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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 30, 1999
CALLOWAY'S NURSERY, INC.
(Exact name of registrant as specified in its charter)
TEXAS 0-19305 75-2092519
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification Number)
4200 AIRPORT FREEWAY
FORT WORTH, TEXAS 76117-6200
(Address of principal executive offices) (Zip code)
817.222.1122
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OF ASSETS
On September 21, 1999 Calloway's Nursery, Inc. ("Calloway's") completed the
acquisition (the "Cornelius Acquisition") of certain assets of Cornelius
Nurseries, Inc. ("CN"), Turkey Creek Farms, Inc.("TCF") and Wholesale
Landscape Distributors, Inc. ("WLD") (together "Cornelius").
Cornelius operates four retail garden centers in the Houston market, a
growing operation near Houston and two wholesale distribution centers (one
each in Houston and near Austin). Calloway's acquired substantially all of
the inventories and property, plant and equipment of Cornelius for cash of
approximately $8.5 million and $4.0 million of non-dividend, preferred
stock with a mandatory redemption after five years. Calloway's did not
assume any material liabilities of Cornelius. Calloway's expects to
continue operation of the acquired facilities using their existing trade
names.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(1) The audited financial statements as of September 30, 1998 and
1997 and for each of the two years in the period ended September
30, 1998 of Cornelius Nurseries, Inc. and Turkey Creek Farms,
Inc., including the report of independent accountants, filed as
Exhibit 99.1 to the Form 8-K include the following information:
(a) Report of Independent Accountants.
(b) Combined Balance Sheets as of September 30, 1998 and 1997.
(c) Combined Statements of Operations and Retained Earnings for
the years ended September 30, 1998 and 1997.
(d) Combined Statements of Cash Flows for the years ended
September 30, 1998 and 1997.
(e) Notes to combined financial statements.
(2) The unaudited condensed financial statements as of June 30, 1999
and for the nine-month period then ended of Cornelius Nurseries,
Inc., Turkey Creek Farms, Inc., and Wholesale Landscape
Distributors, Inc. filed as Exhibit 99.2 to the Form 8-K include
the following information:
(f) Condensed Combined Balance Sheet as of June 30, 1999.
(g) Condensed Combined Statement of Operations for the
nine-month period ended June 30, 1999.
(h) Condensed Combined Statement of Cash Flows for the
nine-month period ended June 30, 1999.
(i) Notes to unaudited condensed combined financial statements.
Note: Prior to October 1, 1998, WLD was a division of TCF.
Accordingly, both the unaudited condensed combined financial
statements for CN, TCF and WLD as of and for the nine-month period
ended June 30, 1999, and the combined financial statements of CN and
TCF as of and for the years ended September 30, 1998 and 1997 include
the financial position and results of operations for WLD.
2
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b) PRO FORMA FINANCIAL INFORMATION
Pursuant to paragraph (b)(2) of Item 7 of Form 8-K, the Registrant
hereby files the pro forma financial information included in Exhibit
99.3 as follows:
(1) Unaudited pro forma condensed consolidated financial introductory
paragraphs.
(2) Unaudited pro forma condensed consolidated Balance Sheet as of
June 30, 1999.
(3) Unaudited pro forma condensed consolidated Statement of
Operations for the nine-month period ended June 30, 1999.
(4) Unaudited pro forma condensed consolidated Statement of
Operations for the year ended September 30, 1998.
(5) Notes to unaudited pro forma condensed consolidated financial
information.
b) EXHIBITS
2.1 Amended and Restated Asset Purchase Agreement between
Calloway's Nursery, Inc. and Cornelius Nurseries, Inc.,
Turkey Creek Farms, Inc. and Wholesale Landscape
Distributors, Inc. dated as of June 3, 1999(1).
4.1 Certificate of Designation of Non-voting Acquisition
Preferred Stock of Calloway's Nursery, Inc.
10.1 Loan Agreement between Calloway's Nursery, Inc.,
Calloway's Cornelius, Inc. and The Frost National Bank.
23.1 Consent of Hidalgo, Banfill, Zlotnik & Kermali, P.C.
99.1 Cornelius Nurseries, Inc. and Turkey Creek Farms, Inc.
Combined Financial Statements as of and for the years
ended September 30, 1998 and 1997.
99.2 Cornelius Nurseries, Inc., Turkey Creek Farms, Inc. and
Wholesale Landscape Distributors, Inc. Combined
Financial Statements as of and for the nine-month period
ended June 30, 1999.
99.3 Calloway's Nursery, Inc. and Subsidiaries Unaudited Pro
Forma Condensed Financial Information as of June 30,
1999, for the nine-month period ended June 30, 1999 and
for the year ended September 30, 1998.
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(1) The Asset Purchase Agreement references certain exhibits and schedules
annexed thereto. A copy of any omitted item will be furnished supplementally to
the Commission upon request.
3
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CALLOWAY'S NURSERY, INC.
By:
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Daniel G. Reynolds
Vice President and Chief Financial Officer
Dated: September 30, 1999
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
2.1 Amended and Restated Asset Purchase Agreement between
Calloway's Nursery, Inc. and Cornelius Nurseries, Inc.,
Turkey Creek Farms, Inc. and Wholesale Landscape
Distributors, Inc. dated as of June 3, 1999(1).
4.1 Certificate of Designation of Non-voting Acquisition
Preferred Stock of Calloway's Nursery, Inc.
10.1 Loan Agreement between Calloway's Nursery, Inc.,
Calloway's Cornelius, Inc. and The Frost National Bank.
23.1 Consent of Hidalgo, Banfill, Zlotnik & Kermali, P.C.
99.1 Cornelius Nurseries, Inc. and Turkey Creek Farms, Inc.
Combined Financial Statements as of and for the years
ended September 30, 1998 and 1997.
99.2 Cornelius Nurseries, Inc., Turkey Creek Farms, Inc. and
Wholesale Landscape Distributors, Inc. Combined
Financial Statements as of and for the nine-month period
ended June 30, 1999.
99.3 Calloway's Nursery, Inc. and Subsidiaries Unaudited Pro
Forma Condensed Financial Information as of June 30,
1999, for the nine-month period ended June 30, 1999 and
for the year ended September 30, 1998.
</TABLE>
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(1) The Asset Purchase Agreement references certain exhibits and schedules
annexed thereto. A copy of any omitted item will be furnished supplementally to
the Commission upon request.
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EXHIBIT 2.1
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
BETWEEN
CALLOWAY'S NURSERY, INC.,
AS BUYER,
AND
CORNELIUS NURSERIES, INC.,
TURKEY CREEK FARMS, INC.,
AND
WHOLESALE LANDSCAPE DISTRIBUTORS, INC.,
AS SELLER
DATED AS OF JUNE 3, 1999
<PAGE> 2
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
June 3, 1999 among Calloway's Nursery, Inc., a Texas corporation ("Buyer"), and
Cornelius Nurseries, Inc., a Texas corporation ("CNI"), Turkey Creek Farms, Inc.
("TCF"), and Wholesale Landscape Distributors, Inc. ("WLD" and collectively
referred to with CNI and TCF as "Seller").
RECITALS
WHEREAS, Seller and Buyer desire to set forth their agreement regarding
the purchase and sale of assets from Seller;
WHEREAS, Seller and Buyer have previously entered into that certain
Asset Purchase Agreement, dated as of June 3, 1999, among Seller and Buyer, and
wish to amend and restate in its entirety the terms of such Asset Purchase
Agreement and replace such Asset Purchase Agreement with this Agreement.
NOW THEREFORE, in consideration of the foregoing, the mutual
undertakings of the parties contained herein, and other good and valuable
consideration specified herein, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement agree as follows:
ARTICLE 1.
DEFINITIONS
For certain definitions used in this Agreement, see Annex I.
ARTICLE 2.
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
2.1 AGREEMENT TO PURCHASE AND SELL.
(a) Subject to the terms and conditions of this Agreement, on
the Closing Date, CNI shall assign, transfer and deliver to Buyer, and
Buyer shall purchase, free and clear of all Encumbrances (other than
those Permitted Encumbrances listed on Part 2.1(a) of the Disclosure
Letter), the Assets.
(b) Subject to Section 2.2, the "Assets" shall consist of all
assets, wherever located, to which Seller has any right, title or
interest on the Closing Date, including:
(i) All the automobiles, trucks, trailers, rolling
stock, and other certificated vehicles owned by Seller,
including those described on Part 2.1(b)(i) of the Disclosure
Letter [to list all Vehicles owned by Seller] (the
"Vehicles");
(ii) The real property, including improvements
thereon, described on Part 2.1(b)(ii) of the Disclosure Letter
[to list all owned real estate] (the "Real
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Property"), together with all estates, rights, titles and
interests in and to all tenements, hereditaments, easements,
rights-of-way, rights, licenses, patents, rights of ingress
and egress, reversionary interests, privileges and
appurtenances belonging, pertaining or relating to the Real
Property, including any and all rights to the present or
future use of wastewater, wastewater capacity, drainage, water
or other utility facilities relating to the Real Property,
including, without limitation, all reservations of or
commitments or letters covering any such use in the future,
whether now owned or hereafter acquired, and the entire right,
title and interest of the Seller, if any, in, to and under all
streets, ways, alleys, passages, strips, gores, pipes,
pipelines, sewers, sewer rights, ditches, waters, water
courses, water rights and powers, air rights, railroad
sidings, minerals, mineral rights and mineral interests
adjoining, upon, above, in, under or pertaining to the Real
Property, all options and rights to purchase or otherwise
acquire real property that is adjacent to or nearby the Real
Property, and all claims or demands whatsoever of the Seller,
either in law or in equity, with respect to the Real Property,
including any unpaid awards to be made relating thereto,
including any unpaid awards or damages payable by reason of
damage thereto or by reason of a widening of any adjoining
streets or roads or a change of the grade with respect to the
same;
(iii) All estates, rights, titles and interests of
the Seller in and to all plants, factories, warehouses,
storage facilities, laboratories, buildings, works,
structures, fixtures, signage, landings, construction in
progress, improvements, betterments, installations and
additions constructed, erected or located on or attached or
affixed to the Real Property (the "Fixtures and
Improvements");
(iv) All right, title and interest of Seller in any
leases of real property, including those leases described on
Part 2.1(b)(iv) of the Disclosure Letter [to list all leased
real estate] and including rights to security deposits and all
other rights under such leases (the "Assigned Real Estate
Leases");
(v) All right, title and interest of Seller to any
leases of machinery, equipment, automobiles, trucks, trailers,
furniture and other tangible personal property, including
those leases described on Part 2.1(b)(v) of the Disclosure
Letter [to list all personal property leases of Seller] (the
"Assigned Personal Property Leases");
(vi) All right, title and interest of Seller in, to
and under (A) the Contracts described in Part 4.5(a) of the
Disclosure Letter (the "Scheduled Contracts") and (B) all
rights (including rights of refund and offset) privileges,
deposits, claims, causes of action and options relating or
pertaining to the Scheduled Contracts;
(vii) All of Seller's machinery, equipment,
furniture, tools, appliances and other tangible personal
property of every kind and description and all additions and
replacements thereto as are made in the Ordinary Course of
Business or that are required by the provisions of this
Agreement, including as described on Part 2.1(b)(vii) of the
Disclosure Letter [to list all tangible personal property of
Seller other than Vehicles] (collectively, the "Equipment");
(viii) All inventories, regardless of where located,
including raw materials, finished goods, and goods in process
at Seller's growing operation or elsewhere (the "Inventory");
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(ix) All of Seller's customer and supplier lists,
sales records and working files of correspondence with
customers and suppliers (both actual and prospective);
(x) The goodwill and going concern value associated
with the Assets and the business of Seller;
(xi) All right, title and interest of Seller with
respect to warranties owned by Seller, if any, and any claims
thereunder;
(xii) All right, title and interest of Seller in and
to all prepaid rentals, other prepaid expenses, bonds,
deposits, financial assurance requirements, and other current
assets relating to any of the Assets or the business of Seller
excluding those that secure Excluded Liabilities and are
listed in Part 2.1(b)(xii) on the Disclosure Letter, including
all prepaid expenses of the nature described in the Interim
Balance Sheet and prepaid insurance premiums;
(xiii) All right, title and interest of Seller in, to
and under all insurance proceeds and insurance claims of
Seller relating to all or any part of the Assets and, to the
extent transferable, the benefit of and the right to enforce
the covenants and warranties, if any, that Seller is entitled
to enforce with respect to the Assets against Seller's
predecessors in title to the Assets, Seller and Buyer hereby
agreeing to reasonably cooperate (at their own expense) in
connection with any such insurance claims;
(xiv) Originals or copies of all books, records,
files and papers, whether in hard copy or computer format,
including documents of title relating to the Assets,
accounting and financial information, engineering information,
blueprints, building and machinery diagrams, maintenance and
service records, environmental records, manuals and data,
sales and advertising materials, sales and purchase
correspondence, lists of present and former customers,
personnel and employment records, sales and property Tax
records, Tax Returns (Seller may retain copies of all such
documents) and information that is necessary for the
preparation of any Tax Returns to be filed by Buyer after the
Closing Date or the determination of the Tax basis of the
Assets, excluding (A) those matters relating to the Excluded
Assets or the Excluded Liabilities of Seller and (B) Seller's
organizational documents, corporate seals, minute books, stock
books and other records having to do with the corporate
organization of Seller;
(xv) All of Seller's rights, claims, credits, causes
of action, or right of setoff against third parties relating
to the Assets or the business of Seller, including all rights
under manufacturers' and vendors' warranties, except those
relating to Excluded Assets or Excluded Liabilities;
(xvi) All right, title and interest of Seller in, to
and under the Intellectual Property Assets and the right to
recover for infringement thereon;
(xvii) All right, title and interest of Seller in, to
and under all Permits relating to the Assets or the business
of Seller that are transferable, including the Permits listed
on Part 2.1(b)(xvii) of the Disclosure Letter;
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(xviii) All right, title and interest of Seller in,
to and under the name "Cornelius Nurseries," "Turkey Creek
Farms," "Wholesale Landscape Distributors" and variations
thereof and all other names ever used by Seller (whether now
used or previously used);
(xix) All of Seller's stationery, purchase orders,
forms, supplies, labels, catalogs, brochures, art work,
photographs, advertising material and similar items; and
(xx) All other assets of Seller of every kind and
description and wherever located, including all that are used
or intended for use in connection with, or that are necessary
to the continued conduct of, the business of Seller as
presently being conducted other than Excluded Assets.
2.2 EXCLUDED ASSETS. The Assets shall not include, and Seller shall
retain and shall not transfer, assign or lease to Buyer at the Closing any of
the following assets of Seller (collectively, the "Excluded Assets"):
(a) all cash on hand, cash equivalents, time deposits and
other amounts on deposit with banks or financial institutions;
(b) all trade and other accounts and notes receivable of
Seller (including doubtful accounts) (the "Accounts Receivable");
(c) any note, account payable or other obligation of any
Affiliate of Seller to Seller; and
(d) those assets of Seller listed on Part 2.2(d) of the
Disclosure Letter.
2.3 ASSUMED LIABILITIES. Subject to the terms and conditions of this
Agreement, and pursuant to an Assumption Agreement in a form reasonably
satisfactory to Buyer and CNI (the "Assumption Agreement") to be entered into by
the Buyer and Seller at the Closing, Buyer shall assume, perform, discharge and
pay the unfulfilled liabilities and obligations of Seller based on or arising
out of or in connection with the following (collectively, the "Assumed
Liabilities"): the Scheduled Contracts, the Assigned Real Estate Leases and the
Assigned Personal Property Leases and the accounts payable relating to Christmas
Inventory to the extent provided in Section 3.3(c) (each only to the extent to
be performed, paid or discharged on or after the Closing Date, Buyer not being
responsible for any obligations of Seller under such agreements due prior to the
Closing Date).
In no event shall the liabilities and obligations assumed by Buyer
pursuant to this Agreement include any of the Excluded Liabilities. Seller shall
be responsible for paying, performing and discharging all liabilities and
obligations of Seller not expressly assumed by Buyer pursuant to this Agreement,
including the Excluded Liabilities.
2.4 EXCLUDED LIABILITIES. Buyer does not assume or agree to pay,
perform or discharge, and shall not be responsible for, any claims, liabilities
or obligations of Seller which are not Assumed Liabilities, whether accrued,
absolute, contingent or otherwise, and whether known or unknown to Seller or
Buyer. Without limiting the generality of the foregoing, Buyer does not assume
or agree to pay, perform or discharge, and shall not be responsible for, any
claims, liabilities or obligations based on, arising out of or in connection
with the following (collectively, the "Excluded Liabilities"):
(a) any advances, loans, notes, indebtedness or other
obligations for borrowed monies (including interest accrued on such
advances, loans, notes, indebtedness or other
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obligations) payable by Seller other than the Assumed Liabilities,
including any notes payable to officers, directors, or Affiliates of
Seller;
(b) except as provided in Section 3.3(c) any accounts payable
or liabilities listed on the Interim Balance Sheet of Seller and any
obligations, liabilities or accounts payable arising in the Ordinary
Course of Business since such date;
(c) the mortgage debt or other borrowings relating to the Real
Property described in Part 2.1(b)(ii) of the Disclosure Letter;
(d) any claims against Seller by any of their directors,
officers, employees, or shareholders, including claims by any of them
relating to or arising out of their employment by Seller;
(e) any dividend or other distribution declared or otherwise
payable by Seller;
(f) defective performance of or defaults by Seller prior to
the Closing under the Scheduled Contracts, Assigned Real Estate Leases
or Assigned Personal Property Leases, or any express or implied
warranty with respect to such performance;
(g) any note, account payable or other obligation of Seller to
any Affiliate of Seller;
(h) any claims, liabilities or obligations relating to the
Excluded Assets;
(i) any claim, liability or obligation involving criminal
activities, fraud or willful misconduct on the part of Seller or any of
its respective employees, agents, officers or directors;
(j) claims, liabilities, or obligations associated with any
Proceeding against Seller pending prior to the Closing Date;
(k) any claims, liabilities, or obligations of Seller that
arise out of the operation of the business of Seller prior to the
Closing Date that are not Assumed Liabilities;
(l) any Taxes attributable or relating to the Assets or the
business of Seller for any periods ending on or before the Closing
Date, or which may be applicable to Seller because of the
Reorganization, Seller's sale of the business or any of the Assets to
Buyer;
(m) any claims, liabilities or obligations of Seller under any
Contracts, other than the Assigned Real Estate Leases, Assigned
Personal Property Leases, and Scheduled Contracts; or
(n) any claims, liabilities or obligations arising under ERISA
and relating to the business of Seller before the Closing Date, except
as described in Section 11.3.
ARTICLE 3.
CLOSING; PURCHASE PRICE; RELATED TRANSACTIONS
3.1 CLOSING. The closing of the purchase and sale of the Assets (the
"Closing") shall take place at the offices of Haynes and Boone, LLP, at 901 Main
Street, Suite 3100, Dallas, Texas 75202, at 10:00 a.m., Dallas time, on
September 21, 1999, or such other time and date as the parties may agree.
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3.2 PURCHASE PRICE. The consideration for the purchase and sale of the
Assets shall be the following:
(a) Closing Payment. Subject to Section 3.3 hereof, on the
Closing Date, Buyer shall pay to CNI the sum of $8,500,000 (the
"Closing Payment") by wire transfer of immediately available funds.
(b) Assumption of Liabilities. On the Closing Date, Buyer
shall, pursuant to the Assumption Agreement, assume the Assumed
Liabilities.
(c) Preferred Stock. Shares of Buyer's preferred stock, which
must be redeemed by Buyer on the fifth anniversary of the Closing Date
for an aggregate payment (including accrued dividends) of $4,000,000
(the "Deferred Payment"), subject to such terms and conditions as Buyer
and CNI may agree.
The Closing Payment, Assumed Liabilities and Deferred Payment are, collectively,
the "Purchase Price." At the Closing, Buyer shall also pay to CNI in immediately
available funds $26,939.40, representing deposits for which CNI will be
reimbursed.
3.3 ADJUSTMENTS. The amount of the Closing Payment shall be reduced
under the following circumstances:
(a) if the value of the Inventory (exclusive of the Christmas
Inventory except as provided in Section 3.3(c) below) on the Closing
Date, determined in accordance with the Physical Inventory Report, does
not equal at least $5,000,000, then the Closing Payment will be reduced
dollar for dollar by the amount of any such shortfall;
(b) if the value of the Real Property, determined in
accordance with the Appraisals, does not equal in the aggregate at
least $8,200,000, then the Closing Payment will be reduced dollar for
dollar by the amount of any such shortfall; and
(c) CNI, in its discretion, may elect that all or any portion
of the Christmas Inventory (which shall be shown separately on the
Physical Inventory Report) be counted toward the value of Inventory for
purposes of Section 3.3(a), in which event any accounts payable
relating to the Christmas Inventory so counted shall constitute an
Excluded Liability. Any accounts payable relating to Christmas
Inventory not so counted shall constitute Assumed Liabilities.
3.4 ALLOCATION. On or before the Closing Date, Buyer and CNI shall
reasonably agree on the proportion of the Purchase Price to be allocated to each
of the Assets purchased pursuant to this Agreement, and Buyer and CNI agree that
they shall not thereafter take any position or action inconsistent with such
allocation in the filing of any federal income Tax Returns. Buyer and CNI shall
file an IRS Form 8594 and such other documents as may be necessary to properly
reflect such allocation with the Internal Revenue Service and any other taxing
authority.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Letter or a supplement thereto,
which exceptions shall be appropriately numbered or otherwise designated to
indicate the specific representations and warranties to which they refer, Seller
(jointly and severally) represents and warrants to Buyer as follows:
4.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, with full corporate power and authority to conduct its business as it is
now being conducted, and to own or use the properties and assets that it
purports to own or use. Seller is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
4.2 AUTHORITY; NO CONFLICT.
(a) Seller has full corporate power and authority to execute,
deliver and perform this Agreement and the transactions contemplated
hereby. Subject to Section 14.15, this Agreement and the transactions
contemplated hereby have been duly authorized, executed and delivered
by Seller and this Agreement constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its
terms.
(b) Except as set forth in Part 4.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated
hereby will, directly or indirectly, with or without notice or lapse of
time:
(i) contravene, conflict with or result in a
violation of any provision of the Articles of Incorporation or
Bylaws of Seller;
(ii) contravene, conflict with or result in a
violation of or give any Governmental Body or other Person the
right to challenge any of the transactions contemplated hereby
or to exercise any remedy or obtain any relief under, any
Legal Requirement or any Order to which Seller or any of the
Assets may be subject;
(iii) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate or modify, any Contract, Assigned Real Estate Lease
or Assigned Personal Property Lease (other than consents of
landlords of leases);
(iv) cause Buyer to become subject to, or to become
liable for the payment of, any Tax (other than ad valorem
taxes on the Assets accruing after the Closing Date); or
(v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the Assets, except
Encumbrances created by Buyer.
Except as set forth in Part 4.2 of the Disclosure Letter, Seller is not
and will not be required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the transactions contemplated hereby
(other than consents of landlords of leases).
<PAGE> 9
4.3 FINANCIAL STATEMENTS. Seller has delivered to Buyer true and
correct copies of: (a) the audited consolidated balance sheets of Seller as at
September 30 in each of the years 1996 through 1998, and the related audited
consolidated income statements for each of the fiscal years then ended, which
financial statements contain a report of Hidalgo, Banfill, Zlotnik & Kermali,
P.C., independent auditors, reporting thereon (the September 30, 1998
consolidated balance sheet being referred to as the "Balance Sheet"), and (b) an
unaudited consolidated balance sheet of Seller as at April 30, 1999 and the
related consolidated income statement for the seven months then ended (the April
30, 1999 balance sheet being referred to as the "Interim Balance Sheet"). Seller
has also delivered to Buyer the monthly financial statements referred to in
Section 6.12 for each of the ten (10) months from and including July 1998
through and including April 1999 (except for July, August and September of 1998,
which will be delivered immediately). All financial statements referred to above
are collectively referred to as the "Financial Statements." The Financial
Statements and notes thereto fairly present the financial condition and the
results of operations of Seller and its subsidiaries as at the respective dates
of and for the periods referred to in such Financial Statements, all in
accordance with GAAP, subject, in the case of the unaudited interim Financial
Statements, to normal recurring year-end adjustments, the effect of which will
not, individually or in the aggregate, be materially adverse, and the absence of
notes. The Financial Statements referred to in this Section 4.3 reflect the
consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such Financial Statements. In
addition, Seller has or will also delivered to Buyer all reports of Inventory
taken by Seller from June 1, 1997, through the date of this Agreement.
4.4 TITLE AND CONDITION OF ASSETS. Except as set forth in Part 4.4 of
the Disclosure Letter:
(a) General. Seller has, and on the Closing Date will have,
good title to the Vehicles, Inventory, Equipment, Contracts,
Intellectual Property Assets and other tangible and intangible personal
property that comprise the Assets, free and clear of Encumbrances
(other than Permitted Encumbrances). The Assets constitute all the
assets and properties that are necessary for the continued conduct of
the business of Seller as presently conducted. Since the date of the
Interim Balance Sheet, Seller has not sold, transferred, leased,
distributed or otherwise disposed of any of the Assets, or agreed to do
so, except for sales made in the Ordinary Course of Business or as
otherwise contemplated or permitted by this Agreement.
(b) Condition of Assets. The Vehicles, Equipment and other
tangible personal property constituting Assets (i) are in good
operating condition, order and repair, subject to ordinary wear and
tear, and have been maintained in accordance with the common practice
of Seller, and (ii) are adequate for the purposes for which they are
now being used and are capable of being used in the business of Seller
as presently conducted without present need for repair or replacement,
except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
(c) Real Property. Part 2.1(b)(ii) of the Disclosure Letter
contains a complete legal description of each parcel of real property
constituting the Real Property, together with a summary description of
the buildings, structures and improvements thereon.
(i) Fee Simple. Except as specifically set forth in
Part 4.4(c) of the Disclosure List, Seller has, and on the
Closing Date CNI will have, good, indefeasible and marketable
title in fee simple absolute to the Real Property and to the
Fixtures and Improvements, in each case free and clear of all
Encumbrances, mortgages, assessments, easements, covenants,
reservations, defects in title, encroachments and other
burdens, whether arising by contract or under law
(collectively, "Liens"), whether or not the same
<PAGE> 10
render the title to such Real Property unmarketable. All
Fixtures and Improvements owned by Seller lie wholly within
the boundaries of the Real Property and do not encroach upon
the property of, or otherwise conflict with the property
rights of, any other Person.
(ii) Ingress and Egress; Eminent Domain. Seller has,
and on the Closing Date CNI will have, all easements and
rights of ingress and egress necessary for utilities and
services and for all operations of the Seller's business in
the manner and to the extent conducted by it. No portion of
the Real Property has been condemned, taken by right of
eminent domain requisitioned or otherwise taken by any
Governmental Body, and no such condemnation, taking by right
of eminent domain requisition or taking is threatened or
contemplated, and Seller does not have knowledge of any notice
regarding any such action.
(iii) Fixtures and Improvements. None of the Fixtures
or Improvements are in violation of any building line or use
or occupancy restriction, limitation, condition or covenant of
record or any zoning or building law, code or ordinance,
public utility or other easement or other applicable Legal
Requirement. Each facility located on the Real Property
currently is served by gas, electricity, water, sewage (or
septic tanks, as to TCF) and waste disposal and other
utilities adequate to operate such facility at its current
level of operation, and none of the utility companies serving
any such facility has threatened Seller with any reduction in
service. Such utilities either enter the Real Property through
adjoining public streets or, if they pass through adjoining
private land, do so in accordance with valid, permanent public
or private easements which, following the Closing, will inure
to the benefit of Buyer, its successors and assigns. All of
said utilities are installed and operating and all
installation and connection charges have been paid for in
full.
(iv) Real Property Taxes. There are no challenges or
appeals pending regarding the amount of the Taxes on, or the
assessed valuation of, the Real Property, and no special
arrangements or agreements exist with any Governmental Body
with respect thereto. There is no Tax assessment (in addition
to the normal, annual general real estate Tax assessment)
pending or, to Seller's knowledge, threatened with respect to
any portion of the Real Property.
(d) Leased Property. All real and tangible personal property
held by Seller under the Assigned Real Estate Leases and the Assigned
Personal Property Leases is held on the date hereof and will be held on
the Closing Date under a valid and binding lease agreement that is in
full force and effect. Except as set forth on Part 4.4 of the
Disclosure Letter, Seller is not in default and no notice of alleged
default has been received by Seller under any such lease and, to
Seller's knowledge, no lessor is in default or alleged to be in default
thereunder. None of the rights of Seller under any lease will be
impaired by the consummation of the transactions contemplated hereby,
assuming that the Consents described on Part 4.2 of the Disclosure
Letter are obtained and in full force and effect.
(e) Inventory. All Inventory, whether or not reflected in the
Balance Sheet or the Interim Balance Sheet, consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except
for obsolete items and items of below-standard quality, all of which
have been written off or written down to net realizable value in the
Balance Sheet or the Interim
<PAGE> 11
Balance Sheet, as the case may be. All Inventory not written off has
been priced on a current cost basis or unit cost method.
4.5 CONTRACTS; NO DEFAULTS.
(a) Part 4.5(a) of the Disclosure Letter contains a complete
and accurate list, and Seller has delivered to Buyer true and complete
copies, of:
(i) each Contract that involves performance of
services by Seller;
(ii) each Contract that involves the provision of
services to Seller;
(iii) each Contract that was not entered into in the
Ordinary Course of Business;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement and other
Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or
personal property;
(v) each licensing agreement or other Contract with
respect to Patents, Marks, Copyrights or other intellectual
property, including agreements with current or former
employees, consultants or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other
Contract to or with any labor union or other employee
representative of a group of employees;
(vii) each joint venture, partnership and other
Contract (however named) involving a sharing of profits,
losses, costs or liabilities by Seller with any other Person;
(viii) each Contract containing covenants that in any
way purport to restrict the business activity of Seller or any
Affiliate of Seller or limit the freedom of Seller or any
Affiliate of Seller to engage in any line of business or to
compete with any Person;
(ix) each Contract providing for payments to or by
any Person based on sales, purchases or profits, other than
direct payments for goods;
(x) each Contract entered into other than in the
Ordinary Course of Business that contains or provides for an
express undertaking by Seller to be responsible for
consequential damages;
(xi) each Contract for capital expenditures;
(xii) each written warranty, guaranty and or other
similar undertaking with respect to contractual performance
extended by Seller other than in the Ordinary Course of
Business;
(xiii) each Contract relating to Seller's computer
system (whether existing or to be installed), related hardware
and software, and anything relating to such computer system;
and
<PAGE> 12
(xiv) each amendment, supplement and modification
(whether oral or written) in respect of any of the foregoing.
(b) Except as set forth in Part 4.5(b) of the Disclosure
Letter, each Contract identified or required to be identified in Part
4.5(a) of the Disclosure Letter is in full force and effect and is
valid and enforceable in accordance with its terms.
(c) Except as set forth in Part 4.5(c) of the Disclosure
Letter:
(i) Seller is, and at all times since October 1,
1997, has been, in full compliance with all applicable terms
and requirements of each Contract identified or required to be
identified in Part 4.5(a) of the Disclosure Letter (except for
defaults that have been cured by Seller);
(ii) each Person other than Seller that has or had
any obligation or liability under any Contract identified or
required to be identified in Part 4.5(a) of the Disclosure
Letter is, and at all times since October 1, 1997 has been, in
full compliance with all applicable terms and requirements of
such Contract;
(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give
Seller or any other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any
Contract identified or required to be identified in Part
4.5(a) of the Disclosure Letter; and
(iv) Seller has not given to or received from any
other Person, at any time since October 1, 1997, any notice or
other communication (whether oral or written) regarding any
actual, alleged, possible or potential violation or breach of
or default under, any Contract identified or required to be
identified in Part 4.5(a) of the Disclosure Letter.
4.6 INTELLECTUAL PROPERTY.
Intellectual Property Assets. The term "Intellectual Property Assets"
includes: (a) the name "Cornelius Nurseries," the name "Turkey Creek Farms," the
name "Wholesale Landscape Distributors," and variations thereof and all
fictional business names, trade names, registered and unregistered trademarks,
service marks and applications (collectively, "Marks"); (b) all patents, patent
applications and inventions and discoveries that may be patentable
(collectively, "Patents"); (c) all copyrights in both published works and
unpublished works (collectively, "Copyrights"); and (d) all know-how, trade
secrets, confidential information, customer lists, software, technical
information, data, process technology, plans, drawings and blue prints
(collectively, "Trade Secrets"); in each case owned, used or licensed to or by
Seller as licensee or licensor.
(a) Intellectual Property Agreements. Part 4.6(b) of the
Disclosure Letter contains a complete and accurate list and summary
description, including any royalties paid or received by Seller, of all
Contracts relating to the Intellectual Property Assets to which Seller
is a party or by which Seller is bound.
<PAGE> 13
(b) Patents and Copyrights. Part 4.6(b) of the Disclosure
Letter contains a complete and accurate list and summary description of
all Patents. Seller is, and as of the Closing Date will be, the owner
of all right, title, and interest in and to each of the Patents, free
and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims. All of the issued Patents are
currently in compliance with formal legal requirements (including
payment of filing, examination, and maintenance fees and proofs of
working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days
after the Closing Date. Except as shown in Part 4.6(b) of the
Disclosure Letter, no Patent has been or is now involved in any
interference, reissue, reexamination, or opposition proceeding. To
Sellers' knowledge, there is no potentially interfering patent or
patent application of any third party. No Patent is infringed or, to
Sellers' knowledge, has been challenged or threatened in any way. None
of the products manufactured and sold, nor any process or know-how
used, by Seller infringes or is alleged to infringe any patent or other
proprietary right of any other Person. Seller does not possess any
registered Copyrights.
(c) Trademarks. Part 4.6(c) of the Disclosure Letter contains
a complete and accurate list and summary description of all Marks.
Seller is, and as of the Closing Date will be, the owner of all right,
title and interest in and to each of the Marks, free and clear of all
Encumbrances and other adverse claims. No Mark is infringed or, the
knowledge of Seller, has been challenged or Threatened in any way. None
of the Marks used by Seller infringes or is alleged to infringe any
trade name, trademark or service mark of any Person.
(d) Trade Secrets. No Trade Secret is subject to any adverse
claim or has, to the knowledge of Seller, been challenged or threatened
in any way.
4.7 INTENTIONALLY OMITTED.
4.8 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 4.8 of the
Disclosure Letter, Seller has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent or
otherwise) except for liabilities or obligations reflected or reserved against
in the Balance Sheet or the Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
4.9 TAXES.
(a) Seller has timely filed or caused to be timely filed all
federal, state and local Tax Returns for all federal, state and local
Taxes, and all such Tax Returns are proper, complete and accurate and
copies of which for the years 1996 though 1998 have been delivered to
Buyer, and all amounts shown as owing thereon have been paid.
(b) Seller has paid or caused to be paid all Taxes which have
become due.
(c) The amounts set up as provisions for Taxes on the Interim
Balance Sheet are sufficient for the payment of all accrued and unpaid
Taxes of any kind.
(d) Seller has not received or has any knowledge of any notice
of deficiency or assessment with respect to Seller, the business of
Seller or any of the Assets, or any basis for any of the foregoing,
from any taxing authorities. Seller has not been notified by the IRS
that the IRS intends to audit the federal income Tax Returns of Seller.
<PAGE> 14
(e) There is no litigation, governmental or other Proceeding
(formal or informal), or investigation pending, or (to the best of
Seller's knowledge) threatened, with respect to any such federal, state
or local income Tax Return. There are no Tax liens upon, pending
against or, to the knowledge of Seller, threatened against any of the
Assets.
(f) All Taxes that Seller is or was required by Legal
Requirements to withhold or collect have been withheld or collected
and, to the extent required, have been paid to the proper Governmental
Body or other Person.
4.10 NO MATERIAL ADVERSE CHANGE. Except as disclosed in Part 4.10 of
the Disclosure Letter, since the date of the Balance Sheet, there has not been
any material adverse change in the business, operations, properties, prospects,
assets or condition of Seller, and no event has occurred or circumstance exists
that may result in such a material adverse change.
4.11 EMPLOYEE BENEFITS.
(a) Part 4.11 of the Disclosure Letter lists all "employee
benefit plans" (as defined in Section 3(3) of ERISA), any other
deferred compensation, bonus, overtime, fringe benefit, insurance,
welfare, medical, health, life, company car, disability, injury,
illness, accident, sick pay, sick leave, vacation, termination,
severance, retention, executive compensation, incentive, commission or
other plan, agreement, policy, trust fund or arrangement, maintained or
to which contributions are being made by Seller or which provide
benefits to Seller's employees (collectively, the "Benefit Plans").
True and correct copies of each Benefit Plan have been delivered to
Buyer. To the extent applicable, for each Benefit Plan, Seller has
provided to Buyer copies of (i) the most recent determination letter
and any outstanding request for a determination letter; (ii) IRS Forms
5500 with respect to the last two plan years; (iii) certified financial
statements; (iv) summary plan descriptions to employees purporting to
inform them of the Benefit Plan; (v) any related trust agreement; (vi)
all insurance contracts or other funding arrangements; and (vii) all
material communications received from or sent to the IRS or the
Department of Labor within the last two years. All contributions or
premiums required to be made by Seller as of the Closing Date on
account of, or under each, Benefit Plan have been paid or adequate
accruals have been made therefore on the books of Seller and, except as
disclosed on Part 4.11 of the Disclosure Letter, no such contribution
or premium is delinquent under the terms of the applicable Benefit
Plan. Seller does not maintain any Benefit Plan that provides
post-retirement or post-termination welfare benefits for retired
employees, except for continuing benefits required by applicable state
and federal laws.
(b) Except as shown in Part 4.11(b) of the Disclosure Letter,
Seller does not contribute to and has not, within the five-year period
ending on the Closing Date, contributed to (i) any "multi-employer
plan" (as defined in Section 4001(a)(3) of ERISA), (ii) any plan which
is subject to Section 412 of the IRC or Title IV of ERISA, or (iii) any
Benefit Plan that is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA, other than Seller's 401(k) defined contribution
plan.
(c) Except as set forth on Part 4.11 of the Disclosure Letter,
no termination, retention, severance or similar benefit will become
payable as a result of any of the transactions contemplated hereby.
(d) Benefits under any Benefit Plan are as represented in said
documents and have not been increased or modified (whether written or
not written) subsequent to the dates of such
<PAGE> 15
documents. Seller has not communicated to any employee or former
employee any intention or commitment to modify any Benefit Plan (except
to comply with changes in applicable Legal Requirements) or to
establish or implement any other employee or retiree benefit or
compensation arrangement.
(e) Each Benefit Plan has been maintained and administered in
compliance in all respects with its terms and in all respects with the
requirements (including reporting requirements) prescribed by any and
all Legal Requirements including ERISA and the IRC.
4.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in Part 4.12(a) of the Disclosure
Letter:
(i) Seller is, and at all times since October 1, 1997
has been, in full compliance with each Legal Requirement that
is or was applicable to it or to the conduct or operation of
its business;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a violation by Seller of, or a failure
on the part of Seller to comply with, any Legal Requirement,
or (B) may give rise to any obligation on the part of Seller
to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and
(iii) Seller has not received, at any time since
January 1, 1997, any notice or other communication (whether
oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or
potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible or potential
obligation on the part of Seller to undertake, or to bear all
or any portion of the cost of, any remedial action of any
nature.
(b) Part 4.12(b) of the Disclosure Letter contains a complete
and accurate list of each Governmental Authorization that is held by
Seller or that otherwise relates to the Assets or the business of
Seller. Each Governmental Authorization listed or required to be listed
in Part 4.12(b) of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Part 4.12(b) of the Disclosure Letter:
(i) Seller is, and at all times since October 1, 1997
has been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or
required to be identified in Part 4.12(b) of the Disclosure
Letter;
(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of
or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in
Part 4.12(b) of the Disclosure Letter or (B) result directly
or indirectly in the revocation, withdrawal, suspension,
cancellation or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in
Part 4.12(b) of the Disclosure Letter; and
(iii) Seller has not received, at any time since
October 1, 1997, any notice or other communication (whether
oral or written) from any Governmental Body or any
<PAGE> 16
other Person regarding (A) any actual, alleged, possible or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization or (B) any
actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination of or
modification to any Governmental Authorization.
The Governmental Authorizations listed in Part 4.12(b) of the
Disclosure Letter collectively constitute all of the Governmental Authorizations
necessary to permit Seller lawfully to conduct and operate its business in the
manner it currently conducts and operates such business and to permit Seller to
own and use its assets in the manner in which it currently owns and uses such
assets.
4.13 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 4.13(a) of the Disclosure
Letter, there is no pending Proceeding: (i) that has been commenced by
or against Seller or that otherwise relates to or may affect the Assets
or the business of Seller; or (ii) that challenges, or that may have
the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the transactions contemplated hereby. To the
knowledge of Seller, (1) no such Proceeding has been Threatened and (2)
no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. The
Proceedings listed in Part 4.13(a) of the Disclosure Letter will not
have a material adverse effect on the business, operations, assets,
condition or prospects of Seller.
(b) Except as set forth in Part 4.13(b) of the Disclosure
Letter: (i) there is no Order to which Seller, or any of the Assets, is
subject and (ii) no partner, officer, director, agent or employee of
Seller is subject to any Order that prohibits such partner, officer,
director, agent or employee from engaging in or continuing any conduct,
activity or practice relating to the business of Seller.
(c) Except as set forth in Part 4.13(c) of the Disclosure
Letter: (i) Seller is, and at all times since October 1, 1997, has
been, in full compliance with all of the terms and requirements of each
Order to which it or any of the Assets is or has been subject; (ii) no
event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or failure
to comply with any term or requirement of any Order to which Seller, or
any of the Assets, is subject; and (iii) Seller has not received, at
any time since October 1, 1997, any notice or other communication
(whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible or potential violation
of, or failure to comply with, any term or requirement of any Order to
which Seller, or any of the Assets, is or has been subject.
4.14 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part
4.14 of the Disclosure Letter, since the date of the Interim Balance Sheet,
Seller has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) payment or increase by Seller of any bonuses, salaries or
other compensation to any shareholder, director, officer or (except in
the Ordinary Course of Business) employee or entry by Seller into any
employment, severance or similar Contract with any director, officer or
employee;
<PAGE> 17
(b) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or
with any employee of Seller;
(c) damage to or destruction or loss of any asset or property
of Seller, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial
condition or prospects of Seller;
(d) entry into, termination of, or receipt of notice of
termination of, (i) any license, distributorship, dealer, sales
representative, joint venture, credit or similar agreement or (ii) any
Contract or transaction involving a total remaining commitment by or to
Seller of at least $10,000;
(e) sale (other than sales of Inventory in the Ordinary Course
of Business or as otherwise contemplated by this Agreement), lease or
other disposition of any asset or property of Seller or mortgage,
pledge or imposition of any lien or other Encumbrance on any material
asset or property of Seller;
(f) cancellation or waiver of any claims or rights with a
value to Seller (in the aggregate) in excess of $10,000;
(g) change in the accounting methods used by Seller; or
(h) agreement, whether oral or written, by Seller to do any of
the foregoing.
4.15 INSURANCE. Seller will deliver to Buyer true and complete copies
of all policies of insurance to which Seller is a party or under which Seller is
or has been covered at any time within the two years preceding the Closing Date.
4.16 ENVIRONMENTAL MATTERS. Except as set forth in Part 4.16 of the
Disclosure Letter:
(a) Seller is, and at all times since October 1, 1991 has
been, in full compliance with, and has not been and is not in violation
of or liable under, any Environmental Law and/or any Occupational
Safety and Health Law. Seller has no basis to expect, nor has it or any
other Person for whose conduct it is or may be held to be responsible
received, any actual or Threatened Order, notice or other communication
from (i) any Governmental Body or private citizen acting in the public
interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply
with any Environmental Law or Occupational Safety and Health Law or of
any actual or Threatened obligation to undertake or bear the cost of
any Environmental, Health and Safety Liabilities with respect to any of
the Facilities.
(b) There are no pending or, to the knowledge of Seller,
Threatened claims, Encumbrances or other restrictions of any nature,
resulting from any Environmental, Health and Safety Liabilities or
arising under or pursuant to any Environmental Law and/or any
Occupational Safety and Health Law, with respect to or affecting any of
the Facilities.
(c) Seller has no basis to expect, nor has it or any other
Person for whose conduct it is or may be held responsible, received,
any citation, directive, inquiry, notice, Order, summons, warning or
other communication that relates to Hazardous Activity, Hazardous
Materials or any
<PAGE> 18
alleged, actual or potential violation or failure to comply with any
Environmental Law and/or any Occupational Safety and Health Law or of
any alleged, actual or potential obligation to undertake or bear the
cost of any Environmental, Health and Safety Liabilities with respect
to any of the Facilities.
(d) Neither Seller nor any other Person for whose conduct it
is or may be held responsible has any Environmental, Health and Safety
Liabilities with respect to the Facilities or at any property
geologically or hydrologically adjoining the Facilities.
(e) So far as known to Seller there are no Hazardous Materials
present on or in the Environment at the Facilities or at any
geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps or any other part of the
Facilities or such adjoining property or incorporated into any
structure therein or thereon. Neither Seller, any other Person for
whose conduct it is or may be held responsible, has permitted or
conducted, any Hazardous Activity conducted with respect to the
Facilities, except in full compliance with all applicable Environmental
Laws and Occupational Safety and Health Laws.
(f) There has been no Release or, to the knowledge of Seller,
Threat of Release, of any Hazardous Materials at or from the
Facilities, or any geologically or hydrologically adjoining property,
whether by Seller or any other Person.
(g) Seller will deliver to Buyer true and complete copies and
results of any reports, studies, analyses, tests or monitoring
possessed or initiated by Seller pertaining to Hazardous Materials or
Hazardous Activities in, on or under or related to the Facilities or
concerning compliance by Seller or any other Person for whose conduct
they are or may be held responsible, with Environmental Laws or
Occupational Safety and Health Laws.
4.17 LABOR RELATIONS; COMPLIANCE. Seller has not been and Seller is not
a party to any collective bargaining or other labor Contract. Since October 1,
1997, there has not been, there is not presently pending or existing, and, to
the knowledge of Seller, there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage or employee grievance process; or (b) any Proceeding
against or affecting Seller relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission or any comparable
Governmental Body, organizational activity or other labor or employment dispute
against or affecting Seller or its premises. There is no lockout of any
employees by Seller and no such action is contemplated by Seller. Seller has
complied in all respects with all Occupational Safety and Health Laws and all
other Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration (except as shown in Part 4.17 of the Disclosure
Letter), wages, hours, benefits, collective bargaining, the payment of social
security and similar Taxes and plant closing.
4.18 CUSTOMERS AND SUPPLIERS. Part 4.18 of the Disclosure Letter sets
forth (a) a list of the ten (10) largest customers of Seller in the terms of
revenue during the fiscal year ended September 30, 1998, and the seven (7)
months ended April 30, 1999, showing the approximate total revenue received from
each such customer during each such period, and (b) a list of the ten (10)
largest suppliers to Seller, in terms of purchases during the fiscal year ended
September 30, 1998, and the seven (7) months ended April 30, 1999, showing the
approximate total purchases by Seller from each supplier during each such
<PAGE> 19
period. Except as set forth in Part 4.18 of the Disclosure Letter, since October
1, 1997, there has not been any adverse change in the business relationship of
Seller with any customer or supplier listed on Part 4.18 of the Disclosure
Letter.
4.19 BOOKS OF ACCOUNT. The books, records and accounts of Seller
maintained with respect to the Assets accurately and fairly reflect, in
reasonable detail, the transactions and the assets and liabilities of Seller
with respect to the Assets. Seller has not engaged in any transaction with
respect to the Assets, maintained any bank account for the Assets or used any of
the funds of Seller in the conduct of the business of Seller, except for
transactions, bank accounts and funds that have been and are reflected in the
normally maintained books and records of the business.
4.20 DISCLOSURE. No representation or warranty of Seller in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact known to
Seller that has specific application to Seller (other than general economic or
industry conditions) and that materially adversely affects or, as far as Seller
can reasonably foresee, materially threatens, the assets, business, prospects,
financial condition or results of operations of Seller that has not been set
forth in this Agreement or the Disclosure Letter.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, with full corporate power and authority to conduct its business as it is
now being conducted, and to own or use the properties and assets that it
purports to own or use.
5.2 AUTHORITY; NO CONFLICT.
(a) Buyer has full corporate power and authority to execute,
deliver and perform this Agreement and the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by Buyer and constitutes the legal, valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms.
(b) Neither the execution and delivery of this Agreement nor
the consummation or performance of any of the transactions contemplated
hereby will, directly or indirectly (with or without notice or lapse of
time): (i) contravene, conflict with or result in a violation of any
provision of the Articles of Incorporation or Bylaws of Buyer; (ii)
contravene, conflict with or result in a violation of or give any
Governmental Body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which Buyer is
subject; or (iii) constitute a default under any Contract to which
Buyer is a party.
(c) Buyer is not required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
<PAGE> 20
5.3 BROKERS OR FINDERS. No broker, investment banker, financial advisor
or other Person, other than Buis & Co., the fees and expenses of which will be
paid by Buyer, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with transactions contemplated
hereby based upon arrangements made by or on behalf of Buyer.
5.4 SALES AND ASSETS. As of this date Buyer has less than $100,000,000
in revenues and $100,000,000 in assets.
ARTICLE 6.
COVENANTS OF SELLER PRIOR TO CLOSING DATE
6.1 ACCESS AND INVESTIGATION. Subject to Section 6.8, between the date
of this Agreement and the Closing Date, upon reasonable prior notice by Buyer to
Seller and with Seller's consent which will not be unreasonably withheld, Seller
shall (a) afford Buyer and its representatives and prospective lenders and their
representatives (collectively, "Buyer's Advisors"), at Buyer's cost, reasonable
access to Seller's personnel, properties (including subsurface testing),
contracts, books and records and other documents and data during normal business
hours and at the facilities where such books and records, documents and data are
normally maintained by Seller, (b) furnish Buyer and Buyer's Advisors with
copies of all such contracts, books and records and other existing documents and
data as Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors
with such additional financial, operating and other data and information as
Buyer may reasonably request. Any access or investigation under this Section 6.1
shall be conducted by Buyer without unreasonable interference with Seller's
business or operations.
6.2 OPERATION OF THE BUSINESS OF SELLER. Between the date of this
Agreement and the Closing Date, Seller shall (a) conduct its business as
currently conducted only in the Ordinary Course of Business or as permitted by
this Agreement; (b) use its best efforts to preserve intact the current business
organization of Seller (except as contemplated by Section 6.14), keep available
the services of the current officers, employees and agents of Seller, and
maintain Seller's relationships and good will with suppliers, customers,
landlords, creditors, employees, agents and others having business relationships
with Seller; (c) confer with Buyer concerning operational matters of a material
nature; (d) cause the tangible Assets to be maintained and in as good working
order and condition as at present, ordinary wear and tear excepted; (e) not
dispose of, or commit to dispose of, any Assets other than in the Ordinary
Course of Business (except as contemplated by Section 6.14); (f) perform in a
timely manner all of its obligations under this Agreement and all other
Contracts or other agreements relating to or affecting any of the Assets; (g)
keep in full force and effect present insurance policies or other comparable
insurance coverage; (h) maintain compliance with all Permits and Legal
Requirements; and (i) otherwise report periodically to Buyer concerning the
status of the business, operations and finances of Seller.
6.3 NEGATIVE COVENANT. Except as otherwise expressly permitted by this
Agreement or as contemplated by Section 6.14, between the date of this Agreement
and the Closing Date, Seller will not, without the prior consent of Buyer, take
any affirmative action, or fail to take any reasonable action within its
control, as a result of which any of the changes or events listed in Section
4.14 is likely to occur.
6.4 REQUIRED APPROVALS. Between the date of this Agreement and the
Closing Date, Seller shall (a) cooperate with Buyer with respect to all filings
that Buyer elects to make or is required by Legal Requirements to make in
connection with the transactions contemplated hereby, including filings or
<PAGE> 21
other actions to obtain Permits required by Buyer to conduct the business of
Seller, and (b) cooperate with Buyer in obtaining all Consents identified in
Part 4.2 of the Disclosure Letter.
6.5 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Seller shall promptly notify Buyer in writing if Seller becomes aware of
any fact or condition that causes or constitutes a Breach of Seller's
representations and warranties as of the date of this Agreement, or if Seller
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a material Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Disclosure Letter if the Disclosure Letter were dated the date of the
occurrence or discovery of any such fact or condition, Seller shall promptly
deliver to Buyer a supplement to the Disclosure Letter specifying such change.
During the same period, Seller shall promptly notify Buyer of the occurrence of
any Breach of any covenant of Seller in this Article 6 or of the occurrence of
any event that could adversely affect the satisfaction of the conditions in
Articles 9 and 10.
6.6 EFFORTS. Between the date of this Agreement and the Closing Date,
Seller shall use its commercially reasonable efforts to cause the conditions in
Articles 9 and 10 to be satisfied, to the extent they are subject to Seller's
control.
6.7 NO SHOPPING. Seller shall not, directly or indirectly, through any
authorized partner, officer, director, agent or otherwise, (a) solicit, initiate
or encourage submission of proposals or offers from any Person (other than
Buyer) relating to any acquisition or purchase of all or a material amount of
the Assets or any equity interest in Seller, or any merger, consolidation or
business combination with Seller, or (b) participate in any discussions or
negotiations regarding, or furnish to any Person (other than Buyer) any
information with respect to, any of the foregoing, or (c) otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other Person to do or seek any of the foregoing. Seller shall
promptly notify Buyer if Seller receives any such proposal or offer or any
inquiry or contact with respect thereto.
6.8 NO PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated hereby
will be issued, at such time and in such manner as Seller and Buyer mutually
determine. Unless consented to by Buyer in advance, at all times prior to the
Closing, Seller shall, and shall cause its Affiliates to, keep this Agreement
strictly confidential and not make any disclosure of this Agreement to any
Person. Seller and Buyer will consult with each other concerning the means by
which Seller's employees, customers and suppliers and others having dealings
with Seller will be informed of the transactions contemplated hereby, and Buyer
will have the right to be present for any such communication. In addition, upon
execution of this Agreement, Buyer and Seller will confer and agree upon how to
address Seller's employees and will at that time describe the transactions
contemplated hereby to such employees. Notwithstanding any limitation on
disclosure set forth in this paragraph, Seller may make such disclosures
concerning this Agreement and the transactions contemplated hereby as may be
required by any Legal Requirement.
6.9 CHANGE OF CORPORATE NAME. Seller, in accordance with the Texas
Business Corporation Act, shall approve, and obtain the approval of its
shareholders of, amendments to their Articles of Incorporation (the "Name Change
Amendments") changing their corporate names to names that do not include the
words "Cornelius," "Turkey Creek Farms," "Wholesale Landscape Distributors," or
any similar name.
<PAGE> 22
6.10 PHYSICAL INVENTORY REPORT. On a date or dates mutually acceptable
to Buyer and Seller (each at their own expense), Buyer and Seller shall jointly,
and using individuals or parties mutually acceptable to Buyer and Seller, cause
to be prepared a count and valuation of the Inventory (the "Physical Inventory
Report"), which shall be signed jointly by Buyer and Seller for identification
purposes within five (5) days prior to the Closing. The Inventory shall be
valued on a current cost basis, shall take into account the cost records of
Seller relating to the Inventory, and shall also take into account an
observation of the Inventory in order to determine the marketability of the
Inventory as of the date of the Physical Inventory Report.
6.11 TITLE COMMITMENT; SURVEY. Within thirty (30) days from the date of
this Agreement, Seller, at Seller's sole cost and expense, shall cause to be
furnished to Buyer a current commitment for title insurance, issued by a title
company reasonably acceptable to Buyer, for each parcel of the Real Property.
The title commitment shall set forth the state of title to the Real Property,
including a list of title exceptions that would appear in an owner's title
policy. The title commitment shall contain the expressed commitment of the title
company to issue a title policy to Buyer for each tract of Real Property in the
aggregate amount of $8,200,000. Along with the title commitment, Seller shall
also cause to be furnished to Buyer true, correct, and legible copies of all
instruments that create or evidence title exceptions affecting the Real
Property. Buyer, at Buyer's expense, shall have the right to obtain a survey for
each tract of the Real Property; provided, however, that at the Closing Seller
shall reimburse Buyer for the cost of the surveys.
6.12 FINANCIAL STATEMENTS. Within twenty (20) days after the end of
each month following the date of this Agreement, Seller shall deliver to Buyer
(a) the unaudited consolidated balance sheet of Seller as of the end of such
month, and (b) the unaudited consolidated income statement of Seller as of the
end of such month, in each case for each "unit" of Seller's business, including
(i) the growing operations, (ii) the distribution centers, (iii) each of
Seller's retail stores, and (iv) corporate and administrative, all in the form
previously provided to Buyer. All such financial statements shall be deemed to
be a part of the "Financial Statements" for the purposes of this Agreement.
6.13 LEASE. At the Closing, CNI shall cause C. Sterling Cornelius, as
Trustee of the Margaret Cornelius Management Trust, to execute a lease with
Buyer for six (6) acres on Old Richmond Road, for a term of five (5) years, with
Buyer's right to renew for three (3) five (5) year terms, at a renewal of
$20,000 per year which shall constitute an "Assigned Real Estate Lease".
6.14 REORGANIZATION. Prior to the Closing Date, to the extent not
already owned by CNI, TCF and WLD will each transfer to CNI all of its Vehicles,
Fixtures and Improvements, Equipment, Inventory, and Assets described in Section
2.1(b)(xii) (the "Reorganization").
6.15 ENVIRONMENTAL AUDITS. Seller shall, at Seller's expense, cause to
be prepared, by an independent environmental consultant or consultants
reasonably satisfactory to Seller and Buyer, Phase I environmental audit reports
(the "Environmental Audits") covering each parcel of real property owned or
leased by Seller, and shall deliver copies thereof to Buyer.
ARTICLE 7.
COVENANTS OF BUYER PRIOR TO CLOSING DATE
7.1 APPROVALS OF GOVERNMENTAL BODIES. Between the date of this
Agreement and the Closing Date, Buyer shall (a) cooperate with Seller with
respect to all filings that Seller is required by
<PAGE> 23
Legal Requirements to make in connection with the transactions contemplated
hereby, and (b) cooperate with Seller in obtaining all Consents identified in
Part 4.2 of the Disclosure Letter.
7.2 INTENTIONALLY OMITTED.
7.3 EFFORTS. Between the date of this Agreement and the Closing Date,
Buyer shall use commercially reasonable efforts to cause the conditions in
Articles 9 and 10 to be satisfied to the extent in Buyer's control.
7.4 DISCLOSURE LETTER. Buyer and Seller acknowledge that Seller has not
delivered to Buyer the Disclosure Letter as of the execution and delivery of
this Agreement. Seller shall deliver to Buyer, and Buyer shall have received,
the Disclosure Letter in connection with this Agreement on or before June 18,
1999. Buyer may terminate this Agreement by notice to Seller and without any
liability to Seller if Buyer has not received the Disclosure Letter on or before
such date. After receipt of the Disclosure Letter, Buyer may review the
Disclosure Letter and determine whether Buyer desires to proceed with the
transactions contemplated under this Agreement or to terminate this Agreement.
Buyer may, in its sole discretion, terminate this Agreement by notice to Seller
and neither Buyer nor Seller shall be liable to the other as a result of
termination under this Section 7.4. If Seller delivers to Buyer a supplement or
supplements to the Disclosure Letter with respect to a fact or condition that
arose, or of which Seller became aware, after the date of delivery of the
original Disclosure Letter, then Buyer in its sole discretion may terminate this
Agreement by notice to Seller and without any liability to Seller and neither
Buyer nor Seller shall be liable to the other as a result of such termination.
If Seller delivers to Buyer a supplement to the Disclosure Letter within five
(5) business days of the Closing Date then the Closing Date shall automatically
be extended five (5) business days unless Buyer waives this provision.
7.5 BUYER'S EXPENSES. Buyer shall pay all expenses required to obtain
its financing, including any Appraisals.
ARTICLE 8.
POST-CLOSING COVENANTS OF THE PARTIES
8.1 COOPERATION; FURTHER ASSURANCES. After the Closing Date: (a) Seller
and Buyer shall promptly execute and deliver, at the cost of the requesting
party, those instruments, documents and certificates as Seller or Buyer may
reasonably request to more effectively consummate the transactions contemplated
hereby; (b) Seller shall as promptly as practical, but in no event later than
five (5) business days after receipt, deliver to Buyer any mail, packages,
notices, copies of service of process and other similar items received by Seller
that relate to the Assets or the business of Buyer, or the Assumed Liabilities
or that otherwise should be delivered to Buyer and all moneys, checks or other
instruments of payment to which Buyer is entitled; (c) Seller authorizes Buyer
to receive and open all mail and other communications received by Buyer and to
act with respect to such communications in such manner as Buyer may elect if
such communications relate to the Assets, the business of Buyer or the Assumed
Liabilities or, if such communications do not so relate, to forward the same
promptly to Seller but in no event less than five (5) business days after
receipt; (d) Seller shall promptly forward to Buyer any telephone calls,
telecopies and other similar communications received by Seller that relate to
the Assets, the business of Buyer or the Assumed Liabilities; and (e) Buyer
shall as promptly as practical, but in no event later than five business days
after receipt, deliver to Seller any mail, packages, notices, copies of service
of process, and other similar items received by Buyer that relate to the
Excluded Assets, the Excluded Liabilities, or that should otherwise be delivered
to Seller, and all monies, checks or other instruments of payment to which
Seller is entitled; and (f) Buyer shall promptly forward to Seller any
<PAGE> 24
telephone calls, telecopies, and other similar communications received by Buyer
that relate to the Excluded Assets or Excluded Liabilities. Seller shall have
the right to audit within ninety days of the Closing Date the receivables
collected by Buyer following the Closing Date to determine the amount of
Accounts Receivable due Seller. If an account debtor pays an account receivable
of Buyer, but validly offsets or validly reduces the payment to Buyer as a
result of any services provided by Seller to the account debtor prior to
Closing, such amount shall be included in "Damages" as defined herein.
8.2 COOPERATION ON CERTAIN MATTERS. Seller and Buyer shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with any audit, litigation, or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such matter. Buyer and Seller agree (a) to retain until the expiration of
the applicable statute of limitations all books and records which are relevant
to the determination of the Tax liabilities pertinent to the Assets relating to
any Tax period prior to the Closing Date and to abide by all record retention
agreements entered into with any Tax authority, and (b) to give the other party
reasonable written notice prior to destroying or discarding any such books and
records and if the other party so requests, Buyer or Seller, as the case may be,
shall allow the other party to take possession of such books and records.
8.3 TRANSFER TAXES. Seller shall pay, or cause to be paid, all Taxes or
recording fees imposed on any transfers of the Assets as contemplated by this
Agreement, and all sales and use Taxes applicable to transfers of the Assets as
contemplated hereby.
8.4 APPORTIONED CHARGES; TAXES.
(a) Apportioned Charges. Charges for (i) unmetered water,
sewer and other utilities directly related to the Assets; (ii) accrued
and unpaid wages, and other payments to employees of Seller who are
associated with any of the Assets; and (iii) rental and other payments
under any of the Scheduled Contracts, the Assigned Personal Property
Leases or the Assigned Real Estate Leases assigned to Buyer pursuant
hereto shall be apportioned between CNI and Buyer, at and as of the
Closing Date. There shall also be apportioned between CNI and Buyer, at
and as of the Closing Date any rebates, allowances, and the like which
are or became payable by Buyer after the Closing Date in accordance
with the terms of any agreement or transaction entered into by Seller
with any customer or other party that relates to any period prior to
the Closing Date. If any item cannot be apportioned accurately at the
Closing Date or if it is apportioned incorrectly at the Closing Date or
subsequent thereto, such item shall be apportioned or reapportioned, as
the case may be, as soon as practicable after the Closing Date or the
date on which the apportionment error is discovered, as applicable.
Within 90 days from the Closing Date, CNI or Buyer, as the case may be,
shall pay CNI or Buyer, as the case may be, in immediately available
funds the net amount due CNI or Buyer, as the case may be, under this
Section 8.4(a) not otherwise paid at the Closing.
(b) Apportioned Tax Obligations. All real property Taxes,
personal property Taxes and similar ad valorem obligations levied or
assessed with respect to the Assets for assessment periods during which
the Closing Date occurs shall be apportioned between CNI and Buyer at
and as of the Closing Date based on the number of days in any such
period through the day immediately preceding the Closing Date and the
number of days thereafter. If any item cannot be apportioned accurately
at the Closing Date or if it is apportioned incorrectly at the Closing
Date or subsequent thereto, such item shall be apportioned or
reapportioned, as the case may be, as soon as practicable after the
Closing Date or the date on which the apportionment error is
discovered, as applicable. Within 90 days after the Closing Date, CNI
or Buyer, as the case may
<PAGE> 25
be, shall pay CNI or Buyer, as the case may be, in immediately
available funds the net amount due CNI or Buyer, as the case may be,
under this Section 8.4(b) not otherwise paid at the Closing.
Thereafter, CNI shall notify Buyer upon receipt of any bill for real or
personal property Taxes relating to the Assets, part or all of which
are attributable to any period on or after the Closing Date, and shall
promptly deliver such bill to Buyer, which shall pay the same to the
appropriate Governmental Body; provided, however, that if such bill
covers any period before the Closing Date with respect to Assets, CNI
shall also remit to Buyer prior to the due date payment for the
proportionate amount of such bill that is attributable to such period
before the Closing Date. In the event that CNI or Buyer shall
thereafter make a payment for which it is entitled to reimbursement
under this Section, the other party shall make such reimbursement
promptly but in no event later than 60 days following the presentation
of such supporting evidence as may be reasonably requested by the
reimbursing party.
8.5 BOARD REPRESENTATION. After the Closing and until CNI has received
the Deferred Payment in full in cash or by exercise of right to offset (as
provided in Section 13.10), Buyer shall use its best efforts to (i) cause C.
Sterling Cornelius to be elected to the Board of Directors of Buyer and (ii)
cause his name to be placed in nomination at each meeting at which Directors are
to be elected and (iii) have certain shareholders execute a voting agreement at
Closing in accordance with Section 10.6.
8.6 NAME. Until the Deferred Payment is made in full in cash or by
exercise of right to offset (as provided in Section 13.10), Buyer will operate
the Assets under the name "Cornelius," unless Buyer and CNI consent to a change
of name, in which event CNI's consent will not be unreasonably withheld.
ARTICLE 9.
CONDITIONS PRECEDENT TO
BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to consummate the transactions contemplated hereby
and to take the other actions required to be taken by Buyer at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Buyer, in whole or in part):
9.1 ACCURACY OF REPRESENTATIONS.
(a) All of Seller's representations and warranties in this
Agreement (considered collectively), and each of these representations
and warranties (considered individually), must have been accurate in
all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on
the Closing Date, giving effect to the Disclosure Letter but without
giving effect to any supplement to the Disclosure Letter.
(b) Each of Seller's representations and warranties (i) set
forth in Section 4.4(a) and (ii) that is qualified as to materiality,
must have been accurate in all respects as of the date of this
Agreement, and must be accurate in all respects as of the Closing Date
as if made on the Closing Date, giving effect to the Disclosure Letter
but without giving effect to any supplement to the Disclosure Letter.
9.2 SELLER'S PERFORMANCE. All of the covenants and obligations that
Seller or CNI is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been duly
<PAGE> 26
performed and complied with in all material respects. Each document required to
be delivered pursuant to Section 9.4 must have been delivered, and each of the
other covenants and obligations in Section 6.4, Section 6.6 and Section 6.9 must
have been complied with in all respects.
9.3 CONSENTS. Each of the Consents identified in Part 4.2 of the
Disclosure Letter must have been obtained and must be in full force and effect.
9.4 DELIVERIES. Each of the following documents must have been
delivered to Buyer:
(a) a general conveyance, transfer and assignment relating to
the Assets in a form reasonably satisfactory to Buyer, duly executed by
each of CNI, TCF and WLD;
(b) for each tract Real Property, a standard Form T-1 Texas
Owner Policy of Title Insurance, at CNI's expense, for each parcel of
the Real Property, in the aggregate amount of $8,200,000, and otherwise
in form and substance reasonably acceptable to Buyer; together with
real estate deeds (or other documents of conveyance), in form
reasonably acceptable to Buyer, conveying fee title to the Real
Property to Buyer;
(c) an Employment Agreement, (the "Employment Agreement"),
duly executed by C. Sterling Cornelius to employ C. Sterling Cornelius
as President of the entity which owns and operates the Assets, for a
term of three (3) years, at a salary of $125,000 plus ten percent (10%)
of the pre-tax profits generated by the entity which owns and operates
the Assets, and containing such other terms and conditions as Buyer and
Mr. Cornelius may agree;
(d) executed originals of Name Change Amendments of CNI, TCF
and WLD, each in form suitable for filing with the Secretary of State
of Texas;
(e) a certificate executed by Seller to the effect that each
of the conditions specified in Sections 9.1, 9.2, 9.6, 9.8 and 10.4 has
been satisfied;
(f) an opinion of Winstead Sechrest & Minick P.C., legal
counsel for Seller, dated the Closing Date, in form reasonably
acceptable to Buyer;
(g) estoppel certificates executed by each of the landlords
under the Assigned Real Property Leases, each in a form reasonably
satisfactory to Buyer;
(h) a certificate of existence, certificate of good standing,
and a Certificate of No Tax Due, of each of CNI, TCF and WLD as of a
recent date, from the Secretary of State of Texas and the Texas
Comptroller of Public Accounts, respectively;
(i) certified copies of resolutions of the Board of Directors
and shareholders of Seller approving the transactions contemplated
hereby and the Name Change Amendments;
(j) an incumbency certificate for the officers of each of CNI,
TCF and WLD executing this Agreement;
(k) the executed counterpart copies of the Consents identified
in Part 4.2 of the Disclosure Letter, each in a form reasonably
satisfactory to Buyer;
<PAGE> 27
(l) evidence reasonably satisfactory to Buyer of the release
of all liens and security interests on the Assets (other than Permitted
Liens);
(m) such keys, lock and safe combinations and other similar
items as Buyer shall require to obtain full occupation and control of
the Assets;
(n) a list of Transferred Employees pursuant to Section
11.3(c);
(o) evidence reasonably satisfactory to Buyer of the
consummation of the Reorganization; and
(p) such other documents as Buyer may reasonably request.
9.5 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer or any Affiliate of Buyer any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the transactions contemplated hereby, (b) that may have
the effect of preventing, delaying, making illegal or causing the rescission of
or otherwise interfering with any of the transactions contemplated hereby, or
(c) that may adversely effect the right of the Buyer to own the Assets or
operate the business formerly conducted by Seller.
9.6 NO CLAIM REGARDING ASSETS OR SALE PROCEEDS. There must not have
been made or Threatened by any Person any claim asserting that such Person (a)
is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any of the Assets or (b) is entitled to all or
any portion of the Purchase Price.
9.7 NO PROHIBITION. Neither the consummation nor the performance of any
of the transactions contemplated hereby will, directly or indirectly (with or
without notice or lapse of time), materially contravene or conflict with, or
result in a material violation of, or cause Buyer to suffer any material adverse
consequence under, (a) any applicable Legal Requirement or Order or (b) any
Legal Requirement or Order that has been published, introduced or otherwise
proposed by or before any Governmental Body.
9.8 NO MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in Seller's overall financial condition or prospects, assets,
liabilities, legal circumstances, business, labor arrangements or operations
since April 30, 1999 or as disclosed in the Disclosure Letter.
9.9 PHYSICAL INVENTORY REPORT. The Physical Inventory Report shall show
the value of the Inventory to be at least $5,000,000.
9.10 FINANCING. Buyer shall have obtained financing in the amount
necessary to consummate the transactions contemplated hereby, with such
financing having terms and conditions satisfactory to Buyer in its sole
discretion.
9.11 DUE DILIGENCE. Buyer (in its sole and absolute discretion) shall
be satisfied with its investigation of Seller's prospects, assets, liabilities,
legal circumstances, business and operations, including the results of the
Appraisals, Environmental Audits and Physical Inventory Report.
9.12 REORGANIZATION. Prior to the Closing Date, CNI shall have acquired
all of the Vehicles, Fixtures and Improvements, Equipment, Inventory, and Assets
described in Section 2.1(b)(xii) of each of TCF and WLD.
<PAGE> 28
ARTICLE 10.
CONDITIONS PRECEDENT TO
SELLER'S OBLIGATION TO CLOSE
Seller's obligation to consummate the transactions contemplated hereby
and to take the other actions required to be taken by Seller at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Seller, in whole or in
part):
10.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
10.2 BUYER'S PERFORMANCE. All of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
10.3 DELIVERIES. Buyer must have caused the following to be delivered
to CNI:
(a) the Closing Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) a certificate executed by Buyer as to the matters in
Sections 9.5, 10.1, 10.2, and 10.5;
(d) certified copies of resolutions of the Board of Directors
of Buyer, approving the transactions contemplated hereby;
(e) incumbency certificate for the officers of Buyer executing
this Agreement;
(f) an opinion of Haynes and Boone, LLP, dated the Closing
Date, in form reasonably acceptable to CNI;
(g) certificates for the preferred stock constituting the
Deferred Payment described in Section 3.2(c), in such denominations or
increments as CNI may desire;
(h) the Employment Agreement signed by Buyer; and
(i) such other documents as CNI may reasonably request.
10.4 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or Threatened against Seller, or against any Affiliate of
Seller, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the transactions contemplated hereby, or
(b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the transactions contemplated hereby.
<PAGE> 29
10.5 NO PROHIBITION. Neither the consummation nor the performance of
any of the transactions contemplated hereby will, directly or indirectly (with
or without notice or lapse of time), materially contravene or conflict with, or
result in a material violation of, or cause Seller to suffer any material
adverse consequence under, (a) any applicable Legal Requirement or Order or (b)
any Legal Requirement or Order that has been published, introduced or otherwise
proposed by or before any Governmental Body.
10.6 VOTING AGREEMENT. Buyer shall have delivered to CNI a Voting
Agreement signed by James C. Estill, John T. Cosby and John S. Peters committing
to cast their votes, as shareholders, for the election of C. Sterling Cornelius
to the Board of Directors of Buyer at each meeting at which directors are
elected until the Deferred Payment has been received by CNI in cash.
ARTICLE 11.
EMPLOYEE BENEFITS
11.1 MEETINGS WITH EMPLOYEES. At any time before the Closing Date,
Buyer shall have the right to meet with employees of Seller to arrange for the
transition of ownership of Seller; provided, however, that such meetings shall
be held at times and dates reasonably satisfactory to Seller, and shall be held
at such times and in such manner as not to adversely interfere with Seller's
normal business operations.
11.2 EMPLOYMENT BY BUYER. As of the Closing, Seller shall terminate the
employment of all of its employees and Buyer shall, effective immediately after
the Closing, hire, or offer employment to, all of such employees.
Notwithstanding the foregoing, this Agreement shall not be deemed to restrict
the right of Buyer to deal with the employees who accept employment with Buyer
as employees-at-will, in the same manner as it would be free to deal with such
employees in the absence of this Agreement.
11.3 SELLER'S 401(k) PLAN. To the extent Buyer's plans allow:
(a) If Buyer reasonably determines that Seller's 401(k) plan
is a qualified plan under Section 401(a) of the Code, Buyer shall use
commercially reasonable efforts to cause the trustee of Buyer's 401(k)
plan to accept a transfer of assets from Seller's 401(k) plan in an
amount in cash equal in value to the account balances of the employees
of Seller who are employed by Buyer immediately after the Closing (the
"Transferred Employees"); provided that to the extent the account
balance to be transferred consists in whole or in part of outstanding
loans, Buyer shall cause the trustee of Buyer's 401(k) plan to accept,
in lieu of cash, the promissory notes and related documents evidencing
such loans. Buyer and Seller shall take such actions as may be required
to effect the assignment of such loans by the trustee of the Seller's
401(k) plan to the trustee of the Buyer's 401(k) plan. The foregoing
transfer of assets shall occur as soon as reasonably practicable after
Closing following Buyer's determination that Seller's 401(k) plan is a
qualified plan. After the date of the transfer of assets from Seller's
401(k) to Buyer's 401(k) plan pursuant to this Section, Buyer and its
affiliates shall assume all liabilities for the benefits payable to or
with respect to or with respect to the Transferred Employees under the
Seller's 401(k) plan, and Seller and the Seller's 401(k) plan and the
related trust shall retain no liability for such benefits.
(b) If assets are not transferred from the Seller's 401(k)
plan to the Buyer's 401(k) plan in accordance with the foregoing
provisions of Section 11.3(a), Seller will terminate Seller's 401(k)
plan at Seller's expense within a reasonable period of time following
the Closing. Buyer
<PAGE> 30
shall use commercially reasonable efforts to cause the trustee of
Buyer's 401(k) plan to allow Transferred Employees to roll over to
Buyer's 401(k) plan eligible rollover distributions from Seller's
401(k) plan, including rollovers of participant loans distributed in
kind from Seller's 401(k) plan.
(c) For purposes of eligibility and vesting under the Buyer's
401(k) plan, each Transferred Employee shall be credited with service
as of the Closing Date in an amount equal to the service accredited to
such Transferred Employee under the Seller's 401(k) plan as determined
under the terms of such plan as of the Closing Date. At Closing, Seller
shall deliver to Buyer a list of the Transferred Employees eligible to
participate in the Seller's 401(k) plan, together with each such
employee's credited service as of the Closing Date.
11.4 WELFARE BENEFITS AND COBRA.
(a) Except to the extent provided in Section 11.3, Buyer does
not assume any Benefit Plans of Seller or any liabilities or
obligations under any such plans. Specifically, Buyer does not assume
any obligation to provide continuation coverage under COBRA after the
Closing Date to former employees of Seller, including the Transferred
Employees. Except to the extent provided in Section 11.3 above, Seller
will terminate all of Seller's Benefit Plans following the Closing.
Notwithstanding anything in Article 13 to the contrary, Seller shall
not be obligated to indemnify Buyer or any Benefit Plan of Buyer with
respect to any obligation of Buyer or any Benefit Plan of Buyer to
provide continuation coverage under COBRA to the Transferred Employees
or to any former employees of Seller who are receiving or entitled to
receive continuation coverage under COBRA as of the Closing Date.
(b) To the extent Buyer's benefits plans allow, the
Transferred Employees shall be credited with their service with Seller
for purposes of all Benefit Plans of Buyer for which such Transferred
Employees are eligible to participate. To the extent permitted by the
terms of Buyer's Benefit Plans, any restrictions on coverage for
pre-existing conditions or requirements for evidence of insurability
under such plans shall be waived for the Transferred Employees, and the
Transferred Employees shall receive credit under each such plan for
co-payments and payments under a deductible limit made by them and for
out-of-pocket maximums and similar limits applicable to them under the
terms of Seller's Benefit Plans for the plan year in which the Closing
occurs. As soon as reasonably practicable after the Closing Date,
Seller shall deliver to Buyer a list of the Transferred Employees who
had service credited under any such Benefit Plans of Seller, together
with each such employee's service, co-payment amounts, deductible, and
out-of-pocket and similar limits under each such plan.
ARTICLE 12.
TERMINATION
12.1 TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
(a) by either Buyer, on the one hand, or Seller, on the other
hand, if a material Breach of any provision of this Agreement has been
committed by the other party and such Breach has not been waived;
(b) by Buyer if any of the conditions in Article 9 has not
been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through
<PAGE> 31
the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or before the
Closing Date;
(c) by Seller, if any of the conditions in Article 10 has not
been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Seller to comply with its obligations under this Agreement) and Seller
has not waived such condition on or before the Closing Date;
(d) by mutual written consent of Buyer and Seller;
(e) by Buyer if the Closing has not occurred on or before
October 15, 1999, by reason of the failure of any condition precedent
under Article 9; and
(f) by Seller if the Closing has not occurred on or before
October 15, 1999, by reason of the failure of any condition precedent
under Article 10.
12.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 12.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 12.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 14.4 and 6.8 will survive; provided, however,
that if this Agreement is terminated by a party because of the Breach of the
Agreement by the other party, the terminating party's right to pursue all legal
remedies will survive such termination unimpaired.
12.3 CONFIDENTIALITY. If this Agreement is terminated under this
Article 12, Buyer shall not disclose any of the information about Seller or the
Assets which it obtained pursuant to this Agreement, and shall return all
documents, records and information which it obtained hereunder.
ARTICLE 13.
INDEMNIFICATION; REMEDIES
13.1 SURVIVAL. All representations, warranties, covenants and
obligations in this Agreement, the Disclosure Letter, the supplements to the
Disclosure Letter, and any other certificate or document delivered pursuant to
this Agreement will survive the Closing for the time period described in Section
13.5.
13.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller shall
jointly and severally indemnify and hold harmless Buyer and its representatives
and Affiliates (collectively, the "Buyer Indemnified Persons") for, and will pay
to the Indemnified Persons the amount of, any loss, liability, claim, damage
(excluding incidental and consequential damages and lost profits), expense
(including costs of investigation and defense and reasonable attorneys' fees),
or diminution of value, whether or not involving a third-party claim
(collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made by
Seller in this Agreement (after giving effect to any supplement to the
Disclosure Letter), the Disclosure Letter, the supplements to the
Disclosure Letter or any other certificate or document delivered by
Seller pursuant to this Agreement;
<PAGE> 32
(b) any Breach of any representation or warranty made by
Seller in this Agreement as if such representation or warranty were
made on and as of the Closing Date after giving effect to any
supplement to the Disclosure Letter, other than any such Breach that is
disclosed in the Disclosure Letter or any supplement to the Disclosure
Letter;
(c) any Breach by Seller of any covenant or obligation of
Seller in this Agreement;
(d) any claims which may be made against Buyer by any Person,
including, any Proceeding against Buyer, which arise from the conduct
of the business of Seller prior to the Closing (other than the Assumed
Liabilities), including any claims arising from any products sold by,
or services performed by, Seller prior to the Closing Date;
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller
(or any Person acting on Seller's behalf) in connection with any of the
transactions contemplated hereby;
(f) the Excluded Liabilities;
(g) Taxes associated with the Assets arising before the
Closing Date; and
(h) WARN.
The remedies provided in this Article 13 will be exclusive and shall limit any
other remedies that may be available to Buyer or the other Buyer Indemnified
Persons.
13.3 (a) INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER --
ENVIRONMENTAL MATTERS. In addition to the provisions of Section 13.2, Seller
shall indemnify and hold harmless Buyer and the other Buyer Indemnified Persons
for, and will pay to Buyer and the other Buyer Indemnified Persons the amount
of, any Damages (including costs of cleanup, containment, or other remediation)
incurred or suffered by or asserted against an Indemnified Person and arising,
directly or indirectly, from or in connection with:
(i) any Environmental, Health and Safety Liabilities arising
out of or relating to: (i) (A) the ownership, operation or condition at
any time on or prior to the Closing Date of the Facilities (whether
real, personal or mixed) which Seller has conveyed to Buyer or (B) any
Hazardous Materials or other contaminants that were present on the
Facilities at any time on or prior to the Closing Date; or (ii) (A) any
Hazardous Materials or other contaminants, wherever located, that were,
or were allegedly, generated, transported, stored, treated, Released or
otherwise handled by Seller or by any other Person for whose conduct it
is or may be held responsible from the Facilities at any time on or
prior to the Closing Date or (B) any Hazardous Activities that were, or
were allegedly, conducted by Seller or by any other Person for whose
conduct it is or may be held responsible at the Facilities prior to the
Closing Date; or
(ii) any bodily injury (including illness, disability and
death and regardless of when any such bodily injury occurred, was
incurred or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction and deprivation of the
use of real property) or other damage of or to any Person, including
any employee or former employee of Seller or any other Person for whose
conduct it is or may be held responsible, in any way arising from or
allegedly arising from any Hazardous Activity conducted or allegedly
conducted with
<PAGE> 33
respect to the Facilities or the operation of the Assets prior to the
Closing Date or from Hazardous Material that was (i) present on or
before the Closing Date on or at the Facilities (or present or
suspected to be present on any other property, if such Hazardous
Material emanated or allegedly emanated from any of the Facilities and
was present or suspected to be present on any of the Facilities on or
prior to the Closing Date) or (ii) Released or allegedly Released from
the Facilities by Seller or any other Person for whose conduct Seller
is or may be held responsible, at any time on or prior to the Closing
Date.
The scope of Seller's agreement to indemnify and hold harmless includes
any Damages under CERCLA and comparable state laws. Buyer and Seller will
jointly control, and reasonably cooperate in, any Cleanup, any related
Proceeding and, except as provided in the following sentence, any other
Proceeding with respect to which indemnity may be sought under this Section
13.3(a). The procedure described in Section 13.8 will apply to any claim solely
for monetary damages relating to a matter covered by this Section 13.3(a).
(b) INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER -- ENVIRONMENTAL
MATTERS. In addition to the provisions of Section 13.4, Buyer shall indemnify
and hold harmless Seller and the other Seller Indemnified Persons for, and will
pay to Seller and the other Seller Indemnified Persons the amount of, any
Damages (including costs of cleanup, containment, or other remediation) incurred
or suffered by or asserted against an Indemnified Person and arising, directly
or indirectly, from or in connection with:
(i) any Environmental, Health and Safety Liabilities arising
out of or relating to: (i) (A) the ownership, operation or condition at
any time only after the Closing Date of the Facilities (whether real,
personal or mixed) or (B) any Hazardous Materials or other contaminants
that were present on the Facilities or such other properties and assets
at any time only after the Closing Date; or (ii) (A) any Hazardous
Materials or other contaminants, wherever located, that were, or were
allegedly, generated, transported, stored, treated, Released or
otherwise handled by Buyer or by any other Person for whose conduct it
is or may be held responsible from the Facilities at any time only
after the Closing Date or (B) any Hazardous Activities that were, or
were allegedly, conducted by Buyer or by any other Person for whose
conduct it is or may be held responsible at the Facilities only after
the Closing Date; or
(ii) any bodily injury (including illness, disability and
death and regardless of when any such bodily injury occurred, was
incurred or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction and deprivation of the
use of real property) or other damage of or to any Person, including
any employee or former employee of Buyer or any other Person for whose
conduct it is or may be held responsible, in any way arising from or
allegedly arising from any Hazardous Activity conducted or allegedly
conducted with respect to the Facilities or the operation of the Assets
only after the Closing Date or from Hazardous Material that was (i)
present only after the Closing Date on or at the Facilities (or present
or suspected to be present on any other property, if such Hazardous
Material emanated or allegedly emanated from any of the Facilities and
was present or suspected to be present on any of the Facilities only
after the Closing Date) or (ii) Released or allegedly Released from the
Facilities by Buyer or any other Person for whose conduct Buyer is or
may be held responsible, at any time only after the Closing Date.
The scope of Buyer's agreement to indemnify and hold harmless includes
any Damages under CERCLA and comparable state laws. Seller and Buyer will
jointly control, and reasonably cooperate in, any Cleanup, any related
Proceeding and, except as provided in the following sentence, any other
Proceeding with respect to which indemnity may be sought under this Section
13.3(b). The procedure
<PAGE> 34
described in Section 13.8 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 13.3(b).
13.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of any
Damages incurred or suffered by or asserted against Seller, its representatives
and Affiliates (the "Seller Indemnified Persons") and arising, directly or
indirectly, from or in connection with (a) any Breach of any representation or
warranty made by Buyer in this Agreement or in any certificate or document
delivered by Buyer pursuant to this Agreement as if made on the Closing Date,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Buyer (or any Person acting on
Buyer's behalf) in connection with any of the transactions contemplated hereby,
(d) any claims which may be made against Seller Indemnified Persons by any
Person, including any Proceedings against Seller, which arise from the conduct
of the business of Buyer, or the ownership or operation of the Assets, only
after the Closing Date (other than Excluded Liabilities) including any claims
arising from any products sold by, or services performed by Buyer, after the
Closing Date, (e) the Assumed Liabilities, or (f) Taxes associated with the
Assets accruing after the Closing Date. The remedies provided in this Article 13
will be exclusive and shall limit any other remedies that may be available to
Seller or the Seller Indemnified Persons.
13.5 TIME LIMITATIONS. If the Closing occurs, Seller shall have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 4.4(a), 4.9, 4.11 (but only as
to ERISA claims) and 4.16 unless on or before the third anniversary of the
Closing Date Buyer notifies Seller of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Buyer; a claim with
respect to Sections 4.4(a), 4.9, 4.11, or 4.16, may be made at any time, until
the applicable statute of limitations. If the Closing occurs, Buyer shall have
no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before the third
anniversary of the Closing Date Seller notifies Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Seller.
13.6 LIMITATIONS ON AMOUNT -- SELLER. Seller shall have no liability
(for indemnification or otherwise) with respect to the matters described in
Section 13.2(a), 13.2(b) or 13.2(d) until the total of all Damages with respect
to such matters exceeds $40,000, and then only for the amount by which such
Damages exceed $40,000. However, this limitation will not apply to any Breach of
Section 4.4(a), and Seller shall be liable for all Damages with respect to such
Breach.
13.7 LIMITATIONS ON AMOUNT -- BUYER. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in Section
13.4(a) or 13.4(d) until the total of all Damages with respect to such matters
exceeds $40,000, and then only for the amount by which such Damages exceed
$40,000.
13.8 PROCEDURE FOR INDEMNIFICATION -- PROCEEDINGS.
(a) Promptly after receipt by any party entitled to indemnity
under Article 13, of notice of the commencement of any Proceeding or
that a Proceeding has been Threatened against it, such indemnified
party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of such
commencement or threat, but the failure to notify the indemnifying
party will not relieve the indemnifying party of any liability that it
may
<PAGE> 35
have to any indemnified party, except to the extent that the defense of
such action is materially prejudiced by the indemnified party's failure
to give such notice.
(b) If any Proceeding referred to in Section 13.8(a) is
brought against an indemnified party and it gives notice to the
indemnifying party of the commencement of such Proceeding, the
indemnifying party will be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate or (ii) the
indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding
and provide indemnification with respect to such Proceeding) to assume
the defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the indemnified party under this
Article 13 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of
such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, it will be
conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any violation of
Legal Requirements or any violation of the rights of any Person and no
effect on any other claims that may be made against the indemnified
party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within fifteen (15) days after the
indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a
result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume at its expense the exclusive
right to defend, compromise or settle such Proceeding, but the
indemnifying party will not be bound by nor have any liability or
obligation for any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Seller hereby consents to the non-exclusive jurisdiction
of any court in which a Proceeding is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters
alleged therein and agree that process may be served on Seller with
respect to such a claim anywhere in the world.
13.9 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for Damages in any matter not involving a Proceeding may be
asserted by notice to the party from whom indemnification is sought. Such notice
must be given promptly upon the party seeking such indemnification acquiring
knowledge of such claim.
<PAGE> 36
13.10 OFFSET. No part of the Deferred Payment may be offset by Buyer
except to the extent (i) consented to by Seller or (ii) awarded to Buyer in a
judgment in a Proceeding involving Buyer and Seller. If Buyer asserts any claims
against Seller that are not agreed to or resolved by judgment in a Proceeding
prior to the date on which payment of the Deferred Payment is due, Buyer must
deposit an amount equal to the disputed amount or claim into the registry of the
court and commence a Proceeding involving such claim.
ARTICLE 14.
MISCELLANEOUS PROVISIONS
14.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified, or supplemented only by written agreement of the parties hereto.
14.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be waived by
the other party; provided, however, that any such waiver may be made only by a
writing signed by the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 14.2, with appropriate notice in accordance with Section 14.7
hereof.
14.3 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. No party may assign any of its
rights hereunder without the written consent of the other party, except as
follows: (i) Buyer may assign its rights hereunder to a wholly-owned subsidiary
of Buyer, and such subsidiary may consummate the transactions contemplated
hereby in place of Buyer in which event Buyer shall remain obligated hereunder
and such subsidiary shall be included in all references to "Buyer" herein, and
(ii) Buyer may mortgage, pledge or collaterally assign its rights hereunder (and
under any document executed in connection with this Agreement) to its lenders
solely for the purpose of enforcing Buyer's rights under such agreements, and
without creating any additional rights for such lenders or any additional
liability of Seller.
14.4 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including all fees and
expenses of its representatives. In the event of termination of this Agreement,
the obligation of each party to pay its own expenses will be subject to any
rights of such party arising from a Breach of this Agreement by another party.
14.5 GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed
by and construed in accordance with the Laws of the State of Texas (without
regard to its conflicts of law doctrines). Any Proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against any of the parties in the State of Texas, or, if it has or can
acquire jurisdiction, in the United States District Court for the Northern
District of Texas, and Seller and Buyer consent to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such Proceeding and
waives any objection to service laid therein.
<PAGE> 37
14.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument and shall become a binding
Agreement when one or more of the counterparts have been signed by each of the
parties and delivered to the other party.
14.7 NOTICES. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request or demand from one
party to another, that communication must be in writing (which may be by
telecopy) to be effective and is deemed to have been given (a) if by telecopy,
when transmitted to the appropriate telecopy number, (b) if by certified or
registered mail, on the third business day after it is enclosed in an envelope
and properly addressed, stamped, sealed, and deposited in the appropriate
official postal service with a return receipt requested, or (c) if by any other
means, when actually delivered. Until changed by notice pursuant to this
Agreement, the address (and fax number) for Seller and Buyer are:
If to Seller:
Before the Closing:
Cornelius Nurseries, Inc.
2233 S. Voss Road
Houston, Texas 77057
Attention: C. Sterling Cornelius
Facsimile: (713) 780-2878
After the Closing:
Mr. C. Sterling Cornelius
10723 Bayou Glen
Houston, Texas 77042
with copies to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 2400
Houston, Texas 77002-5895
Attention: Stephen W. Schueler
Facsimile: (713) 650-2400
If to Buyer:
Calloway's Nursery, Inc.
4200 Airport Freeway, Suite 200
Fort Worth, Texas 76117-6200
Attention: James C. Estill
Facsimile: (817) 222-1040
<PAGE> 38
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: David H. Oden
Facsimile: (214) 651-5940
14.8 HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.9 ENTIRE AGREEMENT. This Agreement, including the Disclosure Letter,
Schedules, Exhibits and other documents and instruments referred to herein,
embodies the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter. This Agreement is an amendment to and restatement in its entirety of
that certain Asset Purchase Agreement, dated as of June 3, 1999, by and among
Buyer and Seller.
14.10 SEVERABILITY. If any one or more provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
14.11 SCHEDULES; EXHIBITS. All Schedules and Exhibits attached hereto
are hereby incorporated in and made a part as if set forth in full herein.
14.12 THIRD PARTY BENEFICIARIES. Except for the Indemnified Parties not
a party to this Agreement, no Person that is not a party to this Agreement may
be deemed to be a third party beneficiary under this Agreement.
14.13 TIME IS OF THE ESSENCE. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
14.14 DISPUTE RESOLUTION. Before initiating any Proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
(except for emergency relief), the aggrieved party shall notify the other party
of the dispute. Thereafter, the parties shall in good faith attempt to settle
the matter in dispute by non-binding mediation, to occur within twenty (20) days
of the dispute notice; provided that nothing herein shall prevent a party from
seeking or obtaining injunctive or other equitable relief without such notice
and/or delay, to the extent permitted by applicable law.
14.15 AUTHORITY. Seller's obligation to consummate the transactions
described herein, and its representations under Section 4.2(a), are subject to
obtaining the approval of Seller's directors and shareholders, and Seller shall
exert its commercially reasonable efforts to obtain such approvals as soon as
reasonably possible, and shall provide Buyer with notice thereof.
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BUYER:
CALLOWAY'S NURSERY, INC.
By: /s/ James C. Estill
-----------------------------------
James C. Estill, President
SELLER:
CORNELIUS NURSERIES, INC.
By: /s/ C. Sterling Cornelius
-----------------------------------
C. Sterling Cornelius,
Chairman of the Board
TURKEY CREEK FARMS, INC.
By: /s/ C. Sterling Cornelius
-----------------------------------
C. Sterling Cornelius,
Chairman of the Board
WHOLESALE LANDSCAPE DISTRIBUTORS,
INC.
By: /s/ C. Sterling Cornelius
-----------------------------------
C. Sterling Cornelius,
Chairman of the Board
<PAGE> 40
ANNEX I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings:
"Accounts Receivable" is defined in Section 2.2(b).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition, the
term "control" means (a) the power to direct the management and policies of a
Person, or (b) the ownership directly or indirectly of more than 50% of the
securities having voting power generally in the election of directors of a
corporation or more than 50% of the partnership or other ownership interests in
any other Person.
"Agreement" is defined in the first paragraph to this Agreement.
"Appraisals" means appraisals of each parcel of property constituting
the Real Property, to be prepared by Buyer after the date hereof and prior to
the Closing Date.
"Assets" is defined in Section 2.1(b).
"Assigned Personal Property Leases" is defined in Section 2.1(b)(v).
"Assigned Real Estate Leases" is defined in Section 2.1(b)(iv).
"Assumed Liabilities" is defined in Section 2.3.
"Assumption Agreement" is defined in Section 2.3.
"Balance Sheet" is defined in Section 4.3.
"Benefit Plans" is defined in Section 4.11(a).
"Breach" means the following: a "Breach" of a representation, warranty,
covenant, obligation or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if there is
(a) any inaccuracy in or breach of, or any failure to perform or comply with,
such representation, warranty, covenant, obligation or other provision or (b)
any claim (by any Person) or other occurrence or circumstance that is
inconsistent with such representation, warranty, covenant, obligation or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim or occurrence or circumstance.
"Buyer" is defined in the first paragraph of this Agreement.
"Buyer's Advisors" is defined in Section 6.1.
"Closing" is defined in Section 3.1.
<PAGE> 41
"Closing Date" means the date and time as of which the Closing actually
takes place.
"Closing Payment" is defined in Section 3.2(a).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Consent" means any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
"Contract" means any executory agreement, "booking," contract,
obligation, promise, undertaking or other arrangement (whether written or oral
and whether express or implied) that is legally binding.
"Copyrights" is defined in Section 4.6.
"Damages" is defined in Section 13.2.
"Deferred Payment" is defined in Section 3.2(c).
"Disclosure Letter" means the disclosure letter delivered by Seller to
Buyer.
"Employment Agreement" is defined in Section 9.4(c).
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal or restriction of any kind (other than laws or regulations of any
Governmental Body), including any restriction on use, voting, transfer, receipt
of income or exercise of any other attribute of ownership.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life and any other
environmental medium or natural resource.
"Environmental Audits" is defined in Section 7.2.
"Environmental, Health and Safety Liabilities" means any cost, damages,
expense, liability, obligation or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health and
regulation of Hazardous Materials, chemical substances or products); (b) fines,
penalties, judgments, awards, settlements, legal or administrative proceedings,
damages, losses, claims, demands and response, investigative, remedial or
inspection costs and expenses arising under Environmental Law or Occupational
Safety and Health Law; (c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment or other remediation
or response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or (d) any other compliance, corrective, investigative
or remedial measures required under Environmental Law or
<PAGE> 42
Occupational Safety and Health Law. The terms "removal," "remedial," and
"response action," include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., as amended ("CERCLA").
"Environmental Law" means any Legal Requirement that requires or
relates to: (a) advising appropriate authorities, employees and the public of
intended or actual Releases or uses of Hazardous Materials, violations of
discharge limits or other prohibitions and of the commencements of activities,
such as resource extraction or construction, that could have significant impact
on the Environment; (b) preventing or reducing the Release of Hazardous
Materials into or in the Environment; (c) reducing the quantities, preventing
the Release or minimizing the hazardous or other characteristics of Hazardous
Materials, including wastes that are generated; (d) assuring that products are
designed, formulated, packaged and used so that they do not present risks to
human health or the Environment when used or disposed of; (e) protecting the
Environment, resources, species or ecological amenities; (f) reducing the risks
inherent in the transportation of Hazardous Materials; (g) cleaning up Hazardous
Materials that are present or have been Released, preventing the Threat of
Release of Hazardous Materials or paying the costs of such clean up or
prevention; (h) generating, processing, treating, storing, transporting,
disposing, using, handling or managing Hazardous Materials; or (i) making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment or permitting self-appointed representatives of
the public interest to recover for injuries done to public assets.
"Equipment" is defined in Section 2.1(b)(vii).
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations and rules issued pursuant to that Act.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.4.
"Facilities" means the Real Property and leased real estate and any
buildings, plants, or structures located thereon or attached thereto, currently
owned, used or leased by Seller and being sold to Buyer.
"Financial Statements" is defined in Section 4.3.
"Fixtures and Improvements" is defined in Section 2.1(b)(iii).
"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other Financial Statements were prepared.
"Governmental Authorization" means any approval, consent, license,
permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement, but excluding those applicable generally to all business
regardless of their specific business (for example, a certificate of occupancy).
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
<PAGE> 43
branch, department, official or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Hazardous Activity" means the distribution, management, disposal,
generation, handling, importing, management, manufacturing, processing,
production, refinement, Release, storage, transfer, transportation, treatment or
use (including any withdrawal or other use of groundwater) of Hazardous
Materials in, on, under, about or from the Facilities or any part thereof in or
into the Environment, and any other act, business, operation or thing that
increases the danger, or risk of danger, or poses risk of harm to Persons or
property on or off the Facilities or that may affect the value of the Facilities
or the Assets or the value of Seller.
"Hazardous Materials" means any waste or other substance that, as of
the date of this Agreement, is (i) listed, defined, designated or classified as,
or otherwise determined to be, hazardous, radioactive or toxic or a pollutant or
a contaminant under or pursuant to any Environmental Law or Occupational Safety
and Health Law, or (ii) prohibited, limited or regulated under any Environmental
Law or Occupational Safety and Health Law.
"Indemnified Persons" is defined in Section 13.2.
"Intellectual Property Assets" is defined in Section 4.6.
"Interim Balance Sheet" is defined in Section 4.3.
"Inventory" is defined in Section 2.1(b)(viii).
"IRC" means the Internal Revenue Code of 1986, and regulations issued
by the IRS pursuant to the Internal Revenue Code.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Liens" is defined in Section 4.4(c)(i).
"Marks" is defined in Section 4.6.
"Name Change Amendment" is defined in Section 6.9.
"Occupational Safety and Health Law" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any governmental program designed to
provide safe and healthful working conditions.
<PAGE> 44
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator, in effect
as of the date hereof and issued specifically regarding Seller.
"Ordinary Course of Business" means the following: an action taken by a
Person will be deemed to have been taken in the "Ordinary Course of Business"
only if such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person.
"Patents" is defined in Section 4.6.
"Permits" means all permits, authorizations, certificates, approvals,
registrations, variances, exemptions, rights-of-way, franchises, privileges,
immunities, grants, ordinances, licenses and other rights of every kind and
character (a) under any (1) Legal Requirement, (2) Order or (3) contract with
any Governmental Body or (b) granted by any Governmental Body.
"Permitted Encumbrances" means (a) the encumbrances described or
referred to in Part 2.1(a) of the Disclosure Letter, (b) liens for current Taxes
and assessments not yet due and payable, including liens for nondelinquent ad
valorem Taxes, nondelinquent statutory liens arising other than by reason of any
default on the part of Seller and (c) such liens, minor imperfections of title,
or easements on the Real Property or any of Seller's leasehold estates, as do
not in any material respect detract from the value thereof and do not interfere
with the present use of the property subject thereto.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or Governmental Body.
"Physical Inventory Report" is defined in Section 6.10.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" is defined in Section 3.2.
"Real Property" is defined in Section 2.1(b)(ii).
"Release" means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping or other releasing into the Environment,
whether intentional or unintentional.
<PAGE> 45
"Reorganization" is described in Section 9.12.
"Scheduled Contracts" is defined in Section 2.1(b)(vi).
"Seller" is defined in the first paragraph to this Agreement.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under IRC Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" means a likelihood of a Release that would require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"Threatened" means the following: a claim, Proceeding, dispute, action
or other matter will be deemed to have been "Threatened" if any demand or
statement has been made (orally or in writing) or any notice has been given
(orally or in writing), that would lead a prudent Person to conclude that such a
claim, Proceeding, dispute, action or other matter is likely to be asserted,
commenced, taken or otherwise pursued in the future.
"Trade Secret" is defined in Section 4.6.
"Vehicles" is defined in Section 2.1(b)(i).
<PAGE> 1
EXHIBIT 4.1
CERTIFICATE OF DESIGNATION
OF
NON-VOTING ACQUISITION PREFERRED STOCK
OF
CALLOWAY'S NURSERY, INC.
Calloway's Nursery, Inc., a Texas corporation (the "Corporation"), does
hereby certify that the following resolution was duly adopted by the Board of
Directors of the Corporation (the "Board of Directors") by unanimous written
consent effective as of September 10, 1999 pursuant to authority conferred upon
the Board of Directors by the provisions of the Restated Articles of
Incorporation of the Corporation that authorize the issuance of up to 10,000,000
shares of Preferred Stock, par value $0.01 per share:
RESOLVED, that the issuance of a series of Preferred Stock of the
Corporation is hereby authorized, and the designation, powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof, of the shares of said series, in addition
to those set forth in the Restated Articles of Incorporation of the Corporation,
are hereby fixed as follows:
Section 1. Designation. The distinctive serial designation of said
series shall be "Non-Voting Acquisition Preferred Stock" (hereinafter called
"Non-Voting Acquisition Preferred Stock"). Each share of Non-Voting Acquisition
Preferred Stock shall be identical in all respects with all other shares of
Non-Voting Acquisition Preferred Stock.
Section 2. Number of Shares. The number of authorized shares of
Non-Voting Acquisition Preferred Stock shall be 40,000. Shares of Non-Voting
Acquisition Preferred Stock that are redeemed, purchased or otherwise acquired
by the Corporation shall be canceled, and the Corporation shall take all such
actions as are necessary to cause such shares to revert to the status of
authorized but unissued shares of Preferred Stock undesignated as to series.
Section 3. Definitions. As used herein with respect to Non-Voting
Acquisition Preferred Stock, the following terms shall have the following
meanings:
(a) The term "Junior Securities" shall mean the Common Stock,
par value $0.01 per share (the "Common Stock"), of the Corporation and any other
class or series of stock of the Corporation hereafter authorized over which the
Non-Voting Acquisition Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
(b) The term "Parity Securities" shall mean any other class or
series of stock of the Corporation which ranks on a parity with the Non-Voting
Acquisition Preferred Stock in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
<PAGE> 2
Section 4. Dividends. The holders of Non-Voting Acquisition Preferred
Stock shall not be entitled to receive dividends.
Section 5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, before any of the assets of
the Corporation shall be distributed among or paid over to the holders of any
Junior Securities, the holders of shares of Non-Voting Acquisition Preferred
Stock shall be entitled to receive an amount per share equal to $100 (the
"Liquidation Preference").
(b) If upon such liquidation, dissolution or winding up,
whether voluntary or involuntary, the assets available for distribution among
the holders of shares of Non-Voting Acquisition Preferred Stock and the holders
of Parity Securities shall be insufficient to permit the payment to such holders
of the full preferential amounts to which they are entitled, then the assets of
the Corporation available for distribution among the holders of Non-Voting
Acquisition Preferred Stock and the holders of Parity Securities shall be
distributed ratably among such holders in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(c) A consolidation or merger of the Corporation with or into
any other corporation or other entity, or a sale of all or substantially all of
the assets of the Corporation that does not involve a distribution by the
Corporation of cash or other property to the holders of shares of the Common
Stock shall not be deemed to be a liquidation, dissolution or winding up within
the meaning of this Section 5.
Section 6. Voting Rights. Except as otherwise required by law, holders
of the shares of Non-Voting Acquisition Preferred Stock will not have any voting
rights.
Section 7. Redemption.
(a) The Corporation may, at any time prior to September 21,
2004, redeem any portion or all of the outstanding shares of Non-Voting
Acquisition Preferred Stock outstanding on such date as determined by the
Corporation (the "Optional Redemption Date"). If less than all of the
outstanding shares of Non-Voting Acquisition Preferred Stock are to be redeemed
on an Optional Redemption Date, the Company will, in its sole discretion, select
those shares to be redeemed. On September 21, 2004 (the "Mandatory Redemption
Date"), if any shares of Non-Voting Acquisition Preferred Stock shall be
outstanding, the Corporation shall redeem all outstanding shares of Non-Voting
Acquisition Preferred Stock outstanding on such date.
(b) For each share of Non-Voting Acquisition Preferred Stock
to be redeemed, the Corporation shall be obligated to make a payment
("Redemption Payment") to each holder of shares of Non-Voting Acquisition
Preferred Stock in an amount equal to the Liquidation Preference per share of
Non-Voting Acquisition Preferred Stock ("Redemption Price").
(c) Notice of redemption of shares of Non-Voting Acquisition
Preferred Stock shall be given by the Corporation by first-class mail, mailed
not less than 30 nor more than 60
<PAGE> 3
days prior to an Optional Redemption Date or the Mandatory Redemption Date, to
each holder of Non-Voting Acquisition Preferred Stock to be redeemed, at his or
her last address appearing in the Corporation's records. The notice of
redemption shall state:
i. the Optional Redemption Date or Mandatory Redemption
Date;
ii. the Redemption Price;
iii. the total number of shares being redeemed; and
iv. the place where such shares of Non-Voting Acquisition
Preferred Stock are to be redeemed or surrendered for
payment of the Redemption Price.
(d) On or before the Optional Redemption Date or Mandatory
Redemption Date, as applicable, each holder of the Non-Voting Acquisition
Preferred Stock shall surrender the certificate or certificates representing all
of the shares of Non-Voting Acquisition Preferred Stock to the Corporation in
the manner and at the place designated in the notice of redemption. The
Redemption Price shall thereupon be payable to the order of the person or entity
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired.
(e) Notwithstanding the Corporation's obligation to make the
Redemption Payment as described herein, the aggregate amount of all Redemption
Payments may be reduced as a result of the Corporation exercising its right of
offset, as provided for in Section 13.10 of that certain Amended and Restated
Asset Purchase Agreement, dated as of June 3, 1999, by and among the
Corporation, Cornelius Nurseries, Inc., a Texas corporation ("CNI"), Turkey
Creek Farms, Inc., a Texas corporation, and Wholesale Landscape Distributors,
Inc., a Texas corporation. The amount of such reduction shall be the amount of
the offset.
Section 8. Amendment. This Certificate of Designation may not be
amended without the prior written consent of the holders of a majority of the
outstanding shares of Non-Voting Acquisition Preferred Stock.
* * * * *
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation on behalf of the Corporation as of September 20, 1999.
CALLOWAY'S NURSERY, INC.
By: /s/ James C. Estill
-------------------
James C. Estill
President
<PAGE> 1
EXHIBIT 10.1
LOAN AGREEMENT
Between
CALLOWAY'S NURSERY, INC. THE FROST NATIONAL BANK
4200 Airport Freeway and 100 W. Houston Street
Fort Worth, Texas 76117-6200 San Antonio, Texas 78205
CALLOWAY'S CORNELIUS, INC.
4200 Airport Freeway
Fort Worth, Texas 76117-6200
September 21, 1999
THIS LOAN AGREEMENT (the "Loan Agreement") will serve to set forth the
terms of the financing transactions by and between Calloway's Nursery, Inc.
("Borrower"), Calloway's Cornelius, Inc. ("Cornelius") and The Frost National
Bank, a national banking association ("Lender") and will supercede and replace
that certain loan agreement dated April 1, 1999, executed by and between
Borrower and Lender:
1. Credit Facilities. Subject to the terms and conditions set forth in this Loan
Agreement and the other agreements, instruments and documents evidencing,
securing, governing, guaranteeing and/or pertaining to the Loans, as hereinafter
defined (collectively, together with the Loan Agreement, referred to hereinafter
as the "Loan Documents"), Lender hereby agrees to provide to Borrower the credit
facility or facilities hereinbelow (whether one or more, the "Credit
Facilities"):
(a) Borrowing Base Line of Credit. Subject to the terms and conditions
set forth herein, Lender agrees to lend to Borrower, on a revolving basis from
time to time during the period commencing on the date hereof and continuing
through the maturity date of the promissory note evidencing this Credit Facility
from time to time, such amounts as Borrower may request hereunder; provided,
however, the total principal amount outstanding at any time shall not exceed the
lesser of (i) an amount equal to the Borrowing Base (as such term is defined
hereinbelow), or (ii) $5,000,000.00. (the "Borrowing Base Line of Credit"). If
at any time the aggregate principal amount outstanding under the Borrowing Base
Line of Credit shall exceed an amount equal to the Borrowing Base, Borrower
agrees to immediately repay to Lender such excess amount, plus all accrued but
unpaid interest thereon. Subject to the terms and conditions hereof, Borrower
may borrow, repay and reborrow hereunder. Borrower agrees that for a period of
not less than sixty (60) consecutive days beginning on June 1 during each
calendar year, Borrower shall have repaid the entire outstanding principal
amount of the Borrowing Base Line of Credit, together with all accrued but
unpaid interest thereon. The sums advanced under the Borrowing Base Line of
Credit shall be used for working capital.
As used in this Loan Agreement, the term "Borrowing Base" shall mean
$1,100,000.00 plus seventy percent (70%) of Borrower's Eligible Accounts and
fifty percent (50%) of the Borrower's Eligible Inventory.
As used herein, the term "Eligible Accounts" shall mean at any time, an
amount equal to the aggregate net invoice or ledger amount owing on all trade
accounts receivable of Borrower, on a
<PAGE> 2
consolidated basis with its subsidiaries, for goods sold or leased or services
rendered in the ordinary course of business, in which the Lender has a
perfected, first priority lien, after deducting (without duplication): (i) each
such account that is unpaid ninety (90) days or more after the original invoice
date thereof, (ii) the amount of all discounts, allowances, rebates, credits and
adjustments to such accounts (iii) the amount of all contra accounts, setoffs,
defenses or counterclaims asserted by or available to the account debtors, (iv)
all accounts with respect to which goods are placed on consignment or subject to
a guaranteed sale or other terms by reason of which payment by the account
debtor may be conditional, (v) all accounts with respect to which Borrower
and/or any of its subsidiaries have furnished a payment and/or performance bond
and that portion of any account for or representing retainage, if any, until all
prerequisites to the immediate payment of retainage have been satisfied, (vi)
all accounts owing by account debtors for which there has been instituted a
proceeding in bankruptcy or reorganization under the United States Bankruptcy
Code or other law, whether state or federal, now or hereafter existing for
relief of debtors, (vii) all accounts owing to Borrower by any affiliates of
Borrower and all accounts owing to Borrower's subsidiaries by any affiliates of
such subsidiaries, (viii) all accounts in which the account debtor is the United
States or any department, agency or instrumentality of the United States, except
to the extent an acknowledgment of assignment to Lender of such account in
compliance with the Federal Assignment of Claims Act and other applicable laws
has been received by Lender, (ix) all accounts due Borrower and/or its
subsidiaries by any account debtor whose principal place of business is located
outside the United States of America and its territories, (x) all accounts
subject to any provision prohibiting assignment or requiring notice of or
consent to such assignment, (xi) that portion of all account balances owing by
any single account debtor which exceeds twenty-five percent (25%) of the
aggregate of all accounts otherwise deemed eligible hereunder which are owing to
Borrower or its subsidiaries by all of the account debtors of Borrower or the
respective subsidiary, and (xii) any other accounts deemed unacceptable by
Lender in its sole and absolute discretion; provided, however, if more than
twenty-five percent (25%) of the then balance owing by any single account debtor
does not qualify as an Eligible Account under the foregoing provisions, then the
aggregate amount of all accounts owing by such account debtor shall be excluded
from Eligible Accounts.
As used herein, the term "Eligible Inventory" shall mean as of any
date, the aggregate value of all inventory of raw materials, work in progress,
and finished goods then owned by Borrower and/or its subsidiaries and held for
sale, lease or other disposition in the ordinary course of its business, in
which Lender has a first priority lien, excluding (i) all bedding plants, (ii)
inventory which is damaged, defective, obsolete or otherwise unsalable in the
ordinary course of Borrower's or its subsidiaries' business, (iii) inventory
which has been returned or rejected, and (iv) inventory subject to any
consignment arrangement between Borrower or its subsidiaries and any other
person or entity. For purposes of this definition, Eligible Inventory shall be
valued at the lower of cost or market value.
(b) Term Loan. Subject to the terms and conditions set forth herein,
Lender agrees to lend to Borrower, jointly and severally with Cornelius and
Borrower and Cornelius agree to borrow from Lender, the amount of $6,500,000.00
(the "Term Loan") in a single advance on the date hereof. The sums advanced
under the Term Loan shall be for the purchase of real property.
All advances under the Credit Facilities shall be collectively called
the "Loans". Lender reserves the right to require Borrower to give Lender not
less than one (1) business day prior notice of each requested advance under the
Credit Facilities, specifying (i) the aggregate amount of such requested
advance, (ii) the requested date of such advance, and (iii) the purpose for such
advance, with such advances to be requested in a form satisfactory to Lender.
2. Commitment Fee/Origination Fee. Borrower agrees to pay Lender a Commitment
Fee equal to one-half percent (1/2%) per annum, payable quarterly in arrears
beginning December 1, 1999, with such Commitment Fee to be calculated on the
average daily unused balance of the Borrowing Base Line of
<PAGE> 3
Credit. Borrower agrees to pay Lender a one percent (1%) Origination Fee on the
original principal amount of the Term Loan, with such Origination Fee payable
upon the execution of the note evidencing the Term Loan.
3. Promissory Notes. The Loans shall be evidenced by one or more promissory
notes or an Application (whether one or more, together with any renewals,
extensions and increases thereof, the "Notes") duly executed by Borrower and
Cornelius, as applicable, and payable to the order of Lender, in form and
substance acceptable to Lender. Interest on the Notes shall accrue at the rate
set forth therein. The principal of and interest on the Notes shall be due and
payable in accordance with the terms and conditions set forth in the Notes and
in this Loan Agreement.
4. Collateral. As collateral and security for the indebtedness evidenced by the
Notes and any and all other indebtedness or obligations from time to time owing
by Borrower and/or Cornelius to Lender, Borrower and/or Cornelius shall grant,
and hereby grant, or shall cause to be granted, to Lender, its successors and
assigns, a first and prior lien and security interest in and to the property
described hereinbelow, together with any and all PRODUCTS AND PROCEEDS thereof
(the "Collateral"):
(a) All present and future accounts, chattel paper, documents,
instruments, deposit accounts and general intangibles (including any right to
payment for goods sold or services rendered arising out of the sale or delivery
of personal property or work done or labor performed by Borrower), now or
hereafter owned, held, or acquired by Borrower, together with any and all books
of account, customer lists and other records relating in any way to the
foregoing.
(b) All present and hereafter acquired inventory (including without
limitation, all raw materials, work in process and finished goods) held,
possessed, owned, held on consignment, or held for sale, lease, return or to be
furnished under contracts of service, in whole or in part, by Borrower wherever
located.
(c) That certain real property described as Lot 7, Block 5, Estates
Above Wimbledon, Section Two, An Addition to the City of Arlington, Tarrant
County, Texas, according to the Revised Plat recorded in Cabinet B, Slide 548,
Plat Records, Tarrant County, Texas, together with all improvements, fixtures,
equipment and other appurtenances attached thereto (the "Arlington Property").
(d) All present and future accounts, chattel paper, documents,
instruments, deposit accounts and general intangibles (including any right to
payment for goods sold or services rendered arising out of the sale or delivery
of personal property or work done or labor performed by Miller Plant Farms, Inc.
("Miller")), now or hereafter owned, held, or acquired by Miller, together with
any and all books of account, customer lists and other records relating in any
way to the foregoing.
(e) All present and hereafter acquired inventory (including without
limitation, all raw materials, work in process and finished goods) held,
possessed, owned, held on consignment, or held for sale, lease, return or to be
furnished under contracts of service, in whole or in part, by Miller wherever
located.
(f) That certain real property owned by Cornelius located at 13103 Old
Richmond Road, Houston, Texas 77099; 20835 Broze Road, Humble, Texas 77338; 5301
FM. 1960 East Humble, Texas 77338; 1200 North Dairy Ashford, Houston, Texas
77079; 2233 S. Voss, Houston, Texas 77057; 1755 FM. 1960 West Houston, Texas
77090; and 1510 Royston Lane, Round Rock, Texas 78680, together with all
improvements, fixtures, equipment and other appurtenances attached thereto (the
"Cornelius Property").
<PAGE> 4
(g) All present and future accounts, chattel paper, documents,
instruments, deposit accounts and general intangibles (including any right to
payment for goods sold or services rendered arising out of the sale or delivery
of personal property or work done or labor performed by Cornelius), now or
hereafter owned, held, or acquired by Cornelius, together with any and all books
of account, customer lists and other records relating in any way to the
foregoing.
(h) All present and hereafter acquired inventory (including without
limitation, all raw materials, work in process and finished goods) held,
possessed, owned, held on consignment, or held for sale, lease, return or to be
furnished under contracts of service, in whole or in part, by Cornelius wherever
located.
(i) All equipment, vehicles and fixtures of whatsoever kind and
character now or hereafter possessed, held, acquired, leased or owned by
Cornelius and used or usable in Cornelius' business, together with all
replacements, accessories, additions, substitutions and accessions to all of the
foregoing.
The term "Collateral" shall also include all records and data relating
to any of the foregoing (including, without limitation, records and data stored
electronically). Borrower agrees to execute such security agreements,
assignments, deeds of trust and other agreements and documents as Lender shall
deem appropriate and otherwise require from time to time to more fully create
and perfect Lender's lien and security interests in the Collateral.
The note representing the Borrowing Base Line of Credit to be executed
by Borrower is given in renewal, modification and increase of that one certain
revolving promissory note in the original principal sum of $2,500,000.00 dated
April 1, 1999, executed by Borrower and payable to the order of Lender ("Prior
Note"). Borrower further agrees that each and every right, title, claim, equity,
lien and security interest securing payment of said Prior Note are hereby
renewed and extended and/or continued in full force and effect to secure payment
of the Borrowing Base Line of Credit, as modified, renewed and increased.
5. Representations and Warranties. Borrower and Cornelius hereby represent and
warrant, and upon each request for an advance under the Credit Facilities
further represent and warrant, to Lender as follows:
(a) Existence. Borrower and Cornelius are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Texas and all other states where they are doing business, and have all requisite
power and authority to execute and deliver the Loan Documents.
(b) Binding Obligations. The execution, delivery, and performance of
this Loan Agreement and all of the other Loan Documents by Borrower and
Cornelius have been duly authorized by all necessary action by Borrower and
Cornelius, and constitute legal, valid and binding obligations of Borrower and
Cornelius, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights and except to the extent
specific remedies may generally be limited by equitable principles.
(c) No Consent. The execution, delivery and performance of this Loan
Agreement and the other Loan Documents, and the consummation of the transactions
contemplated hereby and thereby, do not (i) conflict with, result in a violation
of, or constitute a default under (A) any provision of Borrower's and Cornelius'
articles or certificate of incorporation or bylaws, if Borrower is a
corporation, or its partnership agreement, if Borrower is a partnership, or any
agreement or other instrument binding upon Borrower or Cornelius, or (B) any
law, governmental regulation, court decree or order applicable to either
Borrower or Cornelius, or (ii) require the consent, approval or authorization of
any third party.
<PAGE> 5
(d) Financial Condition. Each financial statement of Borrower and/or
Cornelius supplied to the Lender truly discloses and fairly presents Borrower's
and/or Cornelius' respective financial condition as of the date of each such
statement. There has been no material adverse change in such financial condition
or results of operations of Borrower and/or Cornelius subsequent to the date of
the most recent financial statement supplied to Lender.
(e) Litigation. There are no actions, suits or proceedings, pending or,
to the knowledge of Borrower or Cornelius, threatened against or affecting
Borrower or Cornelius or the properties of Borrower or Cornelius, before any
court or governmental department, commission or board, which, if determined
adversely to Borrower or Cornelius, would have a material adverse effect on the
financial condition, properties, or operations of Borrower or Cornelius.
(f) Taxes; Governmental Charges. Borrower and Cornelius have filed all
federal, state and local tax reports and returns required by any law or
regulation to be filed by it and has either duly paid all taxes, duties and
charges indicated due on the basis of such returns and reports, or made adequate
provision for the payment thereof, and the assessment of any material amount of
additional taxes in excess of those paid and reported is not reasonably
expected.
6. Conditions Precedent to Advances. Lender's obligation to make any advance
under this Loan Agreement and the other Loan Documents shall be subject to the
conditions precedent that, as of the date of such advance and after giving
effect thereto (i) all representations and warranties made to Lender in this
Loan Agreement and the other Loan Documents shall be true and correct, as of and
as if made on such date, (ii) no material adverse change in the financial
condition of Borrower since the effective date of the most recent financial
statements furnished to Lender by Borrower shall have occurred and be
continuing, (iii) no event has occurred and is continuing, or would result from
the requested advance, which with notice or lapse of time, or both, would
constitute an Event of Default (as hereinafter defined), (iv) Lender's receipt
of UCC-3 Termination Statements fully executed by the appropriate party,
terminating all financing statements on file for Cornelius Nurseries, Inc.,
Turkey Creek Farms, Inc. and Wholesale Landscape Distributors, Inc., and (v)
Lender's receipt of all Loan Documents appropriately executed by Borrower and
all other proper parties.
7. Affirmative Covenants. Until (i) the Notes and all other obligations and
liabilities of Borrower and Cornelius under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower and Cornelius agree and covenant that
they will, unless Lender shall otherwise consent in writing:
(a) Accounts and Records. Maintain their respective books and records
in accordance with generally accepted accounting principles.
(b) Right of Inspection. Permit Lender to visit their respective
properties and installations and to examine, audit and make and take away copies
or reproductions of Borrower's or Cornelius' books and records, at all
reasonable times.
(c) Right to Additional Information. Furnish Lender with such
additional information and statements, lists of assets and liabilities, tax
returns, and other reports with respect to Borrower's or Cornelius' financial
condition and business operations as Lender may request from time to time.
(d) Compliance with Laws. Conduct their respective businesses in an
orderly and efficient manner consistent with good business practices, and
perform and comply with all statutes, rules, regulations and/or ordinances
imposed by any governmental unit upon Borrower and/or Cornelius and
<PAGE> 6
their businesses, operations and properties (including without limitation, all
applicable environmental statutes, rules, regulations and ordinances).
(e) Taxes. Pay and discharge when due all of their indebtedness and
obligations, including without limitation, all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower,
Cornelius or their properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's or Cornelius' properties, income, or
profits; provided, however, Borrower and Cornelius will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long as
(i) the legality of the same shall be contested in good faith by appropriate
judicial, administrative or other legal proceedings, and (ii) Borrower or
Cornelius, as the case may be, shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien or
claim in accordance with generally accepted accounting principles, consistently
applied.
(f) Insurance. Except as may be more specifically required in the other
Loan Documents, maintain insurance against such risks and in such amounts as is
customarily maintained by similar business operations in the same vicinity, with
such companies and in such amounts satisfactory to Lender.
(g) Notice of Indebtedness. Promptly inform Lender of the creation,
incurrence or assumption by Borrower or Cornelius of any actual or contingent
liabilities not permitted under this Loan Agreement.
(h) Notice of Litigation. Promptly after the commencement thereof,
notify Lender of all material actions, suits and proceedings before any court or
any governmental department, commission or board affecting Borrower or Cornelius
or any of their respective properties.
(i) Notice of Material Adverse Change. Promptly inform Lender of (i)
any and all material adverse changes in Borrower's or Cornelius' financial
condition, and (ii) all claims made against Borrower or Cornelius which could
materially affect the financial condition of Borrower or Cornelius.
(j) Additional Documentation. Execute and deliver, or cause to be
executed and delivered, any and all other agreements, instruments or documents
which Lender may reasonably request in order to give effect to the transactions
contemplated under this Loan Agreement and the other Loan Documents, including,
without limitation, any documents required to perfect Lender's lien on the
vehicles owned by Cornelius and serving as part of the Collateral.
8. Negative Covenants. Until (i) the Notes and all other obligations and
liabilities of Borrower under this Loan Agreement and the other Loan Documents
are fully paid and satisfied, and (ii) the Lender has no further commitment to
lend hereunder, Borrower and Cornelius will not, without the prior written
consent of Lender:
(a) Nature of Business. Make any material change in the nature of their
respective businesses as carried on as of the date hereof.
(b) Liquidations, Mergers, Consolidations. Liquidate, merge or
consolidate with or into any other entity.
(c) Sale of Assets. Sell, transfer or otherwise dispose of any of their
respective assets or properties, other than in the ordinary course of business.
<PAGE> 7
(d) Liens. Create or incur any lien or encumbrance on any of their
respective assets, other than (i) liens and security interests securing
indebtedness owing to Lender, (ii) liens for taxes, assessments or similar
charges that are (1) not yet due or (2) being contested in good faith by
appropriate proceedings and for which Borrower or Cornelius, as the case may be,
have established adequate reserves, and (iii) liens and security interests
existing as of the date hereof which have been disclosed to Lender, (iv)
purchase money liens on equipment and/or vehicles not currently owned by
Borrower or Cornelius and which are necessary to the normal operation of
Borrower's and Cornelius' business, (v) pledges or deposits made to secure
payment of workers compensation (or to participate in any fund in connection
with workers compensation), unemployment insurance, pensions or social security
programs, (vi) liens imposed by mandatory provision of law such as for
materialmen's, mechanics, warehouseman's and other like liens arising in the
ordinary course of business, securing indebtedness whose payment is not yet due,
(vii) good faith deposits not greater than $15,000 in connection with tenders,
leases, real estate bids or contracts (other than contracts involving the
borrowing of money), (viii) good faith pledges or deposits not greater than
$15,000 to secure (a) public or statutory obligations, (b) surety, stay, appeal
or customs bonds, or in lieu of any of the foregoing, and (c) payment of taxes,
assessments, customs duties or other similar charges, (ix) encumbrances
consisting of zoning restrictions, easements or other restrictions on the use of
real property not serving as collateral for the Notes, provided that such
encumbrances do not impair the intended use of such property, and none of which
would be violated by existing or proposed structures or land use.
(e) Indebtedness. Create, incur or assume any indebtedness for borrowed
money or issue or assume any other note, debenture, bond or other evidences of
indebtedness, or guarantee any such indebtedness or such evidences of
indebtedness of others, other than (i) borrowings from Lender, (ii) borrowings
outstanding on the date hereof and disclosed to Lender, (iii) indebtedness to
trade creditors incurred in the ordinary course of business, and (iv) for
purchase money on equipment and/or vehicles, which are necessary to the normal
operation of Borrower's or Cornelius' business.
(f) Change in Management. Permit a substantial change in the senior
management of Borrower or Cornelius. A substantial change in senior management
shall mean the death, resignation, removal or retirement of any two (2) of the
following individuals from Borrower's or Cornelius' business: James C. Estill,
Dan Reynolds, John Cosby, or John Peters.
(g) Loans. Make any loans to any person or entity.
(h) Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate (as hereinafter defined) of
Borrower or Cornelius, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's or Cornelius' business and upon fair and
reasonable terms no less favorable to Borrower or Cornelius than would be
obtained in a comparable arm's-length transaction with a person or entity not an
Affiliate of Borrower or Cornelius. As used herein, the term "Affiliate" means
any individual or entity directly or indirectly controlling, controlled by, or
under common control with, another individual or entity.
(i) Dividends. Borrower and Cornelius agree not to declare or pay any
dividends on any shares of their respective capital stock, make any other
distributions with respect to any payment on account of the purchase,
redemption, or other acquisition or retirement of any shares of their respective
capital stock, or make any other distribution, sale, transfer or lease of any of
Borrower's or Cornelius' assets other than in the ordinary course of business,
unless any such amounts are directly utilized for the payment of principal or
interest on indebtedness and obligations owing from time to time by Borrower or
Cornelius to Lender.
<PAGE> 8
9. Financial Covenants. Until (i) the Notes and all other obligations and
liabilities of Borrower and Cornelius under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower, on a consolidated basis with its
subsidiaries, will maintain the following financial covenants:
(a) Tangible Net Worth. Borrower will maintain, at all times, its
Tangible Net Worth at not less than $9,000,000.00.
(b) Debt to Worth Ratio. Borrower will maintain, at all times, a ratio
of (a) total liabilities (excluding any Subordinated Debt), to (b) Tangible Net
Worth of not greater than 2.50 to 1.0.
(c) Debt Service Coverage Ratio. Borrower will maintain, as of the last
day of each fiscal year, a ratio of (a) net income after taxes plus
depreciation, amortization and other non-cash expenses for the 12 month period
ending with such fiscal year, less any Distributions during such 12 month
period, to (b) current maturities of long-term debt and long-term leases for
such 12 month period, of not less than 1.25 to 1.0.
As used herein, the term "Tangible Net Worth" means, as of any date,
Borrower's total assets excluding all intangible assets, less total liabilities
excluding any Subordinated Debt. As used herein, the term "Subordinated Debt"
means any indebtedness owing by Borrower which has been subordinated by written
agreement to all indebtedness now or hereafter owing by Borrower to Lender, such
agreement to be in form and substance acceptable to Lender. As used herein,
"Distributions" shall mean all dividends and other distributions made by
Borrower to its shareholders or partners, as the case may be, other than salary,
bonuses and other compensation for services. Unless otherwise specified, all
accounting and financial terms and covenants set forth above are to be
determined according to generally accepted accounting principles, consistently
applied.
10. Reporting Requirements. Until (i) the Notes and all other obligations and
liabilities of Borrower and Cornelius under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower will, unless Lender shall otherwise
consent in writing, furnish the following items to Lender, prepared on a
consolidated basis with its subsidiaries:
(a) Interim Financial Statements. As soon as available, and in any
event within thirty (30) days after the end of each month of each fiscal year of
Borrower, a balance sheet and income statement of Borrower as of the end of such
month, all in form and substance and in reasonable detail satisfactory to Lender
and duly certified (subject to year-end review adjustments) by the President
and/or Chief Financial Officer of Borrower (i) as being true and correct in all
material aspects to the best of his or her knowledge and (ii) as having been
prepared in accordance with generally accepted accounting principles,
consistently applied.
(b) Annual Financial Statements. As soon as available and in any event
within ninety (90) days after the end of each fiscal year of Borrower, a balance
sheet and income statement of Borrower as of the end of such fiscal year, in
each case audited by independent public accountants of recognized standing
acceptable to Lender.
(c) Compliance Certificate. A certificate signed by the President
and/or Chief Financial Officer of Borrower, within thirty (30) days after the
end of each month of each fiscal year, stating that Borrower is in full
compliance with all of its obligations under this Loan Agreement and all other
Loan Documents and is not in default of any term or provisions hereof or
thereof, and demonstrating compliance with all financial ratios and covenants
set forth in this Loan Agreement.
<PAGE> 9
(d) Borrowing Base Report. A borrowing base report signed by the
President and/or Chief Financial Officer of Borrower, within thirty (30) days
after the end of each month of each fiscal year in which indebtedness is
outstanding under the Borrowing Base Line of Credit, in form and detail
satisfactory to Lender.
(e) SEC Filings. Copies of any and all filings made by Borrower with
the Securities and Exchange Commission within thirty (30) days after filing.
(f) Accounts Aging. An accounts receivable aging report within thirty
(30) days after the end of each month of each fiscal year in which indebtedness
is outstanding under the Borrowing Base Line of Credit, in form and detail
satisfactory to Lender.
11. Events of Default. Each of the following shall constitute an "Event of
Default" under this Loan Agreement:
(a) The failure, refusal or neglect of Borrower and/or Cornelius to pay
when due any part of the principal of, or interest on, the Notes or any other
indebtedness or obligations owing to Lender by Borrower or Cornelius from time
to time and such failure, refusal or neglect to make such payment continues for
a period of ten (10) days after written notice to Borrower and Cornelius is
given in accordance with the Loan Documents.
(b) The failure of Borrower, Cornelius or any Obligated Party (as
defined below) to timely and properly observe, keep or perform any covenant,
agreement, warranty or condition required herein or in any of the other Loan
Documents and the failure of Borrower, Cornelius or any Obligated Party to cure
such default within thirty (30) days after written notice from Lender specifying
such default.
(c) The occurrence of an event of default under any of the other Loan
Documents or under any other agreement now existing or hereafter arising between
Lender and Borrower or Cornelius after the giving of any required notice and
expiration of any applicable cure period.
(d) Any representation contained herein or in any of the other Loan
Documents made by Borrower, Cornelius or any Obligated Party is false or
misleading in any material respect when made.
(e) The occurrence of any event which permits the acceleration of the
maturity of any indebtedness owing by Borrower or Cornelius to any third party
under any agreement or understanding.
(f) If Borrower, Cornelius or any Obligated Party: (i) becomes
insolvent, or makes a transfer in fraud of creditors, or makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its debts as
they become due; (ii) generally is not paying its debts as such debts become
due; (iii) has a receiver, trustee or custodian appointed for, or take
possession of, all or substantially all of the assets of such party, either in a
proceeding brought by such party or in a proceeding brought against such party
and such appointment is not discharged or such possession is not terminated
within sixty (60) days after the effective date thereof or such party consents
to or acquiesces in such appointment or possession; (iv) files a petition for
relief under the United States Bankruptcy Code or any other present or future
federal or state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "Applicable Bankruptcy Law") or an involuntary
petition for relief is filed against such party under any Applicable Bankruptcy
Law and such involuntary petition is not dismissed within sixty (60) days after
the filing thereof, or an order for relief naming such party is entered under
any Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is requested
or consented to by such party; (v) fails to have
<PAGE> 10
discharged within a period of thirty (30) days any attachment, sequestration or
similar writ levied upon any property of such party; or (vi) fails to pay within
thirty (30) days any final money judgment against such party.
(g) If Borrower, Cornelius or any Obligated Party is an entity, the
liquidation, dissolution, merger or consolidation of any such entity or, if
Borrower, Cornelius or any Obligated Party is an individual, the death or legal
incapacity of any such individual.
(h) The entry of any judgment against Borrower, Cornelius or any
Obligated Party or the issuance or entry of any attachment or other lien against
any of the property of Borrower, Cornelius or any Obligated Party for an amount
in excess of $100,000.00, if undischarged, unbonded or undismissed within thirty
(30) days after such entry.
Nothing contained in this Loan Agreement shall be construed to limit
the events of default enumerated in any of the other Loan Documents and all such
events of default shall be cumulative. The term "Obligated Party", as used
herein, shall mean any party other than Borrower who secures, guarantees and/or
is otherwise obligated to pay all or any portion of the indebtedness evidenced
by the Notes.
12. Remedies. Upon the occurrence of any one or more of the foregoing Events of
Default, (a) the entire unpaid balance of principal of the Notes, together with
all accrued but unpaid interest thereon, and all other indebtedness owing to
Lender by Borrower and/or Cornelius at such time shall, at the option of Lender,
become immediately due and payable without further notice, demand, presentation,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
protest or notice of protest of any kind, all of which are expressly waived by
Borrower and Cornelius, and (b) Lender may, at its option, cease further
advances under any of the Notes. All rights and remedies of Lender set forth in
this Loan Agreement and in any of the other Loan Documents may also be exercised
by Lender, at its option to be exercised in its sole discretion, upon the
occurrence of an Event of Default.
13. Rights Cumulative. All rights of Lender under the terms of this Loan
Agreement shall be cumulative of, and in addition to, the rights of Lender under
any and all other agreements between Borrower and Lender or Cornelius and Lender
(including, but not limited to, the other Loan Documents), and not in
substitution or diminution of any rights now or hereafter held by Lender under
the terms of any other agreement.
14. Partial Release of Collateral.
(a) Provided (i) no Event of Default has occurred and is continuing, or
no event has occurred which with notice or lapse of time, or both, would
constitute an Event of Default, and (ii) the indebtedness and other obligations
owing under Borrower's Borrowing Base Line of Credit have been fully paid and
satisfied and Lender has no further commitment to lend thereunder, upon
Borrower's written request, Lender agrees to release its lien on the inventory,
accounts, chattel paper, general intangibles, equipment, vehicles, fixtures,
crops, farm equipment and farm products pledged to Lender by Borrower, Miller
and Cornelius, as well as its lien on the Arlington Property. In the event
Lender becomes obligated to release its lien on such property, Lender agrees, as
promptly as commercially reasonable, to execute and deliver UCC-3 Termination
Statements terminating all liens on file with respect to such collateral and a
Release of Deed of Trust lien with respect to the Arlington Property. Borrower
shall pay any and all expenses it incurs arising in connection with the release
of such property and any and all reasonable expenses incurred by Lender in
connection with same.
<PAGE> 11
(b) Provided no Event of Default has occurred and is continuing, or no
event has occurred which with notice or lapse of time, or both, would constitute
an Event of Default, Lender agrees to release its lien on the Cornelius
Property, or any portion thereof, for which Borrower or Cornelius requests a
release in writing (the "Release Property"), upon receipt of eighty percent
(80%) of the greater of (i) the sales price of such Release Property, as
evidenced by a settlement statement provided by a title company and certified as
being true and correct, or (ii) such Release Property's appraised value as
determined, at the option of Lender, by the Lender's most recent appraisal for
such Release Property, or a new appraisal of such property obtained by Lender at
Borrower's expense; provided, however, for Lender to be obligated to release its
lien on a portion of the Cornelius Property which does not constitute one or
more entire parcels of the six (6) parcels constituting the Cornelius Property,
Borrower or Cornelius must request the partial release in writing and shall
provide to Lender a current survey of the acreage to be released, a metes and
bounds description of the acreage to be released and a plat drawing showing the
relationship of the acreage requested to be released to the remaining acreage,
which shall be acceptable to Lender in its sole discretion. In the event Lender
becomes obligated to release all or a portion of its lien hereunder, Lender
agrees, as promptly as commercially reasonable, to execute and deliver a Release
of its Deed of Trust lien or a Partial Release of its Deed of Trust Lien, as the
case may be, on the Release Property. Borrower shall pay any and all expenses it
incurs arising in connection with the release of such property and any and all
reasonable expenses incurred by Lender in connection with same.
15. Waiver and Agreement. Neither the failure nor any delay on the part of
Lender to exercise any right, power or privilege herein or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
waiver of any provision in this Loan Agreement or in any of the other Loan
Documents and no departure by Borrower or Cornelius therefrom shall be effective
unless the same shall be in writing and signed by Lender, and then shall be
effective only in the specific instance and for the purpose for which given and
to the extent specified in such writing. No modification or amendment to this
Loan Agreement or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be enforced.
16. Benefits. This Loan Agreement shall be binding upon and inure to the benefit
of Lender, Borrower and Cornelius, and their respective successors and assigns,
provided, however, that neither Borrower nor Cornelius may, without the prior
written consent of Lender, assign any rights, powers, duties or obligations
under this Loan Agreement or any of the other Loan Documents.
17. Notices. All notices, requests, demands or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and given
by (i) personal delivery, (ii) expedited delivery service with proof of
delivery, or (iii) United States mail, postage prepaid, registered or certified
mail, return receipt requested, sent to the intended addressee at the address
set forth on the first page hereof and shall be deemed to have been received
either, in the case of personal delivery, as of the time of personal delivery,
in the case of expedited delivery service, as of the date of first attempted
delivery at the address and in the manner provided herein, or in the case of
mail, upon deposit in a depository receptacle under the care and custody of the
United States Postal Service. Any party shall have the right to change its
address for notice hereunder to any other location within the continental United
States by notice to the other party of such new address at least thirty (30)
days prior to the effective date of such new address.
18. Construction. This Loan Agreement and the other Loan Documents have been
executed and delivered in the State of Texas, shall be governed by and construed
in accordance with the laws of the
<PAGE> 12
State of Texas, and shall be performable by the parties hereto in the county in
Texas where the Lender's address set forth on the first page hereof is located.
19 Invalid Provisions. If any provision of this Loan Agreement or any of the
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable and the
remaining provisions of this Loan Agreement or any of the other Loan Documents
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance.
20. Expenses. Borrower shall pay all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees) in connection with (i) the
preparation of any of the Loan Documents, (ii) any action required in the course
of administration of the indebtedness and obligations evidenced by the Loan
Documents, and (iii) any action in the enforcement of Lender's rights upon the
occurrence of Event of Default.
21. Participation of the Loans. Borrower and Cornelius agree that Lender may, at
its option, sell interests in the Loans and its rights under this Loan Agreement
to a financial institution or institutions and, in connection with each such
sale, Lender may disclose any financial and other information available to
Lender concerning Borrower and Cornelius to each prospective purchaser.
22. Conflicts. In the event any term or provision hereof is inconsistent with or
conflicts with any provision of the other Loan Documents, the terms and
provisions contained in this Loan Agreement shall be controlling.
23. Counterparts. This Loan Agreement may be separately executed in any number
of counterparts, each of which shall be an original, but all of which, taken
together, shall be deemed to constitute one and the same instrument.
24. Facsimile Documents and Signatures. For purposes of negotiating and
finalizing this Loan Agreement, if this document or any document executed in
connection with it is transmitted by facsimile machine ("fax"), it shall be
treated for all purposes as an original document. Additionally, the signature of
any party on this document transmitted by way of a facsimile machine shall be
considered for all purposes as an original signature. Any such faxed document
shall be considered to have the same binding legal effect as an original
document. At the request of any party, any faxed document shall be re-executed
by each signatory party in an original form.
25. Acknowledgment of Indebtedness Owing under Prior Note. As further
consideration for Lender's agreement to renew and increase the Prior Note,
Borrower hereby acknowledges and agrees that the principal sum of $0.00 is due
and owing on the Prior Note as of the date hereof, and that there are no offsets
or defenses to the indebtedness evidenced by the Prior Note, or any part
thereof, or any claim or counterclaim against Lender arising therefrom.
26. Release. In further consideration for the agreement of Lender to renew and
increase the Prior Note, all as herein provided, the Borrower, for itself and
its successors and assigns (collectively, the "Releasing Parties"), hereby
releases and forever discharges Lender and its directors, officers and
employees, as well as all of their successors and assigns (the "Released
Parties") from any and all claims, demands, liabilities, causes of action or
other damages now or hereafter held or claimed by the Releasing Parties, whether
known or unknown, arising out of or in anyway related to any and all
transactions pertaining to the Prior Note (including, without limitation, all
matters referred to in this Loan Agreement) occurring prior to the date of
execution hereof, including, but not limited to, any loss, cost or damage in
connection with any alleged breach of fiduciary duty, breach of any duty of fair
dealing,
<PAGE> 13
breach of confidence, breach of funding commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, bad faith, malpractice,
usury, violations of the Racketeer Influenced and Corrupt Organizations Act,
intentional or negligent infliction of mental distress, tortious interference
with contractual relations, breach of contract, deceptive trade practice,
slander or conspiracy. The Borrower hereby acknowledges and agrees that the
release herein contained is supported by sufficient and adequate consideration
received by the parties executing this Loan Agreement.
If the foregoing correctly sets forth our mutual agreement, please so
acknowledge by signing and returning this Loan Agreement to the undersigned.
NOTICE TO COMPLY WITH STATE LAW
For the purpose of this Notice, the term "WRITTEN AGREEMENT" shall
include the document set forth above, together with each and every other
document relating to and/or securing the same loan transaction, regardless of
the date of execution.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER: LENDER:
CALLOWAY'S NURSERY, INC., THE FROST NATIONAL BANK,
A TEXAS CORPORATION A NATIONAL BANKING ASSOCIATION
BY: /s/ JAMES C. ESTILL BY: /s/ STEWART ALCORN
------------------------- -------------------------
JAMES C. ESTILL, PRESIDENT STEWART ALCORN, MARKET PRESIDENT
BY: /s/ DAN REYNOLDS
-------------------------
DAN REYNOLDS, VICE PRESIDENT
CORNELIUS:
CALLOWAY'S CORNELIUS, INC.,
A TEXAS CORPORATION
BY: /s/ JAMES C. ESTILL
-------------------------
JAMES C. ESTILL, PRESIDENT
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 25, 1999, relating to
the combined balance sheets of Cornelius Nurseries, Inc. and Turkey Creek Farms,
Inc. as of September 30, 1998 and 1997, and the related combined statements of
operations and retained earnings, and cash flows for the years ended September
30, 1998 and 1997, in the September 30, 1999 Current Report on Form 8-K of
Calloway's Nursery, Inc.
We also consent to the incorporation by reference of our report dated January
25, 1999 and the above-referenced financial statements in the registration
statements of Calloway's Nursery, Inc. on Forms S-8 (File Nos. 33-46170,
33-82192 and 333-63291).
Very truly yours,
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
September 30, 1999
<PAGE> 1
EXHIBIT 99.1
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants. 1
Combined Balance Sheets as of September 30, 1998 and 1997. 2
Combined Statements of Operations and Retained Earnings for the years
ended September 30, 1998 and 1997. 4
Combined Statements of Cash Flows for the years ended September 30,
1998 and 1997. 5
Notes to combined financial statements. 7
</TABLE>
<PAGE> 2
[HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. LETTERHEAD]
To the Board of Directors and
Stockholders of
Cornelius Nurseries, Inc. and
Turkey Creek Farms, Inc.
Houston, Texas
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying combined balance sheets of Cornelius Nurseries,
Inc. and Turkey Creek Farms, Inc. (Texas Corporations) as of September 30, 1998
and 1997, and the related statements of operations, retained earnings and cash
flows for the years then ended. The financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion of
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cornelius Nurseries, Inc. and
Turkey Creek Farms, Inc. as of September 30, 1998 and 1997 and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Certified Public Accountants
January 25, 1999
<PAGE> 3
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 1) $ 364,180 $ 527,627
Certificates of deposit (Notes B & I) 1,225,226 1,256,077
Accounts receivable - trade, net of allowance of
$160,279 for 1998 and $11,559 for 1997 1,377,651 1,420,049
Notes receivable - current portion 10,768 9,918
Inventories:
Purchased goods 2,500,779 2,655,866
Farm grown crops 4,550,125 4,969,039
Prepaid expenses 198,440 180,692
Deferred tax asset (Note E) 54,400 106,600
----------- -----------
TOTAL CURRENT ASSETS 10,281,569 11,125,868
PROPERTY AND EQUIPMENT: (Note B)
Land 2,228,804 2,228,804
Buildings and improvements 2,558,453 2,419,974
Automobiles and trucks 994,512 994,512
Machinery and equipment 1,532,114 1,314,055
Furniture and fixtures 87,891 87,891
----------- -----------
7,401,774 7,045,236
Less: accumulated depreciation 3,694,685 3,466,407
----------- -----------
3,707,089 3,578,829
OTHER ASSETS:
Notes receivable, net of current portion 8,900 5,368
Available for sale securities 44,498 43,772
Other assets 2,888 --
----------- -----------
56,286 49,140
----------- -----------
$14,044,944 $14,753,837
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 4
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Note Payable $ 60,385 $ 70,311
Current portion of long-term debt 816,119 405,756
Current portion of obligation under capital leases 60,640 27,316
Current portion of loans from stockholders 1,316 23,223
Accounts payable - trade 3,015,539 2,243,112
Accrued expenses 440,772 469,959
Income taxes payable -- 19,867
------------ ------------
TOTAL CURRENT LIABILITIES 4,394,771 3,259,544
Long-term debt, less current portion (Note B) 2,280,099 2,404,108
Obligation under capital leases, less current portion
(Note C)
164,167 18,425
Loans from stockholders, less current portion (Note D) 310,875 281,398
Deferred tax liability (Note E) 840,600 1,409,100
------------ ------------
TOTAL LIABILITIES 7,990,512 7,372,575
------------ ------------
Commitments and contingencies (Note G)
STOCKHOLDERS' EQUITY:
Common Stock (Note H) 4,800,000 4,800,000
Additional paid-in capital 98,756 98,756
Retained earnings 1,230,551 2,557,381
Less cost of treasury stock (74,875) (74,875)
------------ ------------
6,054,432 7,381,262
------------ ------------
$ 14,044,944 $ 14,753,837
============ ============
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 5
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net Sales $ 21,638,452 $ 21,608,752
Cost of sales 17,216,539 14,882,919
------------ ------------
Gross profit 4,421,913 6,725,833
Selling, general and administrative expenses 5,846,216 5,481,045
Depreciation expenses 234,424 210,200
Interest expense 292,392 277,612
------------ ------------
Income (loss) from operations (1,951,119) 756,976
Other income:
Interest income 56,776 49,524
Miscellaneous income 30,536 10,921
Loss on sale of assets (854) --
Finance charges 26,431 13,580
------------ ------------
Income (loss) before income tax (1,838,230) 831,001
Income tax benefit (expense) (Note E) 511,400 (183,026)
------------ ------------
Net income (loss) (1,326,830) 647,975
Beginning retained earnings 2,557,381 1,909,406
------------ ------------
Ending retained earnings $ 1,230,551 $ 2,557,381
============ ============
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 6
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(1,326,830) $ 647,975
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 234,424 210,200
Interest expense added to notes payable to
stockholders 29,477 26,664
Loss on disposal of assets 854 --
Allowance for bad debts 148,720 25,310
(Increase) decrease in:
Notes receivable 30,851 (51,094)
Accounts receivable (106,285) (293,866)
Notes receivable (4,382) 16,322
Inventories 574,000 (985,500)
Prepaid expenses and other assets (20,636) 17,210
Deferred tax asset 47,700 (500)
Increase (decrease) in:
Note payable (9,927) (7,767)
Accounts payable 772,427 1,004,755
Accrued expenses (29,187) (63,429)
Accrued pension cost -- (268,056)
Income taxes payable (19,867) (22,133)
Deferred tax liability (564,000) 139,000
----------- -----------
Net cash provided by (used in) operating activities (242,661) 395,091
Cash Flows from Investing Activities:
Purchases of property and equipment (141,494) (541,414)
Proceeds from sale of assets 3,500 --
Purchase of available for sale securities (726) (449)
----------- -----------
Net cash used in investing activities (138,720) (541,863)
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE> 7
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments on long term debt $ (229,807) $ (117,418)
Proceeds from long term debt 416,161 302,563
Net change in revolving line of credit 100,000 300,000
Loans (payments) from stockholders (21,907) 23,223
Payments on obligation under capital leases (46,513) (24,876)
---------- ----------
Net cash provided by financing activities 217,934 483,492
---------- ----------
Net increase (decrease) in cash (163,447) 336,720
Cash at beginning of year 527,627 190,907
---------- ----------
Cash at end of year $ 364,180 $ 527,627
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 261,598 $ 244,620
Taxes $ 69,366 $ 77,001
Non-cash transactions:
Capital leases for equipment $ 225,541 $ 34,570
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 8
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
A. Summary of Significant Accounting Policies
Nature of Business
Cornelius Nurseries, Inc. (CN) and Turkey Creek Farms, Inc. (TCF) (the
Companies) engage primarily in the business of growing and selling
trees, shrubs, plants and other landscaping materials at the wholesale
and retail trade levels. The Companies are under common ownership
and/or management. All significant inter-company transactions and
balances have been eliminated in combination. A summary of the
significant accounting policies utilized by the Companies in preparing
these combined financial statements follows:
Credit Risk
The Companies extend credit to their customers; most of them are in
central and southeastern Texas.
Inventories
Inventories are stated at lower of cost or market value, determined by
the first-in first-out method. Inventory costs include labor, materials
and supplies and related overhead cost incurred for farm grown
products.
Property and Equipment
Property and equipment are recorded at cost. Addition, renewals and
betterments which extend the useful lives of the related assets are
capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation of property and equipment is provided
using a combination of the straight-line and accelerated cost recovery
methods over the estimated useful lives of the assets. The useful lives
range from three to thirty-nine years.
Available for Sale Securities
Available for sale securities include common stock of certain
privately-held companies and are stated at market value which
approximates cost. The Companies intend to hold the securities for the
foreseeable future. Gains or losses realized on sale of stock
investments are determined using the specific identification method.
Income Taxes
Provision for federal income taxes is made by applying the estimated
annual effective tax rates to the individual Company's pre-tax income
adjusted for non-deductible expenses and non-taxable income. Deferred
taxes are recognized for differences between the bases of certain
assets and liabilities for financial and tax reporting. The deferred
taxes represent the future tax return consequences of those differences
which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also
recognized for operating losses that are available to offset future
taxable income.
7
<PAGE> 9
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
A. Summary of Significant Accounting Policies (Continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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.
B. Notes Payable and Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revolving line of credit from a bank with maximum of $500,000,
interest payable quarterly at prime plus 0.5% (9% at December 31,
1998), matures on July 29, 1999 $ 400,000 $ 300,000
Real estate note payable to a bank, due in monthly installments of
$25,061 including interest at 9.5%, final payment due October 24,
2000. This note and the line of credit are collateralized by deed
of trust in certain real property, inventories and accounts
receivable, and are guaranteed by the major shareholders of the
Companies. 2,152,050 2,243,956
Note payable to a bank, due in monthly installments of $1,961
including interest at 8.75%, final payment due January 31, 2000,
secured by certain real estate and personally guaranteed by the
major shareholders of the Companies. 183,399 191,746
Note payable to a bank, due in monthly installments of $1,627
including interest at 9%, matures on May 17, 2002, secured by
several automobiles 60,769 74,162
Revolving note payable to a bank, maximum credit $300,000, matures on
February 24, 1999, collateralized by a $300,000 certificate of
deposit, interest due monthly at 6.75% 300,000 --
----------- -----------
3,096,218 2,809,864
Less current portion 816,119 405,756
----------- -----------
$ 2,280,099 $ 2,404,108
=========== ===========
</TABLE>
8
<PAGE> 10
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
B. Notes Payable and Long-Term Debt (Continued)
Aggregate annual principal payments subsequent to September 30, 1998,
according to the above described terms, are as follows:
<TABLE>
<CAPTION>
Year Ending September 30,
-------------------------
<S> <C>
1999 $ 816,119
2000 302,052
2001 1,966,631
2002 11,416
-----------
$ 3,096,218
===========
</TABLE>
Total interest expense for all notes payable was $292,392 for 1998 and
$272,806 for 1997.
C. Lease Commitments
The Companies lease certain equipment under capital lease agreements.
The leases range from 24 to 60 months expiring February 2003 with
imputed interest rates at an average of 9%. Equipment of $324,570 has
been capitalized. Accumulated depreciation on the capitalized assets
was approximately $70,041 at September 30, 1998.
Maturities of the capitalized lease are as follows:
<TABLE>
<CAPTION>
Year Ending September 30,
-------------------------
<S> <C>
1999 $ 69,776
2000 69,320
2001 71,710
2002 51,422
2003 8,052
-----------
270,280
Less amount representing interest 45,473
-----------
224,807
Less current portion 60,640
-----------
$ 164,167
===========
</TABLE>
D. Loans from Stockholders
During the years, the Companies periodically obtain loans from
stockholders to provide for working capital. The terms of the loans do
not stipulate periodic repayment. Interest is charged at the rate of
10%. The balance of the loans was $312,191 (current portion $1,316) and
$304,621 at September 30, 1998 and 1997, respectively. Interest expense
for the year was $29,477 for 1998 and $26,664 for 1997.
9
<PAGE> 11
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
E. Income Taxes
The provision for federal income tax benefit (expense) consists of the
following components:
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current $ (4,900) $ (44,526)
Deferred 516,300 (138,500)
----------- -----------
$ 511,400 $ (183,026)
=========== ===========
</TABLE>
The tax effects of the significant temporary differences which comprise
the deferred tax asset (liability) at September 30, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax asset
Net operating loss carryforwards $ 788,000 $ 368,000
Contributions carryforwards 29,800 25,500
Deferred tax liability
Capitalized inventory costs (1,547,000) (1,689,000)
Bad debts (57,000) (7,000)
----------- -----------
Net deferred tax liability $ (786,200) $(1,302,500)
=========== ===========
Current portion of deferred tax asset 54,500 106,600
Non-current portion of deferred tax liability (840,600) (1,409,100)
----------- -----------
Net deferred tax liability $ (786,200) $(1,302,500)
=========== ===========
</TABLE>
At September 30, 1998, the Companies had net operating loss
carryforwards of approximately $2,318,000 expiring in or before 2113.
F. Employee Retirement Plans
The Companies have a salary deferral plan (commonly known as a "401 k"
plan) which covers all full time employees. The employees become
eligible to participate in the plan after they have one year of service
and attained 21 years of age. The plan provided for deferred
contributions and the companies' discretionary matching contributions.
No matching contributions were made in the years ended September 30,
1998 and 1997.
G. Commitments and Contingencies
The Companies are in a voluntary support program for workers'
compensation. Under the program, the Companies are predominately
self-insured in regard to workers' compensation claims up to $150,000
per occurrence.
10
<PAGE> 12
CORNELIUS NURSERIES, INC. AND TURKEY CREEK FARMS, INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
H. Common Stock
The following is a summary of the common stock of the Companies at
September 30, 1998 and 1997, respectively.
<TABLE>
<S> <C>
Cornelius Nurseries, Inc.
$1 par value, 10,000,000 shares authorized; 3,000,000 shares
issued; 2,415,750 shares outstanding $ 3,000,000
Turkey Creek Farms, Inc.
$1 par value, 20,000,000 shares authorized; 1,800,000 shares
issued and outstanding 1,800,000
-----------
$ 4,800,000
===========
</TABLE>
I. Concentration of Credit Risk
The Companies maintain unrestricted cash balances at several banks.
Cash accounts and certificates of deposits at each bank are insured by
the FDIC for up to $100,000. At September 30, 1998, the Companies had
uninsured balances totaling $872,380.
11
<PAGE> 1
EXHIBIT 99.2
CORNELIUS NURSERIES, INC., TURKEY CREEK FARMS, INC. AND
WHOLESALE LANDSCAPE DISTRIBUTORS, INC.
CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE-MONTH PERIOD ENDED JUNE 30, 1999
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Combined Balance Sheet as of June 30, 1999. 2
Condensed Combined Statement of Operations for the nine-month
period ended June 30, 1999. 3
Condensed Combined Statement of Cash Flows for the nine-month
period ended June 30, 1999. 4
Notes to condensed combined financial statements. 5
</TABLE>
<PAGE> 2
CORNELIUS NURSERIES, INC., TURKEY CREEK FARMS, INC. AND
WHOLESALE LANDSCAPE DISTRIBUTORS, INC.
CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
JUNE 30,
1999
--------
<S> <C>
Cash and cash equivalents $ 1,548
Accounts receivable 2,611
Inventories 7,951
Deferred income taxes 111
Prepaids and other assets 119
--------
Total current assets 12,340
--------
Property and equipment, net 3,767
Deferred income taxes 706
Other assets 1,450
--------
Total assets $ 18,263
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 3,120
Accrued expenses 2,079
Accrued income taxes 540
Current portion of long-term debt 94
--------
Total current liabilities 5,833
--------
Deferred rent payable --
Long-term debt, net of current portion 4,886
--------
Total liabilities 10,179
--------
Commitments and contingencies
Shareholders' equity:
Common stock 4,800
Additional paid-in capital 99
Retained earnings 2,720
--------
8,159
Less: Treasury stock, at cost (75)
--------
Total shareholders' equity 8,084
--------
Total liabilities and shareholders' equity $ 18,263
========
</TABLE>
See accompanying notes to condensed combined financial statements.
2
<PAGE> 3
CORNELIUS NURSERIES, INC., TURKEY CREEK FARMS, INC. AND
WHOLESALE LANDSCAPE DISTRIBUTORS, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED
JUNE 30,
1999
------------
<S> <C>
Net sales $ 19,214
Cost of goods sold 10,380
------------
Gross profit 8,834
------------
Operating expenses 6,272
Occupancy expenses 81
Advertising expenses 164
Net interest expense 135
Depreciation and amortization 152
------------
Total expenses 6,804
------------
Income before provision for income taxes 2,030
Income tax expense 540
------------
Net income $ 1,490
============
</TABLE>
See accompanying notes to condensed combined financial statements.
3
<PAGE> 4
CORNELIUS NURSERIES, INC., TURKEY CREEK FARMS, INC. AND
WHOLESALE LANDSCAPE DISTRIBUTORS, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED
JUNE 30,
1999
------------
<S> <C>
Cash Flows from Operating Activities:
Net income $ 1,490
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 152
Net change in operating assets and liabilities (1,533)
------------
Net cash provided by operating activities 109
Cash Flows from Investing Activities:
Additions to property and equipment (212)
------------
Net cash used in investing activities (212)
Cash Flows from Financing Activities:
Net borrowings of debt 1,287
------------
Net cash provided by financing activities 1,287
Net increase in cash 1,184
Cash at beginning of period 364
------------
Cash at end of period $ 1,548
============
</TABLE>
See accompanying notes to condensed combined financial statements.
4
<PAGE> 5
CORNELIUS NURSERIES, INC., TURKEY CREEK FARMS, INC. AND
WHOLESALE LANDSCAPE DISTRIBUTORS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The interim financial statements contained herein have been prepared by
Cornelius Nurseries, Inc., Turkey Creek Farms, Inc. and Wholesale
Landscape Distributors, Inc. (together "Cornelius") pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the financial position at June 30, 1999 and the results
of operations and cash flows for the nine-month period ended June 30,
1999 have been made. Such adjustments are of a normal recurring nature.
Because of seasonal and other factors, the results of operations and
cash flows for the nine-month period ended June 30, 1999 are not
necessarily indicative of expected results of operations and cash flows
for the fiscal year ending September 30, 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, these financial statements should be read in conjunction
with the audited financial statements and related notes of Cornelius
for the fiscal year ended September 30, 1998 included in this Form 8-K.
2. Wholesale Landscape Distributors, Inc.
During the nine-month period ended June 30, 1999, Cornelius created
Wholesale Landscape Distributors, Inc. consisting of its two wholesale
landscape distribution centers, one in Houston and one near Austin. For
the fiscal years ended September 30, 1998 and 1997 those centers were
operated as Turkey Creek Distribution Centers, a division of Turkey
Creek Farms, Inc.
See notes to unaudited pro forma condensed consolidated financial information
1
<PAGE> 1
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The unaudited pro forma information set forth below for Calloway's gives effect
to the Cornelius Acquisition as if it had been completed on October 1, 1997 for
purposes of the statements of operations and June 30, 1999 for balance sheet
purposes, subject to the assumptions and adjustments in the accompanying notes
to the pro forma financial information.
This pro forma condensed financial information should be read in conjunction
with the historical financial statements of Calloway's and Cornelius. Historical
financial statements for Calloway's can be found in the Company's Annual Report
on Form 10-K filed December 22, 1998, and historical financial statements for
Cornelius can be on found on Exhibits 99.1 and 99.2 of this Form 8-K filing.
The pro forma adjustments do not reflect any adjustments to sales, gross
margins, or expenses for any future operating changes or improvements.
The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the Cornelius
Acquisition been consummated on the dates, or at the beginning of the periods,
for which such transactions are given effect. The pro forma adjustments
reflecting the consummation of the Cornelius Acquisition are based on the
purchase method of accounting and upon the assumptions set forth in the notes
hereto.
For purposes of the Calloway's consolidated financial statements, Calloway's
will establish a new basis for the Cornelius assets based upon the fair values
thereof and the purchase price, including the costs of the Cornelius
Acquisition. A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired based on
their respective fair values has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the pro forma
financial information are preliminary and have been made solely for the purpose
of developing such pro forma financial information. The final purchase
accounting adjustments may differ for the pro forma amounts reflected herein
because of a variety of factors, including access to additional information and
changes in value not currently identified.
See notes to unaudited pro forma condensed consolidated financial information
1
<PAGE> 2
CALLOWAY'S NURSERY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
Historical Historical Pro Pro Forma
Calloway's Cornelius Forma Calloway's with
(1) (1) Adjustments Cornelius
---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,211 $ 1,548 $ (1,548) (2) $ 1,973
(2,000) (5)
(238) (6)
Property held for sale 448 -- -- 448
Accounts receivable 124 2,611 (2,611) (2) 124
Inventories 3,122 7,951 (2,297) (4) 8,776
Deferred income taxes 53 111 (111) (2) 53
Prepaids and other assets 109 119 (119) (2) 109
-------- -------- -------- --------
Total current assets 8,067 12,340 (8,924) 11,483
-------- -------- -------- --------
Property and equipment, net 8,009 3,767 3,519 (4) 15,295
Goodwill, net 984 -- -- 984
Deferred income taxes 565 706 (706) (2) 565
Other assets 45 1,450 (1,450) (2) 45
-------- -------- -------- --------
Total assets $ 17,670 $ 18,263 $ (7,561) $ 28,372
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,974 $ 3,120 $ (3,120) (2) $ 2,974
Accrued expenses 1,676 2,079 (2,079) (2) 1,878
202 (6)
Accrued income taxes -- 540 (540) (2) --
Current portion of long-term debt 306 94 (94) (2) 518
212 (5)
-------- -------- -------- --------
Total current liabilities 4,956 5,833 (5,419) (2) 5,370
-------- -------- -------- -------
Deferred rent payable 1,108 -- -- (2) 1,108
Long-term debt, net of current (4,886) (2)
portion 2,798 4,886 6,288 (5) 9,086
-------- -------- -------- --------
Total liabilities 8,862 10,179 (4,017) 15,564
-------- -------- -------- --------
Commitments and contingencies
Preferred stock with mandatory
redemption provisions -- -- 4,000 (4) 4,000
Shareholders equity:
Common stock 59 4,800 (4,800) (3) 59
Additional paid-in capital 8,833 99 (99) (3) 8,833
Retained earnings 1,312 2,720 (2,720) (3) 1,312
-------- -------- -------- --------
10,204 7,619 (7,619) 10,204
Less: Treasury stock, at cost (1,396) (75) (75) (3) (1,396)
-------- -------- -------- --------
Total shareholders' equity 8,808 7,534 (7,544) 8,808
-------- -------- -------- --------
Total liabilities and
shareholders' equity $ 17,670 $ 18,263 $ (7,561) $ 28,372
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
2
<PAGE> 3
CALLOWAY'S NURSERY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical Historical Pro Pro Forma
Calloway's Cornelius Forma Calloway's with
(1) (1) Adjustments Cornelius
---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 26,137 $ 19,214 $ (10) (7) $ 45,341
Cost of goods sold 13,263 10,380 (10) (7) 26,112
2,479 (10)
-------- -------- -------- --------
Gross profit 12,874 8,834 (2,479) 19,229
-------- -------- -------- --------
Operating expenses 6,948 6,272 -- 13,220
Occupancy expenses 1,945 81 -- 2,026
Advertising expenses 1,294 164 -- 1,458
Net interest expense (income) 159 135 329 (8) 623
Depreciation and amortization 522 152 (136) (9) 538
-------- -------- -------- --------
Total expenses 10,868 6,804 193 17,865
-------- -------- -------- --------
Income before provision for
income taxes
2,006 2,030 (2,672) 1,365
Provision for income taxes 833 540 (846)(11) 525
-------- -------- -------- --------
Net income
$ 1,173 $ 1,490 $ (1,825) $ 839
======== ======== ======== ========
Calloway's EPS computations:
Income from continuing
operations attributable to
common shareholders $ 1,173 $ 839
Weighted average number of
common shares outstanding
(basic) 5,557 5,557
Basic EPS $ .21 $ .15
Income from continuing
operations attributable to
common shareholders $ 1,173 $ 839
Weighted average number of
common shares outstanding
(diluted) 5,735 5,735
Diluted EPS $ .20 $ .15
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
3
<PAGE> 4
CALLOWAY'S NURSERY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical Historical Pro Pro Forma
Calloway's Cornelius Forma Calloway's with
(1) (1) Adjustments Cornelius
---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 27,069 21,638 $ (157) (7) 48,550
Cost of goods sold 14,874 15,353 (157) (7) 30,070
-------- -------- -------- --------
Gross profit 12,195 6,285 -- 18,480
-------- -------- -------- --------
Operating expenses 8,041 7,255 -- 15,296
Occupancy expenses 2,773 162 -- 2,935
Advertising expenses 1,366 237 -- 1,603
Net interest expense (income) (177) 235 383 (8) 441
Depreciation and amortization 519 234 (213) (9) 540
-------- -------- -------- --------
Total expenses 12,522 8,123 170 20,815
-------- -------- -------- --------
Income before provision for
income taxes (327) (1,838) (170) (2,335)
Provision for income taxes (43) (511) (65) (11) (619)
-------- -------- -------- --------
Net income
$ (284) $ (1,327) $ (105) $ (1,716)
======== ======== ======== ========
Calloway's EPS computations:
Income (loss) from continuing
operations attributable to
common shareholders $ (284) $ (1,716)
Weighted average number of
common shares outstanding
(basic) 5,405 5,405
Basic EPS $ (.05) $ (.32)
Income (loss) from continuing
operations attributable to
common shareholders $ (284) $ (1,716)
Weighted average number of
common shares outstanding
(diluted) 5,405 5,405
Diluted EPS $ (.05) $ (.32)
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
4
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. These columns represent historical financial position and results of
operation.
2. This adjustment reflects the elimination of assets not acquired and
liabilities not assumed in the Cornelius acquisition.
<TABLE>
<S> <C>
Assets not acquired
Cash and cash equivalents $ 1,548
Accounts receivable 2,611
Deferred income taxes (current) 111
Prepaids and other assets 119
Deferred income taxes (noncurrent) 706
Other assets 1,450
-------
Total assets not acquired $ 7,045
=======
Liabilities not assumed
Accounts payable $ 3,120
Accrued expenses 2,079
Accrued income taxes 540
Current portion of long-term debt 94
Long-term debt, net of current portion 4,886
-------
Total liabilities not assumed $10,719
=======
</TABLE>
3. This adjustment reflects the elimination of Cornelius' shareholders' equity:
<TABLE>
<S> <C>
Common stock $ 4,800
Additional paid-in capital 99
Retained earnings 2,720
Treasury stock (75)
-------
Total shareholders' equity eliminated $ 7,534
=======
</TABLE>
4. This adjustment reflects the Cornelius Acquisition (amounts in thousands):
<TABLE>
<S> <C>
Consideration
Cash $ 8,500
Preferred stock, non-dividend, mandatory redemption
after five years 4,000
Acquisition costs (estimated) 440
-------
Total consideration $12,940
=======
</TABLE>
5
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Fair value of assets acquired (estimated)
Inventories $ 5,654
Property, plant and equipment 10,475
-------
Total fair value of assets acquired 16,129
-------
Excess fair value of assets acquired over consideration paid
Applied to reduce cost basis of property, plant and equipment $ 3,189
=======
Adjustments to carrying amount of assets acquired
Inventories:
Carrying amount $ 7,951
Fair value acquired (estimated) 5,654
-------
Adjustment $(2,297)
=======
Property, plant and equipment:
Carrying amount $ 3,767
Adjusted cost basis (estimated) 7,286
-------
Adjustment $ 3,519
=======
</TABLE>
5. This adjustment reflects the financing of the cash portion of the
consideration (amounts in thousands):
<TABLE>
<S> <C>
Long-term note payable from a financial institution
Current portion $ 212
Long term portion 6,288
-------
Total long-term note payable 6,500
Cash 2,000
-------
Total cash consideration $ 8,500
=======
</TABLE>
6. This adjustment reflects the acquisition costs and proration of property
taxes:
<TABLE>
<S> <C>
Acquisition costs (estimated)
Paid $ 238
Accrued 202
-------
Total acquisition costs $ 440
=======
</TABLE>
6
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. This adjustment reflects the elimination of sales between Cornelius and
Calloway's:
<TABLE>
<S> <C>
Nine-month period ended June 30, 1999 $ 10
Year ended September 30, 1998 $ 157
</TABLE>
8. This adjustment reflects the elimination of Cornelius' net interest expense
and the addition of interest expense on debt incurred to finance the
Cornelius Acquisition:
<TABLE>
<S> <C>
Nine-month period ended June 30, 1999
Net interest expense per historical results 135
Pro forma interest expense 464
-------
Adjustment to interest expense $ 329
=======
Year ended September 30, 1998
Net interest expense per historical results 235
Pro forma interest expense 618
-------
Adjustment to interest expense $ 383
=======
</TABLE>
9. This adjustment reflects the decrease in depreciation expense related to
the change in cost basis of property, plant and equipment
<TABLE>
<S> <C>
Nine-month period ended June 30, 1999
Depreciation expense per historical results 152
Pro forma depreciation expense 16
-------
Adjustment to depreciation expense $ (136)
=======
Year ended September 30, 1998
Depreciation expense per historical results 234
Pro forma depreciation expense 21
-------
Adjustment to depreciation expense $ (213)
=======
</TABLE>
7
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. This adjustment reflects the difference between the fair value of the
acquired inventories and the amount recorded on Cornelius' books at
September 21, 1999:
<TABLE>
<S> <C>
Inventory per books 8,133
Fair value of inventories acquired 5,654
-------
Adjustment to cost of sales 2,479
=======
</TABLE>
11. This adjustment reflects the income tax effects of the adjustments made to
the statements of operations:
<TABLE>
<S> <C>
Nine-month period ended June 30, 1999 $ (846)
=======
Year ended September 30, 1998 $ (65)
=======
</TABLE>
8
