherwise
agrees in writing, the Indemnifying Party may not settle any Third Party Claim
(in whole or in part) if such settlement does not include a complete and
unconditional release of the Indemnified Party. If the Indemnified Party desires
to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If the Indemnifying
Party elects not to defend the Indemnified Party against a Third Party Claim,
whether by failure of such party to give the Indemnified Party timely notice as
provided herein or otherwise, then the Indemnified Party, without waiving any
rights against such party, may settle or defend
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against such Third Party Claim in the Indemnified Party's sole discretion and
the Indemnified Party shall be entitled to recover from the Indemnifying Party
the amount of any settlement or judgment and, on an ongoing basis, all
indemnifiable costs and expenses of the Indemnified Party with respect thereto,
including interest from the date such costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Stockholder,
any Third Party Claim seeks material prospective relief which could have an
adverse effect on any Indemnified Party or any Surviving Corporation or any
subsidiary, the Indemnified Party shall have the right to control or assume (as
the case may be) the defense of any such Third Party Claim and the amount of any
judgment or settlement and the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 10.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 10.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 10, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
10.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by any Company, the Stockholder,
USFloral and the Newcos in or pursuant to this Agreement or in any document
delivered pursuant hereto shall be deemed to have been made on the date of this
Agreement (except as otherwise provided herein) and, if a Closing occurs, as of
the Closing Date. The representations of the Company and the Stockholder will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 10.2. The
representations of USFloral and the Newcos will survive the Closing and will
remain in effect until, and will expire upon the first anniversary of the
Closing Date.
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10.5 Remedies Cumulative. The remedies set forth in this Article 10 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
10.6 Right to Set Off. USFloral shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 10.3 to be owed to USFloral by the Stockholder
under Section 10.1 hereof.
11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholder agrees that for a period of
two years following the Closing Date, they shall not:
(a) 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 Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including, without limitation, hardgoods), or any business engaging in
the consolidation of the floral industry within the United States of America
(the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of USFloral or any subsidiary of USFloral in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of USFloral or such subsidiary;
(c) 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 USFloral or any
subsidiaries of USFloral, any Company within the Territory for the purpose of
soliciting or selling floral products within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or USFloral or any subsidiaries of USFloral, any Company; or
(e) disclose customers, whether in existence or proposed, of any
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholder 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 USFloral shall have provided its prior written consent.
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11.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and the Surviving Corporations as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to USFloral and the Surviving Corporations for which they would
have no other adequate remedy, the Stockholder agrees that, in the event of a
breach by them of the foregoing covenant, the covenant may be enforced by
USFloral or the Surviving Corporations by, without limitation, injunctions and
restraining orders.
11.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 11 impose a reasonable restraint on the Stockholder in
light of the activities and business of USFloral on the date of the execution of
this Agreement and the current and future plans of USFloral and the Surviving
Corporations (as successors to the businesses of the Companies).
11.4 Severability; Reformation. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.5 Independent Covenant. All of the covenants in this Article 11 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholder
against any Company, any Surviving Corporation or USFloral, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of
three years stated above, shall be computed by excluding from such computation
any time during which the Stockholder is in violation of any provision of this
Article 11 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action USFloral or
any Surviving Corporation seeks to enforce the agreements and covenants of the
Stockholder or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement; provided, however, that if the Stockholder is found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
11.6 Materiality. Each Company and the Stockholder hereby agree that the
covenants set forth in this Article 11 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
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12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 The Stockholder. The Stockholder recognizes and acknowledges that he
has in the past, currently has, and in the future may possibly have, access to
certain confidential information of the Companies, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Companies and the Companies' businesses. The
Stockholder agrees that he will not disclose any confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of USFloral, unless the
Stockholder can show that such information has become known to the public
generally through no fault of the Stockholder. In the event of a breach or
threatened breach by the Stockholder of the provisions of this Article 12,
USFloral and the Surviving Corporations shall be entitled to an injunction
restraining the Stockholder from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
USFloral and the Surviving Corporations from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
12.2 USFloral. USFloral recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of the Companies, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of the Companies and the Companies' businesses. USFloral agrees
that it will not disclose any confidential information to any person, firm,
corporation, association, or other entity for any purpose or reason whatsoever,
prior to the Closing Date without prior written consent of the Stockholder. In
the event of a breach or threatened breach by USFloral of the provisions of this
Article 12, the Stockholder shall be entitled to an injunction restraining
USFloral from disclosing, in whole or in part, such confidential information.
Nothing contained herein shall be construed as prohibiting the Stockholder from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
12.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, USFloral, the Surviving Corporations and the Stockholder agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
13. GENERAL
13.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of USFloral and the
Companies; or
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(b) by the Stockholder and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if the Closing shall not have occurred on or
before April 10, 1998, provided that the right to terminate this Agreement under
this Section 13.1(b) shall not be available to either party (with the
Stockholder and the Companies deemed to be a single party for this purpose)
whose material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholder and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholder and the Companies deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholder and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Mergers; or
there shall be any action taken, or any statute, rule regulation or order
enacted, promulgated or issued or deemed applicable to the Mergers by any
governmental entity which would make the consummation of the Mergers illegal.
13.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 13.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 13 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
13.1(c) above, then notwithstanding the provisions of Section 13.7 below, the
breaching party (with the Stockholder and the Companies deemed to be a single
party for purposes of this Article 13), shall be liable to the other party to
the extent of the expenses incurred by such other party in connection with this
Agreement and the transactions contemplated hereby, as well as any damages in
accordance with applicable law.
13.3 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
USFloral, and the heirs and legal representatives of the Stockholder.
13.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
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Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 11.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
13.6 Brokers and Agents. USFloral and the Newcos (as a group) and the
Companies and the Stockholder (as a group) each represents and warrants to the
other that it has not employed any broker or agent in connection with the
transactions contemplated by this Agreement and agrees to indemnify the other
against all losses, damages or expenses relating to or arising out of claims for
fees or commission of any broker or agent employed or alleged to have been
employed by such party.
13.7 Expenses. USFloral has and will pay the fees, expenses and
disbursements of USFloral and the Newcos and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement. The Stockholder (and not the Companies) have and will pay the fees,
expenses and disbursements of the Stockholder, the Companies, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
13.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 11 and the confidentiality
obligations set forth in Article 12. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
13.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
49
<PAGE>
If to USFloral, the Newcos or the Surviving Corporations to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
David A. Gerson, Esquire
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
(Telefax: (412) 560-3399)
If to the Stockholder to:
Michael S. Kryder
4600 S.E. Lacour Ct.
Milwaukie, OR 97267
with a required copy to:
William D. Dickas, Esquire
Kell, Alterman & Runstein LLP
1001 S.W. Fifth Avenue, Suite 1800
Portland, OR 97204
(Telefax: (503) 227-2980)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
13.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
50
<PAGE>
13.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 11.4.
13.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
13.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
13.14 Accounting Terms. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
[Execution Page Following]
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Robert J. Poirier
--------------------------------------
Robert J. Poirier
Chairman, President and CEO
PFW ACQUISITION CORP.
By: /s/ Robert J. Poirier
--------------------------------------
Robert J. Poirier
President
RCF ACQUISITION CORP.
By: /s/ Robert J. Poirier
--------------------------------------
Robert J. Poirier
President
PACIFIC FLORAL WHOLESALE, INC.
By: /s/ Michael S. Kryder
--------------------------------------
Michael S. Kryder
President
ROSE CITY FLORAL, INC.
By: /s/ Michael S. Kryder
--------------------------------------
Michael S. Kryder
President
STOCKHOLDER:
/s/ Michael S. Kryder
--------------------------------------
Michael S. Kryder
52
<PAGE>
SCHEDULES
SCHEDULE 1.1 [Form of Plans of Merger]
SCHEDULES TO ARTICLE 5 [Schedules of exceptions to the representations and
warranties]
The Schedules to this Agreement will be provided to the Commission
supplementally upon request.
53
<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>
U.S.A. Floral Products, Inc. February 24, 1998
The Roy Houff Company November 26, 1997
CFX, Inc. January 9, 1998
Bay State Florist Supply January 6, 1998
Flowtrad Corporation, N.V. d/b/a Flower Trading
Corporation December 16, 1997
United Wholesale Florists, Inc. and United Wholesale
Florists of America, Inc. December 31, 1997
American Florist Supply, Inc. January 6, 1998
Monterey Bay Bouquet, Inc. and Bay area Bouquet,
Inc. November 14, 1997
Alpine Gem Flower Shippers, Inc. December 12, 1997
XL Group, Inc. February 9, 1998
Continental Farms Limited and Atlantic Bouquet
Company Limited February 27, 1998
Koehler & Dramm, Inc. March 3, 1998
Everflora, Inc. and Everflora Miami, Inc. March 27, 1998
UltraFlora Corporation March 13, 1998
</TABLE>
We also consent to the references to us under the heading "Experts."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
May 7, 1998
<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., and our report dated August 28,
1997, relating to the financial statements of H&H Flowers, Inc. d/b/a
LaFleurette, which appear in such Prospectus. We also consent to the
references to us under the heading "Experts."
/s/ Madsen, Sapp, Mena, Rodriguez &
Co., P.A.
_____________________________________
Madsen, Sapp, Mena, Rodriguez & Co.,
P.A.
Plantation, Florida
May 7, 1998
<PAGE>
EXHIBIT 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 30, 1998 (except with respect to the matter discussed in
Note 9, as to which the date is April 3, 1998) with respect to the balance
sheet of Elite Farms as of December 31, 1997, and the related statements of
income, changes in venturers' capital and cash flows for the year then ended
included in or made a part of this registration statement (No. 333-39969).
/s/ Arthur Andersen LLP
_____________________________________
Arthur Andersen LLP
Miami, Florida
May 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,392
<SECURITIES> 0
<RECEIVABLES> 41,985
<ALLOWANCES> 1,498
<INVENTORY> 9,867
<CURRENT-ASSETS> 67,590
<PP&E> 15,497
<DEPRECIATION> 0
<TOTAL-ASSETS> 232,557
<CURRENT-LIABILITIES> 91,208
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 139,956
<TOTAL-LIABILITY-AND-EQUITY> 232,557
<SALES> 100,520
<TOTAL-REVENUES> 101,105
<CGS> 74,056
<TOTAL-COSTS> 93,277
<OTHER-EXPENSES> 96
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 681
<INCOME-PRETAX> 7,082
<INCOME-TAX> 3,130
<INCOME-CONTINUING> 7,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,952
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
