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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. 1
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. 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 February 27, 1998, 12,924,193 shares of Common Stock were
outstanding. On February 27, 1998, the closing price of the Common Stock on
the Nasdaq National Market was $23.875 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 9 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 March 5, 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
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Forward-Looking Statements.......... 2
Prospectus Summary.................. 3
Risk Factors........................ 9
Businesses of the Company........... 16
Price Range of Common Stock......... 21
Dividend Policy..................... 21
Capitalization...................... 22
Selected Financial Data............. 23
Management's Discussion and
Analysis of Pro Forma Combined
Financial Condition and Pro Forma
Combined Results of Operations..... 24
Selected Financial Data of the
Founding Companies................. 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Founding
Companies.......................... 32
Business............................ 47
Management.......................... 56
Certain Relationships and Related-
Party Transactions................. 63
Principal Stockholders.............. 69
Description of Capital Stock........ 70
Shares Eligible for Future Sale..... 72
Plan of Distribution................ 72
Restrictions on Resale.............. 73
Legal Matters....................... 73
Experts............................. 73
Additional Information.............. 74
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 9 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.
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PROSPECTUS SUMMARY
Simultaneously with the consummation of its initial public offering (the
"IPO") on October 16, 1997, U.S.A. Floral Products, Inc. acquired, in eight
separate transactions, eight floral products businesses (collectively, the
"Founding Companies") and in January 1998 acquired, in six separate
transactions, six additional floral products businesses (collectively, the
"Recent Acquisitions"). The Founding Companies and the Recent 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 1998 consummated the
acquisition of the Recent 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 1,600 employees and serves thousands of
customers nationwide from 43 facilities in 20 states and the District of
Columbia. For the year ended December 31, 1997, the Company (excluding the
Recent Acquisitions) had pro forma combined revenues of $184.1 million, pro
forma combined operating income of $7.4 million and pro forma combined net
income of $4.5 million.
The floriculture industry, which includes cultivators, distributors and
sellers of floral products, extends from growers, who produce perishable floral
products, through importers, brokers, shippers and wholesalers who distribute
and market fresh cut flowers and greens, potted plants and floral related
hardgoods, to retail florists and mass market distributors, who sell floral
products to consumers. The distribution channel in the floriculture industry is
highly fragmented and consists mainly of small, family-owned firms that operate
from a single location or from a small number of outlets in a single region.
While floral products have historically been sold at retail through a large
number of traditional florists, who continue to serve the majority of
consumers, the Company believes, based upon the experience of 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:
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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 1998, the Company consummated the
acquisitions of the Recent 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.
FOUNDING COMPANIES
The Roy Houff Company ("Houff"). Founded in 1977, Houff is a wholesale
distributor of perishable floral products and floral related hardgoods,
operating from seven locations in Illinois, Virginia and Arizona. Houff
purchases floral products from 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.
CFX, Inc. ("CFX"). Founded in 1974, CFX is an importer and distributor of
perishable floral products located in Miami, Florida. CFX imports flowers from
approximately 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 Florist Supply, Inc. ("Bay State"). Founded in 1952, Bay State is a
wholesale distributor of perishable floral products and floral related
hardgoods, operating from six locations in Massachusetts, New York, New
Hampshire, Connecticut and Rhode Island. Bay State purchases floral products
from domestic growers, importers, brokers and shippers and sells them to
approximately 3,000 customers, including retail florists and mass market
retailers. Bay State has approximately 213 employees. Bay State's revenues for
the period January 1, 1997 to October 15, 1997 were $23.6 million.
Flower Trading Corporation ("Flower Trading"). Founded in 1977, Flower
Trading is an importer and distributor of perishable floral products, located
in Miami, Florida. Flower Trading imports flowers from farms located primarily
in Colombia, Ecuador, Guatemala and Peru and distributes them throughout the
United States to approximately 400 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 Florists, Inc. and United Wholesale Florists of America,
Inc. ("United Wholesale"). Founded in 1947, United Wholesale is a wholesale
distributor of perishable floral products and floral related hardgoods,
operating from 13 locations in Arkansas, Alabama, Mississippi, Oklahoma,
Tennessee and Texas. United Wholesale purchases floral products from domestic
growers, importers, brokers and shippers and sells them to approximately 3,500
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 Supply, Inc. ("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 Bouquet, Inc. and Bay Area Bouquets, Inc. ("Monterey
Bay"). Founded in 1993, Monterey Bay, located in Watsonville, California, is a
manufacturer of fresh-cut floral bouquets, consisting of specialty
5
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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 $10.2
million.
Alpine Gem Flower Shippers, Inc. ("Alpine Gem"). Founded in 1978, Alpine Gem
is a broker of perishable floral products, operating from one location in
Montana and one 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.
RECENT ACQUISITIONS
Continental Farms Limited ("Continental Farms") and Atlantic Bouquet Company
Limited ("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 America
and South America. Continental Farms is located in Miami, Florida and sells
perishable floral products on consignment to approximately 600 customers,
including wholesale 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 annual revenues in 1997 were
$62.5 million.
XL Group, Inc. ("XL Group"). Founded in 1986, XL Group is an importer and
distributor of perishable 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 to supermarkets. XL Group has
approximately 95 employees. XL Group's annual revenues in 1997 were $32.3
million.
Koehler & Dramm, Inc. ("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, 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, Inc. ("Everflora") and Everflora Miami, Inc. ("Everflora
Miami"). Everflora and Everflora Miami are both importers and brokers of
perishable floral products. Everflora and Everflora Miami were founded 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. Everflora
Miami, headquartered in Miami, Florida, sells various types of flowers,
primarily imported from Central America and South America, to wholesalers
across the United States. Everflora and Everflora Miami have approximately 86
employees. Everflora and Everflora Miami's combined annual revenues in 1997
were $20.3 million.
UltraFlora Corporation ("UltraFlora"). Founded in 1986, UltraFlora,
headquartered in Miami, Florida, imports fresh-cut floral products primarily
from Colombia and distributes them to approximately 35 supermarkets and other
mass market retailers throughout the United States and Canada. UltraFlora has
approximately 31 employees. UltraFlora's annual revenues in 1997 were $17.1
million.
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H&H Flowers, Inc. ("H&H Flowers"). Founded in 1982, H&H Flowers, which does
business under the name "La Fleurette," assembles and sells floral bouquets and
other arrangements. H&H Flowers purchases the majority of the fresh-cut flowers
used in its bouquets from importers and sells them to approximately 26
supermarkets. H&H Flowers currently employs approximately 76 people at its
headquarters in Miami, Florida. H&H Flowers' annual revenues in 1997 were $17.7
million.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered in connection with an investment in the Common Stock offered hereby,
including, without limitation, risks related to: (i) the absence of a combined
operating history for any substantial period of time; (ii) the Company's
aggressive acquisition strategy; (iii) the financing of acquisitions through
the issuance of its Common Stock and incurrence of indebtedness; (iv) internal
growth and operating strategies; (v) seasonality and cyclicality, and expected
fluctuations in quarterly operating results; (vi) weather and other factors;
(vii) competition; (viii) the valuations of the Operating Companies; (ix) the
amortization of intangible assets; (x) dependence upon key personnel; (xi)
imported products and anti-dumping liability; and (xii) Year 2000 compliance.
THE MERGERS
The Company consummated the acquisition of the Operating Companies (the
"Mergers" and each, a "Merger") pursuant to agreements that the Company entered
into with the Operating Companies and their stockholders (or partners, as the
case may be) (the "Merger Agreements" and each, a "Merger Agreement"). The
aggregate consideration paid by the Company through February 27, 1998 to
consummate the Mergers was approximately $168.8 million, which consisted of:
(i) $95.8 million in cash paid to the stockholders (or partners, as the case
may be) of the Operating Companies; and (ii) $73.0 million fair value (based
upon the prices of the Common Stock issued in the Mergers) of 4,664,192 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 Merger Agreements with XL Group and H&H Flowers.
The Company is required to pay additional consideration in the form of 354,417
shares of Common Stock valued at $6.0 million pursuant to the UltraFlora Merger
Agreement. The Company also assumed a 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 Merger Agreement, which escrow amount will be returned to the
extent (if any) that indemnifiable claims under the escrow are not made prior
to its expiration. For the consideration paid to each Operating Company, see
"Businesses of the Company--The Mergers." The stockholders of the Founding
Companies were granted certain registration rights with respect to the shares
of Common Stock received under the Merger Agreements. The Merger Agreements
also provided for the grant of options to purchase a number of shares of Common
Stock equal to 6.25% of the cash and Common Stock portion of the underlying
acquisition consideration. Such options have been, or will be, granted to
employees of the Operating Companies. The Merger Agreements contained covenants
not to compete (subject to certain exceptions) and required certain of the
executive officers of each of the Operating Companies to enter into employment
agreements with their respective Operating Companies effective upon
consummation of the Mergers. Certain of the executives of the Operating
Companies were appointed to the Board of Directors of the Company. See
"Businesses of the Company," "Management's Discussion and Analysis of Pro Forma
Combined Financial Condition and Pro Forma Combined Results of Operations--
Liquidity and Capital Resources," "Management--Employment Agreements," "Certain
Relationships and Related-Party Transactions," "Shares Eligible for Future
Sale," and the Unaudited Pro Forma Combined Financial Statements and the notes
thereto appearing elsewhere in this Prospectus.
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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 1998
the Company consummated the acquisitions of the Recent Acquisitions. The
following summary financial data represents (i) the actual historical financial
data for the Company, (ii) Pro Forma Founding Companies financial data which
gives effect to the IPO and the acquisition of the Founding Companies as if
they had occurred on January 1, 1997 and (iii) Pro Forma Recent Acquisitions
financial data which gives additional effect to the consummation of the
acquisitions of the Recent Acquisitions as if they had been acquired 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
certain of the Recent Acquisitions and the notes thereto included elsewhere in
this Registration Statement.
<TABLE>
<CAPTION>
APRIL 22, 1997
THROUGH
DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1997
----------------- --------------------------------------------
ACTUAL PRO FORMA PRO FORMA
USA FLORAL(1) FOUNDING COMPANIES(2) RECENT ACQUISITIONS(3)
----------------- --------------------- ----------------------
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Net sales............... $ 37,380 $ 184,124 $356,741
Gross profit............ 10,695 52,868 99,154
Selling, general and
administrative expense. 9,791 44,116 77,052
Goodwill amortization... 275 1,321 3,556
Operating income........ 629 7,431 18,546
Interest and other
(income) expense, net.. (277) (873) 3,038
Income before income
taxes.................. 906 8,304 16,371
Net income.............. $ 416 $ 4,454 $ 8,400
========= ========= ==========
Net income per share
(basic and diluted).... $ .09 $ .50 $ .63
========= ========= ==========
Shares used in computing
net income per share--
Diluted (4)............ 4,824,097 8,944,382 13,377,281
Basic (4).............. 4,734,198 8,845,711 13,278,610
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
PRO FORMA
ACTUAL(1) COMBINED(5)
----------- ------------
<S> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital (deficit).......................... $ 21,060 $ (23,145)
Total assets....................................... 107,248 218,454
Short-term debt.................................... 290 41,406
Total long term debt............................... 309 361
Stockholders' equity............................... 86,165 142,433
</TABLE>
- --------
(1) Represents the historical statement of operations data from April 1997
(inception) to December 31, 1997 and the financial position as of December
31, 1997 for the Company, which includes the Founding Companies subsequent
to their acquisition on October 16, 1997.
(2) Pro Forma Founding Companies represents statement of operations data for
the Company as if the IPO and the acquisitions of the Founding Companies
had been consummated as of January 1, 1997.
(3) Pro Forma Recent Acquisitions represents statement of operations data for
the Company as if the IPO and the acquisitions of the Founding Companies
and the Recent Acquisitions had been consummated as of January 1, 1997.
(4) For calculation of the shares used in computing pro forma net income per
share see Note 6 to the Unaudited Pro Forma Combined Financial Statements
included herein.
(5) Pro Forma Combined Balance Sheet Data assume that the acquisitions of the
Recent Acquisitions were consummated on December 31, 1997.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the shares of Common Stock offered
hereby.
ABSENCE OF COMBINED OPERATING HISTORY
USA Floral was founded in April 1997 and has conducted operations since
October 16, 1997. The Company acquired the Founding Companies simultaneously
with the consummation of the IPO and consummated the acquisition of the Recent
Acquisitions in January 1998. Prior to the Mergers, 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."
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 $141.9 million
greater than the amount of that purchase price allocated to the tangible
assets acquired for purposes of the Company's pro forma balance sheet. 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 Mergers."
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $52.6 million, or 49.0%, of the Company's as adjusted pro
forma total assets as of December 31, 1997 consists of goodwill arising from
the Mergers (and $141.9 million, or 64.9%, of the Company's as adjusted pro
forma total assets reflecting the Recent Acquisitions). 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 Mergers over
a period of time, with the amount amortized
9
<PAGE>
in a particular period constituting an expense that reduces the Company's net
income for that period. In most cases, however, the amount amortized will not
give rise to a deduction for tax purposes. In addition, the Company will be
required to amortize the goodwill, if any, from any future acquisitions. A
reduction in net income resulting from the amortization of goodwill may have
an adverse impact upon the market price of the 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 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 a $100.0 million revolving
credit facility (the "Credit Facility") with various lenders, for whom Bankers
Trust Company ("BT") is agent. The Credit Facility contains certain covenants
which will restrict the ability of the Company to engage in certain mergers,
acquisitions and dispositions. Among other things, the Credit Facility
provides that: (i) the total consideration for any acquisition may not exceed
$25.0 million unless not more than 10% of such amount is in cash (which
covenant was waived in order to effect the Continental Farms Merger); and (ii)
for a group of acquisitions occurring within a six-month period, no less than
one-third of the aggregate purchase price therefor may be in Common Stock of
the Company. The Credit Facility also contains various 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 February 27, 1998 the Company had outstanding indebtedness of $47.5 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. 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 Facility. 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
Pro Forma Combined Financial Condition and Pro Forma Combined Results of
Operations--Liquidity and Capital Resources."
There can be no assurance that the Company will maintain or accelerate its
growth or anticipate all of the changing demands that expanding operations
will impose on its management personnel, operational and management
information systems, and financial systems. The Company may not be able to
identify, acquire or manage profitably additional businesses or to integrate
successfully any acquired businesses into the Company without substantial
costs, delays or other operational or financial difficulties. Any failure by
the Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Strategy."
RISKS RELATED TO ACQUISITION FINANCING
A significant portion of the Company's resources may be used for
acquisitions. The timing, size and success of the Company's acquisition
efforts and any associated capital commitments cannot be readily predicted.
The Company currently intends to finance future acquisitions by using 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
10
<PAGE>
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 AND OPERATING STRATEGIES
Key elements of the Company's strategy are to improve the profitability and
to continue to expand the net sales of the Operating Companies and any
subsequently acquired businesses. The Company's ability to increase net sales
will be affected by various factors, including demand for, pricing and
availability of floral products, the Company's ability to expand the range of
products and services offered and the Company's ability to enter new markets
successfully. Many of these factors are beyond the control of the Company, and
the Company's strategies may not be successful or the Company may be unable to
generate cash flow adequate for its operations and to support internal growth.
A key component of the Company's strategy is to operate on a decentralized
basis, with local management retaining responsibility for day-to-day
operations, profitability and the growth of the business. If proper overall
business controls are not implemented, this decentralized operating strategy
could result in inconsistent operating and financial practices at the
Operating Companies and subsequently acquired businesses, which could
materially and adversely affect the Company's overall profitability. See
"Business--Strategy."
SEASONALITY AND CYCLICALITY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Unit sales of floral products have historically been seasonal, concentrated
primarily in the first and second calendar quarters as a result of holidays
such as Valentine's Day and Mother's Day. In particular, a significant portion
of the Company's annual revenues is derived from sales of floral products for
Valentine's Day. Historically, Valentine's Day sales have been relatively
lower in those years when the holiday falls on a Saturday or Sunday, 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 Pro Forma Financial
Condition and Pro Forma Results of Operations--Seasonality and Cyclicality;
Fluctuations in Quarterly Operating Results."
11
<PAGE>
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
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 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.
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
12
<PAGE>
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.
Department of Commerce has undertaken ten reviews, the most recent being for
the period ended February 28, 1997. As a result of such reviews, certain of
the Operating Companies that import flowers have been subject to antidumping
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. Since
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 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
13
<PAGE>
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 H&H Flowers, 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. 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 February 27, 1998, the Company's executive officers and directors
beneficially own an aggregate of approximately 23.7% 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."
SHARES ELIGIBLE FOR FUTURE SALE
As of February 27, 1998, 12,924,193 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 3,012,141 shares issued to non-affiliates in the Recent
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 Merger Agreements for the
acquisitions of the Recent Acquisitions. Further, 3,862,052 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 at various
dates after April 7, 1998, upon expiration of applicable lock-up agreements
and subject to compliance with Rule 144 as the holding provisions of Rule 144
are satisfied. Of those shares, 3,972,052 may be included in certain
registration statements that may be filed by the Company, in accordance with
piggyback registration rights granted pursuant to the Merger Agreements or
pursuant to such rights granted to Mr. Ledecky and Mr. Poirier. Further,
2,193,705 shares of Common Stock are issuable upon the exercise of stock
options, of which options to purchase 160,000 shares are currently
exercisable. The Company has filed a registration statement on Form S-8 to
register the issuance of the shares issuable upon the exercise of certain of
such options. In addition, the 9,487,859 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.
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK 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.
14
<PAGE>
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.
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, since 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.
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law may make a change in the control of the Company more
difficult to effect, even if a change in control were in the stockholders'
interest. Pursuant to the Certificate of Incorporation and Bylaws, the Board
of Directors is divided into three classes of directors elected for staggered
three-year terms. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law and the Company's
Certificate of Incorporation and Bylaws."
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.
15
<PAGE>
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 February 27, 1998, the co-founders of the Company owned beneficially in the
aggregate approximately 18.3% of the outstanding Common Stock of the Company.
See "Certain Relationships and Related-Party Transactions--Organization of USA
Floral."
THE MERGERS
Simultaneously with the consummation of the IPO, USA Floral acquired in
eight separate transactions all of the issued and outstanding capital stock of
each of the Founding Companies, and in January 1998 the Company consummated
the Recent Acquisitions in six separate transactions. The aggregate
consideration paid for the Operating Companies was $168.8 million, which
consisted of: (i) $95.8 million in cash paid to the stockholders (or partners,
as the case may be) of the Operating Companies; and (ii) $73.0 million fair
value (based upon the prices of the Common Stock issued in the Mergers) of
4,664,192 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 Merger Agreements with
XL Group and H&H Flowers. The Company is required to pay additional earn-out
consideration in the form of 354,417 shares of Common Stock valued at $6.0
million pursuant to the UltraFlora Merger 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 Merger
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 Recent Acquisition was subject to substantially the same terms and
conditions as those to which the acquisition of each other Recent Acquisition
was subject. The following table contains information concerning the aggregate
cash paid and Common Stock issued in connection with the Mergers:
16
<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> <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........ 4.8 141,334 2.4 7.2
Monterey Bay............ 3.0 176,668 3.0 6.0
Alpine Gem.............. 1.6 160,000 2.1 3.7
Continental Farms and
Atlantic Bouquet....... 27.5 1,642,671 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.............. 2.8 163,281 2.8 5.6(4)
H&H Flowers............. 1.6 -- -- 1.6(5)
----- --------- ----- ------
Total................. $95.8 4,664,192 $73.0 $168.8
===== ========= ===== ======
</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 ended December 31, 1998 and in no event
will be greater than $4.0 million.
(4) The sellers of UltraFlora entered into an earn-out arrangement pursuant to
which they shall receive additional consideration consisting of 354,417
shares of Common Stock valued at $6.0 million. The earn-out is based upon
UltraFlora's 1997 earnings before interest and taxes. This amount is not
included in the table above.
(5) The sellers of H&H Flowers 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 H&H Flowers' 1998 earnings before
interest and taxes for the year ending June 30, 1998.
17
<PAGE>
The consummation of each Merger 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 Merger
Agreement that the representations and warranties made by such party in the
Merger Agreement were true and correct as of the consummation of the Merger
and that such party had performed its obligations under the Merger Agreement.
The Merger Agreements further provided that the sellers of the Operating
Companies will indemnify USA Floral from certain liabilities that may arise in
connection with the Mergers. 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 Merger, as security for the sellers'
indemnification obligations.
Pursuant to the Merger Agreements, options to purchase a number of shares of
Common Stock, equal to 6.25% of the cash and Common Stock portion of the
Merger consideration, were made available to employees of the Operating
Companies. Pursuant to the H&H Merger Agreement, Dwight Haight, a director of
the Company, received options to purchase an additional 25,000 shares of
Common Stock upon consummation of the H&H Merger. In addition, the UltraFlora
Merger 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 Recent 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 Merger Agreements provided that
the stockholders of the Founding Companies will have the right, to the extent
and under the circumstances specified in the Merger 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 (the "Houff Merger") for $11.0 million in cash. In
connection with the Houff Merger, Roy O. Houff, the Chief Executive Officer
and sole stockholder of Houff, became a director of the Company upon
appointment to the Board of Directors at its meeting in November 1997. Mr.
Houff entered into a two-year covenant not to compete with the Company and its
affiliates and a two-year employment agreement with Houff after the Houff
Merger. Immediately prior to the Houff Merger, Mr. Houff transferred the real
estate acquired in the Houff Merger and the indebtedness associated therewith
from himself to Houff.
CFX. USA Floral acquired all of the outstanding stock of CFX in a reverse
subsidiary merger (the "CFX 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 Merger) and 250,000 shares of Common Stock. In
connection with the CFX Merger, Dwight Haight, the President of CFX, became a
director of the Company upon appointment to the Board of Directors at its
meeting in November 1997. Mr. Haight entered into a two-year covenant not to
compete with the Company and its affiliates (subject to certain exceptions)
and a two-year employment agreement with CFX after the CFX Merger.
Bay State. USA Floral acquired all of the outstanding stock of Bay State in
a reverse subsidiary merger (the "Bay State Merger") for $6.0 million in cash
and 495,550 shares of Common Stock. In connection with the Bay State Merger,
William W. Rudolph, the President of Bay State, became a director of the
Company upon appointment to the Board of Directors at its meeting in November
1997. Mr. Rudolph entered into a two-year covenant not to compete with the
Company and its affiliates (subject to certain exceptions) and a two-year
employment agreement with Bay State after the Bay State Merger. Immediately
prior to the consummation of the Bay State Merger, Bay State distributed real
estate owned by Bay State to its stockholders. Bay State currently leases
certain properties from the former stockholders.
18
<PAGE>
Flower Trading. USA Floral acquired all of the outstanding stock of Flower
Trading in a reverse subsidiary merger (the "Flower Trading Merger") for $5.9
million in cash and 160,000 shares of Common Stock. In addition, the Company
assumed an estimated tax liability of Flower Trading of approximately $0.5
million. In connection with the Flower Trading Merger, Gustavo Moreno, the
President of Flower Trading, became a director of the Company upon appointment
to the Board of Directors at its meeting in November 1997. Mr. Moreno entered
into a two-year covenant not to compete with the Company and its affiliates
(subject to certain exceptions) and a two-year employment agreement with
Flower Trading after the Flower Trading Merger.
United Wholesale. USA Floral acquired all of the outstanding stock of United
Wholesale in a reverse subsidiary merger (the "United Wholesale Merger") for
$4.8 million in cash and 268,500 shares of Common Stock. In connection with
the United Wholesale Merger, Raymond R. Ashmore, the President of United
Wholesale, became a director of the Company upon appointment to the Board of
Directors at its meeting in November 1997. Mr. Ashmore entered into a two-year
covenant not to compete with the Company and its affiliates and a two-year
employment agreement with United Wholesale after the United Wholesale Merger.
United Wholesale leases real property from formerly-affiliated entities. The
underlying merger agreement granted the Company a five-year option to purchase
the real estate leased by United Wholesale from the affiliated entities.
American Florist. USA Floral acquired all of the outstanding stock of
American Florist in a reverse subsidiary merger (the "American Florist
Merger") for $4.8 million in cash. In connection with the American Florist
Merger, John T. Dickinson, the President of American Florist, became a
director of the Company upon appointment to the Board of Directors at its
meeting in November 1997. Mr. Dickinson entered into a two-year covenant not
to compete with the Company and its affiliates and a two-year employment
agreement with American Florist after the American Florist Merger. 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 paid through the issuance of
141,334 shares of Common Stock.
Monterey Bay. USA Floral acquired all of the outstanding stock of Monterey
Bay in a reverse subsidiary merger (the "Monterey Bay Merger") for $2.5
million in cash. In connection with the Monterey Bay Merger, Jeffrey Brothers,
the President of Monterey Bay, became a director of the Company upon
appointment to the Board of Directors at its meeting in November 1997. Mr.
Brothers entered into a two-year covenant not to compete with the Company and
a two-year employment agreement with Monterey Bay after the Monterey Bay
Merger. In addition, the stockholders of Monterey Bay 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 $3.0 million was paid through the issuance of
176,668 shares of Common Stock.
Alpine Gem. USA Floral acquired all of the outstanding stock of Alpine Gem
in a reverse subsidiary merger (the "Alpine Gem Merger") for: (i) $1.6 million
in cash; (ii) $42,000 in cash representing the amount of Alpine Gem's
accumulated adjustments account, which was distributed to the stockholders of
Alpine Gem immediately prior to the consummation of the Alpine Gem Merger; and
(iii) 160,000 shares of Common Stock. In connection with the Alpine Gem
Merger, John Q. Graham, Jr., the President of Alpine Gem, became a director of
the Company upon appointment to the Board of Directors at its meeting in
November 1997. Mr. Graham entered into a two-year covenant not to compete with
the Company and its affiliates and a two-year employment agreement with Alpine
Gem after the Alpine Gem Merger.
RECENT ACQUISITIONS
Continental Farms and Atlantic Bouquet. The Company acquired all of the
partnership interests in each of Continental Farms and Atlantic Bouquet (the
"Continental Farms Merger") for $27.5 million in cash and 1,642,671 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 Merger 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. In connection with the
Continental Farms Merger, John Vaughan,
19
<PAGE>
the grantor of one of three irrevocable trusts which held partnership
interests prior to the acquisition, became a director of the Company upon
appointment of the Board of Directors at its meeting in February 1998.
XL Group. The Company acquired all of the outstanding stock of XL Group in a
forward subsidiary merger (the "XL Group Merger") for $11.3 million in cash
and 660,938 shares of Common Stock. In connection with the XL Group Merger,
Peter F. Ullrich, the sole stockholder and president of XL Group, became
President and Chief Executive Officer of the Company's XL Group subsidiary.
Mr. Ullrich entered into a two-year covenant not to compete with the Company
and its affiliates and a two-year employment agreement with XL Group. In
addition to the consideration set forth above, Mr. Ullrich 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 ended 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 (the "Koehler & Dramm Merger")
for $5.0 million in cash and 298,596 shares of Common Stock. In connection
with the Koehler & Dramm Merger, Richard E. Dramm became President and Chief
Executive Officer of the Company's Koehler & Dramm subsidiary. Mr. Dramm
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 now operates Koehler & Dramm.
Everflora and Everflora Miami. The Company acquired all of the outstanding
stock of Everflora and Everflora Miami in a forward subsidiary merger (the
"Everflora Merger") for $4.0 million in cash and 246,654 shares of Common
Stock. In connection with the Everflora Merger, Peter Unverdorben, the sole
stockholder of both Everflora and Everflora Miami, became President and Chief
Executive Officer of the Company's Everflora and Everflora Miami subsidiaries.
Mr. Unverdorben 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 now operates Everflora.
UltraFlora. The Company acquired all of the outstanding stock of UltraFlora
in a reverse subsidiary merger (the "UltraFlora Merger") for $2.8 million in
cash and 163,281 shares of Common Stock. In connection with the UltraFlora
Merger, Paul Schwartz became President of the Company's UltraFlora subsidiary.
Mr. Schwartz entered into a two-year covenant not to compete with the Company
and its subsidiaries and a two-year employment agreement with UltraFlora after
the UltraFlora Merger. In addition to the consideration set forth above, the
former stockholders of UltraFlora will receive additional consideration
consisting of 354,417 shares of Common Stock valued at $6.0 million pursuant
to the earn-out provision contained in the UltraFlora Merger Agreement.
H&H Flowers. The Company acquired all of the outstanding stock of H&H
Flowers in a reverse subsidiary merger (the "H&H Flowers Merger") for $1.6
million in cash. In connection with the H&H Flowers Merger, James Hill, a
former stockholder, entered into a six-month consulting agreement with H&H.
Mr. Hill also entered into a two-year covenant not to compete with the Company
and its affiliates. In addition, the stockholders of H&H Flowers may receive a
contingent payment, based on H&H Flowers earnings before interest and taxes
for the fiscal year ended June 30, 1998. The contingent payment is payable in
shares of Common Stock.
20
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
since October 10, 1997. On February 27, 1998, the last sale price of the
Common Stock was $23.875 per share. As of February 27, 1998, there were
approximately 111 holders of record of the Company's 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). $21.25 $13.125
1998
First Quarter (January 1, 1998 to February 27, 1998)... $24.0625 $15.125
</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 of Directors and will depend upon, among other factors, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
considerations that the Company's Board of Directors deems relevant. In
addition, the Company's Credit Facility includes restrictions on the ability
of the Company to pay dividends without the consent of BT.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1997, on an actual basis and on a pro forma basis to reflect the
consummation of the acquisitions of the Recent Acquisitions and the issuance
of 3,366,558 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 DECEMBER 31, 1997
---------------------------
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term
debt.............................................. $ 290 $ 41,406
Long-term debt and capital lease obligations, less
current portion................................... 309 361
Stockholders' equity:
Common stock, $.001 par value per share,
authorized, shares issued and outstanding pro
forma, shares issued and outstanding pro forma as
adjusted.......................................... 9 13
Additional paid-in capital......................... 85,740 142,004
Retained earnings.................................. 416 416
----------- ------------
Total stockholders' equity...................... 86,165 142,433
----------- ------------
Total capitalization........................ $ 86,474 $ 142,794
=========== ============
</TABLE>
- --------
(1) Does not include: (i) 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; (ii) shares of Common Stock
equal to 15% of the shares of Common Stock outstanding from time to time
that are reserved for issuance under the Company's 1997 Long-Term
Incentive Plan, of which options to purchase (a) 1,009,515 shares of
Common Stock were issued as of December 31, 1997, (b) 562,190 shares of
Common Stock were issued in conjunction with the acquisitions of the
Recent Acquisitions, and (c) 409,000 shares of Common Stock were issued
after December 31, 1997 other than in conjunction with the acquisitions of
the Recent Acquisitions; (iii) 300,000 shares of Common Stock reserved for
issuance under the Company's 1997 Non-Employee Directors' Stock Plan, of
which options to purchase 63,000 are outstanding as of February 27, 1998;
(iv) 1,000,000 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan; and (v) 150,000 shares of
Common Stock reserved for issuance pursuant to agreements with employees
of the Operating Companies. See "Businesses of the Company--The Mergers,"
"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.
22
<PAGE>
SELECTED FINANCIAL DATA
On October 16, 1997, the Company acquired the Founding Companies
simultaneously with the consummation of its IPO. Additionally, in January 1998
the Company consummated the acquisitions of the Recent Acquisitions. The
following selected financial data represents (i) the actual historical
financial data for the Company, (ii) Pro Forma Founding Companies financial
data which gives effect to the IPO and the acquisition of the Founding
Companies as if they had occurred on January 1, 1997 and (iii) Pro Forma
Recent Acquisitions financial data which gives additional effect to the
consummation of the acquisitions of the Recent Acquisitions as if they had
been acquired 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 selected pro forma combined financial data should be
read in conjunction with the Unaudited Pro Forma Combined Financial Statements
and the notes thereto and the historical financial statements of the Company,
the Founding Companies and certain of the Recent Acquisitions and the notes
thereto included elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
APRIL 22, 1997
THROUGH
DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1997
----------------- --------------------------------------------
ACTUAL PRO FORMA PRO FORMA
USA FLORAL(1) FOUNDING COMPANIES(2) RECENT ACQUISITIONS(3)
----------------- --------------------- ----------------------
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Net sales............... $ 37,380 $ 184,124 $356,741
Gross profit............ 10,695 52,868 99,154
Selling, general and
administrative expense. 9,791 44,116 77,052
Goodwill amortization... 275 1,321 3,556
Operating income........ 629 7,431 18,546
Interest and other
(income) expense, net.. (277) (873) 2,175
Income before income
taxes.................. 906 8,304 16,371
Net income.............. $ 416 $ 4,454 $ 8,400
========= ========= ==========
Net income per share
(basic and diluted).... $ .09 $ .50 $ .63
========= ========= ==========
Shares used in computing
net income per share--
Basic(4)............... 4,734,198 8,845,711 13,278,610
Diluted(4)............. 4,824,097 8,944,382 13,377,281
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
PRO FORMA
ACTUAL(1) COMBINED(5)
----------- ------------
<S> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital (deficit).......................... $ 21,060 $ (23,145)
Total assets....................................... 107,248 218,454
Short-term debt.................................... 290 41,406
Total long term debt............................... 309 361
Stockholders' equity............................... 86,165 142,433
</TABLE>
- --------
(1) Represents the historical statement of operations data from April 1997
(inception) to December 31, 1997 and the financial position as of December
31, 1997 for the Company, which includes the Founding Companies subsequent
to their acquisition on October 16, 1997.
(2) Pro Forma Founding Companies represents statement of operations data for
the Company as if the IPO and the acquisitions of the Founding Companies
had been consummated as of January 1, 1997.
(3) Pro Forma Recent Acquisitions represents statement of operations data for
the Company as if the IPO and the acquisitions of the Founding Companies
and the Recent Acquisitions had been consummated as of January 1, 1997.
(4) For calculation of the shares used in computing pro forma net income per
share see Note 6 to the Unaudited Pro Forma Combined Financial Statements
included herein.
(5) Pro Forma Combined Balance Sheet Data assume that the acquisitions of the
Recent Acquisitions were consummated on December 31, 1997.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL CONDITION
AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company engages
primarily in the 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 1998 the Company consummated the acquisition
of the Recent Acquisitions in six 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 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 Mergers,
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.
24
<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.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<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 Mergers.
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.
PRO FORMA COMBINED RESULTS OF OPERATIONS FOR THE FOUNDING COMPANIES
The following discussion should be read in conjunction with the Unaudited
Pro Forma Combined Financial Statements and the related notes thereto, and the
historical financial statements of the Founding Companies and the related
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
<S> <C> <C>
Net Sales................................................. $184,124 100.0%
Cost of Sales............................................. 131,256 71.3
Selling, General and Administrative Expenses.............. 44,116 24.0
Goodwill Amortization..................................... 1,321 0.7
-------- -----
Operating Income.......................................... $ 7,431 4.0%
======== =====
</TABLE>
25
<PAGE>
Net Sales. Net sales increased to $184.1 million in the year ended December
31, 1997 ("Pro Forma 1997") from $175.5 million in the year ended December 31,
1996 ("'Pro Forma 1996"), an increase of $8.6 million, or 4.9%. This increase
was primarily driven by CFX and Flower Trading, which accounted for $4.5
million of the increase as a result of increased sales volume, obtaining
higher prices for certain products, and a fuel surcharge fee related to
airline shipments that was added to customer invoices, and a $2.5 million
increase at Monterey Bay as a result of increases in volume primarily due to
additional promotional activities. These increases were partially offset by a
decrease at Houff as a result of the closing of its wholesale distribution
facility in Atlanta, Georgia in October 1996.
Cost of Sales. Cost of sales increased to $131.3 million in Pro Forma 1997
from $126.2 million in Pro Forma 1996, an increase of $5.1 million, or 4.0%,
primarily as a result of the increases in net sales discussed above. As a
percentage of net sales, costs of sales decreased to 71.3% in Pro Forma 1997
from 71.9% in Pro Forma 1996. The decrease in cost of sales as a percentage of
net sales was primarily a result of the Founding Companies obtaining more
favorable prices, partially due to increased volume purchasing, better
inventory management and reduced freight costs.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $45.4 million in Pro Forma 1997 from $44.6 million in
Pro Forma 1996, an increase of $0.8 million, or 1.8%. The increase was
primarily a result of increased personnel costs to support the increases in
net sales discussed above. As a percentage of net sales, selling, general and
administrative expenses decreased to 24.0% in Pro Forma 1997 from 24.7% in Pro
Forma 1996, primarily as a result of spreading fixed costs over increased
sales.
Operating Income. As a result of the factors discussed above, operating
income was $7.4 million in Pro Forma 1997 which represented a net operating
margin of 4.0%. Due to the factors set forth in "--General," a comparison to
Pro Forma 1996 would not be meaningful.
PRO FORMA RESULTS OF OPERATIONS INCLUDING THE RECENT ACQUISITIONS
In January 1998 the Company consummated the acquisitions of the Recent
Acquisitions.
The following unaudited pro forma information presents the combined results
of operations of the Company, the Recent Acquisitions and the Founding
Companies, as if all Mergers and the Company's 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>
YEAR ENDED
DECEMBER 31,
1997
--------------
<S> <C> <C>
Net Sales................................................. $356,741 100.0%
Cost of Sales............................................. 257,587 72.2
Selling, General and Administrative Expenses.............. 77,052 21.6
Goodwill amortization..................................... 3,556 1.0
-------- -----
Operating Income.......................................... $ 18,546 5.2%
======== =====
</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 are not necessarily representative of the
Company's results of operations for any future period. Since the Recent
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 and the related notes thereto, and Note
14 to the historical financial statements of the Company, all of which appear
elsewhere in this Prospectus.
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 $95.8 million has been used to fund the
26
<PAGE>
cash portion of the consideration paid in connection with the Mergers. As of
December 31, 1997, the Company had cash and cash equivalents (on a pro forma
combined basis) of approximately $4.2 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 a $100.0 million Credit
Facility, with a $75.0 million sub-limit for permitted acquisitions and a
$10.0 million sub-limit for letters of credit. The Credit Facility is provided
by various lenders, for whom BT is the agent. Amounts outstanding under the
Credit Facility bear interest, at the Company's option, at either BT's base
rate plus an applicable margin of up to 0.625% or a Eurodollar rate plus an
applicable margin of up to 1.875%. As of February 27, 1998, the effective
interest rate on outstanding indebtedness was 7.15%. The Company's obligations
under the Credit Facility are guaranteed by the direct and indirect domestic
subsidiaries of the Company and by any applicable foreign subsidiaries. The
Credit Facility is secured by a first priority pledge of all of the notes and
capital stock owned by the Company and such guarantors, and a first priority
security interest in all other assets of the Company and such guarantors. The
Credit Facility contains customary conditions to the initial borrowings and to
all subsequent loans, including satisfactory documentation and capital
structure, receipt of required consents, absence of material adverse effect,
absence of material litigation, solvency, accuracy of representations and
warranties and, as to the initial borrowings, satisfactory completion of due
diligence by the lenders. The Credit Facility contains customary covenants,
including restrictions on other indebtedness, restrictions on mergers,
acquisitions, dispositions and similar transactions within certain parameters
(including an aggregate limit upon the cash consideration to be paid of $25.0
million, subject to certain exceptions, which limit was waived by BT in order
to effect the Continental Farms Merger), 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 February 27, 1998, the Company had
outstanding indebtedness of $47.5 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. 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 Facility. 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 Recent
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
requirements at least through 1998. To the extent that the Company is
successful in consummating future acquisitions, if any, it may be necessary to
finance such acquisitions through the issuance of additional equity
securities, incurrence of indebtedness, or a combination of both.
SEASONALITY AND CYCLICALITY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Unit sales of floral products have historically been seasonal, concentrated
primarily in the first and second calendar quarters as a result of holidays
such as Valentine's Day and Mother's Day. In particular, a significant portion
of the Company's revenues are derived from sales of floral products for
Valentine's Day. Historically,
27
<PAGE>
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 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............... $54,788 $48,215 $36,475 $44,646 $184,124
Percentage of annual net
sales.................. 29.8% 26.2% 19.8% 24.2% 100.0%
</TABLE>
28
<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.
29
<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............. 315 524 224 233 476 421 406
</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.
30
<PAGE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END DECEMBER 31,
----------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<CAPTION>
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.
31
<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 Mergers, certain employee-stockholders entered into employment agreements
and the aggregate compensation paid to stockholders of the Founding Companies
was reduced. As a result of varying practices regarding compensation to
employee-stockholders among the Founding Companies, the comparison of
operating margins among the Founding Companies and from period to period in
respect of a particular Founding Company may be difficult.
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> <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 primarily resulted
from the closing of Houff's wholesale distribution facility in Atlanta,
Georgia in October 1996,
32
<PAGE>
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 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.
33
<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 H&H Flowers, Inc., 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 Merger hold ownership
interests. Neither the operations of H&H Flowers nor the Colombian farms were
acquired in connection with the CFX Merger, although the operations of H&H
Flowers subsequently were acquired by the Company in the Recent 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>
34
<PAGE>
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 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 Merger.
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.
35
<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.
36
<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
37
<PAGE>
increase of $2.1 million, or 37.1%. This increase resulted primarily from
costs associated with the opening of the Providence, Rhode Island facility and
increased sales efforts at the Cromwell, Connecticut facility. As a percentage
of net sales, selling general and administrative expenses increased to 29.6%
in the year ended December 31, 1995 from 28.8% in the year ended December 31,
1994. Selling, general and administrative expenses include compensation paid
to employee-stockholders totaling $0.8 million in the year ended December 31,
1995 and $0.7 million in the year ended December 31, 1994.
Operating Income. As a result of the factors discussed above, operating
income 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 Merger. Flower Trading imposes
a surcharge upon certain flowers that are or may become subject to an anti-
dumping liability and reserves that amount against the possibility that a duty
will be imposed.
Results of Operations
The following table sets forth selected financial data and data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED 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.
38
<PAGE>
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 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 Merger.
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.
39
<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 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 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>
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- --------------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ----------------- -----------------
(IN THOUSANDS)
<S> <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%
Cost of Sales........ 11,556 64.3 12,563 66.0 12,862 65.4 2,532 65.6 2,760 65.5
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
------- ----- ------- ----- ------- ----- -------- ------- -------- -------
Operating Income..... $ 503 2.8% $ 366 1.9% $ 765 3.9% $ 32 0.8% $ 19 0.5%
======= ===== ======= ===== ======= ===== ======== ======= ======== =======
<CAPTION>
JULY 1, 1997
THROUGH
OCTOBER 15, 1997
----------------
<S> <C> <C>
Net Sales............ $ 5,024 100.0%
Cost of Sales........ 3,173 63.2
Selling, General and
Administrative
Expenses............ 1,827 36.4
-------- --------
Operating Income..... $ 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.
40
<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
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.
41
<PAGE>
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>
- --------
(1) The financial data for 1994 reflect eight months of operations.
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 increase of $0.2 million,
or 7.6%. As a percentage of net sales, selling, general and administrative
expenses
42
<PAGE>
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>
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............... $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>
43
<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.
44
<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%
====== ===== ====== ===== ======== ======= ======== ======= ====== =====
<CAPTION>
---------------
<S> <C> <C> <C> <C>
Net sales..............
Cost of sales..........
Selling, general and
administrative
expenses..............
Operating income.......
</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.
45
<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.
46
<PAGE>
BUSINESS
OVERVIEW
USA Floral was founded in April 1997 to create a national consolidator and
operator of floral products distribution businesses. The Company commenced
operations on October 16, 1997, the date of the consummation of the IPO and
the acquisition of the Founding Companies. In January 1998, the Company
consummated the acquisition of the Recent 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 1,600 employees
and serves thousands of customers nationwide from 43 facilities in 20 states
and the District of Columbia. For the year ended December 31, 1997, the
Company (excluding the Recent Acquisitions), had pro forma combined revenues
of $184.1 million, pro forma combined operating income of $7.4 million and pro
forma combined net income of $4.5 million.
INDUSTRY OVERVIEW
The floriculture industry produces, distributes and markets fresh-cut
flowers and greens, potted plants and floral related hardgoods such as vases
and glassware, foam for flower arranging, and tools and supplies. Through a
network of importers, brokers, shippers and wholesalers, flowers are brought
from growing regions throughout the United States and in countries around the
world to consumers who purchase from retail florists and mass-market
distributors such as supermarkets and discount stores.
Fresh flowers are grown commercially at farms around the world. Principal
sources of supply for the United States market are growers in Colombia and
Ecuador in South America, Costa Rica and Mexico in 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 are 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.
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
47
<PAGE>
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. Since the freshest, highest-quality flowers command the highest
prices, the distribution system effectively rewards the growers that produce
the best flowers, the importers and brokers that clear and match flowers with
buyers most efficiently, and the wholesalers and bouquet companies that store
and preserve flowers most effectively and bring the best products to market
most quickly.
The distribution channel in the floriculture industry is highly fragmented,
and consists mainly of small, family-owned firms that operate from a single
location or from a small number of outlets in a single region. While floral
products have historically been sold at retail through a large number of
traditional florists, who continue to serve the majority of consumers, the
Company believes, based upon the experience of 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
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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 1998, the Company
consummated the acquisition of the Recent 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.
THE 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.
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
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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.
RECENT 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-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.
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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 have 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.
H&H Flowers. Founded in 1982, H&H Flowers, which does business under the
name "La Fleurette," assembles and sells floral bouquets and other
arrangements to supermarkets. H&H Flowers purchases the majority of the fresh-
cut flowers used in its bouquets from importers and sells them to
approximately 26 supermarkets. H&H Flowers currently employs approximately 76
people at its headquarters in Miami, Florida. H&H Flowers' annual revenues in
1997 were $17.7 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, and Ultraflora, 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 and Everflora Miami 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;
and in Minnesota, Missouri, Wisconsin, Iowa, North Dakota, South Dakota,
Kansas and Nebraska through Koehler & Dramm. 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 and H&H Flowers, 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 also distributes 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 339 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
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.
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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 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 February 27, 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
CFX..................... Miami, FL Headquarters, Sales Office, Leased
Distribution Facility
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
OWNED OR
COMPANY LOCATION PRINCIPAL USE LEASED
- ------- -------- ------------- --------
<S> <C> <C> <C>
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
H&H Flowers............. Miami, FL Headquarters, Sales Office and Leased
Bouquet Manufacturing Facility
</TABLE>
The Company believes that its facilities are adequate for the Company's
current operations.
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EMPLOYEES
As of February 27, 1998, the Company employed approximately 1,600 people.
Approximately 970 employees were engaged in operations, 370 were engaged in
sales, and 260 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 February 27, 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 38 President of Monterey Bay and a Director
John T. Dickinson 36 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
Vincent W. Eades 39 Director
Edward J. Mathias 56 Director
John A. Quelch 46 Director
John Vaughan 63 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
Non-Executive Chairman of the Board and a director of UniCapital Corporation,
a company formed to create a national consolidator and operator equipment
leasing and specialty finance business 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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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 Merger 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 Merger 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 Brothers, Inc., a wholesale flower distributor.
John T. Dickinson has served as President of the Company's American Florist
operating unit since the American Florist Merger and 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 Merger 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 Merger 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 H&H Flowers, 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 Merger 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 Merger 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 Merger 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.
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.
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.
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John A. Quelch has been a director of the Company since July 1997. Dr.
Quelch is also a director of 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.
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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to
conduct the annual audit of the books and records of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid,
reviewing accounting and financial controls of the Company with the
independent public accountants and the Company's financial and accounting
staff, and reviewing and approving transactions between the Company and its
directors, officers and affiliates. Messrs. 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." 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 of Directors. Messrs. Ledecky and Mathias
are the members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers,
employees or consultants of the Company are entitled to receive an annual
retainer fee of $25,000, plus reimbursement of expenses for each meeting of
the Board of Directors and each committee meeting that they attend in person.
In addition, non-employee directors receive certain formula grants of non-
qualified stock options under the 1997 Non-Employee Directors' Stock Plan. See
"--1997 Non-Employee Directors' Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Ledecky and Mathias.
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth information regarding compensation of the
Company's Chief Executive Officer and other executive officers whose
compensation is required to be disclosed (the "Named Executive Officers") of
the Company for the year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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 $0 50,000
Chief Financial Officer
</TABLE>
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to the grant
of options to the Named Executive Officers during 1997 and the value of
options held at December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM (3)
-----------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/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% $8.00 10/2007 658,781 1,285,932
</TABLE>
- --------
(1) Options to purchase 60,000 shares are immediately exercisable. All other
options will vest in 25% annual installments over four years commencing on
the first anniversary date of grant.
(2) All options vest in 25% annual installments over four years commencing on
the first anniversary date of grant.
(3) The potential realizable value is based on the assumed annual rates of
stock price appreciation being applied to the above exercise prices. Such
information is shown for informational purposes and does not represent an
estimate or prediction of the Company's future stock price.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE TABLE
The following table summarizes the value at December 31, 1997 of all shares
subject to options granted to the Named Executed Officers of the Company to
the extent not then exercised, and information concerning option exercises, if
any, during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
------------------------------- -------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ----- -------- -------- ------------- -------------- ----------- -------------
<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 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
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<PAGE>
(as defined in the Incentive Plan), certain conditions and restrictions
relating to an award with respect to the exercisability or settlement of such
award will lapse.
The Compensation Committee will administer the Incentive Plan and generally
select the individuals who will receive awards. In addition, the Compensation
Committee will determine the type and number of awards and the terms and
conditions of those awards (including exercise prices, vesting and forfeiture
conditions, performance conditions and periods during which awards will remain
outstanding). The Incentive Plan also provides that no participant may be
granted in any calendar year awards which may be settled by delivery of more
than 750,000 shares and limits payments under cash-settled awards in any
calendar year to an amount equal to the fair market value of that number of
shares.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the
Incentive Plan, except that (i) no deduction is permitted in connection with
ISOs if the participant holds the shares acquired upon exercise for the
required holding periods, and (ii) deductions for some awards could be limited
under the $1.0 million deductibility cap of Section 162(m) of the Internal
Revenue Code. This limitation, however, should not apply to awards granted
under a plan during a grace period of up to three years following the
Offering, and should not apply to certain options, SARs and performance-based
awards granted thereafter if the Company complies with certain requirements
under Section 162(m).
The Incentive Plan will remain in effect until terminated by the Board. The
Incentive Plan may be amended by the Board without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 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 of Directors
or the effective date of the registration statement relating to the IPO, and
(ii) an option to purchase 6,000 shares on the day after each annual meeting
of the Company's stockholders. A total of 300,000 shares are reserved for
issuance under the Directors' Plan. The number of shares reserved, as well as
the number to be subject to automatically granted options, will be adjusted in
the event of stock splits, stock dividends and certain other corporate events.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant (in the
case of Initial Grants upon the effective date of the registration statement
relating to the IPO, the IPO price per share). Options will expire at the
earlier of 10 years from the date of grant or one year after termination of
service as a director. Options will vest and become exercisable ratably, 50%
six months after the date of initial grant and 50% one year after the date of
initial grant. In the event of a change in control of the Company (as defined
in the Directors' Plan) prior to normal vesting, all options not already
exercisable would become fully vested and exercisable under the Directors'
Plan. A non-employee director's death would also cause immediate vesting of
his or her non-vested options. In addition, the Directors' Plan permits non-
employee directors to elect to receive, in lieu of cash directors' fees,
nonforfeitable shares or nonforfeitable credits representing "deferred shares"
settleable at future dates, as elected by the director. The number of shares
or "deferred shares" received will be equal to the number of shares which, at
the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees. Each "deferred share" will be
settled by delivery of a share of Common Stock at such time as may have been
elected by the director prior to the deferral.
The Directors' Plan will remain in effect until terminated by the Board or
until no shares of Common Stock are available for issuance under the
Directors' Plan. The Directors' Plan may be amended by the Board without
60
<PAGE>
the consent of the stockholders of the Company, except that any amendment,
although effective when made, will be subject to stockholder approval if
required by any federal or state law or regulation or by the rules of any
stock exchange or automated quotation system on which the Common Stock may
then be listed or quoted.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 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. 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
61
<PAGE>
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 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 Mergers
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 MERGERS
Simultaneously with the consummation of the IPO, USA Floral acquired in
eight separate transactions all of the issued and outstanding capital stock of
each of the Founding Companies, and in January 1998 the Company consummated
the acquisitions of the Recent Acquisitions in six separate transactions. The
aggregate consideration paid for the Operating Companies was $168.8 million,
which consisted of: (i) $95.8 million in cash paid to the stockholders (or
partners, as the case may be) of the Operating Companies and (ii) $73.0
million fair value (based upon the prices of the Common Stock issued in the
Mergers) of 4,664,192 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 Merger
Agreements with XL Group and H&H Flowers. The Company is required to pay
additional earn-out consideration in the form of 354,417 shares of Common
Stock valued at $6.0 million pursuant to the UltraFlora Merger 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 Merger 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 Recent Acquisition was subject to substantially the
same terms and conditions as those to which the acquisition of each other
Recent Acquisition was subject. The following table contains information
concerning the aggregate cash paid and Common Stock issued in connection with
the Mergers:
63
<PAGE>
<TABLE>
<CAPTION>
SHARES OF VALUE OF SHARES TOTAL
OPERATING COMPANY CASH COMMON STOCK OF COMMON STOCK CONSIDERATION
- ----------------- ----- ------------ --------------- -------------
(IN MILLIONS, EXCEPT SHARES)
<S> <C> <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........ 4.8 141,334 2.4 7.2
Monterey Bay............ 3.0 176,668 3.0 6.0
Alpine Gem.............. 1.6 160,000 2.1 3.7
Continental Farms and
Atlantic Bouquet....... 27.5 1,642,671 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.............. 2.8 163,281 2.8 5.6(4)
H&H Flowers............. 1.6 -- -- 1.6(5)
----- --------- ----- ------
Total................. $95.8 4,664,192 $73.0 $168.8
===== ========= ===== ======
</TABLE>
- --------
(1) Does not include an estimated tax liability of approximately $0.5 million
payable after consummation of the Flower Trading Merger, which was assumed
by the Company in connection.
(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 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 ended December 31, 1998 and in no event
will be greater than $4.0 million.
(4) The sellers of UltraFlora entered into an earn-out arrangement pursuant to
which they shall receive additional consideration consisting of 354,417
shares of Common Stock valued at $6.0 million. The earn-out is based upon
UltraFlora's 1997 earnings before interest and taxes. This amount is not
included in the table above.
(5) The sellers of H&H Flowers 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 H&H Flowers' 1998 earnings before
interest and taxes for the year ending June 30, 1998.
The consummation of each Merger 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 Merger
Agreement that the representations and warranties made by such party in the
Merger Agreement were true and correct as of the consummation of the Merger
and that such party had performed its obligations under the Merger Agreement.
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<PAGE>
The Merger Agreements further provided that the sellers of the Operating
Companies will indemnify the Company from certain liabilities that may arise
in connection with the Mergers. 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 Merger, as security for the sellers'
indemnification obligations. Pursuant to the Merger Agreements, options to
purchase a number of shares of Common Stock, equal to 6.25% of the cash and
Common Stock portion of the Merger consideration, were made available to
employees of the Operating Companies. In addition, pursuant to the H&H Merger
Agreement, Dwight Haight, a director of the Company, received options to
purchase 25,000 shares of Common Stock upon consummation of the H&H Merger.
Also, the UltraFlora Merger 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 Recent 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 Merger Agreements provided that
the stockholders of the Founding Companies will have the right, to the extent
and under the circumstances specified in the Merger Agreements, to register
the shares of Common Stock received by the stockholders. See "Risk Factors--
Shares Eligible for Future Sale."
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 of
Houff, became a director of the Company upon appointment to the Board of
Directors at its meeting in November 1997. Mr. Houff entered into a two-year
covenant not to compete with the Company and its subsidiaries and a two-year
employment agreement with the subsidiary of the Company that operates the
Houff business after the Houff Merger.
Mr. Houff is the sole stockholder of RHI Industries, Inc. ("RHI
Industries"). Houff paid management fees, vehicle lease payments and health
insurance premiums to RHI Industries, which payments totaled $0.9 million for
the period January 1, 1997 through October 15, 1997. All payments to RHI
Industries terminated upon consummation of the Merger. Houff leased six of its
seven facilities from Mr. Houff. Lease payments totaled $0.4 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 Merger 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 Merger)
and 250,000 shares of Common Stock. In connection with the CFX Merger, Dwight
Haight, the President of CFX, became a director of the Company upon
appointment to the Board of Directors 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 Merger.
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.
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<PAGE>
Mr. Haight also owned 50% of H&H Flowers which was recently acquired by the
Company, a bouquet manufacturer with which CFX conducts business. Sales to and
purchases from H&H Flowers for the period January 1, 1997 to October 15, 1997
totaled $2.67 million. CFX provides management services to H&H Flowers, for
which services H&H Flowers 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 Merger Agreement provides that,
upon consummation of the Merger, 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
Merger, CFX advanced funds to Mr. Haight. All amounts due to CFX from Mr.
Haight were repaid to CFX upon consummation of the CFX Merger.
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 Merger, 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 compete with
the Company and its affiliates (subject to certain exceptions) and a two-year
employment agreement with the subsidiary of the Company that operates the Bay
State business after the Bay State Merger.
Mr. Rudolph owns 8.7% of Cromwell Floral Properties LLC ("Cromwell"), which
is the owner of a building in Cromwell, Connecticut from which Bay State
operates a wholesale distribution facility. Bay State made rental payments to
Cromwell in the amount of $0.1 million for the 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 10
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 Merger, 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
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<PAGE>
shares of Common Stock for his shares of capital stock of Flower Trading. Mr.
Moreno entered into a two-year covenant not to compete with the Company and
its affiliates (subject to certain exceptions) and a two-year employment
agreement with the subsidiary of the Company that operates the Flower Trading
business after the Merger.
Flower Trading previously owned a 75% interest in UltraFlora, which was
transferred to Seacross Trading Inc. prior to the Flower Trading Merger 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 Merger, 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 Merger.
Mr. Ashmore owns 33% of United Properties, an entity from which United
Wholesale leases eight of its facilities. Lease payments made by United
Wholesale to United Properties in the year ended 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.
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 Merger, 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 Merger, 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 Merger. 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 141,334 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.
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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 Merger, 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 Merger. 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 176,668 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
Merger, 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
Merger. Mr. Graham received options to purchase 50,000 shares of Common Stock
at an exercise price per share equal to the initial public offering price of
$13.00 per share.
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
on 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 Merger
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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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 27, 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 10.1
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 8.2
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.............................. 866,000 6.7
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........................................... 74,667 *
John T. Dickinson............................................. 141,334 1.1
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).......... 3,111,731 23.7
</TABLE>
- --------
*Less than 1%
(1) Includes 100,000 shares which may be acquired within 60 days of February
27, 1998 pursuant to the exercise of options.
(2) Includes 60,000 shares which may be acquired within 60 days of February
27, 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 such trusts' shares.
(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 February
27, 1998 pursuant to the exercise of options.
(5) Includes 10,500 shares which may be acquired within 60 days of February
27, 1998 pursuant to the exercise of options. Also includes 50,000 shares
owned by Mr. Mathias' daughter. Mr. Mathias disclaims beneficial ownership
of all such shares.
(6) Includes 10,500 shares which may be acquired within 60 days of February
27, 1998 pursuant to the exercise of options.
(7) Includes an aggregate of 191,500 shares which may be acquired within 60
days of February 27, 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 of
Directors of the Company into three classes, each class to be as nearly equal
in number of directors as possible. At each annual meeting of stockholders,
directors in each class will be elected for three-year terms to succeed the
directors of that class whose terms are expiring. Messrs. Ashmore, Haight,
Houff and Rudolph 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.
REGISTRATION RIGHTS
Pursuant to the Founding Company Merger Agreements, the Company granted to
the recipients of Common Stock in the Founding Company Mergers the right to
include all or a portion of the shares of Common Stock
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<PAGE>
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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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of February 27, 1998, 12,924,193 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 3,012,141 shares issued to non-affiliates in
the Recent 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 Merger Agreements for the Recent Acquisitions.
Further, 3,862,052 shares of Common Stock issued to the stockholders of the
Founding Companies will be available for resale at various dates after April
7, 1998, upon expiration of applicable lock-up agreements and subject to
compliance with Rule 144. Of those shares, 3,972,052 may be included in
certain registration statements that may be filed by the Company, in
accordance with piggyback registration rights. Further, 2,193,705 shares of
Common Stock are issuable upon the exercise of stock options, granted or to be
granted, of which options to purchase 160,000 shares are currently
exercisable. The Company has filed a registration statement on Form S-8 to
register the issuance of the shares issuable upon the exercise of certain of
such options. In addition, the 9,487,859 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.
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<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 accounting and auditing.
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 accounting and auditing.
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-3
Consolidated Balance Sheet............................................ F-4
Consolidated Statement of Operations.................................. F-5
Consolidated Statement of Stockholders' Equity........................ F-6
Consolidated Statement of Cash Flows.................................. F-7
Notes to Consolidated Financial Statements............................ F-8
U.S.A. FLORAL PRODUCTS, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements..... F-20
Unaudited Pro Forma Combined Balance Sheet............................ F-21
Unaudited Pro Forma Combined Statement of Operations.................. F-22
Notes to Unaudited Pro Forma Combined Financial Statements............ F-23
FOUNDING COMPANIES
ALPINE GEM FLOWER SHIPPERS, INC.
Report of Independent Accountants..................................... F-28
Balance Sheet......................................................... F-29
Statement of Operations............................................... F-30
Statement of Stockholders' Equity..................................... F-31
Statement of Cash Flows............................................... F-32
Notes to Financial Statements......................................... F-33
THE ROY HOUFF COMPANY
Report of Independent Accountants..................................... F-35
Balance Sheet......................................................... F-36
Statement of Operations............................................... F-37
Statement of Stockholder's Equity..................................... F-38
Statement of Cash Flows............................................... F-39
Notes to Financial Statements......................................... F-40
BAY STATE FLORIST SUPPLY, INC.
Report of Independent Accountants..................................... F-45
Balance Sheet......................................................... F-46
Statement of Operations............................................... F-47
Statement of Stockholders' Equity..................................... F-48
Statement of Cash Flows............................................... F-49
Notes to Financial Statements......................................... F-50
MONTEREY BAY BOUQUET, INC.
Report of Independent Accountants..................................... F-55
Combined Balance Sheet................................................ F-56
Combined Statement of Operations...................................... F-57
Combined Statement of Stockholders' Equity............................ F-58
Combined Statement of Cash Flows...................................... F-59
Notes to Combined Financial Statements................................ F-60
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FLOWER TRADING CORPORATION
Report of Independent Accountants.................................... F-65
Consolidated Balance Sheet........................................... F-66
Consolidated Statement of Operations................................. F-67
Consolidated Statement of Stockholders' Equity....................... F-68
Consolidated Statement of Cash Flows................................. F-69
Notes to Consolidated Financial Statements........................... F-70
UNITED WHOLESALE FLORISTS, INC.
Report of Independent Accountants.................................... F-76
Combined Balance Sheet............................................... F-77
Combined Statement of Operations..................................... F-78
Combined Statement of Stockholders' Equity........................... F-79
Combined Statement of Cash Flows..................................... F-80
Notes to Combined Financial Statements............................... F-81
AMERICAN FLORIST SUPPLY, INC.
Report of Independent Accountants.................................... F-87
Balance Sheet........................................................ F-88
Statement of Operations.............................................. F-89
Statement of Stockholders' Equity.................................... F-90
Statement of Cash Flows.............................................. F-91
Notes to Financial Statements........................................ F-92
CFX, INC.
Report of Independent Accountants.................................... F-97
Independent Auditors' Report......................................... F-98
Balance Sheet........................................................ F-99
Statement of Operations.............................................. F-100
Statement of Stockholders' Equity.................................... F-101
Statement of Cash Flows.............................................. F-102
Notes to Financial Statements........................................ F-103
RECENT ACQUISITIONS
CONTINENTAL FARMS LIMITED and ATLANTIC BOUQUET COMPANY LIMITED
Report of Independent Certified Public Accountants................... F-109
Consolidated Balance Sheet........................................... F-110
Consolidated Statement of Operations................................. F-111
Consolidated Statement of Stockholders' Equity and
Partners' Capital................................................... F-112
Consolidated Statement of Cash Flows................................. F-113
Notes to Financial Statements........................................ F-114
XL GROUP, INC.
Report of Independent Certified Public Accountants................... F-121
Balance Sheet........................................................ F-122
Statement of Operations.............................................. F-123
Statement of Stockholder's Equity.................................... F-124
Statement of Cash Flows.............................................. F-125
Notes to Financial Statements........................................ F-126
KOEHLER & DRAMM, INC.
Report of Independent Accountants.................................... F-130
Balance Sheet........................................................ F-131
Consolidated Statement of Operations................................. F-132
Consolidated Statement of Stockholders' Equity....................... F-133
Consolidated Statement of Cash Flows................................. F-134
Notes to Consolidated Financial Statements........................... F-135
</TABLE>
F-2
<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-3
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 15,582
Accounts receivable, net............................................. 18,505
Inventory............................................................ 4,937
Due from related parties............................................. 1,153
Prepaid income taxes................................................. 52
Prepaid expenses..................................................... 959
--------
Total current assets................................................ 41,188
Property and equipment, net........................................... 8,726
Due from related parties.............................................. 994
Deferred income taxes................................................. 394
Goodwill, net......................................................... 52,569
Deferred financing costs, net......................................... 1,696
Other assets.......................................................... 1,681
--------
Total assets........................................................ $107,248
========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt...................................................... $ 290
Accounts payable..................................................... 9,824
Accrued expenses..................................................... 2,910
Due to stockholders.................................................. 6,060
Income taxes payable................................................. 1,008
Due to related parties............................................... 36
--------
Total current liabilities........................................... 20,128
Long-term debt........................................................ 309
Deferred income taxes................................................. 97
Other................................................................. 549
--------
Total liabilities................................................... 21,083
--------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 100,000 shares authorized; 9,594
shares issued and outstanding....................................... 9
Additional paid-in capital........................................... 85,740
Retained earnings.................................................... 416
--------
Total stockholders' equity.......................................... 86,165
--------
Total liabilities and stockholders' equity.......................... $107,248
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 22, 1997 (INCEPTION) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Net sales.............................................................. $37,380
Cost of sales.......................................................... 26,685
-------
Gross profit.......................................................... 10,695
Selling, general and administrative expenses........................... 9,791
Goodwill amortization.................................................. 275
-------
Income from operations................................................ 629
Other (income) expense:
Interest expense...................................................... 8
Interest income....................................................... (248)
Other, net............................................................ (37)
-------
Income before income taxes............................................. 906
Provision for income taxes............................................. 490
-------
Net income............................................................. $ 416
=======
Net income per share:
Basic................................................................. $ .09
=======
Diluted............................................................... $ .09
=======
Weighted average number of common shares
Basic................................................................. 4,734
=======
Diluted............................................................... 4,824
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 22, 1997 (INCEPTION) TO DECEMBER 31, 1997
(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....................... 2,400 $ 2 $ 398 $-- $ 400
Issuance of 5,750 shares of
Common Stock in initial public
offering...................... 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 ac-
quisitions.................... 1,334 1 17,341 -- 17,342
Net income..................... -- -- -- 416 416
----- --- ------- ---- -------
Balance at December 31, 1997... 9,594 $ 9 $85,740 $416 $86,165
===== === ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE U.S.A. FLORAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 22, 1997 (INCEPTION) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.......................................................... $ 416
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization...................................... 290
Amortization of goodwill........................................... 275
Amortization of deferred financing costs........................... 73
Loss on disposal of property and equipment......................... (9)
Deferred income taxes.............................................. 43
Change in operating assets and liabilities:
Accounts receivable............................................... (214)
Inventory......................................................... 1,299
Due from related parties.......................................... 781
Prepaid expenses and other current assets......................... (112)
Other assets...................................................... 238
Income taxes payable.............................................. (312)
Other liabilities................................................. (45)
Accounts payable and accrued expenses............................. (3,495)
--------
Net cash used in operating activities: (772)
--------
Cash flows from investing activities:
Purchases of property and equipment................................. (543)
Payments for purchase of founding companies, net of cash acquired... (39,819)
Deferred acquisition costs.......................................... (647)
--------
Net cash used in investing activities: (41,009)
--------
Cash flows from financial activities:
Increase in deferred financing costs................................ (1,769)
Repayments on long-term debt........................................ (5,700)
Principal payments on capital lease obligations..................... (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 options......................... 1,430
Proceeds from the issuance of Common Stock.......................... 400
--------
Net cash provided by financing activities......................... 57,363
--------
Net increase in cash and cash equivalents and cash and cash equiva-
lents--end of the period............................................ $ 15,582
========
See Note 12 for supplemental cashflow information.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<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
inter-company 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-8
<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-9
<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 318,002 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........ 4,787 268,500 3,491 8,278 2,297 5,981
American Florist........ 4,800 141,334 2,400 7,200 249 6,951
Monterey Bay............ 3,000 176,668 3,000 6,000 705 5,295
Alpine Gem.............. 1,600 160,000 2,080 3,680 215 3,465
------- --------- ------- ------- ------- -------
Total................. $43,679 1,652,052 $22,743 $66,422 $13,578 $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-10
<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 the
greater of $8.00 per share or 60% of the initial public offering price.
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-11
<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, 20% per year, over the five-year period following the date of grant
of the options, subject to acceleration by the Board. In the event of a change
in control of the Company prior to normal vesting, all options not already
exercisable would become fully vested and exercisable.
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............................. 150,000 13.00 $ 1,950
========= =======
</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-12
<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,
1997
------------
<S> <C>
Perishables................................................. $ 523
Hardgoods................................................... 4,414
------
$4,937
======
</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-13
<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 limit on acquisition loans and a
$25,000 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 credit 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 Credit 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-14
<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 Columbia. These related entities
ensure that the Company has a reliable source of fresh-cut flowers in
Columbia. 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
Columbia, 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-15
<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 eight 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-16
<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>
<S> <C>
Cash paid during the year for interest............................. $ 100
=======
Cash paid during the year for income taxes......................... $ 225
=======
Supplemental disclosure of non-cash transactions:
Business acquisitions:
Cash paid for business acquisitions............................... $43,679
Less: cash acquired............................................... 3,861
-------
Cash paid for business acquisitions, net.......................... 39,818
Issuance of common stock for business acquisitions................ 22,743
-------
62,561
Fair value of net assets acquired, net of cash.................... 9,717
-------
$52,844
=======
</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-17
<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 markets 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 $6,000 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, 1997. The estimated resultant
354,417 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, "La Fleurette" 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-18
<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 $ 5,791 $49,209
XL Group, Inc........... 11,250 660,938 11,000 22,250 5,604 16,646
Koehler & Dramm......... 5,000 298,596 5,000 10,000 3,832 6,168
Everflora and Everflora,
Miami.................. 4,000 246,654 4,000 8,000 2,846 5,154
H & H Flowers, DBA as La
Fluerette.............. 1,600 -- -- 1,600 (720) 2,320
UltraFlora.............. 2,750 517,698 8,768 11,518 1,607 9,911
------- --------- ------- -------- ------- -------
Total................. $52,100 3,366,558 $56,268 $108,368 $18,960 $89,408
======= ========= ======= ======== ======= =======
</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.............................................. $356,741
Operating income....................................... 18,546
Net income............................................. 8,400
Net income per share--basic and diluted................ $ .63
</TABLE>
F-19
<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 acquisitions completed through January 28, 1998 by U.S.A. Floral Products,
Inc. ("USA Floral").
The unaudited pro forma combined balance sheet gives 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 ("Ultra Flora")
(collectively the "Recent Acquisitions"), consummated in January 1998 as if
all such acquisitions had occurred as of the Company's most recent balance
sheet date, December 31, 1997.
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 in January
1998 of the Recent 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 and XL Group for the year ended December
31, 1997; and (iv) unaudited financial statements for Koehler & Dramm whose
fiscal year end is July 31, and for Everflora, H&H Flowers and UltraFlora
(collectively the "Other Acquisitions") for the year ended December 31, 1997.
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.
F-20
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
USA CONTINENTAL XL KOEHLER & OTHER ADJUSTMENTS PRO FORMA
FLORAL FARMS GROUP DRAMM ACQUISITIONS (SEE NOTE 3) COMBINED
-------- ----------- ------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents.................. $ 15,582 $ 8,124 $1,200 $ 339 $ 556 $(21,582) $ 4,219
Accounts receivable,
net.................... 18,505 6,165 2,858 2,637 7,265 -- 37,430
Inventory............... 4,937 693 -- 1,654 930 -- 8,214
Due from related par-
ties................... 1,153 -- 4,658 -- -- (5,740) 71
Prepaid expenses and
other.................. 1,011 34 47 110 460 -- 1,662
-------- ------- ------ ------ ------- -------- --------
Total current assets.. 41,188 15,016 8,763 4,740 9,211 (27,322) 51,596
Property and equipment,
net.................... 8,726 4,031 692 576 1,293 1,000 16,318
Due from related par-
ties................... 994 -- -- -- -- -- 994
Deferred income taxes... 394 -- -- -- 20 -- 414
Goodwill, net........... 52,569 -- -- -- -- 89,408 141,977
Restricted cash......... -- -- -- -- -- 3,500 3,500
Other assets............ 3,377 258 13 150 575 (718) 3,655
-------- ------- ------ ------ ------- -------- --------
Total assets.......... $107,248 $19,305 $9,468 $5,466 $11,099 $ 65,868 $218,454
======== ======= ====== ====== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt......... $ 290 $ 100 $ -- $ -- $ 787 $ 39,779 $ 40,956
Accounts payable and
accrued expenses....... 12,734 6,294 286 $1,139 4,162 1,821 26,436
Due to stockholders..... 6,060 -- -- -- -- -- 6,060
Income taxes payable.... 1,008 -- -- -- 381 -- 1,389
Due to related parties.. 36 66 3,364 -- 1,135 (4,601) --
-------- ------- ------ ------ ------- -------- --------
Total current liabili-
ties................. 20,128 6,460 3,650 1,139 6,465 36,999 74,841
Long-term debt.......... 309 900 -- 27 25 (900) 361
Deferred income taxes... 97 -- -- -- 5 160 262
Other................... 549 -- -- 3 5 -- 557
-------- ------- ------ ------ ------- -------- --------
Total liabilities..... 21,083 7,360 3,650 1,169 6,500 36,259 76,021
Stockholders' equity:
Common stock........... 9 -- -- 227 40 (263) 13
Additional paid-in cap-
ital.................. 85,740 11,945 200 21 682 43,416 142,004
Retained earnings...... 416 -- 5,618 4,049 3,877 (13,544) 416
-------- ------- ------ ------ ------- -------- --------
Total stockholders'
equity............... 86,165 11,945 5,818 4,297 4,599 29,609 142,433
-------- ------- ------ ------ ------- -------- --------
Total liabilities and
stockholders'
equity............... $107,248 $19,305 $9,468 $5,466 $11,099 $ 65,868 $218,454
======== ======= ====== ====== ======= ======== ========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-21
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
PRO FORMA PRO FORMA ------------------------------------------ PRO FORMA
USA FOUNDING ADJUSTMENTS FOUNDING CONTINENTAL XL KOEHLER OTHER ADJUSTMENTS
FLORAL COMPANIES (SEE NOTE 4) COMPANIES FARMS GROUP & DRAMM ACQUISITIONS (SEE NOTE 5)
---------- --------- ------------ ---------- ----------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $ 37,380 $146,744 $ -- $ 184,124 $62,494 $32,329 $22,685 $55,109 $ --
Cost of sales.... 26,685 104,991 (420) 131,256 44,774 24,443 15,882 44,156 (2,914)
---------- -------- ------- ---------- ------- ------- ------- ------- -------
Gross profit.... 10,695 41,753 420 52,868 17,720 7,886 6,803 10,963 2,914
Selling, general
and administra-
tive............. 9,791 36,320 (1,995) 44,116 12,820 7,284 5,425 8,500 (1,093)
Goodwill amorti-
zation........... 275 -- 1,046 1,321 -- -- -- -- 2,235
---------- -------- ------- ---------- ------- ------- ------- ------- -------
Income from op-
erations........ 629 5,433 1,369 7,431 4,900 602 1,378 2,463 1,772
Other (income)
expense:
Interest ex-
pense........... 8 435 (325) 118 57 -- 4 94 3,313
Interest income. (248) (340) -- (588) (458) (40) -- (115) 338
Other, net...... (37) (366) -- (403) (58) (4) (63) (20) --
---------- -------- ------- ---------- ------- ------- ------- ------- -------
Income before in-
come taxes....... 906 5,704 1,694 8,304 5,359 646 1,437 2,504 (1,879)
Provision for in-
come taxes....... 490 960 2,400 3,850 -- -- 551 582 2,988
---------- -------- ------- ---------- ------- ------- ------- ------- -------
Net income....... $ 416 $ 4,744 $ (706) $ 4,454 $ 5,359 $ 646 $ 886 $ 1,922 $(4,867)
========== ======== ======= ========== ======= ======= ======= ======= =======
Net income per
share, basic and
diluted.......... $ 0.09
==========
Weighted average
shares outstand-
ing:
Basic........... 4,734,198
==========
Diluted......... 4,824,097
==========
Pro forma net
income per
share, basic and
diluted......... $ 0.50
==========
Shares used in
computing pro
forma net
income per share
(see Note 6):
Basic........... 8,845,711
==========
Diluted......... 8,944,382
==========
<CAPTION>
PRO FORMA
FOUNDING
COMPANIES
AND RECENT
ACQUISITIONS
-------------
<S> <C>
Net sales........ $ 356,741
Cost of sales.... 257,587
-------------
Gross profit.... 99,154
Selling, general
and administra-
tive............. 77,052
Goodwill amorti-
zation........... 3,556
-------------
Income from op-
erations........ 18,546
Other (income)
expense:
Interest ex-
pense........... 3,586
Interest income. (863)
Other, net...... (548)
-------------
Income before in-
come taxes....... 16,371
Provision for in-
come taxes....... 7,971
-------------
Net income....... $ 8,400
=============
Net income per
share, basic and
diluted..........
Weighted average
shares outstand-
ing:
Basic...........
Diluted.........
Pro forma net
income per
share, basic and
diluted......... $ .63
=============
Shares used in
computing pro
forma net
income per share
(see Note 6):
Basic........... 13,278,610
=============
Diluted......... 13,377,281
=============
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-22
<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 6, 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........ 4,800 141,334 2,400 7,200 249 6,951
Monterey Bay............ 3,000 176,668 3,000 6,000 705 5,295
Alpine Gem.............. 1,600 160,000 2,080 3,680 215 3,465
------- --------- ------- ------- ------- -------
Total................. $43,680 1,652,052 $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 statement of operations for the year ended
December 31, 1997 gives effect to the acquisition of the Founding Companies as
if they had been consummated on January 1, 1997.
NOTE 2--RECENT ACQUISITIONS
In January 1998 USA Floral acquired the outstanding capital stock of the
Continental, XL Group, Koehler & Dramm, Everflora, H&H Flowers and UltraFlora.
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 the Recent Acquisitions, the
allocation of the consideration to net assets acquired and resulting goodwill.
The purchase price includes contingent consideration of approximately $6,000
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 $ 5,791 $49,209
XL Group................ 11,250 660,938 11,000 22,250 5,604 16,646
Everflora............... 4,000 246,654 4,000 8,000 2,846 5,154
H&H Flowers............. 1,600 -- -- 1,600 (720) 2,320
UltraFlora.............. 2,750 517,698 8,768 11,518 1,607 9,911
Koehler & Dramm......... 5,000 298,596 5,000 10,000 3,832 6,168
------- --------- ------- -------- ------- -------
Total................. $52,100 3,366,558 $56,268 $108,368 $18,960 $89,408
======= ========= ======= ======== ======= =======
</TABLE>
- --------
(1) Does not include S Corporation distributions paid to owners of Continental
Farms.
F-23
<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 Recent
Acquisitions as if they were consummated on December 31, 1997. The unaudited
pro forma combined statement of operations for the year ended December 31,
1997 gives effect to the Recent 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 Recent Acquisitions:
<TABLE>
<CAPTION>
PRO FORMA
MERGER ADJUSTMENTS TOTAL
----------------------------------- PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..... $ -- $(6,000) $ -- $(15,582) $(21,582)
Due from related parties...... (4,605) (1,135) -- (5,740)
------- ------- ------- -------- --------
Total current assets........ (4,605) (6,000) (1,135) (15,582) (27,322)
Property and equipment........ -- -- -- 1,000 1,000
Goodwill, net................. -- -- -- 89,408 89,408
Restricted cash............... 3,500 -- -- -- 3,500
Other assets.................. -- -- -- (718) (718)
------- ------- ------- -------- --------
Total assets................ $(1,105) $(6,000) $(1,135) $ 74,108 $ 65,868
======= ======= ======= ======== ========
LIABILITIES AND STOCKHODLERS'
EQUITY
Short-term debt............... $ 3,261 $ -- $ -- $ 36,518 $ 39,779
Due to related parties........ (3,466) -- (1,135) -- (4,601)
Accounts payable and accrued
expenses..................... -- -- -- 1,821 1,821
------- ------- ------- -------- --------
Total current liabilities... (205) -- (1,135) 38,339 36,999
Long-term debt................ (900) -- -- -- (900)
Deferred income taxes......... -- -- -- 160 160
------- ------- ------- -------- --------
Total liabilities........... (1,105) -- (1,135) 38,499 36,259
Stockholders' equity:
Common stock................. -- -- -- (263) (263)
Additional paid-in capital... -- -- -- 43,416 43,416
Retained earnings............ -- (6,000) -- (7,544) (13,544)
------- ------- ------- -------- --------
Total stockholders' equity.. -- (6,000) -- 35,609 29,609
------- ------- ------- -------- --------
Total liabilities and stock-
holders' equity............ $(1,105) $(6,000) $(1,135) $ 74,108 $ 65,868
======= ======= ======= ======== ========
</TABLE>
(a) Records the settlement of certain related party payables and receivables
of the Recent Acquisitions, the use of short-term debt to fund cash
required in escrow and the repayment of long-term debt with the short-term
facility.
(b) Reflects the use of cash to fund S-Corporation distributions paid
subsequent to December 31, 1997.
(c) Reflects the elimination of receivables and payables between the Founding
Companies and the Recent Acquisitions.
(d) Records the purchase of the Recent Acquisitions by USA Floral, various
purchase price adjustments, including the adjustment of property to fair
market value and establishment of deferred taxes for certain
S-Corporations, and the recording of incremental debt necessary to fund
the Recent Acquisitions.
F-24
<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 STATEMENT OF OPERATIONS ADJUSTMENTS--
FOUNDING COMPANIES
The following table summarizes unaudited pro forma combined statement of
operations adjustments associated with the Founding Companies:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) ADJUSTMENTS
------- ------- ----- ----- ----- ----- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... $ -- $ -- $ -- $ -- $ -- $(420) $ -- $ -- $ (420)
Selling, general and ad-
ministrative........... (1,618) -- -- (284) 413 -- (506) -- (1,995)
Goodwill amortization... -- 1,046 -- -- -- -- -- -- 1,046
------- ------- ----- ----- ----- ----- ----- ------- -------
Income from operations. 1,618 (1,046) -- 284 (413) 420 506 -- 1,369
Other (income) expense:
Interest expense....... -- -- (325) -- -- -- -- -- (325)
------- ------- ----- ----- ----- ----- ----- ------- -------
Income before income
taxes.................. 1,618 (1,046) 325 284 (413) 420 506 -- 1,694
Provision for income
taxes.................. -- -- -- -- -- -- -- 2,400 2,400
------- ------- ----- ----- ----- ----- ----- ------- -------
Net income.............. $ 1,618 $(1,046) $ 325 $ 284 $(413) $ 420 $ 506 $(2,400) $ (706)
======= ======= ===== ===== ===== ===== ===== ======= =======
</TABLE>
(a) Reflects the reduction in salaries, bonuses and benefits to the former
owners of the Founding Companies to which they have agreed
prospectively.
(b) Reflects the amortization of goodwill 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 adjustment for the following (i) elimination of rental lease
expense of $406 associated with the purchase of $3,800 of real estate
and a related increase in depreciation expense and real estate taxes
associated with this real estate totaling $76; and (ii) increase in
rental expense as a result of distribution of $842 of real estate prior
to the Founding Company Mergers of $149 and a related decrease in
depreciation expense and real estate taxes of $103.
(e) Reflects: (i) an increase in expenses 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) Reflects the reduction in cost of sales attributable to a reduction in
the level of services provided under a contract for various services
performed by an affiliated entity of Flower Trading, to which USA
Floral and the affiliated entity have agreed to prospectively.
(g) Reflects the elimination of legal costs incurred by the Founding
Companies in connection with the acquisitions.
(h) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations' adjustments and for
income taxes on S Corporation income, assuming a combined federal and
state corporate income tax rate of 40% and the non-deductibility of
goodwill.
F-25
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 5 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS--
RECENT ACQUISITIONS
The following table summarizes unaudited pro forma combined statement of
operations adjustments associated with the Recent Acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
----- ------- ----- ------- ---- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of sales.......... $ -- $ -- $ -- $(2,914) $-- $ -- $ -- $(2,914)
Selling, general and ad-
ministrative........... (716) -- (377) -- -- -- -- (1,093)
Goodwill amortization... -- 2,235 -- -- -- -- -- 2,235
----- ------- ----- ------- ---- ------- ------- -------
Income from operations. 716 (2,235) 377 2,914 -- -- -- 1,772
Other (income) expense:
Interest expense....... -- -- -- -- (50) 3,363 -- 3,313
Interest income........ -- -- -- -- 50 288 -- 338
----- ------- ----- ------- ---- ------- ------- -------
Income before income
taxes.................. 716 (2,235) 377 2,914 -- (3,651) -- (1,879)
Provision for income
taxes.................. -- -- -- -- -- -- 2,988 2,988
----- ------- ----- ------- ---- ------- ------- -------
Net income.............. $ 716 $(2,235) $ 377 $ 2,914 $ $(3,651) $(2,988) $(4,867)
===== ======= ===== ======= ==== ======= ======= =======
</TABLE>
(a) Reflects the reduction in salaries, bonuses and benefits to the former
owners of the Recent Acquisitions to which they have agreed
prospectively, net of an increase in expenses associated with USA
Floral management and administration required by the recent
acquisitions.
(b) Reflects the amortization of goodwill to be recorded as a result of
these acquisitions over 40-year estimated life as if these acquisitions
had occurred on January 1, 1997.
(c) Reflects: (i) the reduction in lease expense of $494 associated with
the negotiation of new lease agreements with related party entities to
arms-length rates; and (ii) an increase in depreciation expense of $117
associated with the increase in fair value of property acquired.
(d) Reflects the reduction in costs of sales attributable to a reduction in
the services provided under a contract for various services performed
by an affiliated entity, to which the Company and the affiliated entity
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 Recent Acquisitions.
(f) Reflects: (i) the elimination of interest income earned on Offering
proceeds assumed to be utilized in the purchase of the Recent
Acquisitions; and (ii) an increase in interest expense and related fees
associated with necessary debt incurred to fund the Recent
Acquisitions, 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 the other statements of operations' adjustments and for
income taxes on S Corporation income, assuming a corporate income tax
rate of 40% and the non-deductibility of goodwill.
F-26
<PAGE>
U.S.A. FLORAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6 SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE
The shares used in computing pro forma net income per share for the Founding
Companies is calculated as follows:
<TABLE>
<CAPTION>
ACTUAL WEIGHTED
SHARES AVERAGE SHARES
--------- --------------
<S> <C> <C>
Shares issued upon formation of USA Floral............ 2,400,000
Shares issued to owners of the Founding Companies..... 1,652,052
Shares sold in the IPO to pay the cash portion of the
Founding Companies consideration, to repay certain
indebtedness and to pay expenses of the
Offering............................................. 4,508,561
---------
Shares considered outstanding January 1--October 15,
1997................................................. 8,560,613 6,754,675
---------
Remaining shares issued in the IPO.................... 1,241,439
Shares issued upon exercise of option................. 110,000
---------
Shares considered outstanding October 16--December 31,
1997................................................. 9,912,052 2,091,036
========= ----------
Weighted average shares outstanding--Basic............ 8,845,711
Dilution attributable to options...................... 98,671
----------
Weighted average shares outstanding--Diluted.......... 8,944,382
==========
The shares used in computing pro forma net income per share giving effect to
the Recent Acquisitions is calculated as follows:
<CAPTION>
ACTUAL WEIGHTED
SHARES AVERAGE SHARES
--------- --------------
<S> <C> <C>
Shares outstanding, subsequent to the IPO............. 9,912,052
Shares issued to the owners of the Recent Acquisi-
tions................................................ 3,366,558
---------
Weighted average shares outstanding--Basic............ 13,278,610
Dilution attributable to options...................... 98,671
----------
Weighted average shares outstanding--Diluted.......... 13,377,281
==========
</TABLE>
The above calculations do not include 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 Audited Pro Forma Combined Financial Statements.
F-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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-86
<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-87
<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-88
<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-89
<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-90
<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-91
<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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<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-102
<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-103
<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-104
<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-105
<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-106
<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-107
<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-108
<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-109
<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-110
<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-111
<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-112
<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-113
<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-114
<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-115
<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-116
<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-117
<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> <C>
DADE COUNTY INDUSTRIAL DEVELOPMENT AUTHOR-
ITY
Mandatory principal repayments of $100 due
on December 1, 1992-2002 (inclusive);
balloon payment of $500 due December 1,
2003; interest payable monthly at a rate
which approximates the issuing bank's de-
mand note index for high quality short-
term tax-exempt obligations (approxi-
mately 3%); loan is collateralized by
property with a net book value of
$1,833................................... $100 $1,000 $100 $900
NATIONSBANK--MORTGAGE
Principal of $3 payable monthly; balloon
payment of $643 due August 1997; interest
payable monthly at prime rate; loan is
collateralized 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-118
<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-119
<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-120
<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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<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-127
<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-128
<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-129
<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-130
<PAGE>
KOEHLER & DRAMM, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31,
1997
--------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 297
Marketable securities................................................. 297
Accounts receivable, net.............................................. 1,831
Inventory............................................................. 1,836
Prepaid expenses and other current assets............................. 11
Deferred income taxes................................................. 117
------
Total current assets................................................. 4,389
------
Property and equipment, net............................................ 623
Deferred income taxes.................................................. 47
Advances to stockholder................................................ 367
------
Total assets......................................................... $5,426
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit................................................... $ 80
Accounts payable...................................................... 1,168
Accrued expenses...................................................... 90
Taxes payable......................................................... 171
Other current liabilities............................................. 23
------
Total current liabilities............................................ 1,532
Other liabilities...................................................... 166
------
Total liabilities.................................................... 1,698
------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 100,000 shares
authorized; 69,547 shares issued and outstanding..................... 70
Additional paid-in capital............................................ 21
Retained earnings..................................................... 3,637
------
Total stockholders' equity........................................... 3,728
------
Total liabilities and stockholders' equity........................... $5,426
======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-131
<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-132
<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-133
<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-134
<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-135
<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-136
<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-137
<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-138
<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 has agreed to issue 250,000 shares of its Common Stock,
as partial consideration for the merger of a wholly-owned subsidiary of the
registrant with and into CFX. Pursuant to the Agreement and Plan of
Contribution, the Company has agreed to grant options to purchase that number
of shares of Common Stock equal to 6.25% of the Consideration (as defined in
the Agreement and Plan of Contribution) to certain employees of CFX following
consummation of the merger. The transaction was intended to be exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
As of August 6, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Bay State Florist Supply ("Bay
State"), and BSF Acquisition Corp., pursuant to which the registrant has
agreed to issue 495,550 shares of its Common Stock, as partial consideration
for the merger of a wholly-owned subsidiary of the registrant with and into
Bay State. Pursuant to the Agreement and Plan of Contribution, the Company has
agreed to grant options to purchase that number of shares of Common Stock
equal to 6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) to certain employees of Bay State following consummation of the
merger. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with Alpine Gem Flower Shippers, Inc.
("Alpine Gem"), AGFS Acquisition Corp. and John Q. Graham, Jr. and Diane
Lizotte-Graham, pursuant to which the registrant has agreed to issue 160,000
shares of its Common Stock, as partial consideration for the merger of a
wholly-owned subsidiary of the registrant with and into Alpine Gem. Pursuant
to the Agreement and Plan of Contribution, the Company has agreed to grant
options to purchase that number of shares of Common Stock equal to 6.25% of
the Consideration (as defined in the Agreement and Plan of Contribution) to
certain employees of Alpine Gem following consummation of the
II-2
<PAGE>
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 has agreed
to issue 268,500 shares of its Common Stock as partial consideration for the
merger of wholly-owned subsidiaries of the registrant with and into "United
Wholesale" (as defined in the Prospectus). Pursuant to the Agreement and Plan
of Contribution, the Company has agreed to grant options to purchase that
number of shares of Common Stock equal to 6.25% of the Consideration (as
defined in the Agreement and Plan of Contribution) to certain employees of
United Wholesale following consummation of the merger. The transaction was
intended to be exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Amended and Restated
Agreement and Plan of Contribution with The Roy Houff Company ("Houff"), RHI
Acquisition Corp. and Roy O. Houff, pursuant to which the registrant has
agreed to grant options to purchase that number of shares of Common Stock
equal to 6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) to certain employees of Houff following consummation of the
merger. The transaction was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof.
As of August 5, 1997, the registrant entered into an Agreement and Plan of
Contribution with American Florist Supply, Inc. ("American Florist"), AFS
Acquisition Corp. and John T. Dickinson, pursuant to which the registrant has
agreed (i) to grant options to purchase that number of shares of Common Stock
equal to 6.25% of the Consideration (as defined in the Agreement and Plan of
Contribution) and (ii) to issue up to that number of shares of Common Stock
with an aggregate value of up to $2,400,000 pursuant to an earn-out
arrangement, all of which shares (totaling 141,334 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
has agreed to (i) grant options to purchase that number of shares of Common
Stock equal to 6.25% of the Consideration (as defined in the Agreement and
Plan of Contribution) to certain employees of Monterey Bay following
consummation of the merger and (ii) to issue up to that number of shares of
Common Stock with an aggregate value of up to $3,000,000 pursuant to an earn-
out arrangement, all of which shares (totaling 176,668 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 has agreed to issue 160,000
shares of its Common Stock as partial consideration for the merger of a
wholly-owned subsidiary of the registrant with and into "Flower Trading" (as
defined in the Prospectus). Pursuant to the Agreement and Plan of
Contribution, the Company has agreed to grant options to purchase that number
of shares of Common Stock equal to 6.25% of the Consideration (as defined in
the Agreement and Plan of Contribution) to certain employees of Flower Trading
following consummation of the merger. The transaction was intended to be
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof.
On August 6, 1997, the registrant granted Jonathan Ledecky an option to
purchase 110,000 shares of Common Stock at an exercise price equal to the
initial public offering price. The transaction was intended to be exempt from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof.
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./3/
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./3/
</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.*
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)/2/
4.01(a) Consent to Credit Agreement among U.S.A. Floral Products, Inc.,
various Lending Institutions and Bankers Trusts 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. (Exhibit 5.01)/1/
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/
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/
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 Morgan, Lewis & Bockius LLP (included in opinion filed as
Exhibit 5.01)./1/
24.01 Power of Attorney./2/
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 Registration Statement of Form S-1 (Registration No. 333-
39969) filed with the Commission on November 12, 1997.
(3) 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.
(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.
II-6
<PAGE>
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 March 4, 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, March 4, 1998
- ------------------------------------ President
Robert J. Poirier and Chief Executive Officer
and a Director (Principal
Executive Officer)
* Chief Financial Officer March 4, 1998
- ------------------------------------ (Principal
Raymond C. Anderson Financial and Accounting
Officer)
* Director March 4, 1998
- ------------------------------------
Jonathan J. Ledecky
* Director March 4, 1998
- ------------------------------------
Vincent W. Eades
* Director March 4, 1998
- ------------------------------------
Edward J. Mathias
* Director March 4, 1998
- ------------------------------------
John A. Quelch
* Director March 4, 1998
- ------------------------------------
Raymond R. Ashmore
* Director March 4, 1998
- ------------------------------------
Jeffrey Brothers
* Director March 4, 1998
- ------------------------------------
John T. Dickinson
* Director March 4, 1998
- ------------------------------------
John Q. Graham, Jr.
* Director March 4, 1998
- ------------------------------------
Dwight Haight
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
* Director March 4, 1998
- ------------------------------------
Roy O. Houff
* Director March 4, 1998
- ------------------------------------
Gustavo Moreno
* Director March 4, 1998
- ------------------------------------
William W. Rudolph
/s/ John Vaughan Director March 4, 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 2.11 - 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.
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 Herein,
Dated January 16, 1998
<PAGE>
Table of Contents
Page
----
1. THE MERGERS.............................................................. 1
1.1 The Mergers..................................................... 1
1.2 Articles of Incorporation; Bylaws, Directors and Officers....... 2
1.3 Effects of the Mergers.......................................... 2
2. CONVERSION AND EXCHANGE OF STOCK......................................... 3
2.1 Manner of Conversion............................................ 3
2.2 Merger Consideration............................................ 4
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.................................................................. 8
4.1 Location and Date............................................... 8
4.2 Effect.......................................................... 8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE STOCKHOLDER...... 8
5.1 Due Organization................................................ 8
5.2 Authorization; Validity ....................................... 9
5.3 No Conflicts.................................................... 9
5.4 Capital Stock of the Companies.................................. 10
5.5 Transactions in Capital Stock .................................. 10
5.6 Subsidiaries, Stock, and Notes.................................. 11
5.7 Predecessor Status.............................................. 11
5.8 Absence of Claims Against the Companies......................... 11
5.9 Companies' Financial Conditions................................. 11
5.10 Financial Statements............................................ 11
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.............................. 19
5.19 Government Contracts............................................ 20
5.20 Insurance....................................................... 20
5.21 Labor and Employment Matters.................................... 20
5.22 Employee Benefit Plans.......................................... 21
<PAGE>
5.23 Conformity with Law; Litigation................................. 23
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 THE NEWCO................................ 31
6.1 Due Organization................................................ 31
6.2 USFloral Common Stock........................................... 31
6.3 Authorization; Validity of Obligations.......................... 31
6.4 No Conflicts.................................................... 32
6.5 Capitalization of USFloral and Ownership of
USFloral Stock.................................................. 32
7. COVENANTS................................................................ 32
7.1 Tax Matters...................................................... 32
7.2 Accounts Receivable.............................................. 34
7.3 Related Party Agreements and Personal Vehicles................... 34
7.4 Cooperation...................................................... 34
7.5 Conduct of Business Pending Closing.............................. 35
7.6 Access to Information............................................ 36
7.7 Prohibited Activities............................................ 36
7.8 Notice to Bargaining Agents...................................... 38
7.9 Sales of USFloral Common Stock................................... 38
7.10 USFloral Stock Options........................................... 39
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND THE NEWCO........ 39
8.1 Representations and Warranties; Performance of Obligations....... 39
8.2 No Litigation.................................................... 40
8.3 No Material Adverse Change....................................... 40
8.4 Consents and Approvals........................................... 40
8.5 Opinion of Counsel............................................... 40
8.6 Charter Documents................................................ 40
8.7 Quarterly Financial Statements................................... 40
8.8 Due Diligence Review............................................. 41
8.9 Delivery of Closing Financial Certificate........................ 41
8.10 FIRPTA Compliance................................................ 41
8.11 Employment Agreements............................................ 41
8.12 Stockholder's Release............................................ 41
<PAGE>
8.13 Leases........................................................... 42
8.14 Related Entities................................................. 42
8.15 Flower Supply Agreement.......................................... 42
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANIES AND THE
STOCKHOLDER.............................................................. 42
9.1 Representations and Warranties; Performance of Obligations....... 42
9.2 No Litigation.................................................... 42
9.3 Consents and Approvals............................................ 43
9.4 Employment Agreements............................................. 43
9.5 Existing Credit Facilities........................................ 43
10. INDEMNIFICATION.......................................................... 43
10.1 General Indemnification by the Stockholder....................... 43
10.2 Limitation and Expiration........................................ 44
10.3 Indemnification Procedures....................................... 45
10.4 Survival of Representations Warranties and Covenants............. 47
10.5 Remedies Cumulative.............................................. 47
10.6 Right to Set Off................................................. 47
11. NONCOMPETITION........................................................... 47
11.1 Prohibited Activities............................................ 47
11.2 Damages.......................................................... 48
11.3 Reasonable Restraint............................................. 48
11.4 Severability; Reformation........................................ 49
11.5 Independent Covenant............................................. 49
11.6 Materiality...................................................... 49
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................ 49
12.1 Stockholder...................................................... 49
12.2 USFloral......................................................... 50
12.3 Damages.......................................................... 50
13. GENERAL.................................................................. 50
13.1 Termination...................................................... 50
13.2 Effect of Termination............................................ 51
13.3 Successors and Assigns........................................... 51
13.4 Entire Agreement; Amendment; Waiver.............................. 51
13.5 Counterparts..................................................... 52
13.6 Brokers and Agents............................................... 52
13.7 Expenses......................................................... 52
13.8 Specific Performance; Remedies................................... 52
13.9 Notices.......................................................... 52
13.10 Governing Law.................................................... 53
13.11 Severability..................................................... 53
<PAGE>
13.12 Absence of Third Party Beneficiary Rights........................ 54
13.13 Further Representations.......................................... 54
13.14 Accounting Terms................................................. 54
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 16th day of January, 1998, by and among U.S.A. Floral
Products, Inc., a Delaware corporation ("USFloral"), EFI Acquisition Corp., a
New Jersey corporation and EFM Acquisition Corp., a Florida corporation, each a
newly-formed, wholly-owned subsidiary of USFloral (hereinafter referred to
individually as "Newco" and collectively as "Newcos"), Everflora, Inc., a New
Jersey corporation and Everflora Miami, Inc., a Florida corporation (hereinafter
referred to individually as a "Company" and collectively as the "Companies") and
Peter Unverdorben, (the "Stockholder").
BACKGROUND
WHEREAS, the respective Boards of Directors of the Newcos and the
Companies (which entities 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 Everflora, Inc. merge with
and into EFI Acquisition Corp. with EFI Acquisition Corp. being the surviving
corporation following such merger and that Everflora Miami, Inc. merge with and
into EFM Acquisition Corp. with EFM Acquisition Corp. being the surviving
corporation following such merger (each such merger 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 respective states of incorporation
of the Newcos and the Companies (the "State Corporation Laws").
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), each
Company shall be merged with and into its corresponding Newco, as described
above, pursuant to this Agreement and according to the respective plans of
merger (the "Plans of Merger") substantially in the forms attached as Schedule
1.1 hereto, with the respective Newcos being the surviving corporations
following such Mergers and with the separate corporate existence of each Company
ceasing thereupon. Each Newco, as it exists from and after the Effective Time,
is sometimes
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referred to individually as a "Surviving Corporation" and collectively with the
other such Newco as it exists from and after the Effective Time as the
"Surviving Corporations."
1.2 Articles of Incorporation; Bylaws, Directors and Officers. At the
Effective Time:
(a) The Articles of Incorporation or the Certificate of Incorporation,
as the case may be, ("Articles of Incorporation") of each Newco shall, from and
after the Effective Time and as amended thereupon to change the name of such
Newco to be the name of its corresponding Company, be the Articles of
Incorporation of the respective Surviving Corporation 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 each Newco in effect immediately prior to the
Effective Time shall, from and after the Effective Time, be the Bylaws of the
respective Surviving Corporation, continuing until thereafter amended in
accordance with their terms and the Articles of Incorporation of such Surviving
Corporation and as provided by the State Corporation Laws.
(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 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 relevant 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 each Newco shall be taken and deemed to be transferred
to, and vested in, each 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 each Surviving Corporation, as they were of each Company and each Newco, and
(ii) all debts, liabilities, duties and obligations of each Company and each
Newco, subject to the terms hereof, shall become the debts, liabilities and
duties of the respective Surviving Corporation and each Surviving Corporation
shall thenceforth be responsible and liable for all the debts, liabilities,
duties and obligations of the respective Company and the respective Newco and
neither the rights of creditors nor any liens upon the property of such Company
or such Newco shall be impaired by the Mergers, and may be enforced against the
respective Surviving Corporation.
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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 as one
share of validly issued, fully paid and non-assessable Common Stock of the
respective Surviving Corporation. The stock certificates of each Newco
evidencing ownership of any such shares shall evidence ownership of the shares
of capital stock of the respective Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Companies.
All shares of capital stock of each 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, all of the issued and outstanding shares
of common stock of the Companies ("Company Common Stock") (other than shares to
be canceled pursuant to Section 2.1(b)), that are 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 Stockholder
thereof, into the right of Stockholder, as the sole shareholder in the
Companies, to receive (i) the cash portion of the Merger Consideration 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). 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 the Stockholder shall cease to have
any rights with respect thereto, except the right to receive the consideration
therefor upon the surrender of such certificates 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 the Stockholder shall be aggregated, so that
the Stockholder shall not receive cash in an amount greater than the value of
one full share of USFloral Common Stock.
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2.2 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall
be $8.0 million adjusted pursuant to this Section 2.2 and Section 3.1. Of the
Merger Consideration, $4.0 million shall be paid in cash at Closing in
immediately available funds. The remaining $4.0 million of the Merger
Consideration shall be paid in shares of USFloral Common Stock valued at $16.217
per share (the "Merger Price"). The 246,654 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 combined net worth of the Companies,
calculated in accordance with generally accepted accounting principles ("GAAP")
consistently applied, is equal to or greater than $3.2 million (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
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 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 Companies, 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
2.1(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 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
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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 Companies.
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 either Company. There shall be no further registration of
transfers on the stock transfer books of the respective 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 Corporations 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 Corporations 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
each of 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
Companies as of the Closing Date, the value of the assets of the
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Companies shall, except with the prior written consent of USFloral, be
calculated as provided in the last paragraph of Section 8.9. The Stockholder
shall cooperate and shall use his reasonable efforts to cause the officers and
employees of each 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 3.1 hereto
as well as any other information requested by USFloral's Accountant related to
such Post-Closing Audit. In the event that USFloral's Accountant determines that
the actual combined net worth of the Companies 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 combined net worth of
the Companies as of the Closing Date (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 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
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Consideration Adjustment. The costs of the independent accounting firm shall be
borne by the party (either USFloral or the Stockholder) whose determination of
the combined net worth of the Companies 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
Company 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 Stockholder pursuant to Article 10, the Stockholder 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"):
(i) that number of shares of USFloral Common Stock with a value,
based on the Merger Price, equal to ten percent (10%) of the 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 the Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to the Stockholder with
respect to or in substitution for the 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 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
(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 the Stockholder's Pledged
Assets issued in his name in a 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.
(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
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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. 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.
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 on
January 20, 1998, providing that all conditions to Closing shall have been
satisfied or waived, or at such other time and date as USFloral, the Companies
and the Stockholder 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 for each of the Mergers (the "Merger Documents"), together with
any required officers' certificates, shall be filed with the Secretary of State
of the applicable state of incorporation of each Newco and each Company and 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 each Newco to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Companies and the
Stockholder, jointly and severally, represents and warrants to USFloral and each
Newco as follows (for purposes of this Agreement, the phrases "knowledge of the
Companies," "such Company's knowledge" or "the Companies' knowledge," or words
of similar import, mean the knowledge of the Stockholder and the directors and
officers of either 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 its respective
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 their respective properties and to carry
on
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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 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 in which it does
business. Each Company has delivered to USFloral true, complete and correct
copies of its respective Articles of Incorporation and Bylaws. Such Articles of
Incorporation and Bylaws are collectively referred to as the "Charter
Documents." Neither Company is in violation of any Charter Documents. The minute
books of each Company have been made available to USFloral (and have 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 respective 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 capacity 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 each Company's respective Board of Directors and the Stockholder
and this Agreement has been duly and validly authorized by all necessary
corporate action of each Company. This Agreement is a legal, valid and binding
obligation of each Company and the Stockholder, enforceable in accordance with
its terms except to the extent such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws relating to creditors' rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
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 either Company or
the Stockholder is a party or by which either Company or the Stockholder is
bound, or result in the creation or imposition of any lien, charge or
encumbrance on any of either Company's properties pursuant to (i) any law or
regulation to which either Company or the Stockholder or any of their respective
property is subject, or (ii) any judgment, order or decree to which either
Company or the 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 either Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which either Company or the Stockholder is subject or by which
either 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
Everflora, Inc. consists of 2,500 shares of common stock, no par value, of which
97 shares are issued and outstanding. The authorized capital stock of Everflora
Miami, Inc. consists of 3,500 shares of common stock, $10.00 par value, of which
3,255 shares are issued and outstanding. All of the issued and outstanding
shares of the capital stock of each 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 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 either 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 either Company to issue, sell
or otherwise cause to become outstanding any shares of its capital stock.
Neither Company has any 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.
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5.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 5.6(a), neither Company has any
subsidiaries.
(b) Except as set forth on Schedule 5.6(b), neither Company presently
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 either
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, either 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 either Company previously acquired significant assets. Neither
Company has ever been a subsidiary or division of another corporation, nor has
either Company been a part of an acquisition that was later rescinded.
5.8 Absence of Claims Against the Companies. No Stockholder has any
claims against either Company.
5.9 Companies' Financial Conditions.
(a) The Companies' combined net worth (i) as of the end of its most
recent fiscal year was not less than $2.7 million, and (ii) as of the Closing
will not be less than the Net Worth Target. If the Companies' combined net
worth as of the Closing is less than the Net Worth Target, then USFloral's sole
remedies shall be to either offer an adjustment to the Merger Consideration
pursuant to Section 2.2(c), receive a post closing adjustment to the Merger
Consideration pursuant to Section 3 or terminate this Agreement pursuant to
Section 13.1(e). 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' combined earnings before interest and taxes (after
the addition of "add-backs" set forth on Schedule 5.9(b)) for the 10-month
period ended October 31, 1997, was not less than $1,067,000.
5.10 Financial Statements. Schedule 5.10 includes (a) true, complete and
correct copies, in accordance with GAAP, of the unaudited consolidated balance
sheet of the Companies as of December 31,1996 (the end of its most recently
completed fiscal year), and consolidated income statement for the year ended
December 31, 1996 (collectively, the "Unaudited Financials") and (b) true,
complete and correct copies, in accordance with GAAP, of the
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unaudited consolidated balance sheet of the Companies (the "Interim Balance
Sheet") as of October 31, 1997 (the "Balance Sheet Date") and unaudited
consolidated income statements, for the 10-month period then ended
(collectively, the "Interim Financials," and together with the Unaudited
Financials, the "Company Financial Statements"). Except as noted on the
auditors' report accompanying the Unaudited 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 consolidated balance sheet included in the Company Financial
Statements presents fairly the financial condition of the Companies as of the
date indicated thereon, and each of the consolidated income statements included
in the Company Financial Statements presents fairly the results of their
operations for the periods indicated thereon. Since the dates of the Company
Financial Statements, there have been no material changes in either Company's
accounting policies other than as requested by USFloral to conform such
Company's accounting policies to GAAP.
5.11 Liabilities and Obligations.
(a) Neither 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 such
Company's 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 to such Company.
(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 either 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 such 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 each 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 such
Company's books and records (which reserves are adequate and calculated
consistent with past practice). Except as disclosed in Schedule 5.12 (which
sets forth Accounts Receivable not reasonably expected to be collected within
one hundred twenty (120) days), 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. Each Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of such Company. Neither 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 neither Company has 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
either 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
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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 either 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 either 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 such Company's use thereof) and, to the Companies' knowledge, any
Liens. Schedule 5.15(b) indicates whether the Real Property is owned or leased.
Neither Company owns any of the Real Property listed on Schedule 5.15(b).
(c) Except as set forth in Schedule 5.15(c):
(i) 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 $2,000 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) 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 each Company's respective
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 each Company's respective 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.
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(iii) 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.
(iv) Except as set forth on the surveys previously made
available to USFloral, none of the Structures, the appurtenances thereto or the
equipment therein or the operation or maintenance thereof, or the conduct of
such 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 such Company's business does not constitute a nonconforming use and
is not the subject of a special use permit under any applicable Law.
(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 has either Company or
the Stockholder received notice of any pending or threatened special assessment
proceedings affecting any portion of the Real Property.
(vi) 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.
(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 outstanding options or rights of first
refusal to purchase the Real Property, or any portion thereof or interest
therein. Neither Company has transferred any air rights or development rights
relating to the Real Property.
(ix) There are no service contracts or other agreements relating
to the use or operation of the Real Property.
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(x) No portion of the Real Property which is currently used in the
operation of each Company's respective business 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 which is currently used in the operation
of each Company's respective business will violate any requirement of the United
States Corps of Engineers or Laws relating to wetlands areas.
(xi) 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.
(xii) All oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which either 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
respective interests thereunder are free of all Liens.
(xiii) 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 either 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 or business or personal
affiliates of the Stockholder or of either 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
each 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 each Company, and neither Company is in breach of any of their
terms. All fixed assets used by either Company that are material to the
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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, its respective 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 each 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 either 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 either Company, and any trade dress (including logos,
designs, company names, business names, fictitious names and other business
identifiers) used by either 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 each Company now owns or is licensed to use. Each Company
owns or is licensed to practice under all patents and copyright registrations
that such 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 such Company has title as of the date of this Agreement,
as well as any application for a United States or foreign patent made by such
Company; the term "Copyright" shall mean any United States or foreign copyright
owned by such 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 such 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 the Companies 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), neither Company has any obligations to compensate any person
for the use of any Intellectual Property nor has either 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) Neither 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), (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 either Company, 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 either
Company infringes on any copyright, patent, trademark, service mark or trade
secret; (ii) against the use by either Company of any trademarks, trade names,
trade secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in such 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
either Company; or (iv) challenging either Company's 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 Company nor any of their 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, either Company 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 either Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first centuries
except that the TITAN software base package (Version 11.7) in current use is not
so capable. The Companies existing agreement with TBS, as well as its proposed
replacement agreement with INTRIX Systems Group, Inc. provide that the TITAN
software will be upgraded to a year 2000 compliant version, which is scheduled
to be available for general release on July 1, 1998. Modifications will be
required to integrate the current base package with the new upgraded Version
20.7. The estimated cost of such modifications is approximately $10,000. The
cost of the new version itself is already included in the existing maintenance
contract.
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5.18 Material Contracts and Commitments.
(a) Except for verbal commitments for the purchase and sale of floral
products entered into in the ordinary course of business consistent with past
practice and not in excess of $50,000, 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 either Company is a party or by
which such Company 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 both (y) either of the Companies, and
(z) any affiliate of either Company or any officer, director or stockholder of
either 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"). The Companies have delivered to USFloral true, complete
and correct copies of the Material Contracts. Each Company has complied with all
of its respective commitments and obligations and neither Company is in default,
other than an immaterial technical default, under any of the Material
Contracts, and no notice of default has been received with respect to any
thereof, and except as identified 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 7.3, is valid and binding on the respective Company 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 as of the date of this Agreement on all
loans or credit agreements either (i) between either Company and any Person in
which the Stockholder owns a material interest, or (ii) guaranteed by either
Company for the benefit of any Person in which the 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 either Company's assets (including, without limitation, a pledge of either
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 either Company (other than a lien created
pursuant to the pledge,
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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
either Company is a party or by which the property of either Company is bound.
5.19 Government Contracts.
(a) Neither Company is a party to any government contracts.
(b) Neither 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 Companies' knowledge,
has any suspension or debarment action been threatened or commenced. To the
knowledge of the Companies, there is no valid basis for either 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, neither 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 Companies' knowledge, has such audit or
investigation been threatened.
(d) No employee, agent, consultant, representative, or affiliate of
either 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. The insurance
carried by each Company with respect to its properties, assets and business is,
to such Company's knowledge, with financially sound insurers. To the knowledge
of each 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 Companies:
(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 either Company 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 such Company;
(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 either Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against either Company or currently being negotiated by
either Company; and
(g) all persons classified by either 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 either
Company, or to which either 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
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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 Stockholder; (ii) any Plan; or (iii) either
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 neither 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 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 Companies and the Stockholder have complied (and on the Closing
Date will have complied), in all respects with all
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reporting, disclosure, notice, election and other benefit continuation
requirements imposed thereunder as and when applicable to such plans, and
neither Company has (nor will it 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 either 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 either Company
or the Stockholder with respect to such group health plans;
(f) neither 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 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 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) neither 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), neither 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 violation would have a
Material Adverse Effect on such 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
violation might have a Material Adverse Effect on such 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.
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(c) Except as set forth on Schedule 5.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of either Company,
threatened against or affecting such 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 either Company or against any of its properties or
business.
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 the Companies' combined 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' combined 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 either
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) Each Company has a taxable year ended on December 31.
(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 five years. Neither Company has agreed to, and neither Company is or
will 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.
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(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 either Company 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 either Company or
otherwise have an adverse effect on such 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 either 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) Neither Company is, or has been at any time, a party to a
tax sharing, tax indemnity or tax allocation agreement, and neither 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) Everflora, Inc. has, since January 1, 1990, been an S
corporation within the meaning of Section 1361 of the Code.
(ii) Everflora Miami, Inc. has, since November 19, 1986, been
an S corporation within the meaning of Section 1361 of the Code.
(iii) Neither 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
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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. From the Balance Sheet Date to the date of this
Agreement, each Company has conducted its business in the ordinary course
consistent with past practice 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 either Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of either Company;
(c) any change in the authorized capital of either Company or in its
respective outstanding securities or any change in its respective 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 either Company;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by either Company to any of its
respective officers directors, Stockholder, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for employees
generally 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 either Company to any person, including
without limitation the Stockholder and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to either Company, including without limitation any
indebtedness or obligation of the Stockholder and their affiliates, provided
that each Company may negotiate and adjust
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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 either 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 either Company;
(k) any waiver of any material rights or claims of either Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which either Company is a party;
(m) any transaction by either Company outside the ordinary course of
business;
(n) any capital commitment by either Company, either individually or
in the aggregate of both Companies, exceeding $25,000;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by either Company or
the revaluation by either Company of any of its assets;
(p) any creation or assumption by either 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 either Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by such Company in excess
of $20,000, except in the ordinary course of business consistent with past
practice;
(r) any loan by either Company to any person or entity, incurring by
either Company, of any indebtedness, guaranteeing by either Company of any
indebtedness, issuance or sale of any debt securities of either Company or
guaranteeing of any debt securities of others;
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(s) the commencement or notice or, to the knowledge of the Companies,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, either Company or any of its affairs; or
(t) negotiation or agreement by either Company or any respective
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 each 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 either 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 either 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 either Company.
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(b) Hazardous Materials Activities. Neither 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 either 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 the Company 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 Companies' 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 each
Company.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Companies' knowledge, 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 either Company (or any person or entity whose liability
either Company has retained or assumed, either by contract or operation of law)
in any environmental litigation, or impose upon either Company (or any person or
entity whose liability either 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. Neither 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 such 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 the respective
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
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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 either Company, the Stockholder shall
immediately give notice of such fact or circumstance to USFloral. However, such
notification shall not relieve either Company or the Stockholder of their
respective obligations under this Agreement.
5.30 USFloral Prospectus; Securities Representations. The Stockholder has
received and reviewed a copy of the prospectus dated November 18, 1997 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. The Stockholder has no 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 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.
5.31 Affiliates. The Stockholder is the only persons who is, in the
reasonable judgment of each Company and the Stockholder, affiliates of either
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 of the Companies' chief executive offices.
5.33 Location of Equipment and Inventory. All Inventory and Equipment held
on the date hereof by either 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 either 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
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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 either 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 either
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 the Companies and the Stockholder to enter into this Agreement
and consummate the transactions contemplated hereby, each of USFloral and Newco
represents and warrants to the Companies and the Stockholder as follows:
6.1 Due Organization. USFloral and each Newco is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state 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
each Newco (collectively, the "USFloral Charter Documents") have been made
available to the Companies. Neither USFloral nor either 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 each Newco executing this Agreement have all requisite corporate
power and authority to enter into and bind USFloral and each Newco to the terms
of this Agreement. USFloral and each 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 each Newco and the performance by USFloral and each Newco of the
transactions contemplated herein have been duly and validly authorized by the
respective Boards of Directors of USFloral and each 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 USFloral and each Newco
enforceable in accordance with its terms.
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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 either Newco is a
party, or result in the creation or imposition of any lien, charge or
encumbrance on any of USFloral's or of the Newcos' properties pursuant to (i)
any law or regulation to which either USFloral or either Newco or any of their
respective property is subject, or (ii) any judgment, order or decree to which
USFloral or either 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
either Newco; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which USFloral or either Newco is subject, or by which USFloral or
either 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 9,594,050 shares were outstanding on November 19, 1997. The
authorized capital stock of each Newco consists of 1,000 shares of Common Stock,
of which each Newco has 100 shares 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
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.
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:
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(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
respective 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 respective 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 each respective Surviving
Corporation shall participate in the filing of any Tax Returns filed pursuant to
this paragraph.
(ii) Each 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 each 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
each respective 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 each Surviving Corporation.
(iii) USFloral and each 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 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
either Company for all periods ending prior to or including the Closing Date;
and (C) preserve information, records or documents relating Tax matters
pertinent to either Company 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 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 his 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 respective Surviving Corporation 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 Accounts Receivable. Each Surviving Corporation shall use timely and
commercially reasonable efforts to collect the Accounts Receivable within one
hundred twenty (120) days after Closing. In the event that all Accounts
Receivable are not collected in full (net of reserves specified in Section 5.12)
within one hundred twenty (120) days after the Closing then, at the request of
either Surviving Corporation, the Stockholder shall pay such Surviving
Corporation an amount equal to the Accounts Receivable not so collected, and
upon receipt of such payment such Surviving Corporation shall assign to the
Stockholder making the payment all of its rights with respect to the uncollected
Accounts Receivable giving rise to the payment and shall also thereafter
promptly remit any excess collections received by it with respect to such
assigned Accounts Receivable. The Surviving Corporation shall apply amounts
collected from account debtors first toward unpaid Accounts Receivable before
applying same to accounts receivable incurred after the Effective Date.
7.3 Related Party Agreements and Personal Vehicles. Each Company and/or
the Stockholder, as the case may be, shall terminate any Related Party
Agreements which USFloral requests such Company or Stockholder to terminate
except for those Related Party Agreements listed in Schedule 7.3. The
Stockholder shall also purchase any personal vehicles owned by either Company at
a value equal to the greater of such vehicle's net book value or the outstanding
indebtedness against such vehicle.
7.4 Cooperation.
(a) The Companies, 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
each Company shall execute any documentation reasonably required by USFloral's
independent public accountants (in connection with such accountants' audit of
such Company) or the Nasdaq National Market.
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(b) The Stockholder and each Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of such
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) 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
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customary bonuses and salary increases for employees (other than the
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.
7.7 Prohibited Activities. Between the date hereof and the Effective
Time, neither 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 $330,000 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
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amend any Company Plan or Company Benefit Arrangement; or grant any severance or
termination pay except as permitted in this Agreement;
(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;
(j) waive any material rights or claims of such Company, provided that
such 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 such Company or any officer,
director or Stockholder of such 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
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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 either 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 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, 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 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 1933 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.
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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 JANUARY 16, 1998, AMONG
THE ISSUER, THE STOCKHOLDER OF EVERFLORA, INC., A NEW JERSEY CORPORATION
AND THE STOCKHOLDER OF EVERFLORA MIAMI, 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.
** Certificates representing one-third of the shares of USFloral Common Stock
issued will read "six months after Effective Time", one-third will read "one
year after Effective Time" and the remaining one-third will read "18 months
after Effective Time."
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 each Surviving Corporation after the Closing, as
determined by each Surviving Corporation's President (or other officer or
director designated by such 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 THE NEWCOS
The obligation of USFloral and each Newco 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 except as contemplated or permitted by this
Agreement; 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
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satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed on behalf of such 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 either Company, or limiting or restricting
USFloral's conduct or operation of the business of either 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, either Newco or either Company, their
respective properties or any of their respective officers or directors, that
could materially and adversely affect the business, assets, liabilities,
financial condition, results of operations or prospects of either 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 either 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.
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 each Company 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.
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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, 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 each 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 combined net worth of the Companies as of the last day of its
most recent fiscal year (the "Certified Year-End Net Worth");
(b) the combined net worth of the Companies as of the Closing Date
(the "Certified Closing Net Worth");
(c) the combined 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");
(d) the combined earnings of the Companies before interest and taxes
(after the addition of "add-backs" set forth on Schedule 5.9(b)(ii)) for the 10
month period ending on October 31, 1997 (the "Certified Closing EBIT"); and
(e) a statement that all of the Companies' 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 Companies shall not take
account of any increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after December 31,
1996.
8.10 FIRPTA Compliance. 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. Peter Unverdorben shall have entered into an
employment agreement with Everflora, Inc. 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 Companies from any
and all claims of the Stockholder against the Companies.
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8.13 Leases. Everflora, Inc. shall have entered into a lease, upon terms
satisfactory to USFloral, for the Real Property located in New Jersey currently
leased by such Company, at a rental rate that is $1.00 less per square foot than
the current rental rate, and Everflora Miami, Inc. shall have entered into a
lease, upon terms satisfactory to USFloral, for the Real Property located in
Florida currently leased by such Company, at the same rental rate that such
Company is currently paying. The leases entered into pursuant to this Section
shall be for a term of five years with an option to renew for an additional five
years, and shall contain such other terms satisfactory to USFloral as the
parties shall mutually agree.
8.14 Related Entities. USFloral shall have received an executed agreement,
in a form acceptable to USFloral, granting USFloral a right of first refusal to
acquire the shares of Greens Only Europe Import/Export BV owned by the
Shareholder upon terms satisfactory to USFloral but not less favorable to
USFloral than those set forth in a bona fide written offer from a third party
---- ----
seeking to purchase such stock.
8.15 Flower Supply Agreement. Certain of the Related Entities shall have
executed and delivered Flower Supply Agreements with USFloral in the form
attached hereto as Exhibit A.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANIES AND THE
STOCKHOLDER
The obligation of the Stockholder and each Company to effect the Mergers
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 each 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 either
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 each Company 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 either Company, or limiting or restricting
USFloral's conduct or operation of the business of either Company (or its own
business) following the Mergers shall be in effect, nor shall any proceeding
brought by
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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, either Newco or either 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 each Newco 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. Everflora, Inc. shall have afforded Peter
Unverdorben an opportunity to enter into an employment agreement with Everflora,
Inc. in a form reasonably satisfactory to USFloral.
9.5 Existing Credit Facilities. USFloral shall have arranged for
termination and replacement of the credit facilities maintained by the Companies
with Summit Bank and First Union Bank and the release of the Stockholder's
guarantee of the First Union Bank Credit Facility.
10. INDEMNIFICATION
10.1 General Indemnification by the Stockholder. The Stockholder covenants
and agrees to indemnify, defend, protect and hold harmless USFloral, each Newco
and each 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:
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(i) any breach of any representation or warranty of the
Stockholder or either Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of the Stockholder or either Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholder or, prior to the Effective Time, either Company, under this
Agreement; or
(iii) the business, operations or assets of either Company
prior to the Closing Date or the actions or omissions of either 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) any transaction by the Stockholder involving the Company
Common Stock;
(v) the matters disclosed on Schedules 5.23 (conformity with
law; litigation), 5.24 (taxes), and 5.27 (environmental matters); or
(vi) technical defaults referred to in the last sentence of
Section 5.18(a); 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 then solely to the extent that, the aggregate amount of Damages
exceeds $160,000 (the "Indemnification Exclusion"); provided, however, that the
Indemnification Exclusion 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
Companies), 5.5 (transactions in capital stock), 5.9 (the Companies 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);
(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 5.22 (employee benefit plans), 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;
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(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 Agreement ("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
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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 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 either 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.
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(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. The
representations of each 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 each 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 either 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 Stockholder
under Section 10.1 hereof.
11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholder agrees that for a period of
two years following the Merger Effective Date, he 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 either Surviving
Corporation or USFloral, including without limitation the importing, brokerage,
manufacture, assembly, packaging, distribution, shipping or marketing of floral
products (including, without limitation, hard goods), or any business engaging
in the consolidation of the floral industry within the United States of America
(the "Territory"), except that Stockholder may continue to conduct activities on
behalf of Greens Only Europe
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Import/Export BV, Greens Only USA, The Australian Flower Company, Alfaflora,
Inc., Wesflora, Inc. and Flower Alliance, L.L.C. (the "Related Entities") to the
same, and no greater, extent that the Stockholder currently conducts such
activities, so long as the conduct of such activities does not otherwise violate
the provisions of Sections 11(b) through (e) below;
(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, any
subsidiaries of USFloral, or either Company within the Territory for the purpose
of soliciting or selling floral products within the Territory unless such
customer was a customer of any of the Related Entities prior to the date of this
Agreement;
(d) call upon any prospective acquisition candidate, on his own behalf
or on behalf of any competitor, which candidate was either called upon by the
Stockholder or for which the Stockholder made an acquisition analysis for
himself, USFloral, any subsidiaries of USFloral or either Company; or
(e) disclose customers, whether in existence or proposed, of either
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 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.
11.2 Damages. Because of the difficulty of measuring economic losses to
USFloral and each 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 each Surviving Corporation for which they would
have no other adequate remedy, the Stockholder agrees that, in the event of a
breach by him of the foregoing covenant, the covenant may be enforced by
USFloral or either 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 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 each Surviving
Corporation (as successors to the businesses of the Companies).
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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 either Company, either 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 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
either 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.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 Stockholder. The Stockholder recognizes and acknowledges that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of each Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of each Company and such Company's business. 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 each Surviving Corporation shall be entitled to an injunction
restraining the Stockholder from disclosing, in whole or in part, such
confidential information. Nothing herein
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shall be construed as prohibiting USFloral and either 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 each Company, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of such 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 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, each Surviving Corporation 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 each
Company; or
(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 January 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
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
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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;
(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; or
(e) by the Stockholder and the Companies as a group, on the one hand,
or by USFloral, on the other hand, if any of the financial conditions set forth
in Section 5.9 of this Agreement have not been met.
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;
(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; and (iv) in the event of termination of this Agreement by
the Stockholder and the Companies, as a group, pursuant to Section 13.1(e)
above, the Companies shall pay $20,000 to USFloral.
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
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
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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 each Newco and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement. The Stockholder (and not the Companies) has and will pay the fees,
expenses and disbursements of the Stockholder, each 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, either Newco or either Surviving Corporation to:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
52
<PAGE>
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
Attn: David A. Gerson
(Telefax: (412) 560-3399)
If to the Stockholder to:
Peter Unverdorben
160 Broadway
Cresskill, NJ 07626
(Telefax: (201) 871-9727)
with a required copy to:
Schenk, Price, Smith & King
10 Washington Street
Morristown, NJ 07963-0905
Attn: Edward J. Trawinski
(Telefax: (973) 540-7300)
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
53
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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]
54
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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 Chief Executive
Officer
EFI ACQUISITION CORP.
By: /s/ Robert J. Poirier
--------------------------------------------
Robert J. Poirier
President
EFM ACQUISITION CORP.
By: /s/ Robert J. Poirier
--------------------------------------------
Robert J. Poirier
President
EVERFLORA, INC.
By: /s/ Peter Unverdorben
--------------------------------------------
Peter Unverdorben
President
EVERFLORA MIAMI, INC.
By: /s/ Peter Unverdorben
--------------------------------------------
Peter Unverdorben
President
55
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STOCKHOLDER:
/s/ Peter Unverdorben
----------------------------------------------
Peter Unverdorben
56
<PAGE>
EXHIBITS
EXHIBIT A [Flower Supply Agreement]
SCHEDULES
SCHEDULE 1.1 [Forms of Plans of Merger]
SCHEDULE 3.1 [Stockholders Post-Closing Audit Checklist]
SCHEDULE 5.1 [Jurisdictions in which Companies are Qualified to Do
Business]
SCHEDULE 5.4 [Issued and Outstanding Stock of each Company free of
Liens]
SCHEDULE 5.6(a) [List of Subsidiaries]
SCHEDULE 5.6(b) [List of Other Securities Owned]
SCHEDULE 5.6(c) [List of Promissory Notes]
SCHEDULE 5.7 [List of Predecessor Companies]
SCHEDULE 5.9(b) [Add-backs]
SCHEDULE 5.10 [Balance Sheets and Income Statements]
SCHEDULE 5.10 [Exceptions to GAAP]
SCHEDULE 5.11(c) [Description of all plans or projects involving opening
new operations]
SCHEDULE 5.11(d) [List of all Indebtedness]
SCHEDULE 5.12 [Excepted Accounts Receivable]
SCHEDULE 5.15(b) [List of Real Property owned or leased]
SCHEDULE 5.15(c) [List of Real Property with Liens]
SCHEDULE 5.15(c)(i) [Permitted Encumbrances]
SCHEDULE 5.16(a) [List of all Personal Property included on Interim
Balance Sheet]
SCHEDULE 5.17(a) [Registered and Unregistered Marks]
SCHEDULE 5.17(b)(i) [Patents]
SCHEDULE 5.17(b)(ii) [Copyright Registrations]
SCHEDULE 5.17(c) [Other Rights]
SCHEDULE 5.17(d) [Compensation Obligations]
SCHEDULE 5.18(a) [Contracts]
SCHEDULE 5.18(b) [Third Party Consents]
SCHEDULE 5.18(c) [Outstanding Balance on Loans and Credit Agreements]
SCHEDULE 5.18(d) [Default Pledge, Hypothecation or Mortgage]
SCHEDULE 5.19 [Audit investigations]
SCHEDULE 5.20 [Insurance Policies]
SCHEDULE 5.22 [Employee Benefit Plans]
SCHEDULE 5.23(a) [Material Adverse Effect]
SCHEDULE 5.23(c) [Litigation]
SCHEDULE 5.25 [Absence of Changes]
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SCHEDULE 5.26 [Deposit Accounts; Powers of Attorney]
SCHEDULE 5.27(a) [Hazardous Material]
SCHEDULE 5.27(d) [Environmental Permits]
SCHEDULE 5.32 [Location of Chief Executive Offices]
SCHEDULE 5.33 [Location of Equipment and Inventory]
SCHEDULE 7.3 [Related Party Agreements not terminated]
The registrant agrees to furnish a copy of each omitted schedule, exhibit or
annex to this Exhibit 2.11 to the Commission supplementally upon request
therefor.
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Exhibit 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.
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
<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 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
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........................... 12
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............................................... 14
5.14 Permits......................................................... 14
5.15 Real Property................................................... 14
5.16 Personal Property............................................... 16
5.17 Intellectual Property........................................... 16
5.18 Material Contracts and Commitments.............................. 18
5.19 Government Contracts............................................ 19
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5.20 Insurance....................................................... 20
5.21 Labor and Employment Matters.................................... 20
5.22 Employee Benefit Plans.......................................... 21
5.23 Conformity with Law; Litigation................................. 23
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 THE 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 Accounts Receivable.............................................. 34
7.3 [Intentionally Omitted].......................................... 34
7.4 Related Party Agreements......................................... 34
7.5 Cooperation...................................................... 34
7.6 Conduct of Business Pending Closing.............................. 35
7.7 Access to Information............................................ 35
7.8 Prohibited Activities............................................ 36
7.9 [Intentionally Omitted].......................................... 37
7.10 Sales of USFloral Common Stock................................... 37
7.11 USFloral Stock Options........................................... 39
7.12 Additional Stock Options......................................... 39
7.13 Release From Guarantees.......................................... 39
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO............ 39
8.1 Representations and Warranties; Performance of Obligations....... 39
8.2 No Litigation.................................................... 40
8.3 No Material Adverse Change....................................... 40
8.4 Consents and Approvals........................................... 40
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8.5 Opinion of Counsel................................................ 40
8.6 Charter Documents................................................. 40
8.7 [Intentionally Omitted]........................................... 41
8.8 Due Diligence Review.............................................. 41
8.9 Delivery of Closing Financial Certificate......................... 41
8.10 [Intentionally Omitted]........................................... 41
8.11 [Intentionally Omitted]........................................... 41
8.12 [Intentionally Omitted]........................................... 41
8.13 Stockholders' Release............................................. 41
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS............................................................. 42
9.1 Representations and Warranties; Performance of Obligations....... 42
9.2 No Litigation.................................................... 42
9.3 Consents and Approvals........................................... 42
9.4 Consulting Agreement............................................. 43
10. INDEMNIFICATION.......................................................... 43
10.1 General Indemnification by the Stockholders...................... 43
10.2 Limitation and Expiration........................................ 44
10.3 Indemnification Procedures....................................... 45
10.4 Survival of Representations Warranties and Covenants............. 46
10.5 Remedies Cumulative.............................................. 47
10.6 Right to Set Off................................................. 47
11. NONCOMPETITION........................................................... 47
11.1 Prohibited Activities............................................ 47
11.2 Damages.......................................................... 48
11.3 Reasonable Restraint............................................. 48
11.4 Severability; Reformation........................................ 48
11.5 Independent Covenant............................................. 48
11.6 Materiality...................................................... 49
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................ 49
12.1 Stockholders..................................................... 49
12.2 USFloral......................................................... 49
12.3 Damages.......................................................... 50
13. GENERAL.................................................................. 50
13.1 Termination...................................................... 50
13.2 Effect of Termination............................................ 50
13.3 Successors and Assigns........................................... 51
13.4 Entire Agreement; Amendment; Waiver.............................. 51
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13.5 Counterparts..................................................... 51
13.6 Brokers and Agents............................................... 51
13.7 Expenses......................................................... 51
13.8 Specific Performance; Remedies................................... 52
13.9 Notices.......................................................... 52
13.10 Governing Law.................................................... 53
13.11 Severability..................................................... 53
13.12 Absence of Third Party Beneficiary Rights........................ 53
13.13 Further Representations.......................................... 53
13.14 Accounting Terms................................................. 54
iv
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this 16th day of January, 1998, by and among U.S.A. Floral
Products, Inc., a Delaware corporation ("USFloral"), LF Acquisition Corp., a
Florida corporation and a newly-formed, wholly-owned subsidiary of USFloral
("Newco"), H & H Flowers, Inc., a Florida corporation (the "Company"), James A.
Hill and Dwight Haight (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 Newco merge with and into the Company (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the State of Florida.
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), Newco
shall be merged with and into the Company 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 Newco shall cease. The
Company, 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
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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 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
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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
holder thereof, into the right to receive (i) an amount of cash equal to $1.6
million 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
Earn-Out Price (as defined in Section 2.2(a)), that is equal in value to the
Earn-Out Consideration (as defined in Section 2.2(a)) divided by the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time, all to be distributed to the Stockholders at the times set forth in
Section 2.2(a) hereof. 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
Earn-Out 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 $1.6 million plus the Earn-Out Consideration, adjusted pursuant to this
Section 2.2 and Section 3.1. Of the Merger Consideration, $1.6 million shall be
paid in cash at Closing in immediately available funds. For each $1.00 by which
the Company's earnings before interest and taxes ("EBIT") for the twelve months
ending June 30, 1998 exceeds $114,000 after the addition of the "add-backs" set
forth on Schedule 5.9(b) (as determined by Price Waterhouse LLP ("USFloral's
Accountant")), USFloral shall pay to the Stockholders $6.00 (the "Earn-Out
Consideration"). The Earn-Out Consideration shall be paid in USFloral Common
Stock valued at the average of the closing price on the Nasdaq National Market
(or principal stock exchange on which USFloral Common Stock is traded) per share
of USFloral Common Stock for each trading day during the thirty calendar day
period ending June 30, 1998 (the "Earn-Out Price"). The Earn-Out
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Consideration, if any, shall be paid within thirty days of the determination by
USFloral's Accountant of the Company's EBIT for the twelve months ended June 30,
1998, but not later than September 15, 1998. 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") and listed on the Nasdaq National Market.
(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 not less than negative $493,000 (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(b)), 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 to the cash portion of the Merger Consideration).
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for the
outstanding shares of Company Common Stock, 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
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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 that 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, 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 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
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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 as well as any other information
requested by USFloral's Accountant related to such Post-Closing Audit. In the
event that USFloral's Accountant determines that the actual net worth of the
Company 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 net worth of the
Company (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 cash delivered 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). The Company
will not incur any liability in addition to the Merger Consideration Adjustment
if the estimated net worth on the Closing Financial Certificate is less than the
Actual Company Net Worth.
(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 reasonable
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 will review the Surviving Corporation's books, the Closing
Financial Certificate and the Financial Adjustment Notice (and related
information) to determine the amount, if any, of the Merger Consideration
Adjustment. Deloitte & Touche 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. Deloitte &
Touche shall make its determination of the Merger Consideration Adjustment, if
any, within forty-five (45) days of the date on which notice of a dispute is
received from the Stockholders' Representative. The determination made by
Deloitte & Touche 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 reasonable discretion, be from the Pledged Assets as
defined in Section 3.2), the Merger Consideration Adjustment, if any. The costs
of Deloitte & Touche 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 Deloitte & Touche, or equally by
USFloral and the Stockholders in the event that the determination by Deloitte &
Touche is equidistant between the Certified Closing Net Worth and the Actual
Company Net Worth.
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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, cash equal to ten percent (10%) of each
Stockholder's share of the cash portion of the Merger Consideration as the same
may have been adjusted pursuant to Section 2.2 or Section 3.1 hereof; upon
determination of the Earn-Out Consideration, that number of shares of USFloral
Common Stock, valued at 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 (and at the election of each Stockholder, additional shares of USFloral
Common Stock, valued at the Earn-Out Price, in substitution for of their Pledged
Assets). The Stockholder shall receive interest on all cash that continues to
serve as a Pledged Asset at the time of release thereof to the Stockholder.
Such interest rate will be calculated for the entire year period at the Prime
Rate as of the Closing Date and paid at the time of release;
(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
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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) payment of any unpaid claim previously determined to
be due from 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.
(d) The Stockholders shall be entitled to exercise any voting powers
incident to the Pledged Assets and to receive and retain all cash dividends paid
thereon.
3.3 Stockholders' Representative.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates James A. Hill or, in the event that James A. Hill is unable or
unwilling to serve, Dwight Haight 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, or by operation of law,
whether by such Stockholder's death or any other event.
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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 in
Miami, Florida at the offices of Morgan, Lewis & Bockius LLP, on January 16,
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 and any 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 filing or at such later time as may be
specified in such filing (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 is authorized to do 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 5.1, complete in all material respects.
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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 5.18, 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) except as set forth on Schedule 5.18, 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 Company Common Stock, $1.00 par value, of
which 100 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), except as set forth on Schedule 5.4.
All of the issued and outstanding shares of the capital stock of the Company
were offered, issued, sold and
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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
non-corporate 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.
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5.8 Absence of Claims Against the Company. Except for accrued or unpaid
salary in an amount not to exceed $28,000 and reimbursement of business expenses
in an amount not to exceed for $12,000, 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 negative $2,000, 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 for (i) its most
recent fiscal year (after the addition of "add-backs" set forth on Schedule
5.9(b)) was not less than $272,000 and (ii) the three-month period ended
September 30, 1997, was not less than negative $187,000.
5.10 Financial Statements. Schedule 5.10 includes (a) true, complete and
correct copies of the Company's audited balance sheet as of June 30, 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 October 31, 1997 (the "Balance Sheet Date") and income
statement, for the four-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
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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.
(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.
(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 in excess of
$10,000, either individually or in the aggregate.
5.12 Accounts and Notes Receivable. The Company has delivered to USFloral
a complete and accurate list, as of a date not more than ten (10) 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 ten (10) 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.
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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.
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 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 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
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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.
(iii) All present uses and operations of the Real Property
physically occupied by the Company 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") affecting the Real Property.
(iv) 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.
(v) 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.
(vi) Except as set forth on Schedule 5.15, 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.
(vii) Except as set forth on Schedule 5.15 and 5.18, there
are no service contracts or other agreements relating to the use or operation of
the Real Property.
(viii) 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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(ix) 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.
(x) 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 since the Balance Sheet Date 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 business. Except with respect to those Marks shown
as licensed on
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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.
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(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, 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 no 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, 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 (as defined in Section 5.31) 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, $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
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
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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, except for (i) existing lease for the Company's offices and
warehouse and (ii) the Administrative Services Agreement.
(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 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 (except for any
agreements with First Union National Bank of Florida and/or the Dade County
Industrial Development Authority (collectively the "IDB Financing") relating to
the warehouse and distribution center currently leased by the Company) 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) 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.
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(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.
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 due 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:
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(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
(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 is a list 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 a list 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.
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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 listed on 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 if required by applicable law;
(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;
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(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) except as set forth on Schedule 5.22, 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 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 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) Except as set forth on Schedule 5.23(b), no Stockholder has, at
any time: (i) committed any criminal act (except for minor traffic violations);
(ii) engaged in acts of fraud,
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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) Except as set forth on Schedule 5.24, 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 June 30.
(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 3 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
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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 except Liens arising by operation of law for Taxes not yet due and
payable.
(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 except for reimbursement of
business expenses to the extent meals and entertainment are not deductible under
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 been an S corporation, within the meaning of
Section 1361 of the Code, since its inception.
(ii) The Company 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
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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;
(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
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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 $50,000, other than a capital commitment for
approximately $230,000 to make improvements to the production area;
(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 (i)
liens arising under existing lease financing arrangements which are not
material, (ii) liens related to the IDB Financing and (iii) 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
$50,000;
(r) any loan by the Company to any person or entity, incurrence by the
Company, of any indebtedness, guarantee by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guarantee 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) any 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 or at
its request 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
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(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 Company Hazardous Materials 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
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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 the Merger.
5.30 USFloral Prospectus; Securities Representations. Each Stockholder has
received and reviewed a copy of the prospectus dated November 18, 1997 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,
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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 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 and Articles of Incorporation and the Bylaws, each as amended, of
USFloral and Newco, respectively (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 as the Earn-Out Consideration 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;
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(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
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 USFloral
Common Stock, of which 9,594,050 shares were outstanding on November 19, 1997.
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
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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 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.
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(b) The Company shall, prior to the Closing, maintain its status as an
S Corporation for federal and state income tax purposes.
7.2 Accounts Receivable. In the event that all Accounts Receivable are
not collected in full (net of reserves specified in Section 5.12) within ninety
(90) days after the Closing then, at the request of the Surviving Corporation,
the Stockholders shall pay (based on their percentage ownership of the Company
immediately prior to the Effective Time) the Surviving Corporation an amount
equal to the Accounts Receivable not so collected (but only to the extent that
the uncollected Accounts Receivable, in the aggregate together with all other
Damages (as defined in Section 10.1(a)), exceed the Indemnification Threshold
(as defined in Section 10.2(a))); and upon receipt of such payment the Surviving
Corporation shall assign to the Stockholders making the payment all of their
rights with respect to the uncollected Accounts Receivable giving rise to the
payment and shall also thereafter promptly remit any excess collections received
by it with respect to such assigned Accounts Receivable.
7.3 [Intentionally Omitted]
7.4 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; provided, however, that the
Company and/or the Stockholders, as the case may be, shall not be requested to
terminate the existing lease, any reimbursement agreement with CFX, Inc., any
commitment relation to the IDB Financing or the Consulting Agreement.
7.5 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
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(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.
7.6 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.
7.7 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
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pursuant to this Section 7.7 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.
7.8 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 $50,000, 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 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, except as permitted under Section 5.25(n);
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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) except for any transaction related to the IDB Financing, 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 7.8(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.
7.9 [Intentionally Omitted]
7.10 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 a date that is four
months from the Closing Date. A Stockholder may, directly or indirectly,
offer, sell, contract to sell, pledge or otherwise dispose of (i) only up to a
total of one-third of the shares of USFloral Common Stock received in the
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Merger beginning four months after the Closing Date, (ii) only up to a total of
two-thirds of the shares of USFloral Common Stock received in the Merger
beginning eight months after the Closing Date and (iii) all of the shares of
USFloral Common Stock received in the Merger beginning twelve months after 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 7.10(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 JANUARY 16, 1998, AMONG THE ISSUER AND THE
STOCKHOLDERS OF H & H FLOWERS, 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.
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** Certificates representing one-third of the shares of USFloral Common Stock
issued will read "April 16, 1998," one-third will read "August 16, 1998 " and
one-third will read "January 16, 1999."
7.11 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 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.
7.12 Additional Stock Options. As soon as practicable after the
Closing, USFloral shall provide to (i) James A. Hill options to purchase 25,000
shares of USFloral Common Stock and (ii) Dwight Haight options to purchase
25,000 shares of USFloral Common Stock, at an exercise price equal to the fair
market value on the date of grant. Such options received pursuant to this
section shall vest pro rata, annually, over a four-year period beginning on the
first anniversary of the date of grant but are not subject to any conditions.
7.13 Release From Guarantees. Not later than 120 days following the
Effective Time, USFloral shall cause the Stockholders to be released from any
and all guarantees of any indebtedness that they personally guaranteed for the
benefit of the Company, with all such guarantees on indebtedness being assumed
by USFloral; provided, that, in the event that the beneficiary of any such
guarantee is unwilling to permit the assumption by USFloral of the obligations
under such guarantee, USFloral shall repay the indebtedness to which such
guarantee relates together with all interest and prepayment penalties, if any,
then due and owing.
7.14 Merger of the Company. Until June 30, 1998, USFloral agrees to
maintain the Company as a separate and independent entity for accounting
purposes, including for purposes of calculating EBIT and such accounting will be
consistent with past practices.
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,
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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 (in a manner
adverse to the business of the Company) 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 (other than losses or expected losses disclosed by
the Stockholders prior to the execution of this Agreement), 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.
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8.7 [Intentionally Omitted]
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)) for the most recent fiscal
year preceding the Closing Date (the "Certified Year-End EBIT");
(d) the earnings of the Company before interest and taxes for the
three-month period ending on September 30, 1997 (the "Certified Closing EBIT");
and
(e) 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 September
30, 1997.
8.10 [Intentionally Omitted]
8.11 [Intentionally Omitted]
8.12 [Intentionally Omitted]
8.13 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 for periods on or before the
Closing Date except accrued
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salary in an amount not to exceed $28,000 and reimbursed business expenses in an
amount not to exceed $12,000.
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 (in a manner
adverse to the business of the Company) 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 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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9.4 Consulting Agreement. The Company shall have afforded James Hill an
opportunity to enter into a consulting agreement with the Company in the form
attached as Appendix A.
9.5 Charter Documents. The Company shall have received (a) a copy of the
Certificate of Incorporation of USFloral and the Articles of Incorporation of
Newco, both certified by an appropriate authority in the state of their
incorporation, and (b) a copy of the Bylaws of USFloral and Newco certified by
the secretary of the respective company, and such documents shall be in form and
substance reasonably acceptable to the Company.
10. INDEMNIFICATION
10.1 General Indemnification by the Stockholders. Subject to the
limitations set forth in Section 10.2, 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 (i) Damages arising from matters reflected in the Company Financial
Statements, (ii) liabilities (as defined in Section 5.11(d)) incurred in the
ordinary course of business since the Balance Sheet Date or (iii) Damages
expressly disclosed in this Agreement or the Schedules to this Agreement; or
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(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
an amount equal to 2% of the cash portion of the Merger 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) without giving
effect to the limitations of such representation on Schedule 5.4, 5.5
(transactions in capital stock), 5.9 (Company financial conditions), 5.18
(material contracts and commitments), 5.23 (conformity with law; litigation)
without giving effect to the limitations of such representation on Schedule
5.23, 5.24 (taxes) without giving effect to the limitations of such
representation on Schedule 5.24 or 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; 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
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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 Stockholders' Representative of such Claim,
specifying in reasonable detail 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
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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 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
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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, except on behalf
of USFloral or any subsidiary of USFloral:
(a) except as otherwise provided in this Section 11, 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
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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) owning or engaging in any business, acting in any capacity for, or
otherwise operating Flying High Venture, Floraltech, Inc., Day One Fresh, LLC,
Cultivitos Miramonte and its subsidiaries, C.I. Colombiana De Bouquets or
Agropecuaria Pamputik, S.A. and its subsidiaries. The Stockholders, however may
not maintain any interest in Flying High Venture, Floraltech, Inc., Day One
Fresh, LLC, if any such company is in direct competition with the Company in the
importation of flowers into the United States for distribution to supermarkets,
convenience stores and mass market retailers.
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
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<PAGE>
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. Subject to the
same limitations set forth in the last paragraph of Section 11.1, 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
49
<PAGE>
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 January 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.
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
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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, shall be read in conjunction with this
Agreement; provided, however, that the terms of this Agreement shall control in
the event of any conflict between any past agreements between the parties and
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
51
<PAGE>
their agents, representatives, financial advisers, accountants and counsel
incurred in connection with the subject matter of this Agreement, or will
reimburse the Company therefor if, and to the extent, paid by the Company.
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:
Morgan, Lewis & Bockius LLP
David A. Gerson, Esq.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-6401
(Telefax: (412) 560-3399)
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If to any Stockholder addressed to them at:
1500 N.W. 95 Avenue
Miami, Florida 33172
(Telefax: (305) 592-9658)
with a required copy to:
William R. Nuernberg, Esq.
Eckert Seamans Cherin & Mellott, LC
701 Brickell Avenue, Suite 1850
Miami, Florida 33131
(Telefax: (305) 372 - 9400)
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.
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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]
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
---------------------------------------
Robert J. Poirier
Chairman, President and CEO
LF ACQUISITION CORP.
By: /s/ Robert J. Poirier
---------------------------------------
Robert J. Poirier
President
H & H FLOWERS, INC.
By: /s/ James Hill
---------------------------------------
STOCKHOLDERS:
/s/ Dwight Haight
---------------------------------------
Dwight Haight
/s/ James Hill
---------------------------------------
James Hill
55
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<TABLE>
<CAPTION>
APPENDICES
<S> <C>
APPENDIX A [Consulting Agreement]
SCHEDULES
SCHEDULE 1.1 [Form of Plan of Merger]
SCHEDULE 3.1 [Stockholders Post-Closing Audit Checklist]
SCHEDULE 5.1 [Jurisdictions in which Company is Qualified to Do Business]
SCHEDULE 5.4 [Issued and Outstanding Stock of each Company free of Liens]
SCHEDULE 5.6(a) [List of Subsidiaries]
SCHEDULE 5.6(b) [List of Other Securities Owned]
SCHEDULE 5.6(c) [List of Promissory Notes]
SCHEDULE 5.7 [List of Predecessor Companies]
SCHEDULE 5.9 [Add-Backs]
SCHEDULE 5.10 [Balance Sheets and Income Statements]
SCHEDULE 5.11(c) [Description of all plans or projects involving opening new
operations]
SCHEDULE 5.11(d) [List of all Indebtedness]
SCHEDULE 5.15(b) [List of Real Property owned or leased]
SCHEDULE 5.15(c) [List of Real Property with Liens]
SCHEDULE 5.16(a) [List of all Personal Property included on Interim Balance Sheet]
SCHEDULE 5.17(a) [Registered and Unregistered Marks]
SCHEDULE 5.17(b)(i) [Patents]
SCHEDULE 5.17(b)(ii) [Copyright Registrations]
SCHEDULE 5.17(c) [Other Rights]
SCHEDULE 5.17(d) [Compensation Obligations]
SCHEDULE 5.18(a) [Contracts]
SCHEDULE 5.18(b) [Third Party Consents]
SCHEDULE 5.18(c) [Outstanding Balance on Loans and Credit Agreements]
SCHEDULE 5.18(d) [Default Pledge, Hypothecation or Mortgage]
SCHEDULE 5.19 [Government Contracts]
SCHEDULE 5.20 [Insurance Policies]
SCHEDULE 5.22 [Employee Benefit Plans]
SCHEDULE 5.23(a) [Material Adverse Effect]
SCHEDULE 5.23(c) [Litigation]
SCHEDULE 5.25 [Absence of Changes]
SCHEDULE 5.26 [Deposit Accounts; Powers of Attorney]
SCHEDULE 5.27(a) [Hazardous Material]
SCHEDULE 5.27(d) [Environmental Permits]
SCHEDULE 5.32 [Location of Chief Executive Offices]
SCHEDULE 5.33 [Location of Equipment and Inventory]
</TABLE>
The registrant agrees to furnish a copy of each omitted appendix, schedule,
exhibit or annex to this Exhibit 2.12 to the Commission supplementally upon
request therefor.
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<PAGE>
EXHIBIT 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.
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
<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.................................. 6
3.1 Post-Closing Adjustment......................................... 6
3.2 Pledged Assets.................................................. 8
3.3 Stockholders' Representative.................................... 10
4. CLOSING.................................................................. 10
4.1 Location and Date............................................... 10
4.2 Effect.......................................................... 11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS....... 11
5.1 Due Organization................................................ 11
5.2 Authorization; Validity ....................................... 11
5.3 No Conflicts.................................................... 12
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.............................................. 12
5.8 Absence of Claims Against the Company........................... 12
5.9 Company Financial Conditions.................................... 14
5.10 Financial Statements............................................ 14
5.11 Liabilities and Obligations..................................... 14
5.12 Accounts and Notes Receivable................................... 15
5.13 Books and Records............................................... 16
5.14 Permits......................................................... 16
5.15 Real Property................................................... 16
5.16 Personal Property............................................... 19
5.17 Intellectual Property.......................................... 19
5.18 Material Contracts and Commitments.............................. 21
5.19 Government Contracts............................................ 22
<PAGE>
5.20 Insurance....................................................... 23
5.21 Labor and Employment Matters.................................... 23
5.22 Employee Benefit Plans.......................................... 24
5.23 Conformity with Law; Litigation................................. 26
5.24 Taxes........................................................... 27
5.25 Absence of Changes.............................................. 29
5.26 Deposit Accounts; Powers of Attorney............................ 30
5.27 Environmental Matters........................................... 31
5.28 Relations with Governments...................................... 32
5.29 Disclosure...................................................... 32
5.30 USFloral Prospectus; Securities Representations................. 32
5.31 Affiliates...................................................... 33
5.32 Location of Chief Executive Offices............................. 33
5.33 Location of Equipment and Inventory............................. 33
6. REPRESENTATIONS OF USFLORAL AND NEWCO.................................... 33
6.1 Due Organization................................................ 34
6.2 USFloral Common Stock........................................... 34
6.3 Authorization; Validity of Obligations.......................... 34
6.4 No Conflicts.................................................... 34
6.5 Capitalization of USFloral and Ownership of
USFloral Stock.................................................. 35
6.6 Assets and Liabilities of Newco; Charges of Newco............... 35
7. COVENANTS................................................................ 35
7.1 Tax Matters...................................................... 35
7.2 Accounts Receivable.............................................. 37
7.3 [Intentionally Omitted.]......................................... 37
7.4 Related Party Agreements......................................... 37
7.5 Cooperation...................................................... 37
7.6 Conduct of Business Pending Closing.............................. 38
7.7 Access to Information............................................ 39
7.8 Prohibited Activities............................................ 39
7.9 Notice to Bargaining Agents...................................... 41
7.10 Sales of USFloral Common Stock................................... 42
7.11 USFloral Stock Options........................................... 43
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO............ 43
8.1 Representations and Warranties; Performance of Obligations....... 43
8.2 No Litigation.................................................... 43
8.3 No Material Adverse Change....................................... 44
8.4 Consents and Approvals........................................... 44
8.5 Opinion of Counsel............................................... 44
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8.6 Charter Documents................................................ 44
8.7 Quarterly Financial Statements................................... 44
8.8 Due Diligence Review............................................. 44
8.9 Delivery of Closing Financial Certificate........................ 44
8.10 [Intentionally Omitted.]......................................... 45
8.11 Employment Agreements............................................ 45
8.12 [Intentionally Omitted.]......................................... 45
8.13 Stockholders' Release............................................ 45
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS............................................................. 45
9.1 Representations and Warranties; Performance of Obligations....... 45
9.2 No Litigation.................................................... 46
9.3 Consents and Approvals........................................... 46
9.4 Employment Agreement............................................. 46
9.5 Charter Documents................................................ 46
10. INDEMNIFICATION.......................................................... 46
10.1 General Indemnification by the Stockholders...................... 46
10.2 Limitation and Expiration........................................ 47
10.3 Indemnification Procedures....................................... 48
10.4 Survival of Representations, Warranties and Covenants............ 50
10.5 Remedies Cumulative.............................................. 50
10.6 Right to Set Off................................................. 51
11. NONCOMPETITION........................................................... 51
11.1 Prohibited Activities............................................ 51
11.2 Damages.......................................................... 52
11.3 Reasonable Restraint............................................. 52
11.4 Severability; Reformation........................................ 52
11.5 Independent Covenant............................................. 52
11.6 Materiality...................................................... 53
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................ 53
12.1 Stockholders..................................................... 53
12.2 USFloral......................................................... 53
12.3 Damages.......................................................... 53
13. GENERAL.................................................................. 54
13.1 Termination...................................................... 54
13.2 Effect of Termination............................................ 54
13.3 Successors and Assigns........................................... 55
13.4 Entire Agreement; Amendment; Waiver.............................. 55
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13.5 Counterparts..................................................... 55
13.6 Brokers and Agents............................................... 55
13.7 Expenses......................................................... 55
13.8 Specific Performance; Remedies................................... 55
13.9 Notices.......................................................... 56
13.10 Governing Law.................................................... 57
13.11 Severability..................................................... 57
13.12 Absence of Third Party Beneficiary Rights........................ 57
13.13 Further Representations.......................................... 57
13.14 Accounting Terms................................................. 57
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into this 16th day of January, 1998, by and among U.S.A. Floral
Products, Inc., a Delaware corporation ("USFloral"), UF Acquisition Corp., a
Florida corporation and a newly-formed, wholly-owned subsidiary of USFloral
("Newco"), UltraFlora Corporation, a Florida corporation (the "Company"),
Fernando Fonseca, Alvaro McAllister, Flores Las Mercedes, S.A., a Panamanian
corporation, and Seacross Trading, Inc., a British Virgin Islands corporation
(each a "Stockholder" and collectively, the "Stockholders"), who directly or
indirectly own all the shares of the Company.
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 Newco merge with and into the Company (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the State of Florida.
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),
Newco shall be merged with and into the Company 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 Newco shall cease.
The Company, 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 in effect immediately prior to the Effective Time, until thereafter
amended in accordance with the provisions therein and as provided by 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, until
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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 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, 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, subject to
the provisions of this Agreement, 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.
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<PAGE>
(c) Conversion of Capital Stock of the Company. Subject to
Sections 2.1(d), 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
holder thereof, into the right to receive (i) an amount of cash equal to the
cash 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, (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 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(a)) divided by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time, all to be distributed to
the Stockholders at the times set forth in Section 2.2(a) hereof. 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 as part of the Closing Date Consideration or Earn-Out
Consideration, 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), or the Earn-Out Price, as the case may be,
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 $5.5 million plus the Earn-Out Consideration, adjusted pursuant to this
Section 2.2 and Section 3.1. Of the Merger Consideration, (i) $2.75 million
shall be paid in cash at Closing in immediately available funds and (ii) $2.75
million shall be paid in shares of USFloral Common Stock at Closing valued at
$16.842 per share (the "Merger Price") ((i) and (ii) together are sometimes
referred to as the "Closing Date Consideration"). In addition, for each $1.00 by
which the Company's earnings before interest and taxes ("EBIT") for the year
ended December 31, 1997 (the "Target EBIT") exceeds $431,000 (as determined by
Price Waterhouse LLP ("USFloral's Accountant")), USFloral shall pay to the
Stockholders $6.00 (the "Earn-Out Consideration").
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The Earn-Out Consideration shall be paid in USFloral Common Stock valued at the
average of the 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, 1997 (the "Earn-Out Price"). The Earn-Out Consideration, if any,
shall be paid within thirty days of the determination by USFloral's Accountant
of the Company's Target EBIT. The Target EBIT will be calculated consistent with
the policies and procedures used by USFloral's Accountant to calculate the
Company's earnings before interest and taxes for the year ended December 31,
1996 ("1996 EBIT"). The shares of USFloral Common Stock to be issued (subject to
adjustment as provided in this Section 2.2 and Section 3.1) as part of the
Closing Date Consideration and the Earn-Out Consideration shall be registered
under the Securities Act of 1933, as amended (the "1933 Act").
(b) The Closing Date Consideration has been calculated based upon
several factors set forth in this Agreement, 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
$1.5 million (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(b)), 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 Merger Price).
(d) The Earn-Out Consideration has been calculated based upon
several factors set forth in this Agreement, including the assumption that the
Company's 1998 earnings before interest and taxes for the six month period
beginning January 1, 1998 and ending June 30, 1998 (the "1998 Earn-Out EBIT")
will be no less than the Company's 1997 earnings before interest and taxes for
the six month period beginning January 1, 1997 and ending June 30, 1997 (the
"1997 Earn-Out EBIT"). If the 1998 Earn-Out EBIT is less than the 1997 Earn-Out
EBIT, then the Earn-Out Consideration to be delivered to the Stockholders shall
be reduced for $6.00 for each $1.00 by which 1998 Earn-Out EBIT is less than
1997 Earn-Out EBIT. Notwithstanding the foregoing, in no event shall the Earn-
Out Consideration be reduced to an amount less than $2.4 million due to 1998
Earn-Out EBIT being less than 1997 Earn-Out EBIT. Any Earn-Out Consideration
used to repay USFloral for any amount that 1998 Earn-Out EBIT is less than 1997
Earn-Out EBIT shall be valued at the Earn-Out Price for purposes of such
repayment.
2.3 Exchange of Certificates and Payment of Cash.
(a) USFloral to Provide Cash and Common Stock. In exchange for
the outstanding shares of Company Common Stock, USFloral shall cause to be made
available to the Stockholders the Merger Consideration (including cash in an
amount sufficient for payment in
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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.
(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 that 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; 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.
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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 sixty (60) days following the Effective Time, USFloral
shall cause 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 net worth of the Company 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 net worth of the Company (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). The Company will not incur any liability in
addition to the Merger Consideration Adjustment if the estimated net worth on
the Closing Financial Certificate is less than the Actual Company Net Worth.
(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 ("Deloitte & Touche") will, unless otherwise agreed by the
parties, review the Surviving Corporation's books,
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the Closing Financial Certificate and the Financial Adjustment Notice (and
related information) to determine the amount, if any, of the Merger
Consideration Adjustment. Deloitte & Touche 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.
Deloitte & Touche shall make its determination of the Merger Consideration
Adjustment, if any, within forty-five (45) days of the date on which notice of a
dispute is received from the Stockholders' Representative. The determination
made by Deloitte & Touche 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, if any.
The costs of Deloitte & Touche 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 Deloitte & Touche, or equally by
USFloral and the Stockholders in the event that the determination by Deloitte &
Touche 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 the books and records of accounts of the Company to determine if they
wish to dispute the Actual Company Net Worth and in connection with any
resolution thereof.
(d) The Stockholders' Representative shall have thirty (30) days
from the receipt of the Earn-Out Consideration to notify USFloral if the
Stockholders dispute such Earn-Out Consideration. Such notice shall include the
Stockholders' determination of the amount of Target EBIT. If USFloral has not
received notice of such a dispute within such 30-day period, the amount of the
Earn-Out Consideration will be deemed final and binding. If, however, the
Stockholders' Representative has delivered notice of such a dispute to USFloral
within such 30-day period, then Deloitte & Touche will, unless otherwise agreed
by the parties, review the Surviving Corporation's books and the Earn-Out
Consideration (and related information) to determine the amount, if any, of the
Earn-Out Consideration. Deloitte & Touche shall make its determination of the
Earn-Out Consideration, if any, within forty-five (45) days of the date on which
notice of a dispute is received from the Stockholders' Representative. The
determination made by Deloitte & Touche shall be final and binding on the
parties hereto. The costs of Deloitte & Touche shall be borne by the party
(either USFloral or the Stockholders as a group) whose determination of Target
EBIT was further from the determination of Deloitte & Touche, or equally by
USFloral and the Stockholders in the event that the determination by Deloitte &
Touche is equidistant between USFloral's and the Stockholders' determination of
Target EBIT. 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
the books and records of accounts of the Company to determine if they wish to
dispute the Target EBIT and in connection with any resolution thereof.
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(e) Within sixty (60) days following June 30, 1998, USFloral shall
cause USFloral's Accountant to determine the Company's 1998 Earn-Out EBIT. The
1998 Earn-Out EBIT will be calculated consistent with the policies and
procedures previously used by USFloral's Accountant to calculate the 1996 EBIT
of the Company. In the event that USFloral's Accountant determines that the 1998
Earn-Out EBIT was less than the 1997 Earn-Out 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 1998 Earn-Out EBIT, (ii) the amount of the Earn-Out
Consideration that would have been payable had the Earn-Out Consideration been
calculated based on the 1998 Earn-Out EBIT rather than the 1997 Earn-Out EBIT
and (iii) the amount by which the number of shares issued as the Earn-Out
Consideration would have been reduced had the 1998 Earn-Out EBIT been used to
calculate the Earn-Out Consideration (the "Earn-Out Consideration Adjustment").
(f) 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 1998 Earn-Out 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 (from the Earn-Out Pledged
Assets) (as defined in Section 3.2(a)), 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 Deloitte & Touche, unless
otherwise agreed by the parties, will 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. Deloitte & Touche
shall make its determination of the Earn-Out Consideration Adjustment, if any,
within forty-five (45) days of the date on which notice of a dispute is received
from the Shareholders' Representative. The determination made by Deloitte &
Touche shall be final and binding on the parties hereto, and upon such
determination, USFloral shall be entitled to receive from the Stockholders (from
the Earn-Out Pledged Assets) the Earn-Out Consideration Adjustment, if any. The
costs of Deloitte & Touche shall be borne by the party (either USFloral or the
Stockholders as a group) whose determination of 1998 Earn-Out EBIT was further
from the determination of Deloitte & Touche or equally by USFloral and the
Stockholders in the event that the determination by Deloitte & Touche is
equidistant between USFloral's and the Stockholders' determination of 1998 Earn-
Out EBIT. 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 the
books and records of accounts of the Company to determine if they desire to
dispute the 1998 Earn-Out EBIT and in connection with any resolution thereof.
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 Closing Date 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, any
shares of USFloral Common Stock to be issued in payment of the Earn-Out
Consideration in excess of that number of shares of USFloral Common Stock with a
value, based on the Earn-Out Price, of $2.4 million (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
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 its 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 it.
(c) The Pledged Assets shall be available to satisfy any Merger
Consideration Adjustment 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 Merger Consideration Adjustment 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 Earn-Out Consideration
Adjustment until the determination by USFloral's Accountants of the 1998 Earn-
Out EBIT. Promptly following such determination, USFloral shall return or 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 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
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Pledged Assets shall be valued at (x) the Merger Price with respect to any
Merger Consideration Adjustment under Section 3.1, (y) the Earn-Out Price with
respect to any Earn-Out Consideration Adjustment 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.
(d) The Stockholders shall be entitled to exercise any voting
powers incident to the Pledged Assets and to receive and retain all cash
dividends paid thereon.
3.3 Stockholders' Representative.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates Alvaro McAllister, or in the event that Alvaro McAllister
is unable or unwilling to serve, Paul Schwartz 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 its name and on his or its 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, or 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 in
Miami, Florida at the offices of Morgan, Lewis & Bockius LLP, on January 16,
1998, providing that all conditions to Closing
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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 and any 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 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 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. Except as set forth on 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 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
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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 hereby 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;
(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 5,000 shares of Company Common Stock, of which 5,000 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. Subject to Schedule 5.4, 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
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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 other than assets
acquired in the ordinary course of business. 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 except as may be provided in the Shareholders Release
attached as Exhibit D.
5.9 Company Financial Conditions.
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(a) The Company's net worth (i) as of the end of its most recent
fiscal year was not less than $950,000, 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 for (i) its
most recent fiscal year (after the addition of "add-backs" set forth on Schedule
5.9(b)) was not less than $724,000 and (ii) the eight-month period ended August
31, 1997, was not less than $931,000.
5.10 Financial Statements. Schedule 5.10 includes (a) true, complete
and correct copies of the Company's reviewed balance sheet as of December 31,
1996 (the end of its most recently completed fiscal year), and income statement
and shareholders' equity for the year then ended (collectively, the "Reviewed
Financials") and (b) true, complete and correct copies of the Company's
unaudited balance sheet (the "Interim Balance Sheet") as of December 31, 1997
(the "Balance Sheet Date") and income statement, for the twelve month period
then ended (collectively, the "Interim Financials," and together with the
Reviewed Financials, the "Company Financial Statements"). Except as noted in the
Company Financial Statements, 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, except as noted therein, 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.
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(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.
(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 which are in excess of $10,000 in the aggregate,
either accrued, absolute, contingent, mature, unmatured or otherwise and whether
known or unknown, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, or 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, in
accordance with GAAP, 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;
provided, however, any Accounts Receivable of Wal-Mart Corporation will be
collected in full without any set-off, within one hundred and twenty (120) days
after the day on which it first became due and payable, unless otherwise agreed
by the parties. 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
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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.
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 Company does not own any Real Property.
(ii) The legal descriptions for the Real Property contained
in the respective deeds thereof describe the properties fully and adequately.
All structures, facilities and improvements to the Real Property ("Structures")
are located within the boundary lines of the Real Property and no structures,
facilities or other improvements on any parcel adjacent to the Real Property
encroach onto any portion of the Real Property. The Structures do not encroach
on any easement which burdens any portion of the Real Property, and none of the
Real
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Property serves any adjacent parcel for any purpose inconsistent with the use
of the 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.
(iv) 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, normal wear and tear excepted. 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.
(v) 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.
(vi) 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
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) Except as set forth on any surveys previously made
available to USFloral, none of the Structures, the appurtenances thereto or the
equipment therein or the
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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,
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 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.
(ix) 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.
(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 Real Property or any portion thereof.
(xi) 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.
(xii) There are no service contracts or other agreements
relating to the use or operation of the 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. 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.
(xiv) 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.
(xv) All 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
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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
option granted to such party under such Lease. The Company does not have any
oral leases. The Leases and the Company's interests thereunder are free of all
Liens.
(xvi) Except as set forth on Schedule 5.15 (c)(xvi), 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 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
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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
Company's trade secrets, franchises, or similar rights (collectively, "Other
Rights"). 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 and Copyrights, listed on Schedules
5.17(a), 5.17(b)(i) and 5.17(b)(ii), and the Other Rights 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) or (b). 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
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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.
5.18 Material Contracts and Commitments.
(a) Schedule 5.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, 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, $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 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
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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 required 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) 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.
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(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.
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) 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;
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(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.
5.22 Employee Benefit Plans. Attached hereto as Schedule 5.22 is a
list 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 listed on 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
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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;
(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
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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 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 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: (i) committed any criminal act (except for
minor traffic violations or other minor offenses); (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 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
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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.
(v) The Company had a taxable year ended on December 31,
in each year since its inception.
(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 3 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.
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(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 (other than any Liens in favor of USFloral or as set forth
on Schedule 5.23(ix)).
(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 affect 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) Except as set forth on Schedule 5.24, 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) [Intentionally Omitted]
(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.
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:
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(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 other than inventory in
the normal course of business;
(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;
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(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 $50,000;
(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 $30,000;
(r) any loan by the Company to any person or entity, incurrence
by the Company of any indebtedness, guarantee by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guarantee of any debt securities of others, in each case in excess of $10,000;
(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) any 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;
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(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, PBS,
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 Company Hazardous Materials 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
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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 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 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 the Merger.
5.30 USFloral Prospectus; Securities Representations. Each
Stockholder has received and reviewed a copy of the prospectus dated November
18, 1997 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)
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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,
jointly and severally, 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 its
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incorporation, and each is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its respective properties and to carry on its 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. True, complete and correct copies of the Certificate and
Articles of Incorporation and the Bylaws, each as amended, of USFloral and
Newco, respectively (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 as the Earn-Out
Consideration, 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 all of such shares are approved for quotation on the
principal stock exchange on which USFloral Common Stock is traded.
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
hereby 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 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 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 any 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 by which either USFloral or Newco
is bound, 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 either
USFloral or Newco is bound or any of their respective property is subject;
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(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 USFloral
Common Stock, of which 9,594,050 shares were outstanding on November 19, 1997.
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.
6.6 Assets and Liabilities of Newco; Charges of Newco. Prior to the
consummation of the Merger, Newco has, and at the Effective Time Newco will
have, no material assets or liabilities and is not, and will not be, a party to
any contracts other than this Agreement. All cost and fees associated with the
Merger and all other transactions of Newco shall be borne solely by 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. USFloral shall
bear the costs of the preparation of such Tax Returns by KPMG Peat Marwick LLP
under this Section
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7.1(a)(i) in an amount not to exceed $15,000. The Stockholders shall bear all
costs for the preparation of Tax Returns by KPMG Peat Marwick LLP under this
Section 7.1(a)(i) which are in excess of $15,000.
(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 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.
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7.2 Accounts Receivable. Unless otherwise agreed by the parties,
in the event that all Accounts Receivable are not collected in full (net of
reserves specified in Section 5.12) within ninety (90) days after the Closing
(one hundred and twenty (120) days with respect to any Accounts Receivable of
the Wal-Mart Corporation, unless otherwise agreed by the parties) then, at the
request of the Surviving Corporation, the Stockholders shall pay (based on their
percentage ownership of the Company immediately prior to the Effective Time) the
Surviving Corporation an amount equal to the Accounts Receivable not so
collected (but only to the extent that the uncollected Accounts Receivable, in
the aggregate together with all other Damages (as defined in Section 10.1(a))
exceed the Indemnification Threshold (as defined in Section 10.2 (a))). Any
amounts received by the Surviving Corporation for a particular Account
Receivable (i) that was not originally collected within ninety (90) days (one
hundred and twenty (120) days for Accounts Receivable of Wal-Mart) after the day
on which it became due and payable and (ii) for which the Surviving Company has
not received payment from the Stockholders, shall be applied against amounts due
for that particular Account Receivable and such amount received by the Surviving
Corporation 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 (one hundred and twenty (120) days for
Accounts Receivable of Wal-Mart) after the day on which it became due and
payable and (ii) for which the Surviving Company has received payment from the
Stockholders, shall be remitted to the Stockholders within fifteen days of
receipt by the Surviving Company.
7.3 [Intentionally Omitted];
7.4 Related Party Agreements. The Company and/or the Stockholders,
as the case may be, shall terminate any Related Party Agreements which USFloral
requests in writing the Company or Stockholders to terminate, such termination
to become effective as of or before the Effective Time.
7.5 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,
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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.
7.6 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.
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7.7 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 7.7 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.
7.8 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;
(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; except for
ordinary and customary bonuses and salary increases for employees (other than
employees who are also Stockholders) in accordance with past practice;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
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(g) sell, assign, lease, 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;
(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, unemployment
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 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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7.9 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.
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7.10 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 which
is six months following 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 7.10(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 JULY 16,
1998, PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN OF
REORGANIZATION, DATED AS OF JANUARY 16, 1998 AMONG THE
ISSUER AND THE STOCKHOLDERS OF ULTRAFLORA
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
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PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING
PERIOD HAS EXPIRED.
7.11 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 (i) 6.25% of the
Closing Date Consideration provided for in Section 2.2 above and (ii) 6.25% of
the Earn-Out Consideration based on Target EBIT 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 provision challenging
USFloral's proposed acquisition of the Company, or limiting or restricting
USFloral's conduct or operation of the business of the Company (in a manner
adverse to the business of the Company) 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.
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8.3 No Material Adverse Change. There shall have been no material
adverse changes, with the exception of any changes affecting the industry
generally, 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 as Appendix B.
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 through September 30,
1997, 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");
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(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");
(d) the earnings of the Company before interest and taxes for
the eight month period ended on August 31, 1997 (the "Certified Closing EBIT");
and
(e) 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 [Intentionally Omitted];
8.11 Employment Agreements. Paul Schwartz shall have entered into
an employment agreement with the Company in substantially the form attached in
Appendix C.
8.12 [Intentionally Omitted];
8.13 Stockholders' Release. The Stockholders shall each have
delivered to USFloral an instrument in substantially the form attached in
Appendix D dated the Closing Date releasing the Company from any and all claims
of such Stockholder against the Company.
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,
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performed or satisfied; and certificates to the foregoing effects dated the
Closing Date and signed by the President or any Vice President of USFloral and
Newco 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 (in a manner
adverse to the business of the Company) 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 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.
9.4 Employment Agreement. The Company shall have afforded Paul
Schwartz an opportunity to enter into an employment agreement with the Company
in substantially the form attached in Appendix C.
9.5 Charter Documents. The Company shall have received (a) a copy of
the Certificate of Incorporation of USFloral and the Articles of Incorporation
of Newco, both certified by an appropriate authority in the state of their
incorporation, and (b) a copy of the Bylaws of USFloral and Newco certified by
the secretary of the respective company, and such documents shall be in form and
substance reasonably acceptable to the Company.
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:
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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
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);
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 10.1;
(c) amounts due and payable for anti-dumping duties for periods
prior to March 1, 1997 in amounts in excess of the amount, if any, by which the
Actual Company Net Worth exceeds $1,370,000; and
(d) any and all Damages arising out of and related to the sale
of Company Common Stock by Paul Schwartz to Seacross Trading, Inc.
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 (such aggregate amount shall not include any Damages resulting from a
breach of the representations and warranties in Section 5.9) exceeds an amount
equal to 2% of the Closing Date 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
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representations and warranties made in Sections 5.1 (due organization) as to the
Company's good standing as a foreign corporation in each jurisdiction in which
it does business without giving effect to the limitations of such representation
on Schedule 5.1, 5.4 (capital stock of the Company) without giving effect to the
limitations of such representation on Schedule 5.4, 5.5 (transactions in capital
stock), 5.7 (predecessor status) without giving effect to the limitations of
such representations on Schedule 5.7, 5.9 (Company financial conditions),
5.15(c)(xvi) (real property) without giving effect to the limitations of such
representations of Schedule 5.15(c)(xvi), 5.18 (material contracts and
commitments), 5.23 (conformity with law; litigation) without giving effect to
the limitations of such representation on Schedule 5.23(ix), 5.24 (taxes)
without giving effect to the limitations of such representation on Schedule 5.24
or 5.27 (environmental matters), or (iii) Damages described in Section
10.1(a)(iv), 10.1(c) and 10.1(d);
(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")
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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).
(a) (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.
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(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.
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.
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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) except as otherwise provided in this Section 11, 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 (other
than Multiflora, Kiara Investments Limited, Venosa Holdings, Inc. and/or
Ultraflora Corporation Comercializadora Internacional Ltda. C.I.) for any reason
or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the 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. In addition, the foregoing covenants in this Section 11 shall not be
deemed
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to prohibit any of the Stockholders, who, as of the date hereof, has an
interest, as an owner, operator, creditor, employee or otherwise, in (i) a
retail floral business independent (except as a customer) of the Company or (ii)
in Flores Las Mercedes, S.A., Fantastic, Inc., Kiara Investments Limited, Venosa
Holdings, Inc.,Ultraflora Corporation Comercializadora Internacional Ltda. C.I.
and Multiflora, as presently conducted, from continuing to maintain such
interest. However, the Stockholders may not maintain any interest in Flores Las
Mercedes, S.A., Fantastic, Inc., Kiara Investments Limited, Venosa Holdings,
Inc., Ultraflora Corporation Comercializadora Internacional Ltda. C.I. or
Multiflora, if any such company is in direct competition with the Company in the
importation of flowers into the United States for distribution to supermarkets,
convenience stores and mass market retailers.
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 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,
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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 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
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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 January 16, 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
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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, shall be read in conjunction with this
Agreement; provided, however, that the terms of this Agreement shall control in
the event of any conflict between any past agreements between the parties and
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
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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, D.C. 20007
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: 202-333-0803)
with a required copy to:
Morgan, Lewis & Bockius LLP
David A. Gerson
One Oxford Centre
Pittsburgh, Pennsylvania 15219-6401
(Telefax: 412-560-3399)
If to any Stockholder or the Stockholder Representative to:
Alvaro McAllister
1950 Northwest 89th Place
Miami, Florida 33172
(Telefax: 305-592-9658)
with a required copy to:
Steven H. Hagen
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.
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 (other than the Stockholders),
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]
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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 Chief
Executive Officer
UF ACQUISITION CORP.
By: /s/ Robert J. Poirier
------------------------------------
Robert J. Poirier
President
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ULTRAFLORA CORPORATION
By: /s/ Paul Schwartz
------------------------------------
Paul Schwartz
President
STOCKHOLDERS:
/s/ Fernando Fonseca
---------------------------------------
Fernando Fonseca
/s/ Alvaro McAllister
---------------------------------------
Alvaro McAllister
FLORES LAS MERCEDES, S.A.
By: /s/ Fernando Fonseca
------------------------------------
Fernando Fonseca
President
SEACROSS TRADING, INC.
By: /s/ Alvaro McAllister
------------------------------------
Alvaro McAllister
President
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APPENDICES
Appendix A [Articles of Incorporation of UF Acquisition Corp.]
Appendix B [Employment Agreement]
Appendix C [Form of Opinion]
Appendix D [Form of Stockholder Release]
EXHIBITS
EXHIBIT D [Shareholder's Release]
SCHEDULES
SCHEDULE 5.1 [Jurisdictions in which Company is Qualified to Do
Business]
SCHEDULE 5.4 [Issued and Outstanding Stock of each Company free of
Liens]
SCHEDULE 5.6(a) [List of Subsidiaries]
SCHEDULE 5.6(b) [List of Other Securities Owned]
SCHEDULE 5.6(c) [List of Promissory Notes]
SCHEDULE 5.7 [List of Predecessor Companies]
SCHEDULE 5.9(b) [Company Financial Conditions]
SCHEDULE 5.10 [Balance Sheets and Income Statements]
SCHEDULE 5.11(c) [Description of all plans or projects involving opening
new operations]
SCHEDULE 5.11(d) [List of all Indebtedness]
SCHEDULE 5.12 [Accounts Receivable]
SCHEDULE 5.15(b) [List of Real Property owned or leased]
SCHEDULE 5.15(c) [List of Real Property with Liens]
SCHEDULE 5.15(c)(x)(vi) [Consents for Leases]
SCHEDULE 5.16(a) [List of all Personal Property included on Interim
Balance Sheet]
SCHEDULE 5.17(a) [Registered and Unregistered Marks]
SCHEDULE 5.17(b)(i) [Patents]
SCHEDULE 5.17(b)(ii) [Copyright Registrations]
SCHEDULE 5.17(c) [Other Rights]
SCHEDULE 5.17(d) [Compensation Obligations]
SCHEDULE 5.18(a) [Contracts]
SCHEDULE 5.18(b) [Third Party Consents]
SCHEDULE 5.18(c) [Outstanding Balance on Loans and Credit Agreements]
SCHEDULE 5.18(d) [Default Pledge, Hypothecation or Mortgage]
SCHEDULE 5.19 [Government Contracts]
SCHEDULE 5.20 [Insurance Policies]
SCHEDULE 5.22 [List of Employee Benefit Plans]
SCHEDULE 5.23(a) [Material Adverse Effect]
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SCHEDULE 5.23(c) [Litigation]
SCHEDULE 5.25 [Absence of Changes]
SCHEDULE 5.26 [Deposit Accounts; Powers of Attorney]
SCHEDULE 5.27(a) [Hazardous Material]
SCHEDULE 5.27(d) [Environmental Permits]
SCHEDULE 5.32 [Location of Chief Executive Offices]
SCHEDULE 5.33 [Location of Equipment and Inventory]
The registrant agrees to furnish a copy of each omitted appendix, schedule,
exhibit or annex to this Exhibit 2.13 to the Commission supplementally upon
request therefor.
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Exhibit 2.14 - Agreement and Plan of
Reorganization by and among U.S.A.
Floral Products, Inc., KDI
Acquisition Corp., Koehler &
Dramm, Inc. and the Stockholder
named therein made effective as
of January 16, 1998.
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
<PAGE>
Table of Contents
Page
----
1. THE MERGER............................................................ 1
1.1 The Merger.................................................... 1
1.2 Certificate 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.................................. 8
4. CLOSING............................................................... 8
4.1 Location and Date............................................. 8
4.2 Effect........................................................ 8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.... 9
5.1 Due Organization.............................................. 9
5.2 Authorization; Validity....................................... 9
5.3 No Conflicts.................................................. 9
5.4 Capital Stock of the Company.................................. 10
5.5 Transactions in Capital Stock................................. 10
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.................................. 11
5.10 Financial Statements......................................... 11
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........................................ 16
5.18 Material Contracts and Commitments........................... 17
5.19 Government Contracts......................................... 18
5.20 Insurance.................................................... 19
5.21 Labor and Employment Matters................................. 19
<PAGE>
5.22 Employee Benefit Plans....................................... 20
5.23 Conformity with Law; Litigation.............................. 22
5.24 Taxes........................................................ 23
5.25 Absence of Changes........................................... 25
5.26 Deposit Accounts; Powers of Attorney......................... 27
5.27 Environmental Matters........................................ 27
5.28 Relations with Governments................................... 28
5.29 Disclosure................................................... 28
5.30 USFloral Prospectus; Securities Representations.............. 29
5.31 Affiliates................................................... 29
5.32 Location of Chief Executive Offices.......................... 29
5.33 Location of Equipment and Inventory.......................... 29
6. REPRESENTATIONS OF USFLORAL AND NEWCO................................. 30
6.1 Due Organization.............................................. 30
6.2 USFloral Common Stock......................................... 30
6.3 Authorization; Validity of Obligations........................ 30
6.4 No Conflicts.................................................. 30
6.5 Capitalization of USFloral and Ownership of USFloral Stock.... 31
7. COVENANTS............................................................. 31
7.1 Tax Matters................................................... 31
7.2 Related Party Agreements...................................... 32
7.3 Cooperation................................................... 33
7.4 Conduct of Business Pending Closing........................... 33
7.5 Access to Information......................................... 34
7.6 Prohibited Activities......................................... 34
7.7 Sales of USFloral Common Stock................................ 36
7.8 USFloral Stock Options........................................ 37
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF USFLORAL AND NEWCO......... 37
8.1 Representations and Warranties; Performance of Obligations.... 37
8.2 No Litigation................................................. 38
8.3 No Material Adverse Change.................................... 38
8.4 Consents and Approvals........................................ 38
8.5 Opinion of Counsel............................................ 38
8.6 Charter Documents............................................. 38
8.7 Quarterly Financial Statements................................ 39
8.8 Due Diligence Review.......................................... 39
8.9 Delivery of Closing Financial Certificate..................... 39
8.10 Employment Agreement......................................... 39
8.11 Stockholders' Release........................................ 39
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9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.......................................................... 40
9.1 Representations and Warranties; Performance of Obligations.... 40
9.2 No Litigation................................................. 40
9.3 Consents and Approvals........................................ 40
9.4 Employment Agreements......................................... 40
10. INDEMNIFICATION....................................................... 41
10.1 General Indemnification by the Stockholders.................. 41
10.2 Limitation and Expiration.................................... 41
10.3 Indemnification Procedures................................... 42
10.4 Survival of Representations Warranties and Covenants......... 44
10.5 Remedies Cumulative.......................................... 44
10.6 Right to Set Off............................................. 44
11. NONCOMPETITION........................................................ 45
11.1 Prohibited Activities........................................ 45
11.2 Damages...................................................... 45
11.3 Reasonable Restraint......................................... 46
11.4 Severability; Reformation.................................... 46
11.5 Independent Covenant......................................... 46
11.6 Materiality.................................................. 46
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................. 46
12.1 Stockholders................................................. 46
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................................................ 50
13.12 Absence of Third Party Beneficiary Rights................... 51
13.13 Further Representations..................................... 51
13.14 Accounting Terms............................................ 51
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into this 16th day of January, 1998, by and among U.S.A. Floral
Products, Inc., a Delaware corporation ("USFloral"), KDI Acquisition Corp., a
Delaware corporation and a newly-formed, wholly-owned subsidiary of USFloral
("Newco"), Koehler & Dramm, Inc., a Delaware corporation (the "Company"),
Richard Dramm, Lee Spence, Ronald Larsen and Eugene Brunk (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 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 Certificate of Incorporation; Bylaws, Directors and Officers.
At the Effective Time:
(a) The Certificate of Incorporation of the Surviving Corporation from
and after the Effective Time shall be the Certificate of Incorporation of Newco,
which shall be amended simultaneously with the consummation of the Merger to
change the name of the Surviving Corporation to "Koehler & Dramm, Inc.," until
thereafter amended in accordance with the provisions therein and as provided by
the applicable provisions of the Delaware General Corporation Law.
<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 Certificate of Incorporation of the Surviving Corporation and as
provided by the Delaware General Corporation Law.
(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 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 Delaware General Corporation Law. 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.
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(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
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 $10.0 million adjusted pursuant to this Section 2.2 and Section 3.1. Of the
Merger Consideration, $5.0 million shall be paid in cash at Closing in
immediately available funds. The remaining $5.0 million of the Merger
Consideration shall be paid in shares of USFloral Common Stock valued at $16.745
per share (the "Merger Price"). The 298,596 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").
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(b) The Merger Consideration has been calculated based upon several
factors, including the assumption that the net worth (total assets minus total
liabilities) of the Company, calculated in accordance with generally accepted
accounting principles ("GAAP") consistently applied, is equal to or greater than
$3.7 million (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 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 assignments separate from
certificate 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 assignments separate from certificate 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 Delaware
General Corporation Law.
(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
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<PAGE>
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) 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"), and within one
hundred fifty (150) days following the Effective Time to complete 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 Accountants 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
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<PAGE>
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
reasonable 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 reasonable
discretion, be from the Pledged Assets as defined in Section 3.2) the Merger
Consideration Adjustment, if any. 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.
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,
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<PAGE>
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 dividends 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, (ii) any Pending Claim for indemnification made
by any Indemnified Party (as said terms are 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.
(d) The Stockholders shall be entitled to exercise all voting powers
incident to USFloral Common Stock held as Pledged Assets, but shall not be
entitled to exercise any investment or dispositive powers over such USFloral
Common Stock.
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3.3 Stockholders' Representative.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates Richard E. Dramm or, in the event that Richard E. Dramm is unable or
unwilling to serve, Lawrence M. Elman 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 January 16, 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
Delaware General Corporation Law (the "Merger Documents"), together with any
required officers' certificates, shall be filed with the Secretary of the State
of Delaware in accordance with the provisions of the Delaware General
Corporation Law. The Merger shall become effective upon such filings or at such
later time as may be specified in such filings (the "Effective Time").
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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 is required to be qualified. The Company has delivered to USFloral
true, complete and correct copies of the Certificate of Incorporation and Bylaws
of the Company. Such Certificate 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 promptly after the Closing Date, shall 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:
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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 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 70,101.80 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
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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.
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 $3.7 million, 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 for (i) its most
recent fiscal year (after the addition of "add-backs" set forth on Schedule
5.9(b)) was not less than $1.3 million and (ii) the two-month period ended
September 30, 1997, was not materially less than $150,000.
5.10 Financial Statements. Schedule 5.10 includes (a) true, complete
and correct copies of the Company's audited balance sheet as of July
31, 1997 (the end of its most recently completed fiscal year), and income
statement for the year then ended (collectively, the "Audited
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Financials") and (b) true, complete and correct copies of the Company's
unaudited balance sheet (the "Interim Balance Sheet") as of October 31, 1997
(the "Balance Sheet Date") and income statement, for the three-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
(i) as requested by USFloral to conform the Company's accounting policies to
GAAP or (ii) pursuant to the provision set forth in Section 5.25(o) hereof.
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 current and collectible net of any respective reserves shown on
the Company's books and records as of the Closing Date (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; provided however, those Accounts Receivable set forth on Schedule 5.12
will continue to be collected on a monthly basis, consistent with past practice,
and will be collected in full by the date set forth on Schedule 5.12, unless the
parties otherwise agree. 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
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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.
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 current 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 by the Company 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 use, occupation and operation of the Real Property by the Company.
(ii) To the Company's knowledge, there are no pending or 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.
(iii) 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,
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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) To the Company's knowledge, 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.
(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 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
$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).
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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 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
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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." 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, 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 no more than $25,000.
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
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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,
$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 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 7.2, is valid and binding on the Company and is in full force and effect
and is not, to the knowledge of the Company, 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 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
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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) 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, as of the Balance Sheet Date, 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) 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;
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(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.
5.22 Employee Benefit Plans. Attached hereto as Schedule 5.22 are
complete and accurate copies, as of the Balance Sheet Date, 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. Except as
disclosed on Schedule 5.22, 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
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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;
(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;
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(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.
5.23 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.
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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.
(v) The Company has a taxable year ended on July 31, in each year
commencing not later than 1976.
(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 20 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 a
Material Adverse Effect on the Company.
(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.
(c) The Stockholders have, and as of the Effective Time will have, no
present plan, intention or arrangement to sell, transfer or otherwise dispose of
a number of shares of USFloral Common Stock (whether received in the Merger or
otherwise acquired, held or disposed of by the Stockholders) in excess of the
lesser of (i) the number of shares of USFloral Common Stock to be received by
the Stockholders in the Merger or (ii) that number of shares of USFloral Common
Stock to be received in the Merger that would reduce the Stockholders' ownership
of USFloral Common Stock to a number of shares having a value, as of the close
of the Merger, of less than 50% of the value of all of the issued and
outstanding Company Common Stock immediately prior to the Effective Time.
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(d) The Merger qualifies as a tax-free
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;
(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;
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(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 $50,000;
(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; provided, that, prior to the
date of this Agreement, the Company shall have the right to increase its reserve
for uncollectible accounts receivable to the extent that it deems appropriate;
(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
$10,000;
(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).
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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(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 obligations under this Agreement, and at the sole option of USFloral,
the truth and accuracy of any and all warranties
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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 November 18, 1997
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 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 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.
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
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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 9,594,050 shares were outstanding on November 19, 1997. 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. 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:
(a) 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 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.
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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 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.
(c) 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.
(d) 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 (other than the
Related-Party Agreement set forth on Schedule 7.2 hereto) 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
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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 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 7.7 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 Certificate 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;
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(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 $100,000, 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;
(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;
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(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 7.6(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 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 six
months from the Closing Date. No Stockholder will, directly or indirectly,
offer, sell, contract to sell, pledge or otherwise dispose of more than one-
third of the number of shares of USFloral Common Stock to be received by such
Stockholder in the Merger prior to the date that is twelve months from the
Closing Date. No Stockholder will, directly or indirectly, offer, sell,
contract to sell, pledge or otherwise dispose of more than two-thirds of the
number of shares of USFloral Common Stock to be received by such Stockholder in
the Merger prior to the date that is eighteen 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 7.7(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:
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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 JANUARY 16, 1998, AMONG THE ISSUER AND THE
STOCKHOLDERS OF KOEHLER & DRAMM, INC., A DELAWARE 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 "July 16, 1998," one-third will read "January 16, 1999" and
one-third will read "July 16, 1999."
7.8 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
determined by the Surviving Corporation's President 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
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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 a form
reasonably satisfactory to USFloral.
8.6 Charter Documents. USFloral shall have received (a) a copy of the
Certificate 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 as a percent of sales (the "Certified
Year-End EBIT");
(d) the earnings of the Company before interest and taxes for the two-
month period ending on September 30, 1997 (the "Certified Closing EBIT"); and
(e) 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 July 31,
1997.
8.10 Employment Agreement. Richard E. Dramm 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.
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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 Richard E.
Dramm an opportunity to enter into an employment agreement with the Company in a
form reasonably satisfactory to USFloral and Richard E. Dramm.
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10. INDEMNIFICATION
10.1 General Indemnification by the Stockholders. Richard E. Dramm,
jointly and severally, and each of the other Stockholders, 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 Articles 7,
11 and 12 of 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 5.22 (employee benefit plans)
(but solely to the extent set forth on such Schedule 5.22 in response to the
second paragraph of Section 5.22 hereof), 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
$200,000 (the
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"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);
(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
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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 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
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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.
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.
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11. NONCOMPETITION
11.1 Prohibited Activities. The Stockholders agree that for a period of
two years following the Effective Time, 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 five
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.
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
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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 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.
46
<PAGE>
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
(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 January 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
47
<PAGE>
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, 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
48
<PAGE>
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:
U.S.A. Floral Products, Inc.
1025 Thomas Jefferson Street, N.W.
Suite 600 West
Washington DC 20007
49
<PAGE>
Attn: Robert J. Poirier
Chairman, President and Chief Executive Officer
(Telefax: (202) 333-0803)
with a required copy to:
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15219
Attn: David A. Gerson
(Telefax: (412) 560-3399)
If to any Stockholder to:
Richard E. Dramm
3629 Oak Creek Terrace
Vadnais Heights, Minnesota 55127
with a required copy to:
Berger, Newmark & Fenchel P.C.
222 North LaSalle Street
Suite 1900
Chicago, Illinois 60601
Attn: Lawrence M. Elman
(Telefax: (312) 782-6491)
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
50
<PAGE>
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 & CEO
KDI ACQUISITION CORP.
By: /s/ Robert J. Poirier
-----------------------------------------------
Robert J. Poirier
President
KOEHLER & DRAMM, INC.
By: /s/ Richard E.Dramm
-----------------------------------------------
Richard E. Dramm
President
STOCKHOLDERS:
/s/ Richard E.Dramm
-----------------------------------------------
Richard E. Dramm
/s/ Lee Spence
-----------------------------------------------
Lee Spence
/s/ Ronald Larsen
-----------------------------------------------
Ronald Larsen
/s/ Eugene Brunk
-----------------------------------------------
Eugene Brunk
52
<PAGE>
SCHEDULES
SCHEDULE 1.1 [Form of Plan of Merger]
SCHEDULE 3.1 [Stockholders Post-Closing Audit Checklist]
SCHEDULE 5.1 [Jurisdictions in which Target is Qualified to Do
Business]
SCHEDULE 5.4 [Issued and Outstanding Stock of Target]
SCHEDULE 5.5 [Transactions in Capital Stock]
SCHEDULE 5.6(a) [Subsidiaries]
SCHEDULE 5.6(b) [Other Securities Owned]
SCHEDULE 5.6(c) [Promissory Notes]
SCHEDULE 5.7 [Predecessor Companies]
SCHEDULE 5.9(b) [Add-Backs]
SCHEDULE 5.10 [Company Financial Statements]
SCHEDULE 5.11(c) [Material Capital Expenditures]
SCHEDULE 5.11(d) [Indebtedness]
SCHEDULE 5.12 [Accounts Receivables]
SCHEDULE 5.15(b) [Real Property]
SCHEDULE 5.15(c) [Real Property Exceptions]
SCHEDULE 5.16(a) [Personal Property]
SCHEDULE 5.17(a) [Registered and Unregistered Marks]
SCHEDULE 5.17(b)(i) [Patents]
SCHEDULE 5.17(b)(ii) [Copyright Registrations]
SCHEDULE 5.17(c) [Other Rights]
SCHEDULE 5.18(a) [Material Contracts]
SCHEDULE 5.18(b) [Third Party Consents]
SCHEDULE 5.18(c) [Outstanding Balance on Related Party Agreements]
SCHEDULE 5.18(d) [Default upon Mortgage]
SCHEDULE 5.20 [Insurance Policies]
SCHEDULE 5.22 [Employee Benefit Plans]
SCHEDULE 5.23(a) [Conformity with Law]
SCHEDULE 5.23(c) [Litigation]
SCHEDULE 5.25 [Absence of Changes]
SCHEDULE 5.26 [Deposit Accounts; Powers of Attorney]
SCHEDULE 5.27(a) [Hazardous Material]
SCHEDULE 5.27(d) [Environmental Permits]
SCHEDULE 5.32 [Location of Chief Executive Offices]
SCHEDULE 5.33 [Location of Equipment and Inventory]
The registrant agrees to furnish a copy of each omitted schedule, exhibit or
annex to this Exhibit 2.14 to the Commission supplementally upon request
therefor.
i
<PAGE>
Exhibit 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.
CONSENT TO CREDIT AGREEMENT
---------------------------
CONSENT (this "Consent"), dated as of January 26, 1998, among U.S.A. FLORAL
PRODUCTS, INC., a Delaware corporation (the "Borrower"), the lenders party to
the Credit Agreement referred to below (the "Banks") and BANKERS TRUST COMPANY,
as agent (the "Agent"). Unless otherwise defined herein, all capitalized terms
used herein and defined in the Credit Agreement are used herein as so defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of October 16, 1997 (the "Credit Agreement");
WHEREAS, the Borrower wishes to consummate a transaction (the
"Acquisition") whereby it will acquire all of the issued and outstanding capital
stock of each of (i) Continental Farms, LTD and (ii) Atlantic Bouquet Co., Ltd
for a total consideration of $55,000,000, consisting of $27,500,000 in cash and
$27,500,000 of the common stock of the Borrower; and
WHEREAS, in connection with the Acquisition, the Borrower has requested
that the Banks grant, and the Banks have agreed to grant (subject to the terms
and conditions hereof), the consent provided herein;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in Section 8.02(f)(i) of
the Credit Agreement, the Banks hereby consent to the consummation of the
Acquisition with the consideration payable as set forth above.
2. Notwithstanding anything to the contrary contained in Section 8.02(f)(v) of
the Credit Agreement, the Banks hereby agree that for purposes of demonstrating
compliance with Section 8.02(f)(v) of the Credit Agreement in connection with
the Acquisition, the financial information required to be delivered by the
Borrower may be prepared based on the Test Period of the Borrower ended
September 30, 1997.
3. In order to induce the Banks to enter into this Consent, the Borrower
hereby represents and warrants that (i) the representations, warranties and
agreements contained in Section 6 of the Credit Agreement are true and correct
in all material respects on and as of the Consent Effective Date (as defined
below), both before and after giving effect to this Consent and (ii) there
<PAGE>
exists no Default or Event of Default on the Consent Effective Date, both before
and after giving effect to this Consent.
4. This Consent is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
5. This Consent may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Agent.
6. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW
YORK.
7. This Consent shall become effective on the date (the "Consent Effective
Date") when the Borrower and the Required Banks shall have signed a counterpart
hereof (whether the same or different counterparts) and shall have delivered
(including by way of facsimile) the same to the Agent at the Notice Office.
8. From and after the Consent Effective Date, all references in the Credit
Agreement and in the other Credit Documents to the Credit Agreement shall be
deemed to be references to the Credit Agreement as modified hereby.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Consent as of the date first above written.
U.S.A. FLORAL PRODUCTS, INC.
By: /s/ Raymond C. Anderson
--------------------------------
Title: Chief Financial Officer
BANKERS TRUST COMPANY,
Individually and as Agent
By: /s/ David J. Bell
--------------------------------
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Pamela A. Kuong
--------------------------------
Title: Vice President
CORESTATES BANK, N.A.
By:
--------------------------------
Title:
LA SALLE NATIONAL BANK
By: /s/ Todd Lanscioni
--------------------------------
Title:
FLEET BANK, N.A.
By: /s/ Thomas Levy
--------------------------------
Title: Vice President
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
registration statement on Form S-1 of our reports relating to the respective
financial statements which appear in such Prospectus.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS DATE
- -------------------- -----------------
<S> <C>
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 Limit-
ed.......................................................... February 27, 1998
Koehler & Dramm, Inc......................................... March 3, 1998
</TABLE>
We also consent to the reference to us under the heading "Experts."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, DC
March 4, 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., which appear in such Prospectus. We
also consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that Madsen,
Sapp, Mena, Rodriguez & Co., P.A. has not prepared or certified such "Selected
Financial Data."
/s/ Madsen, Sapp, Mena, Rodriguez & Co., P.A.
- ---------------------------------------------
MADSEN, SAPP, MENA, RODRIGUEZ & CO., P.A.
Plantation, Florida
March 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-22-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,582
<SECURITIES> 0
<RECEIVABLES> 18,505
<ALLOWANCES> 0
<INVENTORY> 4,937
<CURRENT-ASSETS> 1,011
<PP&E> 8,726
<DEPRECIATION> 0
<TOTAL-ASSETS> 107,248
<CURRENT-LIABILITIES> 20,225
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 86,156
<TOTAL-LIABILITY-AND-EQUITY> 107,248
<SALES> 37,380
<TOTAL-REVENUES> 37,380
<CGS> 26,685
<TOTAL-COSTS> 26,685
<OTHER-EXPENSES> 10,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 906
<INCOME-TAX> 490
<INCOME-CONTINUING> 416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 416
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
