<PAGE> 1
As filed with the Securities and Exchange Commission on July 19, 1999
SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy [ ] Confidential, For Use of
Statement the Commission Only
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Statement
[ ] Definitive Additional
Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Fresh America Corp.
---------------------------------------------------
(Name of Registrant as Specified in its Charter)
-------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
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[X] Fee paid previously with preliminary materials:
$15,351.73
--------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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4) Date filed:
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<PAGE> 2
[FRESH AMERICA LOGO]
6600 LBJ Freeway, Suite 180
Dallas, Texas 75240
-------------------------
JULY 22, 1999
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Fellow Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of the
shareholders of Fresh America Corp. to be held on Friday, August 27, 1999 at
10:00 a.m. local time, at the Crowne Plaza Suites, 7800 Alpha Road, Dallas,
Texas 75240.
At the annual meeting, you will be asked to vote on the merger of
FreshPoint Holdings, Inc. with and into Fresh America, pursuant to which
5,685,826 shares of our common stock will be issued to FreshPoint's
stockholders. Your Board of Directors has unanimously approved and adopted an
agreement and plan of merger with FreshPoint, and has concluded that the
proposed merger is in the best interests of our shareholders.
At the annual meeting you will also be asked to approve proposals to (1)
amend and restate our articles of incorporation upon the effectiveness of the
merger to change our name to "FreshPoint America, Inc.", increase the amount of
our authorized shares of common stock from 10 million to 50 million and expand
the size of our Board of Directors from six to eleven, (2) amend our existing
stock option plan upon the effectiveness of the merger to change the name to the
"FreshPoint America, Inc. 1999 Stock Option and Award Plan" and increase the
number of shares of common stock authorized for issuance under the plan from
625,000 shares to 1,250,000 shares and provide for automatic annual increases
thereafter, and (3) reelect Lawrence V. Jackson as a Class II director on our
current Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
EACH OF THE ABOVE PROPOSALS.
Whether or not you plan to attend the annual meeting, I urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. THE MERGER CANNOT BE COMPLETED UNLESS FRESH
AMERICA SHAREHOLDERS ADOPT THE MERGER AGREEMENT AND APPROVE THE CHARTER
AMENDMENT.
The proxy statement that accompanies this letter provides you with detailed
information about the proposed merger. I encourage you to read the proxy
statement carefully.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote for the approval of the merger.
Sincerely,
/s/ DAVID I. SHEINFELD
DAVID I. SHEINFELD,
Chairman of the Board,
Chief Executive Officer and
Secretary
<PAGE> 3
FRESH AMERICA CORP.
6600 LBJ Freeway, Suite 180
Dallas, Texas 75240
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF FRESH AMERICA CORP.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of the shareholders of
Fresh America Corp. will be held on Friday, August 27, 1999 at 10:00 a.m. local
time, at the Crowne Plaza Suites, 7800 Alpha Road, Dallas, Texas 75240 for the
following purposes:
THE MERGER AND CHARTER AMENDMENT
- To consider and act upon a proposal to approve the merger agreement,
dated as of May 3, 1999, by and between Fresh America Corp. and
FreshPoint Holdings, Inc. The merger agreement provides for, among other
things, the merger of FreshPoint with and into Fresh America, pursuant to
which 5,685,826 shares of Fresh America common stock, $.01 par value,
will be issued to FreshPoint's stockholders.
The number of shares of Fresh America common stock to be issued in the
merger is fixed and will not increase or decrease based on changes in the
market value of Fresh America common stock. As a consequence of the
merger, the stockholders of FreshPoint will own approximately 52% of the
outstanding Fresh America common stock immediately following the merger.
- To consider and act upon a proposal to amend and restate the articles of
incorporation of Fresh America to, among other things, (1) change Fresh
America's name to "FreshPoint America, Inc.", (2) increase the number of
authorized shares of Fresh America common stock from 10,000,000 to
50,000,000, and (3) expand Fresh America's Board of Directors from a
six-member Board to an eleven-member Board, consisting initially of five
persons designated by Fresh America and six persons designated by
FreshPoint.
Pursuant to the bylaws of the combined company, the Board of Directors
will be divided into three classes with staggered three-year terms. The
designated directors will hold office upon the effectiveness of the
merger to the end of their respective terms and until their successors
are elected and qualified. If approved at the annual meeting, the charter
amendment only will become effective upon consummation of the merger.
IN ORDER FOR THE MERGER TO BE CONSUMMATED, THE MERGER AGREEMENT AND THE
CHARTER AMENDMENT MUST BE APPROVED. NEITHER PROPOSAL WILL BE DEEMED APPROVED
UNLESS BOTH ARE APPROVED.
STOCK OPTION PLAN AMENDMENT
- To consider and act upon a proposal to amend the Fresh America Corp. 1996
Stock Option and Award Plan as Amended and Restated Effective May 22,
1998 to (1) change the name of the stock option plan to the "FreshPoint
America, Inc. 1999 Stock Option and Award Plan," and (2) increase the
number of shares of common stock authorized for issuance under the plan
from 625,000 shares to 1,250,000 shares and provide for future annual
increases in the total number of shares authorized for issuance pursuant
to non-qualified options and restricted stock grants under the plan equal
to any percentage increase in the number of issued and outstanding shares
of FreshPoint America common stock from the prior year. If approved at
the annual meeting, the stock option plan amendment only will become
effective upon consummation of the merger.
NOMINEE FOR CURRENT BOARD
- To elect one Class II director to serve until the merger is consummated,
or if for any reason the merger is not consummated, until the expiration
of his three-year term and until his successor is elected and qualified.
<PAGE> 4
OTHER PROPOSALS TO BE PRESENTED
- To transact such other business that may properly come before the annual
meeting and any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS HAS DETERMINED THAT THE
MERGER AGREEMENT, THE CHARTER AMENDMENT AND THE STOCK OPTION PLAN AMENDMENT ARE
IN THE BEST INTERESTS OF FRESH AMERICA AND ITS SHAREHOLDERS. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE CHARTER AMENDMENT
AND THE STOCK OPTION PLAN AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" EACH OF THE ABOVE PROPOSALS.
As of July 8, 1999, there were 5,241,051 shares of Fresh America common
stock issued and outstanding. The presence in person or by proxy of the holders
of a majority of the outstanding shares of Fresh America common stock is
necessary to constitute a quorum at the annual meeting. If a quorum is present
in person or by proxy, the affirmative vote by the holders of at least
two-thirds of the outstanding shares of Fresh America common stock is required
to approve the merger and the charter amendment. Approval of the stock option
plan amendment requires approval of a majority of the votes cast with respect to
that proposal. Approval of the nominee for Class II director requires the
affirmative vote of a plurality of the votes cast at the annual meeting.
Only shareholders of record as of the close of business on July 8, 1999
will be entitled to notice of and to vote at the annual meeting and any
adjournment thereof.
IN ORDER TO ASSURE THE PRESENCE OF A QUORUM, WHETHER OR NOT YOU EXPECT TO
ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO COMPLETE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU EXECUTE AND RETURN A PROXY, YOU HAVE THE
POWER TO REVOKE IT AT ANY TIME BEFORE IT IS VOTED EITHER (1) BY PROVIDING
WRITTEN NOTICE OF REVOCATION TO THE CORPORATE SECRETARY OF FRESH AMERICA PRIOR
TO THE ANNUAL MEETING, (2) BY SUBMITTING A SUBSEQUENT PROXY PRIOR TO THE ANNUAL
MEETING OR (3) BY VOTING IN PERSON AT THE ANNUAL MEETING. THE GIVING OF A PROXY
DOES NOT AFFECT YOUR RIGHT TO ATTEND AND VOTE IN PERSON AT THE ANNUAL MEETING.
HOWEVER, YOUR PRESENCE AT THE ANNUAL MEETING WITHOUT FURTHER ACTION WILL NOT
REVOKE YOUR PROXY.
By order of the Board of Directors,
/s/ DAVID I. SHEINFELD
DAVID I. SHEINFELD,
Chairman of the Board,
Chief Executive Officer and
Secretary
Dallas, Texas
July 22, 1999
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE POSTAGE PAID ENVELOPE PROVIDED.
<PAGE> 5
PROXY STATEMENT
GENERAL INFORMATION OF
FRESH AMERICA CORP.
1998 ANNUAL MEETING OF SHAREHOLDERS
This proxy statement is being furnished to the shareholders of Fresh
America Corp., a Texas corporation, in connection with the solicitation of
proxies by the Board of Directors of Fresh America for use at its 1998 Annual
Meeting of Shareholders (and any adjournments or postponements thereof) to be
held on Friday, August 27, 1999, at the Crowne Plaza Suites, 7800 Alpha Road,
Dallas, Texas 75240, at 10:00 a.m. local time.
At the annual meeting, you will consider and vote upon a proposal to
approve the merger agreement, dated as of May 3, 1999, by and between Fresh
America and FreshPoint Holdings, Inc. The merger agreement provides for the
merger of FreshPoint with and into Fresh America, pursuant to which 5,685,826
shares of Fresh America common stock, $.01 par value, will be issued to
FreshPoint's stockholders. As a consequence of the merger, the stockholders of
FreshPoint will own approximately 52% of the outstanding common stock of the
combined company immediately following the merger.
At the annual meeting, you will also consider and vote upon a proposal to
amend and restate the articles of incorporation of Fresh America to, among other
things, (1) change Fresh America's name to "FreshPoint America, Inc.," (2)
increase the number of authorized shares of Fresh America common stock from
10,000,000 to 50,000,000, and (3) expand Fresh America's Board of Directors from
a six-member Board to an eleven-member Board consisting initially of five
persons designated by Fresh America and six persons designated by FreshPoint.
In order for the merger to be consummated, the merger agreement and the
charter amendment must be approved. Neither proposal will be deemed approved
unless both are approved.
At the annual meeting, you will also consider and vote upon a proposal to
amend the Fresh America Corp. 1996 Stock Option and Award Plan as Amended and
Restated Effective May 22, 1998 to (1) change the name of the plan to the
"FreshPoint America, Inc. 1999 Stock Option and Award Plan," and (2) increase
the number of shares of common stock authorized for issuance under the plan from
625,000 shares to 1,250,000 shares and provide for annual increases in the total
number of shares authorized for issuance pursuant to non-qualified options and
restricted stock grants under the plan equal to any percentage increase in the
number of issued and outstanding shares of FreshPoint America common stock from
the prior year. If approved at the annual meeting, the stock option plan
amendment will only become effective upon consummation of the merger.
On April 30, 1999, the day prior to the first public announcement of the
merger, the closing sale price of Fresh America common stock on the Nasdaq Stock
Market was $18 7/16 per share. On July 19, 1999, the closing sale price of Fresh
America common stock on Nasdaq was $13 7/8 per share.
This proxy statement also constitutes Fresh America's 1998 Annual Report to
Shareholders.
PLEASE READ THE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROXY STATEMENT
FOR A DISCUSSION OF CERTAIN MATTERS WHICH YOU SHOULD CONSIDER BEFORE VOTING ON
THE MERGER AGREEMENT AND THE CHARTER AMENDMENT.
All information regarding Fresh America in this proxy statement has been
supplied by Fresh America and all information regarding FreshPoint in this proxy
statement has been supplied by FreshPoint.
This proxy statement and the accompanying form of proxy are first being
mailed to the shareholders of Fresh America on or about July 22, 1999.
NEITHER THIS TRANSACTION NOR THE SECURITIES OF FRESH AMERICA TO BE ISSUED IN
CONNECTION WITH THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this proxy statement is July 22, 1999.
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FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements. Additional
written or oral forward-looking statements may be made by Fresh America from
time to time in filings with the Securities and Exchange Commission or
otherwise. Forward-looking statements may include, but not be limited to,
projections of revenues, costs, income or loss, capital expenditures, plans for
future operations, financing needs or plans and plans relating to products or
services of Fresh America, as well as assumptions relating to the foregoing. The
words "believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this proxy statement, including those contained in the section entitled "Risk
Factors" beginning on page 17, and in the section entitled "Selected Financial
Information" beginning on page 64, describe factors, among others, that could
contribute to or cause such differences.
Readers are cautioned not to place undue reliance on any forward-looking
statements made by, or on behalf of, Fresh America in this proxy statement or in
any filings with the SEC or otherwise. Additional information with respect to
factors that may cause the results to differ materially from those contemplated
by such forward-looking statements is included in Fresh America's current and
subsequent filings with the SEC. See "Where You Can Find More Information"
beginning on page 102.
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PROXY STATEMENT TABLE OF CONTENTS
<TABLE>
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GENERAL INFORMATION......................................... i
FORWARD-LOOKING STATEMENTS.................................. ii
SUMMARY..................................................... 1
The Companies............................................. 1
Business Strategy After the Merger........................ 2
The Annual Meeting........................................ 3
The Merger Agreement...................................... 5
Shareholders' Agreement................................... 7
Albert Fisher Consent..................................... 7
Registration Rights Agreement............................. 7
Employment Agreements..................................... 7
New Credit Facilities..................................... 8
Our Recommendations to Shareholders....................... 9
Interests of Fresh America's Directors and Officers in the
Merger That Are Different From Your Interests.......... 9
Summary Historical Financial Data of Fresh America........ 10
Summary Historical Financial Data of FreshPoint........... 11
Unaudited Pro Forma Summary Financial Data................ 12
Market Price Data for Fresh America Common Stock.......... 13
Comparative Per Share Data................................ 15
RISK FACTORS................................................ 17
THE ANNUAL MEETING.......................................... 22
Date, Time and Place...................................... 22
Proposals................................................. 22
Who Can Vote at the Annual Meeting........................ 26
Voting and Proxies........................................ 27
Solicitation of Proxies................................... 28
Objecting Shareholder's Rights............................ 28
Vote Required; Principal Shareholders..................... 28
BACKGROUND AND REASONS FOR THE MERGER....................... 29
Background of the Merger.................................. 29
Reasons for the Merger.................................... 30
Potential Cost Savings and Operating Synergies............ 32
Interests of Certain Persons in the Merger................ 33
BEAR STEARNS FAIRNESS OPINION............................... 33
THE MERGER AGREEMENT........................................ 37
General................................................... 37
Effective Time............................................ 37
Merger Consideration...................................... 37
Representations and Warranties............................ 38
Certain Covenants......................................... 40
Conditions to the Merger.................................. 42
Termination of the Merger Agreement....................... 42
Termination Fee; Payment of Fees and Expenses............. 43
Federal Income Tax Consequences of the Merger............. 43
Accounting Treatment...................................... 43
</TABLE>
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<TABLE>
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RELATED AGREEMENTS.......................................... 44
Shareholders' Agreement................................... 44
Albert Fisher Consent..................................... 44
Registration Rights Agreement............................. 46
Employment Agreements..................................... 47
New Credit Facilities..................................... 49
MANAGEMENT AFTER THE MERGER................................. 52
Overview.................................................. 52
Board of Directors and Executive Officers After the
Merger................................................. 52
FRESH AMERICA MANAGEMENT.................................... 55
Board of Directors and Executive Officers................. 55
Executive Compensation.................................... 56
Certain Beneficial Owners................................. 57
Meetings and Committees of the Board of Directors......... 58
Compensation of Directors................................. 59
Compensation Committee's Report on Executive
Compensation........................................... 60
Compensation Committee Interlocks and Insider
Participation.......................................... 61
Corporate Performance Graph............................... 62
Transactions with Management.............................. 63
SELECTED FINANCIAL INFORMATION.............................. 64
Unaudited Pro Forma Combined Financial Data............... 64
Unaudited Pro Forma Combined Capitalization............... 75
Fresh America Historical Consolidated Financial Data...... 77
Fresh America Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 78
FreshPoint Historical Financial Data...................... 84
FreshPoint Management's Discussion and Analysis of
Financial Conditions and Results of Operations......... 86
FRESH AMERICA BUSINESS DESCRIPTION.......................... 92
General................................................... 92
Business Strategy......................................... 92
Acquisitions.............................................. 93
Services.................................................. 93
Products.................................................. 94
Operations................................................ 94
Sam's Club................................................ 95
FRESHPOINT BUSINESS DESCRIPTION............................. 97
General................................................... 97
Services.................................................. 97
Products.................................................. 98
Operations................................................ 98
DESCRIPTION OF FRESH AMERICA CAPITAL STOCK.................. 100
General................................................... 100
Common Stock.............................................. 100
Preferred Stock........................................... 100
Change in Control......................................... 100
AFFILIATES' RESTRICTION ON SALE OF FRESH AMERICA COMMON
STOCK..................................................... 101
INDEPENDENT AUDITORS........................................ 102
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 102
WHERE YOU CAN FIND MORE INFORMATION......................... 102
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING............... 103
</TABLE>
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<TABLE>
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<S> <C>
INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1
APPENDICES
Appendix A -- Agreement and Plan of Merger
Exhibit A -- Form of Articles of Incorporation
Exhibit B -- Form of Bylaws
Exhibit C -- Directors and Executive Officers
Exhibit D -- Form of Employment Agreement
Exhibit E -- Legal Opinions of Holdings Counsel
Exhibit F -- Form of Shareholders' Agreement
Exhibit G -- Form of Affiliates Letters
Exhibit H -- Fisher Consent
Exhibit I -- Legal Opinions of Company Counsel
Exhibit J -- Registration Rights Agreement
Appendix B -- Opinion of Bear Stearns
</TABLE>
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<PAGE> 10
SUMMARY
This brief summary highlights selected information from this proxy
statement. It does not contain all of the information that is important to you.
You should carefully read the entire proxy statement and the other documents to
which this document refers you to fully understand the merger and related
transactions. See "Where You Can Find More Information" beginning on page 102.
THE COMPANIES (SEE PAGES 92 AND 97)
Fresh America Corp.
6600 LBJ Freeway, Suite 180
Dallas, Texas 75240
(972) 774-0575
Fresh America is one of the largest distributors of fresh produce and other
refrigerated products in North America, serving over 4,000 customers in 47
states and Canada through 27 distribution and processing facilities. We provide
fresh produce and related products and services in four primary areas of
specialization: outsourcing programs, retail/wholesale distribution, specialty
food service distribution and value-added processing and repackaging. We are
organized under the laws of the State of Texas.
At April 2, 1999 (the end of our first fiscal quarter for calendar 1999),
Fresh America had total assets of $154.8 million and shareholders' equity of
$52.4 million. For the 12 months ended April 2, 1999, Fresh America had "pro
forma" revenues of approximately $762.2 million. The "pro forma" revenues
include revenues from companies we acquired during the 12-month period ended
April 2, 1999 as if the acquisitions occurred at the beginning of the period.
In this proxy statement, when we use the terms "Fresh America," "we," "us"
and "our," these terms refer to Fresh America Corp. and its subsidiaries, unless
the context otherwise requires, such as in "The Merger Agreement -- Merger
Consideration" on page 37.
FreshPoint Holdings, Inc.
15305 Dallas Parkway, Suite 1010
Dallas, Texas 75248
(972) 392-8110
FreshPoint specializes in foodservice and retail distribution, wholesale
supply and in the procurement and transportation of fresh produce. FreshPoint
serves its customers throughout the United States and Canada through 28
distribution centers. At March 27, 1999 (the end of FreshPoint's first fiscal
quarter for calendar 1999), FreshPoint had total assets of $181.2 million and
stockholders' equity of $17.6 million. For the 12 months ending March 27, 1999,
FreshPoint had revenues of approximately $736.1 million. FreshPoint is organized
under the laws of the State of Delaware.
FreshPoint began operating in November 1996 when a private investor group
led by Rosecliff, Inc. purchased substantially all of the North American produce
distribution business of The Albert Fisher Group PLC. In order to consummate the
acquisition, the investor group formed FreshPoint Holdings, Inc. Principal
stockholders of FreshPoint Holdings are Rosecliff RCD Partners, Rosecliff Albert
Fisher Partners, L.P. and Rosecliff RCD Partners Benefit Reserve Trust, whom we
refer to in this proxy statement as the "Rosecliff Partnerships." In this proxy
statement we refer to The Albert Fisher Group PLC and its subsidiaries as
"Albert Fisher" and we refer to the approximately 50 private investors in the
Rosecliff Partnerships (other than Albert Fisher and FreshPoint management) as
the "Rosecliff Investors."
In this proxy statement, when we use the term "FreshPoint," this term
refers to FreshPoint Holdings and its subsidiaries, unless the context otherwise
requires, such as in "The Merger Agreement -- Merger Consideration" on page 37.
1
<PAGE> 11
BUSINESS STRATEGY AFTER THE MERGER
We believe the merger with FreshPoint will enhance and accelerate the
implementation of our core operating strategy and enhance our competitive
position and business prospects. Our business strategy after the merger includes
the following key elements:
Provide Quality Products on Profitable Terms
We will continue to focus on quality and freshness at each step of the
procurement, processing and distribution process. Our ability to pay careful
attention to product selection, expeditious delivery and efficient management of
our distribution infrastructure will continue to allow us to operate profitably
in our highly competitive and fragmented industry.
Develop and Maintain High Quality Customer Relationships
We believe that the success of the combined company will be dependent upon
our ability to consistently provide our customers with quality products on a
timely basis at reasonable prices. Unlike broadline distributors that often make
deliveries to customers on a weekly or bimonthly basis, as a distributor of
fresh produce we distribute our products to our customers several times a week,
and in some cases, daily. As a result, our customers tend to rely on us to
deliver high quality products on a timely basis more so than what they may
expect from a distributor of non-perishable items. By catering to customer
demands and offering seamless service, both Fresh America and FreshPoint have
developed and intend to continue to develop long-term relationships with
customers.
Effective Use of Technology
The procurement and distribution process is extremely complex with respect
to both managing perishable inventory and scheduling delivery for thousands of
separate customer accounts each day. Together, Fresh America and FreshPoint will
have specialized management information systems which will allow us to improve
the efficiency of the process from purchasing to delivery.
Selective Acquisition Program
We have generated significant growth over the last three years by
completing 16 acquisitions. The merger is a continuation of our strategy to
selectively grow and diversify our revenue base by adding complimentary
businesses to our existing operations. We intend to continue to pursue
acquisitions of companies in our highly fragmented industry on a selective
basis, and to integrate these operations into our operating model to achieve
synergies, revenue enhancements and economies of scale.
Comprehensive Outsourcing Solution for Institutional Customers
The combined company will offer a national and comprehensive outsourcing
solution to our customers' fresh produce requirements. This capability will
allow us to offer more large institutional accounts a single source to
efficiently satisfy the majority of their fresh produce needs.
Economies of Scale in a Fragmented Industry
We believe that the combined company will be one of the largest fresh
produce distributors in a highly fragmented industry with thousands of
participants in the United States and Canada. Our ability to work favorably with
our suppliers and third-party transportation providers and to effectively
leverage our transportation capacity should allow us to maintain an efficient
operating structure and increase our profitability.
Value-Added Services Enhance Product Offerings
To meet customer requirements and increase the overall value of our
services, we will continue to offer our customers incremental services,
including ripening, repackaging and food processing. These services will
2
<PAGE> 12
provide added value for the customers of the combined company while increasing
the utilization of our facilities and generating higher margin revenue at little
incremental cost to us.
Experienced Management Team with Significant Equity Ownership
Each company's management team has extensive experience in the fresh
produce distribution industry. Mitt Parker, President and Chief Executive
Officer of FreshPoint, and David Sheinfeld, our Chairman of the Board and Chief
Executive Officer, have over 40 years of combined industry experience. In
addition, the regional management teams of the combined company, essential to
efficient and profitable operations, are well experienced in the industry.
Senior management will also have a significant equity stake in the combined
company.
THE ANNUAL MEETING (SEE PAGE 22)
The 1998 annual meeting of our shareholders will be held on Friday, August
27, 1999, at 10:00 a.m., local time, at the Crowne Plaza Suites, 7800 Alpha
Road, Dallas, Texas 75240.
Proposals
At the annual meeting, you will be asked to consider and act upon the
following proposals:
THE MERGER AND THE CHARTER AMENDMENT
- To consider and act upon a proposal to approve the merger agreement,
dated as of May 3, 1999, by and between Fresh America and FreshPoint. The
merger agreement provides for, among other things, the merger of
FreshPoint with and into us, pursuant to which 5,685,826 shares of our
common stock, $.01 par value, will be issued to FreshPoint's
stockholders.
The number of shares of our common stock to be issued in the merger is
fixed and will not increase or decrease based on changes in the market
value of our common stock. As a consequence of the merger, the
stockholders of FreshPoint will own approximately 52% of the combined
company's outstanding common stock immediately following the merger.
- To consider and act upon a proposal to amend and restate our articles of
incorporation to, among other things, (1) change our name to "FreshPoint
America, Inc.", (2) increase the number of our authorized shares of
common stock from 10,000,000 to 50,000,000, and (3) expand our Board of
Directors from a six-member Board to an eleven-member Board, consisting
initially of five persons designated by us and six persons designated by
FreshPoint.
Pursuant to the bylaws of the combined company, our Board of Directors
will be divided into three classes with staggered three-year terms. The
designated directors will hold office upon the effectiveness of the
merger to the end of their respective terms and until their successors
are elected and qualified. If approved at the annual meeting, the charter
amendment will only become effective upon consummation of the merger.
IN ORDER FOR THE MERGER TO BE CONSUMMATED, BOTH THE MERGER AGREEMENT AND
THE CHARTER AMENDMENT MUST BE APPROVED. NEITHER PROPOSAL WILL BE DEEMED APPROVED
UNLESS BOTH ARE APPROVED.
STOCK OPTION PLAN AMENDMENT
- To consider and act upon a proposal to amend the Fresh America Corp. 1996
Stock Option and Award Plan as Amended and Restated Effective May 22,
1998 to (1) change the name of the stock option plan to the "FreshPoint
America, Inc. 1999 Stock Option and Award Plan," and (2) increase the
number of shares of our common stock authorized for issuance under the
stock option plan from 625,000 to 1,250,000 and provide for future annual
increases in the total number of shares authorized for issuance pursuant
to non-qualified options and restricted stock grants under the plan equal
to any percentage increase in the number of issued and outstanding shares
of FreshPoint America common
3
<PAGE> 13
stock from the prior year. If approved at the annual meeting, the stock
option plan amendment will only become effective upon consummation of the
merger.
NOMINEE FOR CURRENT BOARD
- To elect one Class II director to serve until the merger is consummated,
or if for any reason the merger is not consummated, until the expiration
of his three year term and until his successor is elected and qualified.
OTHER PROPOSALS TO BE PRESENTED
- To transact such other business that may properly come before the annual
meeting and any adjournments thereof.
Who Can Vote at the Annual Meeting
Only holders of record of Fresh America common stock at the close of
business on July 8, 1999 will be entitled to vote at the annual meeting. As of
July 8, 1999, there were 5,241,051 shares of Fresh America common stock issued
and outstanding, all of which are entitled to vote. You will be able to cast one
vote for each share of Fresh America common stock you owned at that time.
You can vote your shares by either attending the annual meeting and voting
in person or by mailing the enclosed proxy card. If you execute and return a
proxy, you have the power to revoke it at any time before it is voted by any of
the following:
- Providing written notice of revocation to the corporate secretary of
Fresh America prior to the annual meeting.
- Executing a later-dated proxy relating to the same shares and delivering
it to the corporate secretary of Fresh America prior to the annual
meeting.
- Attending the annual meeting, filing a written notice of revocation with
the secretary of the meeting and voting in person.
The giving of a proxy does not affect your right to attend and vote in person at
the annual meeting. However, your presence at the annual meeting without further
action will not revoke your proxy.
If you are a shareholder whose shares of Fresh America common stock are not
registered in your own name, you will need additional documentation from the
record holder of your shares in order to be admitted to and to vote at the
annual meeting. Examples of such documentation include a broker's statement,
letter or other document confirming your ownership of shares of Fresh America
common stock.
What is Required for a Quorum
A "quorum" is a majority of our outstanding shares of common stock. They
may be present at the annual meeting or represented by proxy. There must be a
quorum, either present in person at the annual meeting or represented by proxy,
for the annual meeting to be held. If a quorum is not present at the annual
meeting, either in person or by proxy, the annual meeting may be adjourned from
time to time until a quorum is obtained.
What Vote is Required for Approval of a Proposal
In order to approve the merger agreement and the charter amendment, the
holders of two-thirds of the outstanding shares of Fresh America common stock
must vote in favor. In order to approve the stock option plan amendment, the
approval of a majority of the votes cast on that issue is required. With respect
to the election of the Class II director, a plurality of the votes cast at the
annual meeting must vote in favor.
4
<PAGE> 14
As an inducement to FreshPoint's entering into the merger agreement, two of
our principal shareholders, David Sheinfeld and Thomas Hubbard, agreed to vote
all of the shares of Fresh America common stock owned by them and their
affiliates, which represent approximately 18% of our outstanding common stock,
in favor of the merger agreement and the charter amendment.
FreshPoint's stockholders have unanimously approved the merger agreement
and the charter amendment, subject to certain conditions specified in the
agreement of consent and waiver between FreshPoint and Albert Fisher, described
in "Related Agreements -- Albert Fisher Consent" beginning on page 44.
THE MERGER AGREEMENT (SEE PAGE 37)
We have attached the agreement and plan of merger to this proxy statement
as Appendix A. Please read the merger agreement. It is the legal document that
governs the merger.
GENERAL
We propose a combination in which FreshPoint will merge with and into Fresh
America, with Fresh America as the surviving company. The combined company will
be renamed "FreshPoint America, Inc." and will be based in Dallas, Texas. We
expect to complete the merger by August 31, 1999.
In this proxy statement, when we use the term "FreshPoint America," this
term refers to the combined company after the merger.
Merger Consideration
All of the equity securities of FreshPoint Holdings will be exchanged for
5,685,826 shares of Fresh America common stock. Immediately following the
merger, the merger consideration will represent approximately 52% of FreshPoint
America's outstanding common stock. The number of shares of our common stock to
be issued in the merger is fixed pursuant to the merger agreement and is not
subject to increase or decrease based on the market value of our common stock.
Management After the Merger (See Page 52)
The merger will result in changes in the size and composition of our Board
of Directors. Upon the effectiveness of the merger, the size of our Board of
Directors will expand from six to eleven members. We have designated five of the
initial directors and FreshPoint has designated six of the initial directors.
Pursuant to the bylaws of the combined company, the Board of Directors will be
divided into three classes with staggered three year terms.
The merger will result in a change in the composition of our management
team. Upon the effectiveness of the merger, two of FreshPoint's executive
officers, Mitt Parker and Brian Sturgeon, will become President and Chief
Executive Officer, and Chief Operating Officer, respectively. David Sheinfeld
will remain as Chairman of the Board, and John Gray will remain as Executive
Vice President and Chief Financial Officer.
The issuance of the merger consideration of 5,685,826 shares of our common
stock to the stockholders of FreshPoint Holdings will result in new
concentrations of ownership of our stock. Following the merger, FreshPoint
stockholders will own 52% of FreshPoint America's common stock. It is
anticipated that the following principal stockholders of FreshPoint will
beneficially own the following approximate percentages of FreshPoint America's
common stock:
<TABLE>
<CAPTION>
STOCK OWNERSHIP
BENEFICIAL OWNER AFTER MERGER
---------------- ---------------
<S> <C>
Rosecliff Investors......................................... 23.7%
FreshPoint management....................................... 13.7%
Albert Fisher............................................... 14.6%
</TABLE>
5
<PAGE> 15
None of the approximately 50 Rosecliff Investors will beneficially own more than
4.9% of FreshPoint America common stock immediately after the merger, and none
of the approximately 36 FreshPoint management members will beneficially own more
than 4.25% of FreshPoint America common stock immediately after the merger. The
above percentages are calculated based on an assumed market price of our common
stock of $13.00 and assumes the merger takes place on August 31, 1999.
You Do Not Have Appraisal Rights in the Merger (See Page 28)
Texas law does not provide you with dissenters' appraisal rights in the
merger. This means that if you are not satisfied with the merger, you are not
legally entitled to have the value of your interest in Fresh America common
stock independently determined and receive payment based on that valuation.
Federal Income Tax Consequences of the Merger
Because your shares of Fresh America common stock will remain unchanged as
a result of the merger, you should not recognize any gain or loss for purposes
of United States federal income tax. The combined company also will not
recognize any gain or loss for United States federal income tax purposes.
Accounting Treatment of the Merger (See Page 43)
Because FreshPoint's stockholders will own approximately 52% of FreshPoint
America's outstanding common stock immediately after the merger and FreshPoint
will designate a majority of the combined company's initial directors, the
merger will be accounted for as a purchase of Fresh America by FreshPoint in a
"reverse acquisition." This means that, for accounting and financial reporting
purposes, we will treat our companies as one company beginning as of the date of
the merger.
Additionally, under this method of accounting, FreshPoint will record the
fair market value of Fresh America's net assets in its financial statements.
Because the value of our outstanding common stock is greater than the fair
market value of our identifiable net assets, the combined company will record an
asset called "goodwill" of approximately $89 million. FreshPoint America will
amortize this goodwill as an expense over the next 40 years. This goodwill
replaces the $33 million of goodwill recorded on Fresh America's books on April
2, 1999.
Our fiscal year currently is a 52-week or 53-week period ending on the
first Friday in January. FreshPoint's fiscal year currently is a 52-week or
53-week period ending on the Saturday closest to June 30. After the merger, the
combined company will adopt FreshPoint's fiscal year.
Conditions to the Merger (See Page 42)
The completion of the merger depends upon the satisfaction of a number of
conditions. While we expect that all of the conditions to completing the merger
will be satisfied, there can be no assurance that they will be. Either company
may waive compliance with the conditions at its discretion if the law allows it.
Termination of the Merger Agreement and Expenses (See Page 42)
The companies can agree to terminate the merger agreement without
completing the merger. Either party can terminate the merger agreement upon the
occurrence or non-occurrence of particular events, including the failure of our
shareholders to approve the merger at the annual meeting. In general, each of us
will bear our own fees and expenses, but if the merger agreement is terminated
because either company materially breaches the merger agreement, then the
breaching party will reimburse the non-breaching party for up to $1 million of
its expenses.
We must pay FreshPoint a termination fee of $3 million plus up to $750,000
of FreshPoint's expenses if: (1) the merger agreement is terminated under
certain circumstances, (2) before the merger agreement was terminated, there was
a competing transaction to the merger that we recommended to our shareholders,
and (3) within 12 months of the termination date, we either enter into a letter
of intent or a definitive agreement for a competing transaction or we consummate
a competing transaction.
6
<PAGE> 16
Waiving and Amending Provisions of the Agreement (See Page 42)
We can agree to amend the merger agreement, and each of us can waive our
right to require the other party to adhere to the terms and conditions of the
agreement, where the law allows.
SHAREHOLDERS' AGREEMENT (SEE PAGE 44)
It is a condition to the consummation of the merger that the Rosecliff
Partnerships, Albert Fisher and two of our principal shareholders, David
Sheinfeld and Thomas Hubbard, enter into a shareholders' agreement. The parties
to the shareholders' agreement collectively will own approximately 61% of
FreshPoint America's outstanding common stock immediately after the merger. The
parties to the shareholders' agreement will agree to vote their shares of common
stock so that FreshPoint America's eleven directors will initially be comprised
of six persons designated by FreshPoint -- Mitt Parker, Brian Sturgeon, John
Geisler, Donald Kendall, John Gutfreund and Robert Dussler -- and five persons
designated by Fresh America -- David Sheinfeld, Tom Hubbard, Lawrence Jackson,
Sheldon Stein and Colon Washburn. The directors will include Mitt Parker so long
as he serves as Chief Executive Officer of FreshPoint America and Brian Sturgeon
so long as he serves as Chief Operating Officer of FreshPoint America. The
shareholders' agreement will remain in effect for no more than three years.
ALBERT FISHER CONSENT (SEE PAGE 44)
In addition to being a stockholder of FreshPoint, Albert Fisher is the
holder of a subordinated promissory note issued by FreshPoint, the outstanding
principal and accrued interest of which is approximately $31 million. As an
inducement to our signing the merger agreement, Albert Fisher and FreshPoint
entered into an agreement of consent and waiver. Albert Fisher consented to the
merger agreement, and FreshPoint agreed that simultaneously with the merger, it
will prepay the subordinated note and pay Albert Fisher a transaction fee of
$1.25 million. In addition, the parties agreed to terminate existing agreements
between them related to the stock purchase of FreshPoint from Albert Fisher in
November 1996, except for specified tax and environmental indemnification
obligations of Albert Fisher.
REGISTRATION RIGHTS AGREEMENT (SEE PAGE 46)
It is a condition to the consummation of the merger that we enter into a
registration rights agreement with the Rosecliff Partnerships and Albert Fisher.
We will grant "shelf" and "piggyback" registration rights to the Rosecliff
Partnerships and Albert Fisher, which will require us to register under the
Securities Act of 1933, as amended, the transfer of our common stock issued to
them in the merger. The Rosecliff Partnerships and Albert Fisher may not sell
into the market any of FreshPoint America's common stock issued to them in the
merger for a period of 180 days after the merger. The registration rights
agreement will remain in effect for no more than three years.
EMPLOYMENT AGREEMENTS (SEE PAGE 47)
We have entered into employment agreements with two of our executive
officers, David Sheinfeld and John Gray, and two of FreshPoint's executive
officers, Mitt Parker and Brian Sturgeon, to be effective only
7
<PAGE> 17
upon the closing of the merger. Under these agreements, each of the executives
will hold the following positions and will earn the following annual salary:
<TABLE>
<CAPTION>
NAME TITLE ANNUAL SALARY
- ---- ----- -------------
<S> <C> <C>
David Sheinfeld............................. Chairman of the Board $550,000
Mitt Parker................................. President and Chief Executive $550,000
Officer
Brian M. Sturgeon........................... Chief Operating Officer $300,000
John Gray................................... Executive Vice President and $200,000
Chief Financial Officer
</TABLE>
At or promptly after consummation of the merger, Messrs. Sheinfeld, Parker,
Sturgeon and Gray will be issued options to purchase shares of the combined
company's common stock in substantially the amounts to be recommended by an
independent compensation consulting firm employed by the Board of Directors. The
exercise price of the options will be the fair market value of our common stock
on the date of grant. Each executive will be eligible for an annual bonus of up
to 110% of his annual salary based on a performance-based bonus plan to be
adopted at or promptly after the time of the merger. The bonus plan will be on
terms approved by a committee comprised exclusively of outside directors, based
on recommendations by the independent compensation consulting firm. The term of
Mr. Gray's employment agreement is one year and the term of each of the other
three employment agreements is two years.
NEW CREDIT FACILITIES (SEE PAGE 49)
Fresh America and FreshPoint have agreed to arrange no less than $195
million of new credit facilities to (1) refinance both companies' existing bank
indebtedness and subordinated notes, (2) pay the transaction costs incurred in
connection with the merger and (3) provide the combined company with additional
borrowing capacity which could be used for working capital, future acquisitions
and general corporate purposes after the merger. The arranging of the new credit
facilities on terms satisfactory to both parties is a condition to the merger.
Fresh America has received (1) a commitment letter from Bank of America
National Trust and Savings Association for senior secured credit facilities
totaling $175 million and (2) an agreement from John Hancock Mutual Life
Insurance Company to restructure its existing $20 million senior subordinated
notes and to purchase an additional $15 million in senior subordinated notes.
The senior credit facilities will be syndicated with Bank of America acting as
agent. The new credit facilities are as follows:
<TABLE>
<CAPTION>
CREDIT FACILITY AMOUNT TERM
- --------------- ------------ --------
<S> <C> <C>
Revolving Credit Facility................................. $ 50 million 6 years
Term Loan A Facility...................................... 60 million 6 years
Term Loan B Facility...................................... 35 million 7 years
Term Loan C Facility...................................... 30 million 8 years
Subordinated Notes........................................ 35 million 10 years
------------
Total Credit Facilities:........................ $210 million
============
</TABLE>
The commitment and agreement for the new credit facilities are subject to
conditions precedent, including, among others, no material adverse change in the
business, assets, liabilities or prospects of the combined company, no material
adverse change in the financial, banking or capital markets and definitive
documentation acceptable to the lenders. In addition, if the syndication of the
senior credit facilities cannot be achieved in a manner satisfactory to the
agent, the agent will be entitled, after consultation with us, to change the
pricing, structure or other terms if the agent determines that the changes are
advisable to ensure a successful syndication or optimal credit structure.
8
<PAGE> 18
OUR RECOMMENDATIONS TO SHAREHOLDERS (SEE PAGE 22)
Our Board of Directors believes that the proposals to be voted on at the
annual meeting are fair to you and in your best interests, and unanimously
recommends that you vote:
- "FOR" the merger agreement.
- "FOR" the charter amendment.
- "FOR" the stock option plan amendment.
- "FOR" the nominee for Class II director.
Our Reasons for the Merger
We are proposing to merge with FreshPoint because we believe that by
combining with FreshPoint we can create a larger and more diversified company
that will provide significant benefits to our shareholders and customers alike.
We believe the merger will:
- Increase and diversify our customer base which will substantially lessen
the adverse effect on our revenues if our relationship with Sam's Club is
not continued after November 2000.
- Combine our wholesale and retail distribution strengths with FreshPoint's
foodservice distribution expertise.
- Increase our size, distribution capacity and marketing resources which
will strengthen our position as a competitor in the highly fragmented and
competitive fresh produce distribution business.
- Further implement our strategy to selectively grow and diversify our
revenue base by adding complimentary businesses to our existing
operations.
To review our reasons for the merger in greater detail, as well as how we
came to agree on the merger, please see "Background and Reasons for the Merger"
beginning on page 29.
The Transaction is Fair to Shareholders According to Our Financial Advisor
Bear, Stearns & Co. Inc. has delivered to our Board of Directors its
opinion that, as of April 29, 1999, the merger consideration is fair to our
shareholders from a financial point of view. To review the procedures followed,
assumptions made, matters considered, and qualifications and limitations on the
review made by Bear Stearns in providing this opinion in further detail, please
see "Bear Stearns Fairness Opinion" beginning on page 33.
INTERESTS OF FRESH AMERICA'S DIRECTORS AND OFFICERS IN THE MERGER
THAT ARE DIFFERENT FROM YOUR INTERESTS (SEE PAGE 33)
Some of our directors and executive officers have interests in the merger
that are different from, or in addition to, their interests as shareholders in
Fresh America. The members of our Board of Directors knew about these additional
interests, and considered them, when they approved the merger agreement.
As described above, we have entered into employment agreements with two of
our executive officers, David Sheinfeld and John Gray, to be effective at the
consummation of the merger. In addition, as part of the merger, Mr. Sheinfeld
will have a $125,000 loan from us forgiven.
Sheldon Stein is a member of our Board of Directors and is one of the
directors we have designated to serve immediately after the merger. Mr. Stein is
also a Senior Managing Director of Bear Stearns, our financial advisors in this
matter. In connection with the merger, Bear Stearns is entitled to receive from
Fresh America a fee of $800,000, and Fresh America has agreed to pay Bear
Stearns an additional $950,000 fee upon consummation of the merger. Bear Stearns
also will participate in the syndication of the proposed senior credit
facilities and will receive a fee in an amount customary for similar
transactions. Additionally, if within
9
<PAGE> 19
18 months after the merger FreshPoint America elects to engage an investment
bank for the public or private sale of long-term debt securities (other than
bank debt), Bear Stearns will have the right to act as a manager or agent with
respect to such transaction.
SUMMARY HISTORICAL FINANCIAL DATA OF FRESH AMERICA
The following tables present summary historical financial data of Fresh
America as of the dates and for the periods indicated. The financial data of
Fresh America for each of its fiscal years have been derived from the historical
consolidated financial statements which have been audited by KPMG LLP. The
financial data for the three months ended April 2, 1999 and April 3, 1998, have
been derived from the unaudited consolidated financial statements of Fresh
America. In the opinion of management of Fresh America, the financial data for
the periods ended April 2, 1999 and April 3, 1998 contain all adjustments,
consisting of only normal and recurring adjustments, necessary for the fair
presentation of the results of operations for such periods. The following tables
should be read in conjunction with the historical consolidated financial
statements and related notes thereto included elsewhere in this proxy statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED(1)(2)
------------------- --------------------------------------------------------------
APRIL 2, APRIL 3, JANUARY 1, JANUARY 2, JANUARY 3, JANUARY 5, JANUARY 1,
1999 1998 1999 1998 1997 1996 1995
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net Sales................................ $173,427 $133,007 $609,490 $429,524 $323,775 $207,120 $193,661
Cost of Sales............................ 151,421 118,487 537,556 386,161 291,810 177,013 167,009
-------- -------- -------- -------- -------- -------- --------
Gross Profit............................. 22,006 14,520 71,934 43,363 31,965 30,107 26,652
-------- -------- -------- -------- -------- -------- --------
Selling, general and administrative
expenses............................... 18,757 13,350 58,548 34,621 25,207 25,614 21,467
-------- -------- -------- -------- -------- -------- --------
Income from operations................... 3,249 1,170 13,386 8,742 6,758 4,493 5,185
Other income (expense)................... (1,067) (505) (2,123) 389 (32) (188) (331)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes............... 2,182 665 11,263 9,131 6,726 4,305 4,854
Provision for income taxes............... 1,001 211 5,041 3,921 2,500 1,350 1,159
-------- -------- -------- -------- -------- -------- --------
Net Income............................... $ 1,181 $ 454 $ 6,222 $ 5,210 $ 4,226 $ 2,955 $ 3,695
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Basic.................................. $ .23 $ .10 $ 1.27 $ 1.19 $ 1.00 $ .72 $ 1.02
Diluted................................ $ .22 $ .10 $ 1.20 $ 1.12 $ .94 $ .69 $ .98
Weighted average common shares
outstanding:
Basic.................................. 5,237 4,675 4,898 4,376 4,238 4,128 3,628
Diluted................................ 5,571 4,948 5,204 4,639 4,488 4,280 3,777
BALANCE SHEET DATA:
Working capital........................ $ 32,255 $ 12,577 $ 28,474 $ 11,219 $ 11,284 $ 8,219 $ 8,272
Property, plant and equipment, net..... 25,967 13,646 23,900 13,581 10,100 9,216 6,750
Total assets........................... 154,839 94,872 158,099 79,964 45,769 42,407 30,359
Long-term debt and capital leases, less
current portion...................... 39,508 11,668 35,985 6,193 547 610 213
Shareholders' equity................... 52,385 36,522 50,562 29,335 22,310 17,407 14,933
</TABLE>
- ---------------
(1) Fresh America's 1994 fiscal year was a 52-week period ending on the first
Sunday in January. Beginning with Fiscal 1995, Fresh America's fiscal year
is a 52-week period ending on the first Friday in January.
(2) Fresh America has made several acquisitions in the last three years that
affect the comparability of information reflected in the summary financial
data. See Note 3 of notes to consolidated financial statements included
elsewhere in this proxy statement.
10
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL DATA OF FRESHPOINT
The following tables present summary historical financial data of
FreshPoint as of the dates and for the periods indicated. The summary financial
data for the nine month periods ended March 27, 1999 and March 28, 1998, have
been derived from the unaudited consolidated financial statements of FreshPoint.
The summary financial data as of and for the year ended June 27, 1998 and as of
and for the two-hundred nineteen day period ended June 28, 1997 have been
derived from FreshPoint's historical consolidated financial statements, which
have been audited by Ernst & Young LLP. The predecessor to FreshPoint was
comprised of a combined group of companies including Albert Fisher Distribution,
Royal Foods Company, Inc., Albert Fisher Canada Limited and I&S Produce Ltd. The
financial data of the predecessor as of and for the eighty-two day period ended
November 21, 1996 and as of and for the years ended August 31, 1996 and August
31, 1995 was derived from the predecessor's historical combined financial
statements, which have also been audited by Ernst & Young LLP. The summary
financial data of the predecessor as of and for the year ended August 31, 1994
was derived from the unaudited combined financial statements of the predecessor.
In the opinion of management of FreshPoint, the summary historical financial
data for the year ended August 31, 1994 and the two nine month periods ended
March 27, 1999 and March 28, 1998, contain all normal and recurring adjustments
necessary for the fair presentation of the financial position and results of
operations as of and for such periods. The following table should be read in
conjunction with the financial statements and related notes thereto included
elsewhere in this proxy statement.
<TABLE>
<CAPTION>
FRESHPOINT(1)(2) PREDECESSOR(1)(2)
------------------------------------------------ ---------------------------------------------------
NINE NINE EIGHTY-TWO
MONTHS MONTHS YEAR TWO HUNDRED DAY PERIOD
ENDED ENDED ENDED NINETEEN DAY ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 27, MARCH 28, JUNE 27, PERIOD ENDED NOVEMBER 21, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1998 1998 JUNE 28, 1997 1996 1996 1995 1994
--------- --------- -------- ------------- ------------ ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............ $544,742 $521,170 $712,502 $381,865 $133,219 $602,301 $646,030 $572,757
Cost of goods
sold............... 419,637 405,952 554,942 293,569 103,498 470,966 503,786 441,768
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... 125,105 115,218 157,560 88,296 29,721 131,335 142,244 130,989
Operating expenses... 114,960 106,882 145,008 78,757 28,294 125,552 136,925 131,222
Impairment of
goodwill and
restructuring
charges............ -- -- 6,938 -- -- -- -- 2,955
-------- -------- -------- -------- -------- -------- -------- --------
Income from
operations......... 10,145 8,336 5,614 9,539 1,427 5,783 5,319 (3,188)
Other income (loss),
net................ (6,316) (6,500) (8,715) (5,464) 508 (5,748) (4,601) (2,505)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes....... 3,829 1,836 (3,101) 4,075 1,935 35 718 (5,693)
Provision for income
taxes.............. 1,723 845 1,251 2,031 1,364 2,386 2,030 552
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).... $ 2,106 $ 991 $ (4,352) $ 2,044 $ 571 $ (2,351) $ (1,312) $ (6,245)
======== ======== ======== ========
Preferred stock
dividends.......... 1,663 1,572 2,096 1,114
-------- -------- -------- --------
Net income (loss)
attributable to
common
shareholders....... $ 443 $ (581) $ (6,448) $ 930
======== ======== ======== ========
Earnings (loss) per
common share:
Basic.............. $ 50.34 $ (66.02) $(732.73) $ 105.68
Diluted............ $ 43.67 $ (66.02) $(732.73) $ 91.68
</TABLE>
11
<PAGE> 21
<TABLE>
<CAPTION>
FRESHPOINT(1)(2) PREDECESSOR(1)(2)
------------------------------------------------ ---------------------------------------------------
NINE NINE EIGHTY-TWO
MONTHS MONTHS YEAR TWO HUNDRED DAY PERIOD
ENDED ENDED ENDED NINETEEN DAY ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 27, MARCH 28, JUNE 27, PERIOD ENDED NOVEMBER 21, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1998 1998 JUNE 28, 1997 1996 1996 1995 1994
--------- --------- -------- ------------- ------------ ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...... $ 17,336 $ 25,540 $ 21,742 $ 29,782 $ 32,747 $ 25,802 $ 17,284 $ 10,570
Property, plant, and
equipment, net..... 47,488 46,956 46,773 45,734 48,203 49,497 53,876 54,865
Total assets......... 181,210 195,471 195,910 192,407 223,410 218,830 230,357 236,457
Long-term debt, less
current portion.... 94,570 86,831 94,163 97,077 466 86,921 79,548 79,803
Shareholders'
equity............. 17,614 21,694 15,312 20,270 166,180 74,759 79,802 78,632
</TABLE>
- ---------------
(1) The accompanying summary historical financial data reflects operating
results and financial position of FreshPoint and its predecessor, a combined
group of companies including Albert Fisher Distribution, Royal Foods
Company, Inc., Albert Fisher Canada Limited and I&S Produce Ltd. The summary
historical financial data of the predecessor reflects the historical cost
basis of the predecessor's assets and liabilities. The summary historical
financial data of FreshPoint reflects a new basis of accounting established
at the date FreshPoint acquired the predecessor; accordingly, summary
historical financial data of the predecessor and FreshPoint is not
comparable in its entirety.
(2) FreshPoint utilizes a 52- or 53-week accounting period which ends on the
Saturday closest to June 30. The fiscal year end of the predecessor was
August 31.
UNAUDITED PRO FORMA SUMMARY FINANCIAL DATA
The following pro forma combined financial data gives pro forma effect to
the consummation of the merger and the new credit facilities as if such
transactions had been consummated as of March 27, 1999, in the case of the
unaudited pro forma condensed combined balance sheet of FreshPoint America, and
on June 29, 1997, the first day of FreshPoint's 1998 fiscal year, in the case of
the unaudited pro forma condensed combined statements of operations of
FreshPoint America. See "Related Agreements -- New Credit Facilities" beginning
on page 49 for details of the new credit facilities and see "Selected Financial
Information -- Unaudited Pro Forma Combined Capitalization" beginning on page 75
for details of existing indebtedness to be repaid in the new credit facilities.
The pro forma combined financial data is presented for illustrative
purposes only and is not necessarily indicative of what FreshPoint America's
actual financial position or results of operations would have been had the
merger and the new credit facilities been consummated as of the above-referenced
dates or of the financial position or results of operations that may be reported
by FreshPoint America in the future. The pro forma combined financial data
should be read in conjunction with the historical financial statements of Fresh
America and FreshPoint, the related notes, and the other information contained
elsewhere herein. See "Selected Financial Information" and "Index To Historical
Financial Statements" beginning on pages 64 and F-1, respectively.
12
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET OF FRESHPOINT AMERICA
MARCH 27, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
Total current assets........................................ $181,060
Property, plant and equipment, net.......................... 67,455
Intangibles, net............................................ 136,675
Other assets, net........................................... 5,519
--------
Total assets................................................ $390,709
========
Total current liabilities................................... $105,469
Long-term debt.............................................. 169,945
Other non-current liabilities............................... 8,895
Shareholders' equity........................................ 106,400
--------
Total liabilities and shareholders' equity.................. $390,709
========
</TABLE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS OF FRESHPOINT AMERICA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
ENDED ENDED
MARCH 27, 1999 JUNE 27, 1998
-------------- -------------
<S> <C> <C>
Net sales................................................... $1,085,629 $1,477,605
Cost of goods sold.......................................... 869,801 1,210,174
---------- ----------
Gross profit................................................ 215,828 267,431
Operating expenses.......................................... 193,277 243,491
Impairment of goodwill and restructuring charge............. -- 6,938
---------- ----------
Operating income............................................ 22,551 17,002
Interest expense............................................ 12,635 16,877
Other income, net........................................... (1,660) (985)
---------- ----------
Income before income taxes.................................. 11,576 1,110
Income taxes................................................ 5,717 3,576
---------- ----------
Net income (loss)........................................... $ 5,859 $ (2,466)
========== ==========
Diluted earnings (loss) per share(1)........................ $ 0.53 $ (0.23)
========== ==========
</TABLE>
- ---------------
(1) Results of operations for the fiscal year ended June 27, 1998 include an
impairment of goodwill and restructuring charge of $6,938,000 which, net of
the related income tax benefit of $513,000 reduced diluted pro forma
combined earnings per share by $0.59.
MARKET PRICE DATA FOR FRESH AMERICA COMMON STOCK
Our common stock is listed under the trading symbol "FRES" on Nasdaq. The
following table sets forth for the periods indicated the high and low sales
prices per share of our common stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED JANUARY 7, 2000
First Quarter............................................... $ 23 1/2 $ 15 3/4
Second Quarter.............................................. $ 20 5/8 $ 12 1/2
Third Quarter (through July 19, 1999)....................... $ 14 1/2 $ 13
</TABLE>
13
<PAGE> 23
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED JANUARY 1, 1999
First Quarter............................................... $ 23 7/8 $ 17 1/4
Second Quarter.............................................. $ 24 1/4 $ 16 3/16
Third Quarter............................................... $ 21 $ 11 5/8
Fourth Quarter.............................................. $ 17 $ 9 1/2
YEAR ENDED JANUARY 2, 1998
First Quarter............................................... $ 22 1/2 $ 12 3/4
Second Quarter.............................................. $ 18 3/4 $ 10 5/8
Third Quarter............................................... $ 21 1/2 $ 16 1/4
Fourth Quarter.............................................. $ 27 7/8 $ 17 1/8
</TABLE>
On April 30, 1999, the last trading day prior to the first public
announcement of the merger, the closing sales price per share of our common
stock as reported on Nasdaq was $18 7/16. On July 8, 1999, we had outstanding
5,241,051 shares of common stock which were held by approximately 93
shareholders of record. Based on information available to us, we believe that
there are approximately 3,000 beneficial owners of our common stock.
FreshPoint is privately owned, and, therefore, no market price information
is available with respect to FreshPoint's capital stock.
We have not paid dividends on our shares of common stock in the past and,
following the completion of the merger, we do not intend to pay any cash
dividends on the outstanding shares of FreshPoint America common stock.
You should obtain current market quotations for our common stock because
the market price of our common stock will fluctuate between the date of this
proxy statement and the date of the merger and thereafter. Because the number of
shares of our common stock that FreshPoint stockholders will receive in the
merger is fixed, the value of the shares of our common stock that FreshPoint
stockholders will receive in the merger may increase or decrease prior to and
after the merger.
14
<PAGE> 24
COMPARATIVE PER SHARE DATA
The following table sets forth selected historical per share information
for Fresh America and FreshPoint and unaudited pro forma per share financial
information for FreshPoint America giving effect to the consummation of the
merger and the new credit facilities, as if such transactions had been
consummated as of March 27, 1999, in the case of book value information, and
June 29, 1997, the first day of FreshPoint's 1998 fiscal year, in the case of
earnings information. The information presented below is derived from (1) the
consolidated historical financial statements of Fresh America, as recast to
conform to the fiscal year of FreshPoint, and FreshPoint, including the related
notes thereto, contained elsewhere herein and (2) the unaudited pro forma
combined financial data, including the notes thereto, contained elsewhere in
this proxy statement and should be read in conjunction therewith. See "Index To
Historical Financial Statements" and "Selected Financial Information" beginning
on pages F-1 and 64, respectively. The unaudited pro forma combined per share
information set forth herein assumes the issuance of 5,685,826 shares of Fresh
America common stock in connection with the merger and the successful completion
of the new credit facilities. The unaudited pro forma combined information set
forth below is not necessarily indicative of what FreshPoint America's actual
financial position or results of operations would have been had the
above-referenced transactions been consummated as of the above-referenced dates
or of the financial position or results of operations that may be reported by
FreshPoint America in the future.
<TABLE>
<CAPTION>
AS AND FOR THE AS AND FOR THE
NINE MONTHS TWELVE MONTHS
ENDED ENDED
APRIL 2, 1999 JULY 3, 1998
-------------- --------------
<S> <C> <C>
Historical Fresh America:
Earnings per common share................................. $ 0.92 $1.04
Book value per common share(1)............................ $10.00 $8.28
</TABLE>
<TABLE>
<CAPTION>
AS AND FOR THE
NINE MONTHS AS AND FOR THE
ENDED TWELVE MONTHS
MARCH 27, ENDED
1999 JUNE 27, 1998
-------------- --------------
<S> <C> <C>
Historical FreshPoint:
Earnings (loss) per common share.......................... $ 43.67 $ (732.73)
Book value per common share(1)............................ $2,002.00 $1,740.00
Pro forma combined earnings (loss) per common share:
Per FreshPoint America share(2)........................... $ 0.53 $ (0.23)
Equivalent per FreshPoint share(3)........................ $ 242.03 $ (105.03)
Pro forma combined book value per common share:
Per FreshPoint America share(1)........................... $ 9.74
Equivalent per FreshPoint share(3)........................ $4,447.96
</TABLE>
- ---------------
(1) Book value per share is computed by dividing shareholders' equity by the
number of shares of common stock outstanding at the end of each period.
Historical book value per common share amounts have been calculated using
the historical outstanding common shares of each company at the respective
dates. Pro forma combined FreshPoint America book value per common share has
been calculated based on the number of common shares that would have been
outstanding at March 27, 1999 if the merger had been consummated on that
date.
(2) Results of operations for the twelve months ended June 27, 1998 include an
impairment of goodwill and restructuring charge of $6,938,000 which, net of
the related income tax benefit of $513,000, reduced diluted pro forma
combined earnings per share by $0.59.
(3) FreshPoint equivalent per share amounts are determined by multiplying the
FreshPoint America combined pro forma per share amounts by the exchange
ratio of 456.669262618 to 1. The exchange ratio is computed as the number of
Fresh America shares to be issued in the merger to FreshPoint common
15
<PAGE> 25
stockholders (approximately 4,632,453 Fresh America shares at August 15,
1999, giving effect to the Fresh America common stock consideration to be
received by the FreshPoint Series A preferred shareholders (approximately
1,053,373 Fresh America shares)) divided by the number of FreshPoint common
shares outstanding on a fully diluted basis of 10,144 shares.
Neither Fresh America nor FreshPoint have ever declared or paid cash
dividends on its common stock, and FreshPoint America does not currently intend
to pay dividends. FreshPoint America's dividend policy will be reviewed from
time to time in light of, among other things, FreshPoint America's results of
operations and financial position. In addition, FreshPoint America's ability to
pay dividends on its common stock will be restricted pursuant to the terms of
various instruments governing its indebtedness. Accordingly, there can be no
assurance that FreshPoint America will pay any dividends in the future, or if
dividends are paid, as to the amount thereof. See "Risk Factors" beginning on
page 17.
16
<PAGE> 26
RISK FACTORS
The following risk factors should be carefully considered by you in
deciding whether to vote for the merger agreement and the charter amendment.
The Financial Benefits from Merging Our Businesses Are Uncertain
In determining that the merger is in the best interests of our
shareholders, our Board of Directors considered the following expected benefits
resulting from the integration of the Fresh America and FreshPoint businesses:
- Cost savings.
- Operating efficiencies.
- Other synergies.
Initially, these benefits are expected to be realized primarily through
consolidation of operations, procurement and freight synergies and reductions in
general and administrative expenses.
It will be difficult for management to consolidate the functions and
integrate the operations, systems, marketing methods and procedures of both
companies. We cannot guarantee that they will be accomplished successfully or as
rapidly as currently expected. Moreover, although the primary purpose of such
actions will be to realize direct cost savings and other operating efficiencies,
there may be fewer savings than expected, and costs, expenses or other factors
may offset some or all of the projected cost savings. To the extent that there
are delays, fewer savings than expected or unforeseen costs, the combined
company's operating results could be negatively affected.
The Merger Will be Dilutive to Fresh America's Existing Shareholders in the
First 12 Months After the Merger
The 5,685,826 shares of our common stock we will issue in the merger will
approximately double the number of our shares outstanding. Earnings per share is
calculated by dividing net income by an average number of common shares assumed
to be outstanding. Dilution to our earnings per share could be experienced by
our shareholders if the increase in our net income realized through the merger
with FreshPoint is more than offset by the increase in the number of our shares
of common stock outstanding due to the shares we will issue in the merger.
The merger is expected to be dilutive to our shareholders for the first 12
months following the merger. If our contract with Sam's Club is renewed after
November 2000, the merger may be dilutive in the second 12 months following the
merger if FreshPoint America cannot substantially achieve the cost savings,
operating efficiencies and other synergies we expect to result from the merger.
If our contract with Sam's Club is not renewed after November 2000, the merger
should be accretive to our shareholders in the second 12 months following the
merger. The Board of Directors believes that the long-term benefits of the
merger clearly outweigh any short-term dilutive effects.
The Combined Company Will be More Leveraged Than Fresh America
Following the consummation of the merger, FreshPoint America will be more
leveraged than Fresh America as shown below:
<TABLE>
<CAPTION>
TOTAL DEBT
(INCLUDING CURRENT NET TANGIBLE
MATURITIES) WORTH NET WORTH (DEFICIT)
------------------ -------------- -------------------
<S> <C> <C> <C>
Fresh America as of 4/2/99........... $ 52.0 million $ 52.4 million $ 19.8 million
FreshPoint as of 3/27/99............. $107.6 million $ 17.6 million $(30.2 million)
FreshPoint America (assuming the
merger occurred on 3/27/99)........ $176.4 million $106.4 million $(30.3 million)(1)
</TABLE>
- ---------------
(1) This reflects incremental goodwill of $56 million.
17
<PAGE> 27
A high degree of leverage could have negative consequences for FreshPoint
America, including the following:
- Limit its ability to obtain financing in the future.
- Cash flow may be dedicated to debt service obligations and unavailable
for other purposes.
- The high level of indebtedness may limit its flexibility to deal with
changing economic, business and competitive conditions.
- To the extent of its debt with variable interest rates, it will be
vulnerable to increases in prime lending rates.
Based upon the current level of operations and anticipated cost savings, we
believe that FreshPoint America's cash flow from operations, together with
borrowings under the new credit facilities, will be adequate to meet its
anticipated requirements for working capital, capital expenditures and debt
service over the next several years. We cannot assure you, however, that the
combined company's business will continue to generate cash flow at or above the
cash flow levels attained by Fresh America and FreshPoint prior to the merger or
that FreshPoint America can fully achieve the anticipated cost savings. The
failure of FreshPoint America to generate sufficient cash flow from operations
in the future could have a material adverse effect on its results of operations
and financial condition. For example, insufficient cashflow could result in
FreshPoint America's inability to service its debt and make necessary capital
expenditures, perhaps requiring FreshPoint America to refinance all or a portion
of its existing debt, sell assets or obtain additional financing. We cannot
assure you as to whether, or the terms on which, any such refinancing or asset
sales could be consummated or any additional financing obtained.
Terms of New Credit Facilities Are Uncertain
We currently have a commitment for senior secured credit facilities
totaling $175 million and an agreement for senior subordinated notes totaling
$35 million. Borrowings under the senior credit facilities will bear interest at
customary quoted lending rates plus applicable margins, which margins increase
as the total leverage of the combined company increases. If determined at July
12, 1999, the senior credit facilities would initially bear interest at rates of
8.31% to 9.06% and the senior subordinated notes would bear interest at a fixed
rate of 10.47%. Historically, FreshPoint has not paid accrued interest on the
Albert Fisher subordinated note in cash, rather the interest has been added to
the principal balance of the note. Under the new credit facilities accrued
interest will be required to be paid in cash.
The financing commitment and agreement contemplate that the combined
company will be subject to numerous operating and financial covenants. We cannot
assure you that FreshPoint America will be able to maintain compliance with the
covenants required by its lenders. Failure to comply with the covenants could
result in the acceleration of the maturity of the credit facilities. Any
acceleration of the maturity of the credit facilities would have a material
adverse affect on FreshPoint America.
The commitment and agreement for the new credit facilities are subject to
conditions precedent, including, among others, no material adverse change in the
business, assets, liabilities or prospects of the combined company, no material
adverse change in the financial, banking or capital markets and definitive
documentation that is acceptable to the lenders. In addition, if the syndication
of the senior credit facilities cannot be achieved in a manner satisfactory to
the agent bank, the agent bank will be entitled, after consultation with us, to
change the pricing, structure or other terms if the agent bank determines that
the changes are advisable to ensure a successful syndication or optimal credit
structure. We cannot assure you as to whether, or the definitive terms on which,
the new credit facilities actually will be available to FreshPoint America.
Shares Eligible for Future Sale Could Adversely Affect Our Stock Price
The 5,685,826 shares of our common stock we will issue in the merger will
approximately double the number of our shares outstanding. The FreshPoint
stockholders may not sell the shares of our common stock
18
<PAGE> 28
that will be issued to them in the merger except pursuant to an effective
registration statement under the Securities Act or in compliance with Rule 145
promulgated under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Pursuant to the registration
rights agreement, we will agree, for a specified period and subject to certain
limitations and qualifications, to effect the registration under the Securities
Act of the resale of our common stock issued to the FreshPoint stockholders in
the merger, and the principal FreshPoint stockholders will agree not to sell any
such shares into the open market for 180 days after the merger.
We have previously granted "shelf" and "piggyback" registration rights with
respect to shares of our common stock issued or issuable in connection with
previous acquisitions and financings. These registration rights are subject to
notice requirements, timing restrictions and volume limitations which may be
imposed by the underwriters of an offering in which such persons are
participants.
Sales of substantial amounts of FreshPoint America common stock, or the
perception that sales could occur, could adversely affect market prices for the
FreshPoint America common shares and could impair FreshPoint America's future
ability to raise capital through an offering of its equity securities.
Our Management and Stock Ownership Will Change Substantially
Our Board of Directors will expand from six members to eleven members, six
of which will be designees of FreshPoint and will constitute a majority of the
Board of Directors for at least the next two years. Our management team will
also expand to include members of FreshPoint's management team. If the members
of the expanded Board of Directors or the combined management teams do not
function well together, the direction of FreshPoint America's business could be
adversely affected.
As a result of the merger, the stockholders of FreshPoint will own
approximately 52% of FreshPoint America's outstanding common stock. The
Rosecliff Investors as a group will beneficially own approximately 24% of
FreshPoint America's common stock and will have a significant block of the
voting power. Any voting block could facilitate or impede the approval of any
matters requiring approval of FreshPoint America shareholders, including a
merger, consolidation or other business combination involving FreshPoint
America, or discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of FreshPoint America. Under Texas law,
approval by holders of two-thirds of the issued and outstanding common stock of
FreshPoint America will be required for such a business combination or a charter
amendment.
The Merger Will Result in Substantial Goodwill Charges
The merger will be accounted for as a "reverse acquisition" of us by
FreshPoint. Purchase accounting requires the excess of the purchase price over
the fair value of the identifiable net assets of the acquired company to be
recorded as goodwill. As a result of the merger, goodwill will be recorded by
FreshPoint in the approximate amount of $89 million. The goodwill will be
amortized by FreshPoint America on a straight line basis over 40 years, which
will reduce future income.
The Merger Consideration Could Increase in Value
The number of shares we will issue in the merger is fixed at 5,685,826 and
will not be subject to increase or decrease based on changes in the market value
of our common stock. If the market price of our common stock increases, the
value of the merger consideration will proportionately increase as well. The
market price of our common stock at the time of the merger may vary from the
market price as of April 30, 1999 (the last trading day prior to public
announcement of the merger), as of the date of this proxy statement and the date
on which the annual meeting is held. These market price fluctuations may result
from changes in the business, operations or prospects of Fresh America,
FreshPoint or the combined entity, market assessments of the likelihood that the
merger will be consummated and the timing of the consummation, general market
and economic conditions, and other factors.
19
<PAGE> 29
Potential Adverse Effects of Expanding Our Business
Our management has stated its strategy to expand and diversify our customer
base, geographic coverage, market penetration and service offerings through the
development of new business opportunities and through selected acquisitions.
This strategy is expected to continue after the merger. The pursuit of new
growth opportunities will require a significant investment of FreshPoint
America's funds and the attention of our management team. These opportunities
will be subject to all of the risks inherent in the establishment of a new
product or service offering, including:
- Intense competition.
- Lack of sufficient customer demand or change in customer tastes.
- Inadequate assured sources of quality product supply.
- Unavailability of experienced management and unforeseen complications.
- Delays.
- Cost increases.
- Opportunity costs.
The operating and financial covenants required by the new credit facilities
for the combined company may also restrict our ability to pursue business
opportunities and acquisitions. We cannot assure you that we will find
affordable companies to acquire, that we will succeed in integrating any
acquired business into our existing business or that we will retain key
customers and management of acquired businesses.
We May Not Be Able to Raise Needed Funds
In order to fulfill our intention to continue to make selected
acquisitions, FreshPoint America will need to raise additional debt or equity
capital funds. We cannot assure you that we will be able to raise the funds, or
that an acquisition will be permitted by the new credit facilities, when such a
need arises. Changes in interest rates, market liquidity, stock prices and
general market conditions may all affect our ability to raise funds.
Loss of Sam's Club as a Customer Could Adversely Affect Our Business
Sam's Club, a division of Wal-Mart Stores, Inc., is our primary customer
and accounted for approximately 37%, 55% and 66% of our sales for fiscal years
1998, 1997 and 1996, respectively. Our relationship with Sam's Club is governed
by the terms and conditions of a five-year agreement that became effective
December 1, 1995 and expires on November 30, 2000. The agreement gives us the
exclusive right to distribute fresh fruit and vegetables, refrigerated
prepackaged produce and produce-related refrigerated processed foods to Sam's
Club stores located within the geographic areas served by our distribution
centers.
Sam's Club is not required to purchase any particular quantity of produce
from us under the agreement. Any adverse development affecting Sam's Club or any
decision by Sam's Club to close existing clubs, reduce the number of new clubs
that it opens or reduce the number of clubs that offer fresh produce and related
products could have a material adverse effect on us. Our agreement with Sam's
Club may be terminated by Sam's Club prior to November 30, 2000 under certain
circumstances, for example, if we commit a material breach under the agreement
or there are material documented problems that continue unresolved with the
distribution of our products.
The agreement initially covered 375 Sam's Club stores. Sam's Club has the
right to terminate the agreement to the extent of 40 stores each year, which
right was fully exercised by Sam's Club in 1997, 1998 and 1999. We expect that
the trend may continue in 2000. Our expansion strategy is designed in part to
reduce our dependence on Sam's Club through strategic acquisitions as well as
the expansion of existing relationships with our other customers. As a result of
our strategic efforts, the percentage of our revenues derived from Sam's Club
has decreased from 98% at the start of the agreement to 37% for fiscal 1998. Our
objective before we signed the merger agreement was for Sam's Club revenues to
constitute no more than 20% of our
20
<PAGE> 30
annualized revenues by the end of fiscal 1999. On a pro forma basis giving
effect to the merger, Sam's Club revenues would have constituted 13% of
FreshPoint America's revenues for the three months ended March 27, 1999.
After the merger, Sam's Club will still be the single largest customer of
FreshPoint America. After giving effect to the merger, we anticipate Sam's Club
revenues to constitute no more than 10% of the combined company's revenues on an
annualized basis. Sam's Club has no obligation to extend or renew the agreement
or have any other vendor relationship with us after November 30, 2000. We
believe that the distribution experience and systems we have developed from our
relationships with Sam's Club and our other customers, as well as from the
merger and our acquisitions, will have enabled us to successfully diversify our
business. However, there is substantial risk that the agreement will not be
extended or renewed, and there can be no assurance that our ongoing
diversification efforts will be successful. To the extent that we are not able
to successfully generate additional profitable replacement business from our
internal and external programs by November 30, 2000, the loss of the Sam's Club
business could have a material adverse effect on our revenues and net income.
Potential Adverse Effects of Price and Quality Fluctuations
Prices of high quality fresh produce are extremely volatile based on
available supply, which can be significantly affected by factors such as
weather, disease and level of agricultural production. Both the sales and
profitability of Fresh America and FreshPoint could be negatively affected
during periods of exceptionally high, low or volatile prices or when either
company can not obtain sufficient high quality produce.
We Operate in Highly Competitive Markets
Both Fresh America and FreshPoint operate in highly competitive markets,
and the success of the combined company will be largely dependent on our ability
to provide quality products at the lowest possible prices. We will continue to
compete with foodservice companies, produce distribution companies and wholesale
food distribution companies, some of which have substantially greater financial
resources. We cannot assure you that FreshPoint America will be able to compete
successfully with current or future competitors.
Loss of Key Personnel Could Adversely Affect Our Business
Our future success will depend to a significant extent on the efforts and
abilities of our senior management team after the merger. The loss of the
services of one or more of our executive officers could have a material adverse
effect on the combined company.
We Have a Seasonal Business
Our business is seasonal, with our highest sales and net income
historically occurring during the fourth calendar quarter. Any adverse
development affecting our operations during this period, such as the
unavailability of high quality produce or harsh weather conditions, could have a
disproportionate impact on our results of operations for the full year.
Year 2000 Issues Could Adversely Impact Our Business
Advances and changes in technology can significantly impact our business.
The Year 2000 Issue creates risks from unforeseen problems in our own computer
systems or those of third parties who we deal with on a daily basis. Any
failures in those systems could have a material adverse effect on our business.
For additional information on the Year 2000 Issue, see "Fresh America
Management's Discussion and Analysis of Financial Condition and Results of
Operation" and "FreshPoint Management's Discussion and Analysis of Financial
Condition and Results of Operation" beginning on pages 78 and 86, respectively.
21
<PAGE> 31
THE ANNUAL MEETING
DATE, TIME AND PLACE
The Fresh America annual meeting will be held at the Crowne Plaza Suites,
7800 Alpha Road, Dallas, Texas 75240 on Friday, August 27, 1999, at 10:00 a.m.,
local time.
PROPOSALS
The Merger and Charter Amendment
At the annual meeting, Fresh America's shareholders will be asked to
consider and act upon a proposal to approve the merger agreement, dated as of
May 3, 1999, by and between Fresh America and FreshPoint. The merger agreement
provides for, among other things, the merger of FreshPoint with and into Fresh
America, pursuant to which 5,685,826 shares of Fresh America common stock will
be issued to FreshPoint's stockholders.
The number of shares of Fresh America common stock to be issued in the
merger is fixed pursuant to the merger agreement and will not be subject to
increase or decrease based on changes in the market value of Fresh America
common stock. As a consequence of the merger, the stockholders of FreshPoint
will own approximately 52% of outstanding FreshPoint America common stock
immediately following the merger.
The merger agreement is attached as Appendix A. All shareholders are urged
to read the merger agreement in its entirety.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
At the annual meeting, Fresh America's shareholders will be asked to
consider and act upon a proposal to amend and restate Fresh America's articles
of incorporation to, among other things, (1) change Fresh America's name to
"FreshPoint America, Inc.," (2) increase the number of authorized shares of
Fresh America common stock from 10,000,000 to 50,000,000, and (3) expand the
Fresh America Board of Directors from a six-member Board of Directors to an
eleven-member Board of Directors, consisting initially of five persons
designated by Fresh America and six persons designated by FreshPoint. The
designated directors will hold office upon the effectiveness of the merger until
the expiration of their terms and until their successors are elected and
qualified.
If the merger becomes effective, the bylaws of FreshPoint America will
provide that the eleven-member Board of Directors will be divided into three
classes, each class to be nearly as equal in number as possible. The initial
Class I directors will serve a term expiring at the first annual meeting after
the merger; the initial Class II directors will serve a term expiring at the
second annual meeting after the merger; and the initial Class III directors will
serve a term expiring at the third annual meeting after the merger. Upon the
expiration of the term of office of each class, the nominees for such class will
be elected for a term of three years to succeed the directors whose terms of
office expire. For more information regarding each designated director, see
"Management After the Merger" beginning on page 52.
Fresh America's articles of incorporation currently in effect authorize the
issuance of a total of 10,000,000 shares of common stock and 1,000,000 shares of
preferred stock, $1.00 par value, for a total authorized capital of 11,000,000
shares. Of the presently authorized 10,000,000 shares of Fresh America common
stock, as of July 8, 1999, 5,241,051 shares were issued and outstanding, an
additional 978,182 shares were reserved for issuance pursuant to stock option
plans and warrants and an estimated 1,111,000 shares will be issued in
connection with contingent payments incurred in connection with prior
acquisitions. No shares of preferred stock were outstanding.
Fresh America does not have a sufficient number of authorized but unissued
shares of common stock to issue the 5,685,826 shares required to be issued in
the merger. If the charter amendment and the stock option plan amendment are
approved and the merger is consummated, (1) approximately 10,926,877 shares of
FreshPoint America common stock will be outstanding immediately after the
merger, (2) an additional
22
<PAGE> 32
1,603,182 shares of FreshPoint America common stock will be reserved for
issuance pursuant to stock option plans and warrants, (3) an estimated 1,111,000
shares will be issued in connection with contingent payments incurred in
connection with prior acquisitions and (4) approximately 36,358,941 shares of
FreshPoint America common stock will be available for future issuance.
The Board of Directors believes that the authorization of the 50,000,000
shares of common stock contemplated by the charter amendment is desirable so
that there will be sufficient shares available to issue in the merger and
thereafter for purposes that the Board of Directors may determine in the future
to be in the best interests of FreshPoint America and its shareholders. Such
purposes include offers of shares for cash, issuances for acquisitions, as well
as the declaration of stock splits and stock dividends and other general
corporate purposes. The terms of any future issuance of FreshPoint America
common stock will be dependent largely on market and financial conditions and
other factors existing at the time of any proposed issuance.
The proposed increase in authorized FreshPoint America common stock is
designed to provide flexibility to the Board of Directors. However, these
additional shares, if issued, could be used to create impediments to, or
otherwise discourage, persons attempting to gain control of FreshPoint America,
and will have a dilutive effect on shareholders.
The charter amendment is included as Exhibit A to the merger agreement. All
shareholders are urged to read the charter amendment in its entirety.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE CHARTER
AMENDMENT.
IN ORDER FOR THE MERGER TO BE CONSUMMATED, BOTH THE MERGER AGREEMENT AND THE
CHARTER AMENDMENT MUST BE APPROVED. NEITHER PROPOSAL WILL BE DEEMED APPROVED
UNLESS BOTH ARE APPROVED.
Stock Option Plan Amendment
At the annual meeting, Fresh America's shareholders will be asked to
consider and act upon a proposal to amend the Fresh America Corp. 1996 Stock
Option and Award Plan as Amended and Restated Effective May 22, 1998 to (1)
change the name of the stock option plan to the "FreshPoint America, Inc. 1999
Stock Option and Award Plan," and (2) increase the number of shares of Fresh
America common stock authorized for issuance under the plan from 625,000 shares
to 1,250,000 shares and provide for annual increases in the total number of
shares authorized for issuance pursuant to non-qualified options and restricted
stock grants under the plan equal to any percentage increase in the number of
issued and outstanding shares of FreshPoint America common stock from the prior
year.
If approved at the annual meeting, the stock option plan amendment only
will become effective upon consummation of the merger. The amended stock option
plan will permit the combined company to continue to grant options and to make
awards of restricted stock under the stock option plan, which the Board of
Directors believes is necessary in order to reward, motivate and retain
outstanding directors and employees and enable FreshPoint America to attract the
best personnel in the future.
Effective as of May 22, 1998, the Board of Directors adopted the Fresh
America Corp. 1996 Stock Option and Award Plan as Amended and Restated Effective
as of May 22, 1998. The shareholders of Fresh America approved the stock option
plan at the annual meeting held June 25, 1998. The stock option plan presently
states that up to a maximum of 625,000 shares of Fresh America common stock are
available for awards of options and restricted stock under the plan. As of July
19, 1999, options to purchase 164,500 shares of Fresh America common stock were
outstanding and 447,000 shares of Fresh America common stock were available for
future grants under the stock option plan.
A summary of the material features of the amended stock option plan
follows.
General. The stock option plan provides for grants of stock options and
restricted stock to directors, officers and other key employees of FreshPoint
America and its subsidiaries. The stock option plan is administered by a
committee of two or more non-employee directors designated by the Board of
Directors or by the Board of Directors as a whole.
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Shares Issuable through the Stock Option Plan. If the stock option plan
amendment is approved at the annual meeting, the aggregate number of shares of
FreshPoint America common stock issuable upon the exercise of options or grants
of restricted stock under the stock option plan will increase initially from
625,000 shares to 1,250,000 shares, and on the first day of each fiscal year
thereafter, the aggregate number of shares of FreshPoint America common stock
then issuable upon the exercise of non-qualified options and grants of
restricted stock will be increased by the same percentage that the total number
of issued and outstanding shares of FreshPoint America common stock increased
from the first day of the preceding fiscal year (if such percentage is
positive); provided, however, for the fiscal year ending June 2000, the
percentage increase will be determined from any increase in the number of shares
of FreshPoint America common stock from the first day after the merger to the
last day of the fiscal year ending June 2000. For example, if (1) the total
number of issued and outstanding shares of FreshPoint America common stock on
the first day after the merger was 12,000,000, (2) the total number of issued
and outstanding shares of FreshPoint America on the last day of the fiscal year
ending June 2000 was 13,200,000 (a 10% increase during the fiscal year), and (3)
the number of shares of FreshPoint America common stock then issuable under the
stock option plan was 1,250,000, the aggregate number of shares of Fresh Point
America common stock issuable under the stock option plan effective on the first
day of the fiscal year ending June 2001 would be 1,375,000 (a 10% increase).
Notwithstanding the foregoing, in no event may the number of shares issued
pursuant to qualified options granted under the stock option plan exceed
1,250,000.
Proportionate adjustments will be made to the number of shares of the
FreshPoint America common stock subject to the stock option plan in the event of
any recapitalization, stock dividend, stock split, combination of shares or
other change in the FreshPoint America common stock. The Board of Directors may,
but shall not be required to, also provide additional anti-dilution protection
to participants under the terms of the participants' option or restricted stock
agreements.
Shares of FreshPoint America common stock subject to options or restricted
stock grants that are cancelled, terminated or forfeited and shares of
FreshPoint America common stock used as payment for shares issued upon exercise
of an option will be available for reissuance under the stock option plan. The
top five executive officers of FreshPoint America may not be granted options
with respect to more than 1,250,000 shares in any year; lapsed or cancelled
options count against these limits.
Administration of the Stock Option Plan. The Board of Directors or the plan
administration committee, as the case may be, administers the stock option plan
and has authority (1) to select the participants that will be granted options
and restricted stock, (2) to terminate the plan or accelerate vesting of options
and restricted stock, (3) to determine the nature, extent, timing, exercise
price, vesting and duration of options and, as applicable, grants of restricted
stock, (4) to prescribe all other terms and conditions consistent with the stock
option plan, (5) to interpret the stock option plan, (6) to establish any rules
or regulations relating to the stock option plan that it determines to be
appropriate, and (7) to make any other determination that it believes necessary
or advisable for the proper administration of the stock option plan.
Stock Options and Restricted Stock. Unless the Board of Directors or the
plan administration committee determines otherwise, each non-employee director
of FreshPoint America will receive nonqualified options to purchase 5,000 shares
of FreshPoint America common stock on each August 8 that such director serves on
FreshPoint America's Board of Directors.
The Board of Directors or the plan administration committee may grant
nonqualified options or qualified options to purchase shares of FreshPoint
America common stock. The plan administration committee (or a subcommittee
comprised exclusively of outside directors, as defined by IRS regulations) has
exclusive authority over grants of options to the top five executive officers of
FreshPoint America. The Board of Directors or the plan administration committee
will determine the number and exercise price (which may not be less than the
fair market value of the FreshPoint America common stock on the date of grant)
of the options, and the time or times that the options become exercisable. The
term of an option will also be determined by the Board of Directors or the plan
administration committee, provided that the term of a qualified option may not
exceed ten years. In the case of a participant who owns more than 10% of the
total outstanding shares of FreshPoint America common stock, the exercise price
for any incentive stock option
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granted to such participant may not be less than 110% of the fair market value
of the FreshPoint America common stock on the date of grant and the term may not
exceed five years. The stock option plan provides that each grant of options or
restricted stock will vest in accordance with the applicable option or
restricted stock agreement. The option exercise price may be paid in cash, or,
at FreshPoint America's option, in shares of FreshPoint America common stock.
Termination of Employment. If a participant dies or becomes disabled, all
vested incentive stock options may be exercised at any time within one year (or
the remaining term of the option, if less). If a participant ceases to be a
FreshPoint America employee for any other reason, he or she must exercise any
vested incentive stock options within three months (or their remaining term, if
less).
Transferability of Options. Incentive stock options granted under the stock
option plan are transferable only by will or the laws of descent and
distribution. Nonqualified options granted under the stock option plan are
transferable only by will, the laws of descent and distribution or pursuant to a
domestic relations order issued by a court of competent jurisdiction; provided,
however, that the Board of Directors or plan administration committee, as the
case may be, may, in its discretion and as evidenced in the related nonqualified
option agreement, permit a participant to transfer his or her nonqualified
option to such participant's spouse, children or grandchildren or to one or more
partnerships or trusts where such immediate family members are the only partners
or beneficiaries if the participant does not receive any consideration in any
form for the transfer of such nonqualified option. Any nonqualified option so
transferred will continue to be subject to the same terms and conditions in the
hands of the transferee as were applicable immediately prior to the
participant's transfer of such option.
Amendments to the Stock Option Plan. The Board of Directors or the plan
administration committee may amend or discontinue the stock option plan at any
time subject to certain restrictions set forth in the stock option plan. Except
in limited circumstances, no amendment or discontinuance may adversely affect
any previously granted option award without the consent of the recipient
thereof. Shareholder approval is required if the number of shares issuable under
the stock option plan is increased or the class of eligible employees is
changed, except as otherwise set forth in the stock option plan.
Federal Income Tax Consequences. The following general description of
federal income tax consequences is based upon current statutes, regulations and
interpretations and does not purport to be complete. Reference should be made to
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). There also may be state, local and foreign income tax consequences
applicable to transactions involving options or restricted stock.
Under existing federal income tax provisions, a participant who receives
stock options will not normally realize any income, nor will FreshPoint America
normally receive any deduction for federal income tax purposes, upon the grant
of an option.
When a nonqualified stock option granted pursuant to the stock option plan
is exercised, the participant generally will realize ordinary income
(compensation) measured by the difference between the aggregate purchase price
of the FreshPoint America common stock as to which the option is exercised and
the aggregate fair market value of such FreshPoint America common stock on the
exercise date, and FreshPoint America generally will be entitled to a deduction
in the year the option is exercised equal to the amount the participant is
required to treat as ordinary income. Any taxable income recognized in
connection with a nonqualified stock option exercised by a participant who is
also an employee of FreshPoint America will be subject to tax withholding by
FreshPoint America. The basis for determining gain or loss upon a subsequent
disposition of FreshPoint America common stock acquired upon the exercise of a
nonqualified stock option will be the purchase price paid to FreshPoint America
for the FreshPoint America common stock increased by the amount included in the
participant's taxable income resulting from the exercise of such option. The
holding period for determining whether gain or loss on such subsequent
disposition is short-term or long-term generally begins on the date on which the
participant acquires the FreshPoint America common stock.
An employee generally will not recognize any income upon the exercise of an
incentive stock option, but the exercise may, depending on particular factors
relating to the employee, subject the employee to the
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alternative minimum tax. An employee will recognize capital gain or loss in the
amount of the difference between the exercise price and the sale price on the
sale or exchange of stock acquired pursuant to the exercise of an incentive
stock option, provided that the employee does not dispose of such stock within
two years from the date of grant and one year from the date of exercise of the
incentive stock option. An employee disposing of such shares before the
expiration of the required holding periods will recognize ordinary income equal
to the lesser of the difference between the option price and the fair market
value of the FreshPoint America common stock on the date of exercise, or the
total amount of gain realized. The remaining gain or loss is generally treated
as short-term or long-term capital gain or loss depending on how long the shares
are held. FreshPoint America will not be entitled to a federal income tax
deduction in connection with the exercise of an incentive stock option, except
where the employee disposes of the shares of FreshPoint America common stock
received upon exercise before the expiration of the required holding periods.
A restricted stock award is not currently taxable income to a participant
for so long as the stock is subject to a substantial risk of forfeiture and
cannot be transferred free of forfeiture. The participant will generally be
taxed on compensation income equal to the fair market value of the stock on the
date the restrictions on the shares lapse.
The participant may elect under Section 83(b) of the Code, however, to be
taxed immediately on the value of the shares awarded as of the date of grant.
Such an election must be made within 30 days after the award of shares and must
be filed with the Internal Revenue Service. If the participant makes the Section
83(b) election and subsequently forfeits his or her shares, no deduction is
permitted with respect to the forfeiture.
The participant's tax basis in shares acquired through a stock award equals
the amount of compensation income recognized upon vesting (or upon grant, in the
case of a Section 83(b) election). Generally, if the participant subsequently
sells the shares, any gain or loss will be capital.
Interests of Certain Persons in Matters to be Acted Upon. In considering
whether to vote for approval of the amendment to the stock option plan,
shareholders should be aware that each of the directors, the designated
directors and executive officers may have received option grants under the stock
option plan and will be eligible to receive option grants and restricted stock
awards under the stock option plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK OPTION PLAN
AMENDMENT.
Nominee for Current Board
At the annual meeting, Fresh America's shareholders will be asked to elect
one Class II director to serve until the merger is consummated, or if for any
reason the merger is not consummated, until the expiration of his three year
term and until his successor is elected and qualified.
The Board of Directors has proposed Lawrence V. Jackson as nominee for
reelection as Class II director. If at the time of the annual meeting Mr.
Jackson is unable to serve, the shares represented by proxy may be voted for a
substitute nominee to be designated by the Board of Directors. For information
regarding the nominee, see "Management After the Merger" beginning on page 52.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEE FOR
CLASS II DIRECTOR.
Other Proposals to be Presented
At the annual meeting, Fresh America's shareholders will be asked to
transact such other business that may properly come before the annual meeting
and any adjournments thereof. Fresh America does not know of any other matters
to be voted on at the annual meeting.
WHO CAN VOTE AT THE ANNUAL MEETING
The Board of Directors has fixed the close of business on July 8, 1999 as
the record date for determining which shareholders are entitled to notice of and
to vote at the annual meeting. Only holders of record of Fresh
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America common stock at the close of business on the record date will be
entitled to notice and to vote. As of the record date, there were 5,241,051
shares of Fresh America common stock outstanding and entitled to be voted at the
annual meeting, which were held by approximately 93 holders of record. Based on
information available to Fresh America, it believes there are approximately
3,000 beneficial owners of Fresh America common stock.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of outstanding shares of Fresh America common stock entitled
to vote at the annual meeting is necessary to constitute a quorum. Fresh America
intends to count shares of Fresh America common stock present in person at the
annual meeting but not voted, and shares of Fresh America common stock for which
it has received proxies, but with respect to which holders of shares have
abstained on any matter, as present at the annual meeting for purposes of
determining the presence or absence of a quorum for the transaction of business.
If a quorum is not present at the annual meeting, either in person or by proxy,
the annual meeting may be adjourned from time to time until a quorum is
obtained.
VOTING AND PROXIES
Each record holder of Fresh America common stock on the record date is
entitled to cast one vote per share of common stock owned.
All shares of Fresh America common stock represented at the annual meeting
by properly executed proxies received by Fresh America in time to be voted at
the annual meeting, and which are not revoked, will be voted in accordance with
the instructions indicated on such proxies. If no instructions are given, the
proxies will be voted as follows:
- "FOR" approval and adoption of the merger agreement and the charter
amendment.
- "FOR" approval of the amendment to the stock option plan.
- "FOR" the election of the nominee proposed by the Board of Directors for
reelection as Class II director.
- In the discretion of the proxy holders on any other matter voted on,
which includes a motion to adjourn or postpone the annual meeting to
solicit additional proxies; however, no proxy voted against a proposal
will be voted in favor of any adjournment or postponement to solicit
additional votes in favor of that proposal.
Fresh America shareholders who grant their proxy can revoke the proxy
before it is voted by any of the following:
- Providing written notice of revocation to the corporate secretary of
Fresh America prior to the annual meeting.
- Executing a later-dated proxy relating to the same shares and delivering
it to the corporate secretary of Fresh America prior to the annual
meeting.
- Attending the annual meeting, filing a written notice of revocation with
the secretary of the meeting and voting in person.
Any written notice of revocation or subsequently executed proxy should be
either: (1) delivered to Fresh America Corp., 6600 LBJ Freeway, Suite 180,
Dallas, Texas 75240, Attention: Corporate Secretary; (2) hand delivered to Fresh
America's corporate secretary at that address on or before the day of the annual
meeting; or (3) hand delivered to the Inspector of Elections at the annual
meeting before the taking of the vote.
Shareholders whose shares of Fresh America common stock are not registered
in their name need additional documentation from the record holder of their
shares in order to be admitted to and to vote at the annual meeting. Examples of
such documentation include a broker's statement, letter or other document
confirming their ownership of Fresh America common stock.
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SOLICITATION OF PROXIES
Fresh America will pay for the soliciting of proxies from its shareholders.
Proxies may be solicited by directors, officers and employees of Fresh America
by mail, personally, by telephone, facsimile or other means. Directors, officers
and employees who solicit proxies may be reimbursed for reasonable out-of-pocket
expenses. Fresh America will also request persons, firms and corporations
holding shares of Fresh America common stock in their names or in the name of
their nominees, which are beneficially owned by others, to forward proxy
materials to and obtain proxies from such beneficial owners, and will reimburse
such record holders for their reasonable expenses incurred in doing so.
Fresh America has engaged Corporate Investor Communications, Inc. to
represent it in connection with the solicitation of proxies at a cost of
approximately $30,000 plus expenses. In addition, Fresh America may pay for and
utilize the services of other individuals or companies employed by Fresh America
in connection with the solicitation of proxies for the annual meeting if the
Board of Directors determines that this is advisable.
OBJECTING SHAREHOLDERS' RIGHTS
Texas law does not require that Fresh America shareholders be afforded any
appraisal rights or the right to receive cash for their shares of Fresh America
common stock in connection with, or as a result of, the matters to be acted upon
at the annual meeting. Fresh America does not intend to make available any such
rights to its shareholders.
VOTE REQUIRED; PRINCIPAL SHAREHOLDERS
The approval and adoption of the merger agreement and the charter amendment
will require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Fresh America common stock entitled to vote at the annual
meeting. A plurality of the votes cast at the annual meeting is required to
approve the stock option plan amendment and to elect the Class II nominee to the
Board of Directors.
Failure to return a properly executed proxy card or to vote in person, or
abstaining from voting, will have the same effect as a vote against the merger
agreement and the charter amendment. Failure to provide specific instructions to
a broker with respect to shares (a "broker non-vote") will result in such shares
not being counted as having been voted in person or by proxy at the annual
meeting. Shares underlying broker non-votes will have the same effect as a vote
against the merger agreement and the charter amendment.
As an inducement to FreshPoint's entering into the merger agreement, two of
Fresh America's principal shareholders, David Sheinfeld and Thomas Hubbard, have
agreed to vote, or direct the vote, of all of the shares of Fresh America common
stock owned by them and their affiliates, which represent approximately 18% of
the outstanding Fresh America common stock, in favor of the merger agreement and
the charter amendment.
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BACKGROUND AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
For the last several years, Fresh America has been pursuing an external and
internal growth strategy designed to (1) increase its size so it can better
compete as a low-cost, high-quality national distributor of fresh produce and
(2) diversify its customer base and provide other sources of revenue to reduce
its dependence on Sam's Club. Pursuant to that strategy, Fresh America completed
seven acquisitions in 1997 and seven acquisitions in 1998. All of these
acquisitions were of relatively smaller companies with annual revenues of under
$100 million. Fresh America believed that it could more successfully and quickly
execute its strategy by making a much larger acquisition. In that connection, in
1996, Fresh America was one of the preliminary bidders for the North American
produce distribution operations of Albert Fisher. Those operations were
eventually purchased in a management buy-out sponsored by Rosecliff and became
FreshPoint.
In addition to pursuing a larger acquisition, Fresh America also wanted to
continue expanding in the higher-margin foodservice segment of the fresh produce
business. While similar to other aspects of produce distribution, management
recognized that there are unique customer service components to this segment of
the industry and Fresh America could benefit from additional foodservice
expertise. To round out its menu of services and to continue its strategy to
grow and diversify, Fresh America began looking for a partner with a strong
foodservice capability.
In April 1998, David Sheinfeld, Chairman of the Board and Chief Executive
Officer of Fresh America, approached Mitt Parker, President and Chief Executive
Officer of FreshPoint, to discuss the concept of a strategic merger of the two
companies. After a couple of months of discussions and determining that a merger
could be attractive to both companies, Mr. Sheinfeld notified the Board of
Directors of his interest to pursue such a merger. During the fall of 1998, the
senior management of both companies analyzed the economic environment, their
relative operations and customer bases, and opportunities to enhance the
efficiency of the combined operations on a going-forward basis.
In September 1998 Fresh America and FreshPoint executed confidentiality
agreements and began exchanging additional financial and operating information.
With the additional information, Fresh America continued to review and analyze
the combined entity to determine the desirability of a merger. Fresh America
retained Bear Stearns & Co. as its financial advisor to assist in reviewing and
analyzing a merger.
Starting in the fourth quarter of 1998, the parties discussed various
issues for a "merger of equals" transaction, including the relative share
ownership, board composition and management of the combined company. In January
1999, counsel for Fresh America delivered an initial draft of the merger
agreement to counsel for FreshPoint. In February 1999, representatives of Fresh
America and FreshPoint met in New York City to negotiate relative values and the
other principal financial and business terms. Shortly thereafter, the parties
were in general agreement on the principal business terms, subject, among other
things, to documentation, completion of due diligence, the advice of their
financial and legal advisors and receiving the consent of Albert Fisher to the
transaction. Accordingly, the parties and their respective advisors proceeded to
negotiate the merger agreement and the related agreements over the next two
months. In addition, during most of March and April, FreshPoint negotiated with
Albert Fisher the terms of Albert Fisher's consent to the transaction and kept
Fresh America informed about the status of such negotiations. Fresh America
advised FreshPoint that the Albert Fisher consent was a precondition to the
execution of a merger agreement. By late April, the parties had negotiated
substantially final forms of the merger agreement and related agreements,
including the Albert Fisher consent.
The Board of Directors met several times with Fresh America's management
and their financial and legal advisors to review the status of negotiations and
review the proposed transaction. On April 29, the Board of Directors held a
telephonic board meeting to review and consider the proposed merger. At the
meeting, the Board of Directors received an oral fairness opinion (subsequently
confirmed in writing) from Bear Stearns and unanimously approved the merger and
the merger agreement.
The merger agreement was signed and delivered on the morning of May 3,
1999.
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REASONS FOR THE MERGER
The Board of Directors believes that the merger agreement and the
transactions contemplated thereby are in the best interests of Fresh America and
its shareholders. Accordingly, the Board of Directors has unanimously approved
the merger agreement and the merger and recommends that the Fresh America
shareholders vote "for" the approval of the merger agreement and the charter
amendment.
In evaluating a business combination with FreshPoint and related
transactions, the Board of Directors reviewed and discussed the terms and
conditions of the proposed merger with Fresh America's management and their
legal and financial advisors. The Board of Directors considered a number of
factors, including, the factors listed below, in reaching its determination to
approve the merger agreement. In view of the wide variety of factors considered
by the Board of Directors in connection with its evaluation of the merger, the
Board of Directors did not consider it practicable to, nor did it attempt to,
quantify or otherwise assign relative weights to the specific factors it
considered in reaching its determination. In addition, individual members of the
Board of Directors may have given different weights to different factors.
The following summary is not exhaustive, but includes all material factors
considered by the Board of Directors:
Strategic Benefits in Consolidating Industry
For several years, Fresh America has been pursuing an external and internal
growth strategy designed to (1) increase its size so it can better compete as a
low-cost, high-quality national distributor of fresh produce and (2) diversify
its customer base and provide other sources of revenue to reduce its dependence
on Sam's Club. In considering how the merger fits Fresh America's strategy, the
Board of Directors considered:
- Management's view of recent trends in the food distribution industry,
particularly the trend toward consolidation and its impact on the produce
distribution industry.
- Management's view that the merger will further Fresh America's strategic
objectives by increasing Fresh America's revenue base, diversifying its
customer base and expanding its geographic coverage.
- The combination of Fresh America and FreshPoint will create one of the
largest fresh produce distributors in North America based on projected
pro forma fiscal 2000 net sales of over $1.5 billion.
- The agreement with Sam's Club expires on November 30, 2000 and there is a
substantial risk that it will not be renewed, as discussed in "Risk
Factors -- Loss of Sam's Club as a Customer Could Adversely Affect Our
Business" on page 20.
- The combined enterprise will have a distribution network through which it
could offer products and services across a broad geographic area
encompassing a vast majority of the U.S. population as well as a
substantial portion of Canada.
- The complementary nature of the businesses of the two companies.
- The merger will combine Fresh America's wholesale and retail distribution
strengths with FreshPoint's foodservice distribution expertise.
- The expertise of FreshPoint's senior management in the produce
distribution business.
- The economies of scale, cost savings and synergies that management
believes over time will result from the combination of Fresh America and
FreshPoint, as discussed under "Background and Reasons for the
Merger -- Potential Cost Savings and Operating Synergies", on page 32.
Information Concerning Fresh America and FreshPoint
In evaluating the terms of the merger, the Board of Directors also
considered information with respect to the financial condition, results of
operations, businesses and prospects of Fresh America and FreshPoint, and
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current industry, economic and market conditions. As part of such consideration,
the Board of Directors took into account:
- FreshPoint is substantially more leveraged than Fresh America and the
combined company would be subject to substantial debt service
requirements.
- The quality and experience of FreshPoint's senior management team.
- Since the formation of FreshPoint in November 1996, FreshPoint has
realized significant increases in sales and operating income.
Changes in Board of Directors and Management
The Board of Directors considered that as a result of the merger:
- It is highly probable that for at least the next two years, a majority of
the expanded eleven-member Board of Directors will consist of the initial
six directors designated by FreshPoint or, if any of such directors is no
longer serving, designated by former FreshPoint stockholders.
- FreshPoint senior management will be added to the Fresh America
management team. Mitt Parker, the Chief Executive Officer of FreshPoint,
will become the President and Chief Executive Officer and a director.
Brian Sturgeon, the Chief Operating Officer of FreshPoint, will become
Chief Operating Officer and a director.
Opinion of Bear Stearns
The Board of Directors considered the financial analyses of Bear Stearns
and the fairness opinion of Bear Stearns with respect to the merger
consideration. See "Bear Stearns Fairness Opinion" beginning on page 33.
Terms and Conditions of the Merger Agreement
The Board of Directors considered the terms and conditions of the merger.
In its review, the Board of Directors noted:
- The merger consideration will represent approximately 52% of FreshPoint
America common stock outstanding immediately after the merger, the number
of shares to be issued in the merger is fixed, and the merger is intended
to qualify as a tax-free transaction.
- The merger will be accounted for as a "reverse acquisition" under the
purchase method of accounting with FreshPoint being treated as the
purchaser for accounting purposes. FreshPoint America will adopt
FreshPoint's fiscal year, which ends on the Saturday closest to June 30.
- The provisions of the merger agreement require Fresh America to pay to
FreshPoint a termination fee of $3 million if there is a competing
transaction and the merger agreement is terminated in certain
circumstances.
- The effects of the increases in salary levels and other benefits to be
provided by the employment agreements to become effective upon the
closing of the merger and the possibility of future change of control or
severance payments under the employment agreements.
- The terms of the shareholders' agreement, the registration rights
agreement and the Albert Fisher consent.
- The proposed arrangements with respect to the current directors and
executive officers of Fresh America and FreshPoint, as described in
"Background and Reasons for the Merger -- Interests of Certain Persons in
the Merger" on page 33.
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Effect on Public Market for Fresh America Common Shares
The Board of Directors took into account the effects of approximately
doubling the number of issued and outstanding shares of Fresh America common
stock. Among such effects, the Board of Directors considered:
- Over time, the issuance of the shares of Fresh America common stock in
the merger will result in a more liquid public market for the common
stock. A more liquid public market could increase FreshPoint America's
ability to consummate future acquisitions by offering potential
acquisition targets an interest in FreshPoint America common stock.
- The dilutive effect of the merger during the first 12 months following
the merger and the accretive effect of the merger during the second 12
months following the merger if the contract with Sam's Club is not
renewed after November 2000.
- The negative impact the uncertainty about the future of Fresh America's
relationship with Sam's Club is having on the market for Fresh America
common stock.
- The registration rights agreement, including the 180-day lock-up provided
for therein, and its impact on the market for FreshPoint America common
stock.
POTENTIAL COST SAVINGS AND OPERATING SYNERGIES
The managements of Fresh America and FreshPoint have estimated that the
combination of the companies could create operating cost savings estimated to be
approximately $3 million for the fiscal year ending June 2000, $8 million for
the fiscal year ending June 2001, and $10 million for the fiscal year ending
June 2002 and each fiscal year thereafter. These estimates are based on
preliminary evaluations of opportunities for the combined company to realize
cost savings through consolidation of operations, procurement synergies and
freight savings and reductions in certain general and administrative expenses.
Although no assurances can be given as to the amount, nature and timing of
expected synergies, the managements of Fresh America and FreshPoint expect that
the bulk of these estimated cost savings should be derived from the following
opportunities:
- Operating efficiencies and synergies, including (1) the consolidation of
overlapping distribution and reduction of redundant facilities, and (2)
rationalization of routing logistics for overlapping service areas.
- The combination of management and administrative functions, and the
elimination of redundant departments and functions, including (1) cost
efficiencies in information system operations as a result of economies of
scale, and (2) cost savings from integrated, combined purchasing of
equipment and supplies.
- Enhanced purchasing leverage (resulting in a lower cost of goods),
selection of the most advantageous purchasing programs currently in
effect at the companies, and more favorable sales and marketing
allowances from growers and other suppliers resulting from increased
purchasing power. The combined company purchased more than $1 billion of
produce over the last 12 months on a pro forma basis.
These cost savings estimates were developed jointly by Fresh America and
FreshPoint solely for purposes of evaluating the merger. The estimates do not
include non-recurring adjustments that will be recorded in conjunction with the
merger and they should not be relied upon as an estimate of actual cost savings
that may be achieved, which may vary materially from such estimates. These
estimates are based upon assumptions that are inherently uncertain, though
considered reasonable by Fresh America and FreshPoint, and are subject to
significant business, economic and competitive uncertainties which are difficult
to predict and often beyond the control of management.
Following the merger, the combined company expects to grow and enhance
revenues in a variety of ways, such as:
- The produce distribution industry remains large and highly fragmented,
with thousands of businesses around North America servicing customers'
produce needs. The expanded geographic coverage of the
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combined company will broaden its capabilities to service national
customers and should provide opportunities to gain a larger share of the
business of each company's national and regional customers.
- The combined operations of Fresh America and FreshPoint will manage
300,000 truck lanes and operate over 1,100 trucks. The combined company
will leverage this volume resulting in advantageous rates and greater
availability of carriers.
- FreshPoint America's larger size and capital base should enable it to
more easily make acquisitions that will contribute to its growth.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some directors and executive officers of Fresh America have interests in
the merger that are different from, or in addition to, their interests as
shareholders in Fresh America. The members of the Board of Directors knew about
these additional interests, and considered them, when they approved the merger
agreement and the merger.
Fresh America has entered into employment agreements with two of its
executive officers, namely David Sheinfeld and John Gray, to be effective at the
consummation of the merger. The new employment agreements provide for
substantial salary increases for Messrs. Sheinfeld and Gray and provide for the
grant of options to purchase shares of the combined company's common stock, in
amounts to be determined at or promptly after the time of the merger. In
addition, the performance-based bonus plan to be adopted at or promptly after
the time of the merger could result in substantially higher bonus levels for
Messrs. Sheinfeld and Gray. As part of the merger, Mr. Sheinfeld will have a
$125,000 loan owing to Fresh America forgiven.
Sheldon Stein is a member of the Board of Directors and is also a Senior
Managing Director of Bear Stearns, financial advisors to Fresh America in this
matter. In connection with the merger, Bear Stearns is entitled to a fee from
Fresh America of $800,000, and Fresh America has agreed to pay Bear Stearns an
additional fee of $950,000 upon consummation of the merger. Bear Stearns also
will participate in the syndication of the proposed senior credit facilities and
will receive a fee in an amount customary for similar transactions.
Additionally, if within 18 months after the merger FreshPoint America elects to
engage an investment bank for the public or private sale of long-term debt
securities (other than bank debt), Bear Stearns will have a right to act as a
manager or agent with respect to such transaction.
BEAR STEARNS FAIRNESS OPINION
On April 29, 1999, Bear Stearns delivered to the Board of Directors Bear
Stearns' opinion that, as of the date thereof, and subject to the assumptions
and qualifications set forth in the opinion, the merger consideration was fair,
from a financial point of view, to the shareholders of Fresh America.
The full text of Bear Stearns' opinion is set forth as Appendix B to this
proxy statement and describes the assumptions made, matters considered and
limits on the review undertaken. All shareholders are urged to read the opinion
in its entirety. The summary of Bear Stearns' opinion set forth in this proxy
statement is qualified in its entirety by reference to the full text of such
opinion.
Bear Stearns' opinion is intended for the benefit and use of the Board of
Directors, and does not constitute a recommendation of the merger or a
recommendation to any shareholder of Fresh America as to how any shareholder
should vote on the merger or any issue relating to the merger. In rendering its
opinion, Bear Stearns is not expressing any opinion as to what the value of
Fresh America common stock actually will be at the time of the merger or at any
time prior to or subsequent to the consummation of the merger. Finally, the Bear
Stearns' opinion does not address Fresh America's underlying business decision
to effect the merger. It should be understood that, although subsequent
developments may effect the conclusions reached in the opinion, Bear Stearns
does not have any obligation to, nor does it intend to update, revise or
reaffirm its opinion.
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The form and amount of merger consideration pursuant to the merger
agreement was determined by arm's-length negotiations between Fresh America and
FreshPoint and was not based on any recommendation by Bear Stearns, although
Bear Stearns provided advice to Fresh America and the Board of Directors of
Fresh America from time to time. Except as otherwise noted in its opinion, no
limitations were imposed by Fresh America or the Board of Directors on Bear
Stearns with respect to the investigations made or the procedures followed by
Bear Stearns in rendering its opinion.
In the course of their analyses for rendering the opinion, Bear Stearns:
- Reviewed the merger agreement in substantially final form.
- Reviewed Fresh America's Annual Reports on Form 10-K for the years ended
January 3, 1997, January 2, 1998 and January 1, 1999, and its Quarterly
Reports on Form 10-Q for the quarters ended April 3, July 3 and October
2, 1998.
- Reviewed FreshPoint's audited financial statements for the seven months
ended June 28, 1997 and the year ended June 27, 1998, the unaudited
financial statements for the six months ended December 26, 1998, and
preliminary results for the quarter ended March 27, 1999.
- Reviewed certain operating and financial information of Fresh America and
FreshPoint, including projections and projected cost savings and
operating synergies, provided to Bear Stearns by Fresh America's and
FreshPoint's management relating to their respective businesses and
prospects.
- Met with certain members of Fresh America's and FreshPoint's senior
management to discuss their respective operations, historical financial
statements and future prospects and their views of the business,
operational and strategic benefits, cost savings, potential synergies and
other implications of the merger.
- Reviewed the historical prices and trading volumes of Fresh America
common stock.
- Reviewed publicly available financial data and stock market performance
data of other publicly held companies that Bear Stearns deemed generally
comparable to Fresh America and FreshPoint.
- Conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In the course of its review Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to Bear Stearns by Fresh America and FreshPoint. With
respect to Fresh America's and FreshPoint's projected financial results
(including projected cost savings and operating synergies resulting from the
merger), Bear Stearns assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Fresh America and FreshPoint as to the expected future performance
of Fresh America and FreshPoint, respectively. Bear Stearns did not assume any
responsibility for the independent verification of the information or the
projections (including projected cost savings and operating synergies resulting
from the merger), provided to it, and Bear Stearns further relied upon the
assurances of the management of Fresh America and FreshPoint that they are
unaware of any facts that would make the information or projections (including
projected cost savings and operating synergies resulting from the merger),
provided to Bear Stearns incomplete or misleading. In arriving at its opinion,
Bear Stearns did not perform or obtain any independent appraisal of the assets
and liabilities of Fresh America and FreshPoint, nor was Bear Stearns provided
with any appraisals. Bear Stearns also assumed that the merger will constitute a
tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1996, as amended. The Bear Stearns opinion is necessarily based
on economic, market, and other conditions, and the information made available to
Bear Stearns, as of the date of the opinion
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of such analyses, as set forth below, does not purport to be a complete
description of the analyses underlying Bear Stearns' opinion. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
summary description. Bear Stearns believes that its
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analyses must be considered as a whole, and that selecting portions of its
analyses and the factors considered by it, without considering all such factors
and analyses, could create an incomplete view of the processes underlying Bear
Stearns' opinion. Moreover, the estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Accordingly, such estimates
are inherently subject to substantial uncertainties.
In connection with its engagement, Bear Stearns was not authorized to
solicit, and did not solicit, third party indications of interest with respect
to the acquisition of all or a part of Fresh America, nor did Bear Stearns
review with Fresh America or the Board of Directors any potential transactions
in lieu of the merger.
The following is a summary of the material valuation, financial and
comparative analyses presented by Bear Stearns to the Board of Directors on
April 29, 1999 in connection with the Bear Stearns' opinion, which was rendered
on such date.
Relative Contribution Analysis
Bear Stearns reviewed with the Board of Directors the relative contribution
of each of Fresh America and FreshPoint to certain income statement categories
of the combined company, primarily earnings before interest, taxes, depreciation
and amortization ("EBITDA") and net income for 1998 (pro forma, as if all
acquisitions completed in 1998 occurred on January 1, 1998), 1999E, 2000E and
2001E (as used in this proxy statement, an "E" when used with a date means
"estimated"). Furthermore, in consideration of the expiration of Fresh America's
contract with Sam's Club in November 2000, Bear Stearns analyzed the relative
contributions with and without the inclusion of the Sam's Club business. The
relative contributions of these income statement categories were then compared
to the relative enterprise value (market equity value plus debt less cash)
percentages (in the case of EBITDA) or the relative equity value percentages (in
the case of net income) implied by the merger consideration.
In the analysis of the relative contributions without the inclusion of the
Sam's Club business, Bear Stearns calculated the number of shares of the
combined company that Fresh America's shareholders should own based on Fresh
America's relative contribution of net income (excluding the Sam's Club
business) plus the present value of the Sam's Club business, which Bear Stearns
calculated to be $13.5 million. Bear Stearns noted that in 1999E, including
projected cost savings and operating synergies, Fresh America will contribute
34.2% of the combined company net income (excluding the Sam's Club business).
Bear Stearns further noted that if Fresh America shareholders retain 34.2% of
the combined company shares (3.8 million shares) plus 0.7 million shares, which
is the number of shares equal to the present value of the Sam's Club business
($13.5 million), divided by the then current Fresh America stock price of $18.50
per share, the shareholders would retain 4.5 million combined company shares.
Bear Stearns compared the implied 4.5 million shares to the 5.4 million actual
combined company shares that Fresh America shareholders will retain. Bear
Stearns added that based on relative net income contributions in 2000E and
2001E, including projected cost savings and operating synergies, Fresh America
shareholders will also retain more shares in the combined company than what the
relative net income contribution percentages implied. Without synergies, Bear
Stearns noted that Fresh America's relative contribution of net income
(excluding the Sam's Club business) will be 42.9% in 1999E, which, when added to
the number of shares represented by the present value of the Sam's Club
business, equates to 5.5 million shares, which is generally in-line with the 5.4
million combined company shares that Fresh America shareholders will retain.
Bear Stearns added that based on relative net income contributions in 2000E,
without the effects of projected cost savings and operating synergies, Fresh
America shareholders will retain more shares in the combined company than what
the relative contribution percentages implied.
Bear Stearns also performed a similar analysis by using Fresh America's and
FreshPoint's relative contributions of EBITDA (excluding the Sam's Club
business) to calculate Fresh America's implied share of the combined enterprise
value. Bear Stearns then compared Fresh America's implied share of the combined
enterprise value to Fresh America's current enterprise value. Bear Stearns noted
that in 1999E, including
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projected pro forma synergies, Fresh America will contribute 33.7% of the
combined company's EBITDA (excluding the Sam's Club business). Bear Stearns
further noted that if Fresh America's enterprise value was equal to 33.7% of the
combined company's enterprise value plus the present value of the Sam's Club
business ($13.5 million), Fresh America would have an enterprise value of $139.6
million. Bear Stearns compared the $139.6 million to the current Fresh America
enterprise value of $156.8 million. Bear Stearns also performed this analysis of
EBITDA contributions for 2000E and 2001E, with and without synergies, and came
to conclusions similar to the conclusions discussed in the net income
contribution analysis above.
In a separate analysis, Bear Stearns compared Fresh America's and
FreshPoint's relative contributions (including the Sam's Club business) of
EBITDA in 2001E (the first year after the expiration of the Sam's Club contract)
and noted that Fresh America will contribute 42.5% of the combined company's
EBITDA, but will retain a greater percentage (43.4%) of the combined enterprise
value. In addition, Bear Stearns compared the relative contribution of net
income in 2001E (the first year after the expiration of the Sam's Club contract)
and noted that Fresh America will contribute 46.3% of the combined company net
income, but will retain a greater percentage (48.6%) of the combined equity
value.
Has/Gets Analysis
Bear Stearns performed a has/gets analysis on Fresh America's projected
earnings per share for 1999E, 2000E and 2001E. Bear Stearns combined the
projected operating results of Fresh America (provided by Fresh America
management) with the corresponding projected operating results of FreshPoint
(provided by FreshPoint management), with and without the projected cost savings
and operating synergies, to arrive at the combined company projected net income.
Bear Stearns divided the combined company net income by the pro forma fully
diluted shares outstanding to arrive at a combined company earnings per share.
Bear Stearns then compared the pro forma combined company earnings per share to
Fresh America's projected stand-alone earnings per share (provided by Fresh
America management) to determine the pro forma impact on Fresh America's
earnings per share. This analysis suggested that, including the projected cost
savings and operating synergies, the merger should result in accretion in the
year ended December 31, 2000. Even without consideration for the projected cost
savings and revenue and operating synergies, the merger is expected to result in
accretion in the year ended December 31, 2001 (the first year after the
expiration of the Sam's Club contract).
Discounted Cash Flow Analysis
Bear Stearns performed a discounted cash flow analysis of the combined
company and of Fresh America on a stand-alone basis using fiscal 1999E through
fiscal 2003E projections provided by Fresh America and FreshPoint management.
Bear Stearns used discount rates of 10% to 16%, based on a weighted average cost
of capital for other companies involved in the foodservice and distribution
industry. In performing its analysis, Bear Stearns used terminal EBITDA
multiples of 4.0x to 7.0x for both the combined company and Fresh America
standalone. Bear Stearns added the present values of the discounted free cash
flows to the present values of the terminal values to arrive at a range of
enterprise values for the combined company and Fresh America. Bear Stearns then
deducted long-term debt and added cash to the enterprise values for the combined
company and Fresh America to arrive at a range of equity values for the combined
company and Fresh America, and then divided such equity values by the relevant
number of outstanding shares to calculate a range of equity values per share for
the combined company and Fresh America. Based on such equity values per share,
Bear Stearns noted that the combined company values per share exceeded the Fresh
America stand-alone values per share within the relevant range of values.
Other Analyses
Bear Stearns conducted such other analyses as it deemed necessary,
including reviewing historical and updated projected financial and operating
data for both Fresh America and FreshPoint and selected investment research
reports on Fresh America and the fresh produce distribution industry, including
reviewing available information regarding the individual and institutional
holders of Fresh America common stock.
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Pursuant to the terms of its engagement letter, Bear Stearns is entitled to
receive an $800,000 fee from Fresh America, and Fresh America has agreed to pay
Bear Stearns an additional $950,000 fee upon consummation of the merger. Fresh
America also has agreed to reimburse Bear Stearns for its reasonable out-
of-pocket expenses, and to indemnify Bear Stearns and certain related persons
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of its engagement. Additionally, if within 18
months after the merger FreshPoint America elects to engage an investment bank
for the public or private sale of long-term debt securities (other than bank
debt), Bear Stearns will have a right to act as a manager or agent with respect
to such transaction.
Bear Stearns may actively trade the equity securities of Fresh America for
its own account and for the account of its customers and, accordingly, may at
any time hold a long or short position in such securities.
Bear Stearns is an internationally recognized investment banking firm and
was selected as financial advisor to the Board of Directors in connection with
the merger and asked to provide advice to the Board of Directors of Fresh
America in the merger negotiations and render its opinion in connection with the
merger based on Bear Stearns' qualifications, expertise and reputation in
providing advice to companies in merger transactions. As part of its investment
banking business, Bear Stearns is engaged regularly in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bidding, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, which is attached as Appendix A. Such summary is qualified in its
entirety by reference to the merger agreement. All shareholders are urged to
read the merger agreement in its entirety.
GENERAL
The merger agreement provides that, following the requisite approval of the
merger agreement and the charter amendment by the shareholders of Fresh America
and the satisfaction or waiver of the other conditions to the merger:
- FreshPoint will merge with and into Fresh America. FreshPoint will cease
to exist and Fresh America will continue as the surviving corporation
following the merger.
- As a result of the merger, as of the effective time, Fresh America will
succeed to and assume all rights and obligations of FreshPoint.
- Fresh America will change its name to "FreshPoint America, Inc." and its
headquarters will be in Dallas, Texas.
EFFECTIVE TIME
The merger agreement provides that, subject to the requisite approval of
the shareholders of Fresh America and subject to the satisfaction or waiver of
certain other conditions, the merger will become effective upon the filing of an
appropriate certificate of merger, in accordance with the relevant provisions of
the Texas Business Corporation Act, with the Secretary of State of the State of
Texas and a certificate of merger, in accordance with the relevant provisions of
the Delaware General Corporation Law, with the Secretary of State of the State
of Delaware.
MERGER CONSIDERATION
All of the equity securities of FreshPoint Holdings will be exchanged for
5,685,826 shares of Fresh America common stock. Immediately following the
merger, the stockholders of FreshPoint will own approximately 52% of FreshPoint
America's outstanding common stock. It is anticipated that the following
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principal stockholders of FreshPoint will beneficially own the following
approximate percentages of FreshPoint America's common stock:
<TABLE>
<CAPTION>
STOCK OWNERSHIP
BENEFICIAL OWNER AFTER MERGER
- ---------------- ---------------
<S> <C>
Rosecliff Investors......................................... 23.7%
FreshPoint management....................................... 13.7%
Albert Fisher............................................... 14.6%
</TABLE>
None of the approximately 50 Rosecliff Investors will beneficially own more than
4.9% of FreshPoint America common stock immediately after the merger, and none
of the approximately 36 FreshPoint management members will beneficially own more
than 4.25% of FreshPoint America common stock immediately after the merger. The
above percentages are calculated based on an assumed market price of Fresh
America common stock of $13.00 and assumes the merger takes place on August 31,
1999.
REPRESENTATIONS AND WARRANTIES
FreshPoint's Representations and Warranties
The merger agreement contains various customary representations and
warranties of FreshPoint relating to, among other things:
(1) its organization, standing and similar corporate matters;
(2) its capital structure;
(3) its authority to enter into the merger agreement;
(4) the absence of conflicts with its organizational documents,
applicable laws or defaults under various agreements triggered by the
merger agreement;
(5) governmental filings, including those required under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the Perishable
Agricultural Commodities Act;
(6) compliance with the law, including environmental laws;
(7) the preparation of financial statements;
(8) the absence of material adverse changes or events;
(9) the absence of undisclosed liabilities;
(10) the absence of any pending or threatened litigation against it or
any of its subsidiaries that would have a material adverse effect on
FreshPoint and its subsidiaries, taken as a whole, or prevent or
significantly delay the consummation of the transactions contemplated by
the merger agreement;
(11) employee benefit plans and labor matters;
(12) tax matters;
(13) stockholders and affiliates;
(14) material contracts;
(15) insurance;
(16) properties owned by FreshPoint and its subsidiaries;
(17) year 2000 compliance;
(18) intellectual property rights;
(19) customers and suppliers;
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(20) the vote required to approve the merger agreement;
(21) broker relationships in connection with the merger;
(22) the truth of information provided; and
(23) transactions with affiliates.
Fresh America's Representations and Warranties
The merger agreement contains various representations and warranties of
Fresh America relating to, among other things:
(1) its organization, standing and similar corporate matters;
(2) its capital structure;
(3) its authority to enter into the merger agreement;
(4) the absence of conflicts with its organizational documents,
applicable laws or defaults under various agreements triggered by the
merger agreement;
(5) governmental filings, including those required under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the Perishable
Agricultural Commodities Act;
(6) compliance with the law, including environmental laws;
(7) the filing of SEC reports and the preparation of financial
statements;
(8) the absence of material adverse changes or events;
(9) the absence of undisclosed liabilities;
(10) the absence of any pending or threatened litigation against it or
any of its subsidiaries that would have a material adverse effect on Fresh
America and its subsidiaries, taken as a whole, or prevent or significantly
delay the consummation of the transactions contemplated by the merger
agreement;
(11) employee benefit plans and labor matters;
(12) tax matters;
(13) material contracts;
(14) insurance;
(15) properties owned by Fresh America and its subsidiaries;
(16) year 2000 compliance;
(17) intellectual property rights;
(18) customers and suppliers;
(19) the vote required to approve the merger agreement;
(20) broker relationships in connection with the merger;
(21) the opinion of Fresh America's financial advisor;
(22) transactions with affiliates;
(23) compliance with Delaware statutes; and
(24) the truth of information provided.
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CERTAIN COVENANTS
Affirmative Covenants
The merger agreement contains various customary covenants, including
covenants of both Fresh America and FreshPoint that during the period from the
date of the merger agreement until the effective time of the merger, except as
permitted by or contemplated in the merger agreement, Fresh America and
FreshPoint, and each of their subsidiaries, will, among other things:
(1) conduct their operations in the ordinary course of business;
(2) use their reasonable commercial efforts to preserve intact their
business organizations, maintain material contracts, permits and other
material rights, retain the services of their respective officers and key
employees and maintain relationships with material customers and suppliers;
(3) use their reasonable commercial efforts to keep in full force and
effect insurance and bonds in amounts and scope of coverage comparable to
that currently maintained by each;
(4) use their reasonable commercial efforts to deliver accountant
comfort letters to the other party within two business days before the date
this proxy statement is mailed to Fresh America shareholders; and
(5) promptly supplement their respective disclosure schedules should
any undisclosed matter arise or be discovered.
In addition, Fresh America will forgive employee loans of $125,000 owing
from David Sheinfeld and $25,000 owing from Steve Grinstead, and FreshPoint will
forgive employee loans of $750,000 owing from Mitt Parker and $110,000 owing
from Brian Sturgeon.
Negative Covenants
Further, Fresh America and FreshPoint have agreed that, among other things
and subject to certain conditions and exceptions noted in the merger agreement,
they will not (and will cause their subsidiaries not to), without the prior
consent of the other party (not to be unreasonably withheld):
(1) increase the compensation of any director, officer, key employee
or consultant or grant any severance or termination pay, other than in the
ordinary course of business;
(2) enter into or amend any employment or severance agreement with any
director, officer or key employee or pay any benefit not required by any
existing plan or arrangement, including the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units;
(3) establish, adopt, enter into, or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, savings, welfare, deferred compensation,
employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of
any directors, officers or current or former employees, except in each case
to the extent required by law;
(4) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, except for dividends by a
wholly-owned subsidiary of either party to such party or another
wholly-owned subsidiary of such party;
(5) redeem, purchase or otherwise acquire any shares of their or any
of their subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of their or their
subsidiaries' capital stock, or any options, warrants or conversion or
other rights to acquire any shares of their or their subsidiaries' capital
stock or any such securities or obligations;
(6) effect any reorganization or recapitalization;
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(7) split, combine or reclassify any of their or their subsidiaries'
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of
their or their subsidiaries' capital stock;
(8) issue, deliver, award, grant or sell, or authorize -- or propose
the issuance, delivery, award, grant or sale -- of any shares of any class
of their or their subsidiaries' capital stock, any securities convertible
into or exercisable or exchangeable for any such shares, or any rights,
warrants or options to acquire any such shares, or amend or otherwise
modify the terms of any such rights, warrants or options the effect of
which would make such terms more favorable to their respective holders;
(9) acquire or agree to acquire equity interests in or all or a
portion of the assets of any business or person, except for the purchasing
of assets from suppliers or vendors in the ordinary course of business
consistent with past practice;
(10) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any material portion of their assets, except for
dispositions of inventories, equipment and other assets in the ordinary
course of business and consistent with past practice;
(11) adopt or propose to adopt any amendments to their respective
charters or bylaws;
(12) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except under existing credit lines in the ordinary
course of business consistent with past practice and provided that the
aggregate amount of all outstanding indebtedness after giving effect to
such incurrence in no event exceeds $124,500,000 in the case of FreshPoint
and $53,000,000 in the case of Fresh America;
(13) in the case of Fresh America, take any action that would result
in a failure to maintain the trading of Fresh America common stock on
Nasdaq;
(14) make any tax election or settle or compromise any income tax
liability that could reasonably be expected to be material to either party
and that party's subsidiaries taken as a whole;
(15) make any material commitments or agreements for capital
expenditures or capital additions or betterments except as materially
consistent with each party's budget for capital expenditures as of the date
of the merger agreement and consistent with past practices;
(16) except in the ordinary course of business, modify, amend, assign
or terminate any material agreement, permit, concession, franchise, license
or similar instrument to which either party or any of that party's
subsidiaries is a party or waive any material rights they hold thereunder;
(17) make any material loans or advances to any other person, other
than to their wholly-owned subsidiaries and other than routine advances to
employees or assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person except in the ordinary
course of business;
(18) take any action with respect to accounting policies or
procedures, other than actions in the ordinary course of business and
consistent with past practice or as required pursuant to applicable law or
generally accepted accounting principles; or
(19) agree in writing or otherwise to do any of the foregoing.
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CONDITIONS TO THE MERGER
The completion of the merger depends on a number of conditions being met.
In addition to the parties complying with the agreement, these include:
(1) approval of the agreement by the Fresh America shareholders;
(2) the absence of any injunction or legal restraint blocking the
merger or government proceedings trying to block the merger;
(3) new credit facilities of not less than $195 million shall be in
place;
(4) receipt by Fresh America, FreshPoint and FreshPoint stockholders
of a legal opinion from Hughes & Luce, L.L.P. that, for United States
federal income tax purposes, the merger shall be a tax-free reorganization
and neither Fresh America, FreshPoint nor FreshPoint's stockholders shall
recognize any gain or loss as a result of the merger, with an exception
carved out of the opinion with respect to accrued and unpaid dividends;
(5) all necessary state securities approvals shall have been obtained;
(6) the Albert Fisher subordinated note shall have been paid in full;
(7) the shareholders' agreement shall have been entered into by the
persons designated in the merger agreement;
(8) receipt by Fresh America and FreshPoint of a legal opinion from
their respective counsel in the form of opinion attached to the merger
agreement;
(9) warrants held by FreshPoint stockholders shall have been converted
into shares of FreshPoint common stock;
(10) receipt by Fresh America of letters from FreshPoint "affiliates"
(including FreshPoint's officers and directors) restricting their trading
in shares of Fresh America stock;
(11) receipt by Fresh America from FreshPoint of written evidence of
the termination of the consulting agreements with Rosecliff and Buttonwood;
(12) receipt by Fresh America from FreshPoint of written evidence of
the termination of FreshPoint's existing bank credit facility;
(13) receipt by FreshPoint from Fresh America of written evidence of
the termination of Fresh America's existing bank credit facility;
(14) approval by the National Market System of the Nasdaq Stock Market
of the listing of the shares of Fresh America common stock to be issued in
the merger; and
(15) execution of the registration rights agreement between FreshPoint
stockholders and Fresh America.
Where the law permits, Fresh America and FreshPoint could decide to
complete the merger even though one or more of these conditions has not been
met. Neither company can be certain when or if the conditions to the merger will
be satisfied or waived, or that the merger will be completed.
TERMINATION OF THE MERGER AGREEMENT
Fresh America can agree with FreshPoint at any time to terminate the
agreement without completing the merger, even if the stockholders of both
companies have approved it. Also, either party can decide, without the consent
of the other, to terminate the agreement if:
(1) any government agency denies an approval we need to complete the
merger, or if any government authority issues an order blocking the merger;
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(2) the merger is not completed by September 30, 1999, unless the
failure to complete the merger by that time is due to the breach of any
representation, warranty or covenant contained in the agreement by the
party seeking to terminate;
(3) Fresh America's shareholders do not approve the merger;
(4) one party breaches the agreement in a way that would entitle the
other to terminate the merger, as long as the party seeking to terminate
the agreement has not also violated the agreement;
(5) by FreshPoint, if the Board of Directors of Fresh America
withdraws its recommendation of the merger or pursues a merger with a
competing company; or
(6) by Fresh America, if FreshPoint breaches one of certain enumerated
representations or warranties in such a way that cannot be corrected before
September 30, 1999.
TERMINATION FEE; PAYMENT OF FEES AND EXPENSES
In general, each party will bear its own fees and expenses, but if the
merger agreement is terminated because either party materially breaches the
merger agreement, then the breaching party will reimburse the non-breaching
party for up to $1 million of its expenses incurred in connection with the
merger. Also, Fresh America must pay FreshPoint a termination fee of $3 million
plus up to $750,000 of FreshPoint's expenses if:
(1) either party terminates the merger agreement because the merger
has not been consummated before September 30, 1999, or the merger has not
been approved by our shareholders; or
FreshPoint terminates the merger agreement because Fresh America's Board
of Directors withdraws or modifies its recommendation of the merger; or
Fresh America terminates the merger agreement because its Board of
Directors determines that its fiduciary duties to its shareholders
requires that it withdraw or modify its recommendation of the merger;
and
(2) before the merger agreement was terminated, there was a competing
transaction to the merger that Fresh America's Board of Directors
recommends and either enters into a letter of intent or definitive
agreement for a competing transaction or consummates a competing
transaction within twelve months of the termination.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Because the currently issued and outstanding shares of Fresh America common
stock will remain unchanged as a result of the merger, Fresh America's
shareholders should not recognize any gain or loss for purposes of United States
federal income tax. FreshPoint America also will not recognize any gain or loss
for United States federal income tax purposes.
ACCOUNTING TREATMENT
The merger will be accounted for as a "reverse acquisition" under the
purchase method of accounting with FreshPoint as the acquiring corporation.
Under the purchase method of accounting, Fresh America and FreshPoint will be
treated as one company beginning as of the date of the merger. Additionally,
under this method of accounting, the fair value of Fresh America, including
direct acquisition costs of the merger incurred by FreshPoint, will be allocated
to the identifiable assets of Fresh America based on estimates of the fair value
of Fresh America's identifiable assets and liabilities as of the effective time.
The excess of the purchase price over the fair value of Fresh America's net
identifiable assets will be allocated to "goodwill," which will be amortized as
an expense over the next 40 years. After the merger, the consolidated financial
statements of FreshPoint will become the consolidated financial statements of
FreshPoint America.
Fresh America's fiscal year is a 52-week or 53-week period ending on the
first Friday in January. FreshPoint's fiscal year is a 52-week or 53-week period
ending on the Saturday closest to June 30. After the merger, the combined
company will adopt FreshPoint's fiscal year.
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RELATED AGREEMENTS
SHAREHOLDERS' AGREEMENT
It is a condition to the consummation of the merger that the Rosecliff
Partnerships, Albert Fisher and, two of Fresh America's principal shareholders,
namely David Sheinfeld and Thomas Hubbard, enter into a shareholders' agreement.
The parties to the shareholders' agreement will collectively own approximately
61% of the shares of FreshPoint America common stock outstanding immediately
after the merger.
The shareholders' agreement is included as Exhibit F to the merger
agreement. All shareholders are urged to read the shareholders' agreement in its
entirety.
Restrictions on Transfer of Shares
The parties to the shareholders' agreement will agree not to transfer or
pledge any of their shares of Fresh America common stock unless either the
transferee or pledgee, as applicable, agrees to be bound by the terms of the
shareholders' agreement, or the transfer is made in a "public sale". A "public
sale" means any sale of FreshPoint America common stock pursuant to (1) an
effective registration statement filed under the Securities Act, (2) Rule 144
under the Securities Act, or (3) any sale in the public market for which a
registration statement is not required.
Corporate Governance
The parties to the shareholders' agreement will agree to vote their shares
of FreshPoint America common stock to give effect to the provisions of the
shareholders' agreement and to ensure that Fresh America's articles of
incorporation and bylaws do not conflict in any respect with the shareholders'
agreement.
Election of Directors
The parties to the shareholders' agreement will agree that the number of
directors on the FreshPoint America Board of Directors will be eleven. The
eleven directors will be comprised of six persons designated by certain
Rosecliff Investors, which initially will be Mitt Parker, Brian Sturgeon, John
Geisler, Donald Kendall, John Gutfreund and Robert Dussler. The six persons
designated by the Rosecliff Investors will include Mitt Parker so long as he
serves as Chief Executive Officer of FreshPoint America and Brian Sturgeon so
long as he serves as Chief Operating Officer of FreshPoint America. Albert
Fisher will have the right to name one of the four remaining Rosecliff
Investors' designees so long as Albert Fisher owns at least 5% of FreshPoint
America's outstanding common stock or at least 50% of the shares of FreshPoint
America common stock it is issued in the merger. If the Rosecliff Investors
exercise their right to replace one of their designees and nominate a new
designee for election, the new designee must be reasonably acceptable to the
remainder of the directors designated by the Rosecliff Investors. The remaining
five directors will be Fresh America's current directors, David Sheinfeld, Tom
Hubbard, Lawrence Jackson, Sheldon Stein and Colon Washburn. If any of Messrs.
Sheinfeld, Hubbard, Jackson, Stein or Washburn is no longer serving on the Board
of Directors for any reason, the remaining of such five individuals (or their
successors) will designate a replacement director.
Term
The shareholders' agreement will become effective upon consummation of the
merger and will continue in effect until the earlier of (1) two annual meetings
of FreshPoint America's shareholders have taken place following 180 days after
the merger, (2) the Rosecliff Partnerships and Albert Fisher own less than 15%
of FreshPoint America's outstanding common stock or (3) the third anniversary of
the date of the shareholders' agreement.
ALBERT FISHER CONSENT
In addition to being a common and preferred stockholder of FreshPoint,
Albert Fisher is a holder of a subordinated promissory note issued by
FreshPoint, the outstanding principal and accrued interest of which is
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approximately $31 million. As an inducement to Fresh America's signing the
merger agreement, on May 3, 1999 Albert Fisher and FreshPoint entered into an
agreement of consent and waiver.
The agreement of consent and waiver is included as Exhibit H to the merger
agreement. All shareholders are urged to read the agreement of consent and
waiver in its entirety.
Consent
Albert Fisher consented to the merger and the merger agreement (including
all exhibits). However, any material modifications or amendments to the merger
agreement, the shareholders' agreement or the registration rights agreement will
require Albert Fisher's prior consent if the amendment or modification adversely
affects Albert Fisher or increases the consideration to be received by any other
party in the merger without proportionally increasing the consideration to be
received by Albert Fisher.
Agreement to Convert
Albert Fisher agreed to deliver upon the effectiveness of the merger all of
its FreshPoint shares of preferred stock and common stock for conversion into
shares of FreshPoint America common stock. Albert Fisher will also receive all
shares of FreshPoint America common stock issuable upon the conversion of the
FreshPoint shares of preferred stock and common stock attributable to Albert
Fisher's partnership interests in the Rosecliff Partnerships.
Transaction Fee
FreshPoint agreed to pay Albert Fisher a fee of $1,250,000 simultaneously
with the closing of the merger.
Prepayment of Note
FreshPoint agreed to prepay all of the principal and accrued interest on
the subordinated note it owes to Albert Fisher simultaneously with the closing
of the merger.
Conditions
The obligations of Albert Fisher under the agreement of consent and waiver
are conditioned upon the satisfaction of the following three conditions (unless
waived by Albert Fisher): (1) if Albert Fisher determines shareholder approval
is required, Albert Fisher's shareholders will have approved the merger, (2)
FreshPoint will have paid the transaction fee and prepaid the subordinated note
in full, and (3) the registration rights agreement and the shareholders'
agreement will have been executed. Subsequent to entering into the agreement of
consent and waiver, Albert Fisher determined that approval of the merger by its
shareholders is not required and waived the condition.
Termination of Certain Agreements
Albert Fisher and FreshPoint agreed that upon the effectiveness of the
merger each of the following will occur:
(1) The non-competition and confidentiality agreement and indemnity
agreement entered into between the parties in November 1996 in connection
with the stock sale of FreshPoint will be terminated.
(2) The stock purchase agreement entered into between the parties in
October 1996 for the sale of the stock of FreshPoint will be terminated,
except for the provisions relating to tax and environmental indemnification
obligations of Albert Fisher.
(3) The stockholders' agreement entered into between the parties and
the other stockholders of FreshPoint in November 1996 will be terminated.
(4) Rosecliff Albert Fisher Partners, L.P., a stockholder of
FreshPoint, will be liquidated and its assets distributed to its limited
partners, including Albert Fisher.
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REGISTRATION RIGHTS AGREEMENT
It is a condition to the consummation of the merger that Fresh America, the
Rosecliff Partnerships and Albert Fisher enter into a registration rights
agreement. The registration rights agreement will provide "shelf" and
"piggyback" registration rights for the FreshPoint stockholders who are deemed
to be "affiliates" of FreshPoint prior to the merger, as "affiliate" is defined
for purposes of Rule 145 under the Securities Act. Persons who may be deemed to
be affiliates of FreshPoint generally include individuals or entities that
control, are controlled by or are under common control with FreshPoint and may
include certain officers and directors as well as principal stockholders of
FreshPoint.
The registration rights agreement is included as Exhibit J to the merger
agreement. All shareholders are urged to read the registration rights agreement
in its entirety.
Securities Subject to Agreement
The securities entitled to the benefit of the registration rights agreement
are the shares of FreshPoint America common stock that will be issued to the
Rosecliff Partnerships and Albert Fisher pursuant to the merger, but, with
respect to any particular share, only so long as it continues to be a
"registrable security." Shares will cease to be a "registrable security" when
(1) such security has been effectively registered under the Securities Act and
has been disposed of pursuant to such registration statement, (2) such security
has been distributed, or may be distributed without limitation on volume, to the
public pursuant to Rule 144 promulgated under the Securities Act, or (3) such
security is no longer outstanding.
Shelf Registration
FreshPoint America will agree to file within 45 days after the merger a
"shelf" registration statement for an offering to be made on a delayed or
continuous basis covering all of the registrable securities. FreshPoint America
will use its best efforts to cause the shelf registration to be declared
effective within 180 days and to keep the shelf registration continuously
effective until the registration rights agreement is terminated. FreshPoint
America will amend or supplement the shelf registration if necessary, but
FreshPoint America may defer the filing of any amendment or supplement for not
more than 60 days during any 180 day period if (1) the proposed amendment or
supplement to the shelf registration would be significantly disadvantageous to
FreshPoint America, and (2) the need for the amendment or supplement is not
caused by a proposed public offering of any of FreshPoint America's securities.
FreshPoint America will pay all registration expenses incurred in
connection with the shelf registration. Each shareholder who distributes
registrable securities pursuant to the shelf registration will pay its pro rata
portion of any underwriting discounts or commissions and transfer taxes.
Underwriting Procedures
If (1) holders of 20% or more of the registrable securities outstanding,
but not less than 5% of all of FreshPoint America common stock outstanding, or
(2) any holder of registrable securities that constitute at least 5% of all of
FreshPoint America common stock outstanding, so elect, the offering of the
registrable securities pursuant to the shelf registration will be in the form of
an underwritten offering. All holders of registrable securities will be entitled
to participate in the underwritten offering, but the number of registrable
securities to be included in the offering may be reduced if the managing
underwriter advises FreshPoint America that the number of registrable securities
requested to be included would materially and adversely affect the success of
the offering. The registrable securities to be included in the underwritten
offering will be determined in accordance with the order of priority set forth
in the registration rights agreement. FreshPoint America will agree (1) not to
effect any public offering or distribution of any capital stock during the 10
days prior to the date any underwritten shelf registration has become effective
and until 90 days after the effective date, and (2) to cause any holder of any
capital stock of FreshPoint America acquired from FreshPoint America any time
after the merger (other than in a public offering), to agree not to effect any
public offering or distribution of such securities during such period.
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Piggy-Back Registration
If FreshPoint America proposes to file a registration statement for an
underwritten public offering under the Securities Act by FreshPoint America
(other than on Form S-4 or S-8), the holders of registrable securities will have
the opportunity to register such securities in the underwritten offering as they
may request on the same terms and conditions as the securities of FreshPoint
America included in the underwriting. The number of registrable securities to be
included in the underwritten offering may be reduced if the managing underwriter
of the underwritten offering advises FreshPoint America that the number of
registrable securities requested to be included would materially and adversely
affect the success of the offering. The registrable securities to be included in
the underwritten offering will be determined in accordance with the order of
priority set forth in the registration rights agreement. FreshPoint America will
pay all registration expenses in connection with any piggy-back registration.
The holders that distribute registrable securities will pay their pro rata
portion of any underwriting discounts or commissions and transfer taxes.
Lock-Up
Each holder of registrable securities will agree that it will not, for a
period of 180 days following the merger, sell, pledge or otherwise transfer,
pursuant to a registration statement under the Securities Act or Rule 144 under
the Securities Act, any registrable securities. Any holder may transfer any
shares of registrable securities in any other transaction, but not in a
transaction where the transferee reduces its risk by directly or indirectly
engaging in a hedging or similar transaction through selling shares in the
public market.
Term
The registration rights agreement will become effective upon consummation
of the merger and will continue in effect until the earlier of (1) the third
anniversary of the date of the merger, or (2) such time that all registrable
securities cease to be registrable securities.
EMPLOYMENT AGREEMENTS
Simultaneously with the signing of the merger agreement, Fresh America
entered into employment agreements with two of Fresh America's executive
officers, David Sheinfeld and John Gray, and two of FreshPoint's executive
officers, Mitt Parker and Brian Sturgeon. The employment agreements will only
become effective upon the consummation of the merger.
The form of the employment agreements is included as Exhibit D to the
merger agreement. All shareholders are urged to read the form of the employment
agreements in its entirety.
David Sheinfeld
Mr. Sheinfeld will be employed as Chairman of the Board for a two year
term. Mr. Sheinfeld will earn an annual salary of $550,000 and will be eligible
for an annual bonus of up to 110% of his salary based on performance towards
predetermined goals established by the compensation committee.
Mitt Parker
Mr. Parker will be employed as President and Chief Executive Officer for a
two year term. Mr. Parker will earn an annual salary of $550,000 and will be
eligible for an annual bonus of up to 110% of his salary based on performance
towards predetermined goals established by the compensation committee.
Brian Sturgeon
Mr. Sturgeon will be employed as Chief Operating Officer for a two year
term. Mr. Sturgeon will earn an annual salary of $300,000 and will be eligible
for an annual bonus of up to 110% of his salary based on performance towards
predetermined goals established by the compensation committee.
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John Gray
Mr. Gray will be employed as Executive Vice President and Chief Financial
Officer for a one year term. Mr. Gray will earn an annual base salary of
$200,000 and will be eligible for an annual bonus of up to 110% of his salary
based on performance towards predetermined goals established by the compensation
committee.
Stock Option Plan
Under the employment agreements, each executive officer will be issued an
option to purchase shares of FreshPoint America common stock in substantially
the amounts to be recommended by an independent compensation consulting firm
employed by our Board of Directors. The exercise price of the options will equal
the fair market value of FreshPoint America's common stock on the grant date.
The options will be issued pursuant to Fresh America's existing stock option
plan and will vest one-third per year.
Bonus Plan
The bonuses to be paid under the employment agreements will be determined
in accordance with a bonus plan to be adopted by Fresh America at or promptly
after the effective time of the merger, which will be on the terms approved by a
committee comprised exclusively of outside directors (as defined by IRS
regulations) based on recommendations by an independent compensation consulting
firm employed by Fresh America's Board of Directors.
Non-competition
Pursuant to the terms of the employment agreements, each executive officer
agrees that for the two-year period after his employment with FreshPoint America
is terminated, he will not engage in the produce business in any geographical
area in which FreshPoint America does business or disclose any confidential
information relating to FreshPoint America.
Termination for Cause
During the term of any employment agreement, FreshPoint America may
terminate the executive officer for "cause" or upon the long-term disability of
the executive. "Cause" is defined to mean (1) a material breach of the
employment agreement by the executive officer, (2) gross negligence or willful
misconduct by the employee or willful refusal to perform in any material respect
his duties, (3) misappropriation of material assets or any business opportunity
of FreshPoint America's for personal use, (4) the executive officer engaging in
conduct materially injurious to FreshPoint America, or (5) any event or
circumstances which under federal or state law renders the executive officer
unemployable by FreshPoint America in his current position and with his current
duties. If any executive officer is terminated for "cause," FreshPoint America
will have no further salary or benefit obligations to the employee after the
termination date.
Termination for Good Reason
Any executive officer may terminate his employment agreement for "good
reason" or upon FreshPoint America's breach of a material provision of his
employment agreement. "Good reason" is defined to mean action taken by
FreshPoint America which results in (1) a reduction in the executive officer's
base salary or aggregate level of benefits, (2) any relocation of the executive
officer, or (3) a material breach of the employment agreement by FreshPoint
America. If the executive officer is terminated by FreshPoint America without
"cause" or if the executive officer resigns for "good reason," FreshPoint
America will pay the executive officer his annual base salary and annual bonus
amount for the greater of (a) the remaining months of the employment agreement
or (b) 12 months, with respect to Messrs. Sheinfeld, Parker and Sturgeon, and 6
months with respect to Mr. Gray. If any employment agreement is not renewed by
FreshPoint America, and the executive officer resigns from FreshPoint America
within 30 days after the expiration date, FreshPoint America will pay the
executive officer his annual base salary and annual bonus amount for 12 months.
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Change of Control
If a "change of control" occurs and the executive officer was employed by
FreshPoint America at least 90 days prior to the "change of control," the
executive officer, at his election, may (1) terminate his employment agreement,
whereupon FreshPoint America will pay him his annual base salary for 12 months,
or (2) continue his employment with FreshPoint America, whereupon FreshPoint
America will continue to employ him in the same position and with the same
duties for the remainder of the term of his employment agreement or 24 months,
whichever is longer. If any executive officer elects to continue his employment
with FreshPoint America after a "change of control" and during the extended term
of his employment agreement FreshPoint America either (a) terminates him without
"cause," or (b) takes actions that are deemed to be a termination without
"cause" (such as a reduction in compensation, a material change in status, title
or responsibilities or relocation), FreshPoint America will pay the executive
officer a lump sum cash payment.
The amount of the lump sum cash payment is dependent upon how much time has
elapsed since the date of the "change of control" and the date of termination.
As the amount of time increases, the amount of the payment decreases. The
maximum lump sum cash payment is approximately three times the executive
officer's total annual compensation from FreshPoint America (including salary,
bonus and benefits), which decreases to zero in equal increments over the three
year period following a "change of control." A "change of control" is defined to
mean (a) the eleven initial members of FreshPoint America's Board of Directors
at the effective time of the merger cease to constitute a majority of the Board
of Directors, provided any director elected by the initial members will be
deemed to be an initial member, (b) more than 35% of FreshPoint America common
stock is acquired by a third party, (c) FreshPoint America becomes a subsidiary
of another company or merges or consolidates into another corporation, (d)
substantially all of the assets of Fresh America are sold to a third party, or
(e) the majority of FreshPoint America's capital stock is sold or transferred to
a third party.
NEW CREDIT FACILITIES
Existing Indebtedness
As of April 2, 1999, Fresh America had outstanding indebtedness of
approximately $52 million, consisting of (1) approximately $15.5 million
outstanding under its existing domestic bank facility with Bank of America
National Trust and Savings Association, (2) $19 million represented by its 12%
senior subordinated notes due May 1, 2003 held by John Hancock Mutual Life
Insurance Company and its affiliates, (3) approximately $6.7 million outstanding
under its existing short-term Canadian bank facility with Royal Bank of Canada,
and (4) approximately $8.3 million outstanding related to acquisitions, the
remainder being comprised of various equipment loans.
As of March 27, 1999, FreshPoint had outstanding indebtedness of
approximately $107.6 million, consisting of (1) approximately $73.1 million
outstanding under its existing bank facility with Bank of America, (2) $30.6
million represented by its senior subordinated note owing to Albert Fisher, and
(3) $3.25 million represented by a subordinated note owing to a former preferred
stockholder.
Merger Condition
In connection with the negotiation of the merger, Fresh America and
FreshPoint determined to arrange no less than $195 million in new credit
facilities to refinance both companies' existing bank indebtedness and
subordinated notes, pay the transaction costs incurred in connection with the
merger and provide FreshPoint America with additional borrowing capacity for
working capital, future acquisitions and general corporate purposes. The
arranging of the new credit facilities on terms satisfactory to both parties is
a condition to the merger.
Senior Secured Credit Facility
Fresh America has received a commitment letter from Bank of America
National Trust and Savings Association for senior credit facilities for the
combined company in an aggregate principal amount of
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$175 million. The senior credit facilities will be syndicated with Bank of
America acting as agent. The commitment provides for the following facilities:
<TABLE>
<CAPTION>
SENIOR FACILITY AMOUNT NOT TO EXCEED TERM
--------------- -------------------- ----
<S> <C> <C>
Revolving Credit Facility................................. $50 million 6 years
Term Loan A Facility...................................... $60 million 6 years
Term Loan B Facility...................................... $35 million 7 years
Term Loan C Facility...................................... $30 million 8 years
</TABLE>
The $50 million revolving credit facility will be made available to
FreshPoint America for working capital, capital expenditures and general
corporate purposes, including acquisitions. Each of the term loan facilities
will be required to be drawn in a single drawing at the closing of the merger
and amounts repaid or prepaid under any term loan facility may not be
reborrowed.
The senior credit facilities will be secured by a first priority security
interest in (1) all of the capital stock of each of FreshPoint America's
domestic subsidiaries and 65% of the capital stock of FreshPoint America's
foreign subsidiaries, and (2) all other assets and properties of FreshPoint
America and its domestic subsidiaries, including without limitation, accounts
receivable, inventory, real property, equipment and intellectual property. The
senior credit facilities will also be unconditionally guaranteed by all of
FreshPoint America's domestic subsidiaries. Canadian dollar borrowings will be
guaranteed by all of FreshPoint America's Canadian subsidiaries and secured by
the assets of all of the Canadian subsidiaries.
At FreshPoint America's option, borrowings under the senior credit
facilities will bear interest at Bank of America's alternate base rate or LIBOR
plus applicable margins, which margins will vary based on the combined company's
total leverage. The range of applicable margins are as follows:
<TABLE>
<CAPTION>
BASE
SENIOR CREDIT FACILITY RATE MARGIN LIBOR MARGIN
---------------------- ------------- ------------
<S> <C> <C>
Revolving Credit Facility......................... 0.5% -- 1.5% 2.0% -- 3.0%
Term Loan A Facility.............................. 0.5% -- 1.5% 2.0% -- 3.0%
Term Loan B Facility.............................. 1.75% -- 2.0% 3.25% -- 3.5%
Term Loan C Facility.............................. 2.0% -- 2.25% 3.50% -- 3.75%
</TABLE>
Fresh America anticipates that upon closing the senior loans will bear interest
initially at the highest applicable margins in the above table.
FreshPoint America will pay a commitment fee on the unused portion of the
revolving credit facility. The commitment fee will be determined and adjusted in
a range from 0.375% to 0.50% per annum, based on the total leverage of the
combined company. FreshPoint America also will be obligated to pay letter of
credit fees on the amount of outstanding letters of credit equal to the
applicable margin for LIBOR loans.
Outstanding loans will be voluntarily payable without penalty. Mandatory
prepayments will be required from (1) 100% of net cash proceeds from asset sales
(subject to de minimus amounts and reinvestment allowances), (2) 50% of excess
cash flow pursuant to an annual cash flow sweep arrangement, (3) 100% of the net
cash proceeds from any debt issuances, and (4) 50% of the net cash proceeds of
any equity issuances. Prepayments will be applied pro rata to reduce the term
loan facilities.
The senior credit facilities will contain financial covenants, including
minimum fixed charge and interest coverage ratios, a maximum leverage ratio and
a net worth maintenance covenant. In addition, the senior credit facilities will
contain a number of other covenants, including covenants that will subject the
combined company and its subsidiaries to restrictions on the incurrence of
additional debt, the making of dividends or similar distributions, the sale of
assets and the making of acquisitions, investments and capital expenditures.
The senior credit facilities will contain customary events of default,
including nonpayment of principal, interest or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-defaults to other
material indebtedness and material agreements, events of bankruptcy and
insolvency, ERISA matters, material judgments, invalidity of security interests
and change of control of FreshPoint America.
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Senior Subordinated Notes
Fresh America has received an agreement from John Hancock Mutual Life
Insurance Company to restructure its existing $20 million senior subordinated
notes and to purchase an additional $15 million in senior subordinated notes,
for a total of $35 million in senior subordinated notes.
The amended existing notes and the new notes will mature 10 years from the
date of the merger and will have a fixed interest rate of 475 basis points over
the yield for U.S. Treasury issue with a maturity date closest to the average
life of the subordinated notes. The fixed rate would be approximately 10.47% if
determined at July 12, 1999.
FreshPoint America may voluntarily prepay the senior subordinate notes at
any time, in whole or in part, if it pays a "make whole amount" to the holders
of the subordinated notes being prepaid. The "make whole amount" will be
computed by discounting all future payments at a discount rate plus 100 basis
points. Beginning in the ninth year after issuance, FreshPoint America will be
required to make mandatory quarterly principal payments each equal to one-fourth
of the principal amount of the subordinated notes.
Concurrent with the funding of the new senior subordinated notes, the
warrants to purchase 155,483 shares of Fresh America common stock previously
issued to John Hancock and its affiliates will be amended to (1) reduce the
exercise price from $22.70 to $19.00 per share, and (2) extend the expiration
date to the later of (a) the maturity date of the new notes, or (b) the date on
which all of the senior subordinated note obligations are paid in full.
The senior subordinated debt will contain financial covenants, including
net worth and working capital maintenance covenants, minimum coverage ratios and
maximum leverage ratios. The senior subordinated debt also will contain a number
of other customary covenants, including covenants that will restrict the
combined company's ability to make dividends or similar distributions, sell
assets, make acquisitions and investments.
The senior subordinated debt will contain customary events of default,
including nonpayment of principal, interest or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-defaults to other
material indebtedness and material agreements, events of bankruptcy and
insolvency, ERISA matters, material judgments, and change of control of
FreshPoint America.
Definitive Terms Uncertain
The commitment and agreement for the $210 million of new credit facilities
are subject to conditions precedent, including, among others, no material
adverse change in the business, assets, liabilities or prospects of the combined
company, no material adverse change in the financial, banking or capital markets
and definitive documentation acceptable to the lenders. If the senior credit
facilities are not syndicated in a manner satisfactory to the agent, the agent
will be entitled, after consultation with Fresh America, to change the pricing,
structure or other terms if the agent determines that such changes are advisable
to ensure a successful syndication or optimal credit structure. Fresh America
cannot guaranty as to whether, or the definitive terms on which, the new credit
facilities actually will be available to the combined company.
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<PAGE> 61
MANAGEMENT AFTER THE MERGER
OVERVIEW
The merger agreement provides for the appointment of designated directors
and executive officers of FreshPoint America, to begin serving upon the
effectiveness of the merger. The appointed directors and executive officers will
serve until the end of their respective terms and until their successors are
elected and qualified. If any appointed director is unable to serve as a
director at the time the merger is consummated, the party who designated such
individual will designate another individual to serve in such person's place. If
any appointed executive officer is unable to serve as an executive officer at
the time the merger is consummated, the Board of Directors will appoint another
individual to serve in such person's place in accordance with the articles and
bylaws of FreshPoint America.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER
The persons to be appointed to the Board of Directors effective upon
consummation of the merger, their ages, the class to which they are to be
appointed, and the positions they will hold with FreshPoint America, are shown
below.
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
- ---- --- -------- ---------
<S> <C> <C> <C>
Fresh America Designees
David I. Sheinfeld..................... 45 Chairman of the Board Class I
Sheldon I. Stein....................... 45 Director Class I
Lawrence V. Jackson.................... 45 Director Class II
Colon Washburn......................... 53 Director Class II
Thomas Hubbard......................... 56 Director Class III
FreshPoint Designees
M. Robert Dussler...................... 56 Director Class I
John Gutfreund......................... 69 Director Class I
John J. Geisler........................ 44 Director Class II
Donald R. Kendall...................... 47 Director Class II
Mitt Parker............................ 49 President and Chief Executive Officer Class III
Brian M. Sturgeon...................... 41 Chief Operating Officer Class III
</TABLE>
The bylaws of FreshPoint America will provide that the eleven-member Board
of Directors will be divided into three classes, each class to be nearly as
equal in number as possible. The initial Class I directors will serve a term
expiring at the first annual meeting after the merger; the initial Class II
directors will serve a term expiring at the second annual meeting after the
merger; and the initial Class III directors will serve a term expiring at the
third annual meeting after the merger. Upon the expiration of the term of office
of each class, the nominees for such class will be elected for a term of three
years to succeed the directors whose terms of office expire.
The merger agreement provides that the committees of the Board of Directors
after the merger will include an audit committee, compensation committee,
finance committee and stock option plan administration committee. The members of
each committee will be elected by the Board of Directors in accordance with the
bylaws of FreshPoint America.
52
<PAGE> 62
The persons to be appointed as executive officers effective upon
consummation of the merger, their ages and the office they will hold with
FreshPoint America are shown below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David I. Sheinfeld.............................. 45 Chairman of the Board
Mitt Parker..................................... 49 President and Chief Executive Officer
Brian Sturgeon.................................. 41 Chief Operating Officer
John H. Gray.................................... 49 Executive Vice President and Chief
Financial Officer
</TABLE>
Each of the above executive officers has entered into an employment
agreement with Fresh America to be effective upon consummation of the merger.
See "Related Agreements -- Employment Agreements" beginning on page 47.
Biographical information concerning each of the appointed directors and
executive officers is set forth below.
David I. Sheinfeld
Mr. Sheinfeld joined Fresh America in June 1990 and joined its Board of
Directors in March 1991. In 1992, Mr. Sheinfeld became Chairman of the Board and
Chief Executive Officer of Fresh America.
Sheldon I. Stein
Mr. Stein has been a director of Fresh America since December 1992. Mr.
Stein is a Senior Managing Director of Bear, Stearns & Co. Inc. and heads the
firm's United States regional investment banking operations. Mr. Stein serves as
a director of five other companies with publicly traded securities, namely The
Mens Wearhouse, Tandycrafts, Inc., Cellstar Corp., Precept Business Services,
Inc. and Home Interiors and Gifts, Inc.
Lawrence V. Jackson
Mr. Jackson has been a director of Fresh America since September 1997. Mr.
Jackson is a Senior Vice President with Safeway, Inc. Prior to joining Safeway,
Mr. Jackson was a Senior Vice President with PepsiCo, Inc. During Mr. Jackson's
17 years with PepsiCo, he held a number of positions with the beverage and
foodservice sectors, including that of Senior Vice President of Worldwide
Operations.
Colon Washburn
Mr. Washburn has been a director of Fresh America since July 1993. From
1971 until January 1993, Mr. Washburn was employed by Wal-Mart Stores, Inc.,
where he served most recently as Executive Vice President and also as Senior
Vice President of Sam's Club. Since February 1993, Mr. Washburn has been
President of Beau Chene Farms, a real estate development company.
Thomas M. Hubbard
Mr. Hubbard, a founder of Fresh America, has been a director since 1989 and
served as Fresh America's President until April 1992. Mr. Hubbard has worked in
the produce industry for more than 30 years and is an active investor in a
number of produce companies, including Pacific Fresh Marketing, Inc., which
harvests, packs and markets fresh vegetables in the southwestern United States
and central Mexico.
John H. Gray
Mr. Gray joined Fresh America in September 1998 as Executive Vice President
and Chief Financial Officer. Prior to joining Fresh America, Mr. Gray was the
Chief Accounting Officer and Chief Administrative Officer of Club Corporation
International ("CCI"), a privately held company, and also served on CCI's Board
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<PAGE> 63
of Directors. Prior to joining CCI in December 1981, Mr. Gray was the
Controller/Treasurer for USLife Title Insurance Company and a Supervising Senior
Accountant with KPMG Peat Marwick.
M. Robert Dussler
Mr. Dussler has been a director of FreshPoint since August 1997. Mr.
Dussler has served as President and Chief Operating Officer of Palmetto
Partners, Ltd., a private investment company owned by a wealthy Texas family,
since 1994.
John Gutfreund
Since September 1993, Mr. Gutfreund has served as President of Gutfreund &
Company, Inc., an investment banking and consulting firm. Mr. Gutfreund also
serves on the Board of Directors of Ascent Assurance, a developer and marketer
of medical expense and supplemental health insurance products, Baldwin Piano and
Organ Co., a manufacturer and marketer of keyboard instruments, Foamex
International, Inc., a manufacturer and marketer of flexible polyurethane and
advanced polymer foam products in North America, LCA-Vision, Inc., a developer
and operator of medical laser systems/eye surgery centers, and Universal Bond
Fund, Inc., an international high yield bond fund.
John J. Geisler
Mr. Geisler has been a director of FreshPoint since August 1998 and a
Managing Director of Rosecliff, Inc. since May 1995. From March 1990 to May
1995, Mr. Geisler was a Managing Director and the Chief Financial Officer of Oak
Hill Partners, Inc. (the investment advisor to Acadia Partners, L.P. -- a $1.8
billion investment partnership) and its affiliated entities (including Insurance
Partners, L.P. -- a $540 million private equity fund focused on the insurance
industry and Penobscot Partners, L.P. -- an investment advisor and registered
broker/dealer). Mr. Geisler is currently a director of Rosecliff, Inc. and
various affiliated companies including Champion Technologies, Inc. -- a
manufacturer of frequency control devices, La Martiniere Groupe -- a publisher,
and Shoe Corporation of America -- an operator of licensed shoe departments.
Donald R. Kendall
Since 1998, Mr. Kendall has served as Chief Executive Officer and Managing
Director of K2 Capital, a private equity asset management firm. From 1993 to
1998, Mr. Kendall served as President of Cogen Technologies Capital Company,
L.P., a firm involved in the development, construction, financing, and
operations of electrical power plants, and Chairman and Chief Executive Officer
of Palmetto Partners, L.P., a family office of a wealthy Texas family.
Mitt Parker
Mr. Parker joined FreshPoint in May 1989, when his produce distribution
business, Mitt Parker Company, was purchased by Albert Fisher. Mr. Parker has
been active in the produce industry since opening Mitt Parker Company over 25
years ago. Subsequent to the sale of his company, Mr. Parker served as Eastern
Region Vice President for Albert Fisher North America. In November 1996, Mr.
Parker was named Executive Vice President of FreshPoint and joined the Board of
Directors. In December 1997, Mr. Parker was named Chief Executive Officer and
President. Mr. Parker serves on the Board of Cadiz Land Company and is active in
several produce industry associations.
Brian M. Sturgeon
Mr. Sturgeon joined FreshPoint in 1990 as Chief Financial Officer of the
North American produce distribution operations of The Albert Fisher Group PLC.
In November 1996, Mr. Sturgeon was named Chief Financial Officer of FreshPoint,
Inc. In December 1997, Mr. Sturgeon was promoted to Chief Operating Officer of
FreshPoint. Mr. Sturgeon is active in several produce industry associations.
54
<PAGE> 64
FRESH AMERICA MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The persons serving as directors and executive officers of Fresh America as
of July 19, 1999, their ages, and the positions held with Fresh America, as
applicable, are shown below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David I. Sheinfeld.............................. 45 Chairman of the Board and Chief
Executive Officer
Steven R. Grinstead............................. 40 President, Chief Operating Officer and
Director
John G. Gray.................................... 49 Executive Vice President and Chief
Financial Officer
Thomas Hubbard.................................. 56 Director
Lawrence V. Jackson............................. 45 Director
Sheldon I. Stein................................ 45 Director
Colon Washburn.................................. 53 Director
</TABLE>
The Board of Directors is divided into three classes serving staggered
three-year terms, with directors for each class being elected at the annual
meeting held in the year in which the term for such class expires. The terms of
Messrs. Grinstead and Jackson are scheduled to expire at the annual meeting;
however, Mr. Grinstead has informed Fresh America that he will resign as a
director and officer prior to the merger. The Board of Directors has proposed
Mr. Jackson as nominee for reelection as Class II director to serve until the
merger is consummated, or if for any reason the merger is not consummated, for a
three year term and until his successor is elected and qualified.
Biographical information concerning the current directors or executive
officers who are not described in "Management After the Merger" on page 52 is
set forth below.
Steven R. Grinstead
Mr. Grinstead joined Fresh America in January 1992 and was named President,
Chief Operating Officer and a director of Fresh America in May 1992. Mr.
Grinstead is active in produce industry associations and was previously
President of the Houston Fresh Fruit and Vegetable Association.
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<PAGE> 65
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during each of the last three fiscal years to Fresh America's chief
executive officer and each of Fresh America's other executive officers (the
"named executive officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES
NAME AND ------------------------------ UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS COMPENSATION(1)
------------------ ---- -------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David I. Sheinfeld................... 1998 $298,819 $ 50,000 $ -- 20,000 $ 4,800
Chairman of the Board and 1997 250,230 90,000 -- -- 4,750
Chief Executive Officer 1996 187,500 90,000 54,000(2) 20,000 2,885
Steven R. Grinstead.................. 1998 $194,327 $ 25,000 $ -- 12,500 $ 4,800
President and Chief 1997 175,000 45,000 -- -- 4,750
Operating Officer 1996 145,000 45,000 -- 15,000 4,750
Robert C. Kiehnle(3)................. 1998 $158,462 $ -- $ -- -- $ 4,800
Executive Vice President and 1997 150,000 25,000 -- -- 1,431
Chief Financial Officer 1996 37,760 20,000 -- 25,000 --
Edward Sabin......................... 1998 $188,077 $ 5,000 $ -- -- $ 3,000
Executive Vice President 1997 107,692 45,000 -- 7,500 --
</TABLE>
- ---------------
(1) These amounts consist of contributions by Fresh America to a 401(k) plan on
behalf of the named executive.
(2) This amount includes payments of $45,600 for a housing allowance and $8,400
for an automobile allowance.
(3) Effective October 1998, Mr. Kiehnle resigned as Executive Vice President and
Chief Financial Officer. John Gray was employed by Fresh America in
September 1998 to serve in the capacity as Executive Vice President and
Chief Financial Officer.
The following table sets forth certain information concerning options to
purchase Fresh America common stock by the named executive officers during the
1998 fiscal year under the 1996 Fresh America Corp. Stock Option and Award Plan
as Amended and Restated Effective May 22, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
PERCENT OF RATE OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME GRANTED IN 1998 PRICE DATE 5% 10%
---- ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David Sheinfeld...................... 20,000 34.2% $17.25 2/25/2008 $216,969 $549,841
Steven R. Grinstead.................. 12,500 21.4% $17.25 2/25/2008 $162,726 $412,381
</TABLE>
- ---------------
(1) The "Potential Realizable Value" portion of the table illustrates value that
might be realized upon the exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation of the Fresh America common stock over the term of the options.
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<PAGE> 66
The following table sets forth certain information related to options
exercised by the named executive officers during the 1998 fiscal year and the
number and value of options held at fiscal year end.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT JANUARY 1, 1999 JANUARY 1, 1999(1)
------------------- -----------------------
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ------------------ -------- ------------------- -----------------------
<S> <C> <C> <C> <C>
David I. Sheinfeld.......... 11,388 $155,240 57,537/20,000 $459,669/$--
Steven R. Grinstead......... -- -- 54,993/12,500 $503,408/$--
Robert C. Kiehnle........... -- -- 25,000/-- $ --/$--
Edward Sabin................ -- -- 7,500/-- $20,625/$--
</TABLE>
- ---------------
(1) The value indicated is the amount by which the market value of the
underlying stock on the last trading day of fiscal 1998 ($16.75 per share)
exceeded the aggregate exercise price of the options.
Steven R. Grinstead has informed Fresh America that he will resign as a
director and officer of Fresh America prior to the merger. In connection with
Mr. Grinstead's resignation, Fresh America intends to enter into an agreement
with Mr. Grinstead pursuant to which Fresh America will pay Mr. Grinstead
severance benefits on terms and conditions to be approved by the Board of
Directors or a special committee formed by the Board of Directors. Pursuant to a
letter agreement between Fresh America and Edward Sabin, Fresh America paid Mr.
Sabin $200,000, which amount equaled his annual salary, upon his resignation on
July 9, 1999.
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information believed by Fresh
America to be accurate based on information provided to it concerning the
beneficial ownership of Fresh America common stock prior to giving effect to the
merger by (1) each shareholder who is known by Fresh America to own beneficially
in excess of 5% of the outstanding Fresh America common stock, (2) each current
director, (3) the Chief Executive Officer, (4) each of Fresh America's other
executive officers and (5) all such executive officers and directors as a group,
as of July 8, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
BENEFICIAL OWNER COMMON STOCK(1) PERCENT OF CLASS(2)
- ---------------- ------------------- -------------------
<S> <C> <C>
David I. Sheinfeld(3)(4).................................. 544,574 10.24%
Thomas M. Hubbard(3)(5)................................... 509,432 9.67%
Steven R. Grinstead(3)(6)................................. 115,667 2.18%
Colon Washburn(3)(7)...................................... 40,135 *
Sheldon I. Stein(3)(8).................................... 32,813 *
Lawrence V. Jackson(3)(9)................................. 6,000 *
John H. Gray.............................................. -- --
Paine Webber Group, Inc.(10).............................. 279,123 5.33%
Gruber & McBaine Capital Management, Inc.(11)............. 607,100 11.58%
All directors and executive officers as a group(8
persons)(12)............................................ 1,258,121 22.95%
</TABLE>
- ---------------
* less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
Except as indicated in the footnotes to this table and subject to community
property laws, where applicable, each of the shareholders named in this
table has sole voting and investment power with respect to the shares shown
as beneficially owned, unless otherwise indicated.
(2) Percentages are based on the total number of shares outstanding at July 8,
1999, plus the total number of outstanding options held by each such person
that are exercisable within 60 days of such date and securities
exchangeable into Fresh America common stock within 60 days of such date.
Shares issuable
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<PAGE> 67
upon exercise of outstanding options or through the conversion of
securities exchangeable into Fresh America common stock, however, are not
deemed outstanding for purposes of computing the percentage ownership of
any other person.
(3) Director of Fresh America.
(4) Consists of 347,037 shares held of record by David I. Sheinfeld, as trustee
of the Sheinfeld Family Trust, 120,000 shares held of record by the
Sheinfeld Family Partnership and 77,537 shares subject to options issued to
Mr. Sheinfeld under Fresh America's stock option plans that are exercisable
within 60 days. Mr. Sheinfeld's address is c/o Fresh America Corp. at 6600
LBJ Freeway, Suite 180, Dallas, Texas 75240.
(5) Includes 25,000 shares subject to options issued to Mr. Hubbard under Fresh
America's stock option plans that are exercisable within 60 days. Mr.
Hubbard's address is 740 Airport Blvd., Salinas, California 93912.
(6) Includes 67,493 shares subject to options issued to Mr. Grinstead under
Fresh America's stock option plans that are exercisable within 60 days and
800 shares owned by Mr. Grinstead for the benefit of his minor children.
(7) Includes 30,753 shares subject to options issued to Mr. Washburn under
Fresh America's stock option plans that are exercisable within 60 days.
(8) Includes 27,813 shares subject to options issued to Mr. Stein under Fresh
America's stock option plans that are exercisable within 60 days.
(9) Includes 5,000 shares subject to options issued to Mr. Jackson under Fresh
America's stock option plans that are exercisable within 60 days.
(10) Based on information set forth in Schedule 13G, dated February 12, 1999,
filed with the SEC by Paine Webber Group, Inc. and includes 71,200 shares
held by Mitchell Hutchins Institutional Investors, Inc. and 207,923 shares
held by Mitchell Hutchins Asset Management Inc., both of which are an
indirect, wholly-owned subsidiary of Paine Webber Group, Inc. Paine Webber
Group, Inc. has sole voting power with regards to 267,123 of the above
shares.
(11) Based on information provided by Gruber & McBaine Capital Management, LLC
("GMCM"), John D. Gruber ("Gruber"), J. Patterson McBaine ("McBaine"),
Thomas O. Lloyd-Butler ("Lloyd-Butler"), Lagunitas Partners ("Lagunitas")
and Proactive Partners ("Proactive"). This group reported that it had total
ownership of 607,100 shares, and that the voting and dispositive power
among such group's members is as follows:
<TABLE>
<CAPTION>
VOTING AND DISPOSITIVE
POWER
-----------------------
NAME SOLE SHARED
- ---- ---------- ----------
<S> <C> <C>
GMCM...................................................... -- 506,800
Gruber.................................................... 68,700 506,800
McBaine................................................... 31,600 506,800
Lloyd-Butler.............................................. -- 506,800
Lagunitas................................................. 231,600 --
Proactive................................................. -- --
</TABLE>
(12) Includes 241,096 shares subject to options issued to certain directors and
executive officers of Fresh America that are exercisable within 60 days.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of Fresh America is managed under the direction of the Board
of Directors. The Board of Directors meets during Fresh America's fiscal year to
review significant developments affecting Fresh America
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<PAGE> 68
and to act on matters requiring Board approval. The Board of Directors held
three meetings during the fiscal year ended January 1, 1999 and acted by
unanimous written consent on ten occasions.
The Board of Directors currently has established audit, compensation and
stock option plan administration committees. The committees devote attention to
specific subjects and assist the Board of Directors in the discharge of its
responsibilities. The current functions of each committee and its current
members are described below.
Audit Committee
The audit committee consists of two members appointed by the Board of
Directors from directors who are neither officers nor employees of Fresh
America. The audit committee recommends to the Board of Directors the
appointment of a firm of independent certified public accountants to conduct
audits of the books, records and accounts of Fresh America and monitors the
performance, findings and reports of, and approves the fee arrangement with the
independent certified public accountants. The audit committee also reviews
accounting objectives and procedures of Fresh America and makes reports and
recommendations to the Board of Directors as it deems appropriate. The audit
committee currently consists of Messrs. Stein and Washburn. The audit committee
did not meet during the 1998 fiscal year.
Compensation Committee
The compensation committee consists of two members of the Board of
Directors who are neither officers nor employees of Fresh America. The
compensation committee determines the compensation of the Chief Executive
Officer and, with the assistance of management, of senior executive employees of
Fresh America (including salary, bonus, equity participation through grants of
stock options, and benefits). The compensation committee currently consists of
Messrs. Stein and Washburn. The compensation committee did not meet during the
1998 fiscal year.
Stock Option Plan Administration Committee
The stock option plan administration committee consists of two members,
Messrs. Washburn and Stein, neither of whom are employees or officers of Fresh
America. The plan administration committee administers Fresh America's stock
option plans. In general, the stock option plan administration committee
construes, interprets and administers the stock option plans and the provisions
of the options granted thereunder, prescribes and amends rules for the operation
of such stock option plans and makes all other determinations necessary or
advisable for implementation and administration of the stock option plans. The
stock option plan administration committee has full and final authority to
select the key employees to whom awards are granted, the number of shares of
Fresh America common stock subject to awards and the terms of awards, including
the exercise price and vesting period of options. During the 1998 fiscal year,
the plan administration committee did not hold any formal meetings.
COMPENSATION OF DIRECTORS
Fresh America's non-employee directors receive cash compensation of $10,000
per year for serving on the Board of Directors and are reimbursed for expenses
reasonably incurred in connection with their services as directors.
Each director is eligible to receive stock options and awards under Fresh
America's stock option plan. Pursuant to Fresh America's stock option plan,
options to purchase 5,000 shares are automatically granted annually to each
director who is not an officer or employee of Fresh America. Such automatic
option grants are exercisable at fair market value on the date of grant.
Pursuant to these provisions, on August 7, 1998, each of Messrs. Hubbard, Stein,
Jackson and Washburn received options to purchase 5,000 shares of Fresh America
common stock at $19.98 per share.
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<PAGE> 69
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The compensation committee was formed in April 1994 in anticipation of
Fresh America's initial public offering. Prior to the establishment of the
compensation committee, the entire Board of Directors was responsible for
determining executive compensation. Since its formation, the compensation
committee has been responsible for recommending bonuses and any increase in base
salaries for Fresh America's executive officers.
The compensation committee believes that, in order for Fresh America to
succeed, it must be able to attract and retain qualified executive officers. In
determining the type and amount of executive officer compensation, the
objectives of the compensation committee are to provide levels of base
compensation, bonuses and long-term incentives (in the form of stock options or
other plans) that will attract and retain talented executive officers and align
their interests with the success of Fresh America. Fresh America's executive
officer compensation program currently is comprised of base salary, bonus plan,
long-term incentive compensation (in the form of stock options) and various
benefits generally available to employees of Fresh America (such as health and
disability insurance). Under the supervision of the compensation committee and
the Board of Directors, Fresh America has developed and implemented compensation
policies, plans and programs that seek to enhance the profitability of Fresh
America and increase shareholder value.
Base Salaries
Fresh America's policy is to maintain base salaries competitive with
salaries paid to similarly situated executive officers of companies of similar
size in comparable industries. Although neither the Board of Directors nor the
compensation committee has conducted a formal review of base salaries paid to
similarly situated executive officers, Fresh America believes that the base
salaries payable to its executive officers are comparable to those paid by
similar companies located in Fresh America's geographical area and engaged in
industries comparable to Fresh America's. The compensation committee anticipates
that adjustments to base compensation will generally be made based upon assigned
responsibility and performance and successful attainment of specific goals and
objectives of Fresh America and individual employees. For fiscal 1999, the
compensation committee recommended increases in the minimum levels of base
compensation payable to Fresh America's executive officers.
Bonuses
Year-end cash bonuses are designed to motivate Fresh America's executive
officers to achieve specific annual financial goals and to achieve favorable
returns for Fresh America's shareholders. At the end of each fiscal year, the
compensation committee will assess each executive's contributions to Fresh
America as well as the degree to which specific annual financial, strategic, and
operating objectives were met by Fresh America. For fiscal 1998, the
compensation committee granted cash bonuses of $85,000 to Fresh America's
executive officers.
Long-Term Incentives
Stock option grants under Fresh America's stock option plans form the basis
of Fresh America's long-term incentive compensation for executive officers and
employees. The specific objective of Fresh America's stock option plans is to
align the long-term interests of Fresh America's executive officers and
employees with those of shareholders by creating a strong link between executive
pay and shareholder returns. Fresh America encourages its executive officers and
employees to develop and maintain a significant, long-term stock ownership
position in Fresh America common stock. Stock options are awarded to executive
officers and employees in order to encourage future management actions aimed at
improving Fresh America's sales efforts, product quality and profitability.
Fresh America believes that success in these endeavors will increase the value
of Fresh America common stock for shareholders. Recipients of options will have
the opportunity to share in the increased value that results from their efforts.
The stock option plan administration committee makes specific awards of options
based on an individual's ability to impact company-wide performance and in light
of the total compensation appropriate for the individual's position. The
compensation committee and the
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<PAGE> 70
stock option plan administration committee may also consider other bonus or
long-term incentives in their discretion.
Chief Executive Officer Compensation
In approving Mr. Sheinfeld's compensation, the Board of Directors evaluated
and compared Mr. Sheinfeld's duties, responsibilities and performance results,
and the overall results of Fresh America, to industry norms to determine the
minimum level of base compensation required. The compensation committee
recommended a cash bonus of $50,000 for fiscal 1998.
This report is submitted by the members of the compensation committee of
the Board of Directors.
Sheldon I. Stein
Colon Washburn
This report will not be deemed to be incorporated by reference in any
filing by Fresh America under the Securities Act or the Securities Exchange Act
of 1934, as amended, except to the extent that Fresh America specifically
incorporates this report by reference.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Stein and Washburn serve on the compensation committee of the Board
of Directors. No compensation committee interlocks existed in fiscal 1998, and
no insiders participated in compensation committee decisions in fiscal 1998.
61
<PAGE> 71
CORPORATE PERFORMANCE GRAPH
The following graph compares the cumulative total return of Fresh America
common stock during the period commencing May 26, 1994, the date public trading
of Fresh America common stock began following Fresh America's initial public
equity offering, to January 1, 1999, with the Nasdaq Market Index and an index
of companies within the Standard Industrial Code for Groceries and Related
Products (the "Peer Index").
The graph depicts the results of investing $100 in Fresh America common
stock, the Nasdaq Market Index and the Peer Index at closing prices on May 26,
1994. The graph assumes that all dividends were reinvested.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG FRESH AMERICA CORP.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
[PERFORMANCE GRAPH]
ASSUMES $100 INVESTED ON MAY 26, 1994
ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING JAN. 1, 1999
<TABLE>
<CAPTION>
05/26/94 1994 1995 1996 1997 1998
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
FRESH AMERICA CORP. 100.00 87.50 119.12 195.59 236.03 197.06
SIC CODE INDEX 100.00 93.59 121.49 123.57 165.05 186.10
NASDAQ MARKET INDEX 100.00 101.30 131.40 163.29 199.73 281.71
</TABLE>
The stock price performance depicted in the Corporate Performance Graph is
not necessarily indicative of future price performance. The Corporate
Performance Graph will not be deemed to be incorporated by reference in any
filing by Fresh America under the Securities Act or the Exchange Act.
62
<PAGE> 72
TRANSACTIONS WITH MANAGEMENT
In March 1999, David Sheinfeld requested a loan by Fresh America of up to
$1.6 million to enable him to finance certain personal obligations without
selling shares of Fresh America common stock owned by him in the open market.
The Board of Directors established a special committee of Messrs. Hubbard,
Jackson and Washburn to consider his request. The special committee approved the
making of a recourse loan, subject to the consent of Fresh America's lenders
(which consent has been obtained), for a term of three years, bearing interest
at the same rate as Fresh America's bank line and secured by Fresh America
common stock equal in value to the loan. The collateral for the loan will be
subject to semi-annual review by the Board of Directors. Interest will be
payable in cash annually, subject to Mr. Sheinfeld's option to pledge additional
shares as collateral equal in value to the interest payment. In such an event,
the amount of the interest payment will be added to the principal amount of the
loan.
63
<PAGE> 73
SELECTED FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data of FreshPoint
America gives pro forma effect to the merger and the new credit facilities by
application of the pro forma adjustments described in the accompanying notes.
The merger will be accounted for by FreshPoint as a "reverse acquisition" of
Fresh America under the "purchase" method of accounting, which requires the
purchase price to be allocated to the acquired assets and liabilities of Fresh
America on the basis of their fair values as of the effective time of the
merger.
The unaudited pro forma combined financial data gives pro forma effect to
the consummation of the merger and the new credit facilities, as if such
transactions had been consummated (1) on March 27, 1999, in the case of the
unaudited pro forma combined balance sheet at March 27, 1999 and (2) on June 29,
1997, the first day of FreshPoint's 1998 fiscal year, in the case of the
unaudited pro forma combined statements of operations for the fiscal year ended
June 27, 1998 and the nine months ended March 27, 1999. See "Related
Agreements -- New Credit Facilities" beginning on page 49 for details of the new
credit facilities and see "Selected Financial Information -- Unaudited Pro Forma
Combined Capitalization" beginning on page 75 for details of existing
indebtedness to be repaid with the proceeds of the new credit facilities.
The following unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of what FreshPoint
America's actual financial position or results of operations would have been had
the foregoing transactions been consummated on such dates, nor does it give
effect to (1) any transactions other than the foregoing transactions and those
described in the accompanying notes to unaudited pro forma combined financial
data, (2) Fresh America's or FreshPoint's results of operations since April 2,
1999 and March 27, 1999, respectively, (3) with respect to the unaudited pro
forma combined statements of operations, nonrecurring charges to operations of
approximately $6 to $8 million related to the accelerated vesting of warrants
held by FreshPoint management, the forgiveness of certain notes receivable from
FreshPoint management, the cancellation of a non-competition agreement, the
termination of management service agreements with FreshPoint investor groups and
an extraordinary loss of $900,000 expected to be recorded by FreshPoint in
connection with the early termination of its existing credit facility, (4) any
nonrecurring charges or adjustments to the purchase price, other than those
discussed in the accompanying notes to unaudited pro forma combined financial
data, that could result from the restructuring of Fresh America's or
FreshPoint's operations, as management of the two companies is still in the
process of integration planning or (5) cost savings, operating efficiencies or
other synergies as discussed in "Risk Factors" beginning on page 17. The pro
forma combined financial data does not purport to be indicative of FreshPoint
America's financial position or results of operations as of the date hereof or
for any period ended on the date hereof, as of the effective time of the merger,
or for any period ending at the effective time of the merger, or as of or for
any other future date or period.
The following unaudited pro forma combined financial data is based upon the
historical financial statements of Fresh America and FreshPoint and should be
read in conjunction with such historical financial statements, the related
notes, and the other information contained herein. See "Index To Historical
Financial Statements" beginning on page F-1. In the preparation of the following
unaudited pro forma combined financial data, it has been generally assumed that
the historical value of Fresh America's assets and liabilities approximates the
fair value thereof (except as described in the accompanying notes to unaudited
pro forma combined financial data of FreshPoint America), as a valuation has not
been completed. FreshPoint America will determine the fair value of the assets
and liabilities of Fresh America (including intangible assets) as of the
effective time of the merger. Although such determination of fair value is not
presently expected to result in values that are materially greater or less than
the values assumed in the preparation of the following unaudited pro forma
combined financial data, there can be no assurance with respect thereto.
The unaudited pro forma combined balance sheet at March 27, 1999 is based
upon Fresh America's historical financial position at April 2, 1999 and
FreshPoint's historical financial position at March 27, 1999. The unaudited pro
forma combined statement of operations for the fiscal year ended June 27, 1998
is based upon Fresh America's pro forma results of operations for the twelve
month period ended July 3, 1998 and
64
<PAGE> 74
upon FreshPoint's historical results of operations for the fiscal year ended
June 27, 1998. The unaudited pro forma combined statement of operations for the
nine month period ended March 27, 1999 is based upon Fresh America's pro forma
results of operations for the nine month period ended April 2, 1999 and upon
FreshPoint's historical results of operations for the nine month period ended
March 27, 1999. Fresh America's pro forma results of operations for the twelve
month and nine month periods described above are based on its historical results
of operations restated to conform to FreshPoint's fiscal year end and adjusted
to reflect the effect of consummated acquisitions, including pro forma
adjustments related thereto, assuming such acquisitions had occurred on June 29,
1997.
The business of Fresh America is seasonal in nature, with a higher
percentage of sales and earnings usually being generated in the fourth quarter
of the calendar year than in other periods. Because of this seasonality and
other factors, results of operations for interim periods are not necessarily
indicative of results of operations for an entire fiscal year. See "Risk
Factors" beginning on page 17.
65
<PAGE> 75
FRESHPOINT AMERICA
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 27, 1999
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
FRESHPOINT FRESH AMERICA ADJUSTMENTS COMBINED
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................... $ 8,296 $ 7,563 $ -- $ 15,859
Accounts receivable, net.................................... 58,258 68,556 -- 126,814
Advances to growers......................................... -- 4,663 -- 4,663
Inventory................................................... 9,247 9,937 -- 19,184
Taxes receivable............................................ -- 47 603(i)
344(e)
871(n) 1,865
Other current assets........................................ 5,170 3,031 4,474(c) 12,675
-------- -------- -------- --------
Current assets...................................... 80,971 93,797 6,292 181,060
Property & equipment, net................................... 47,488 25,967 (6,000)(y) 67,455
Notes receivable............................................ 1,200 178 (750)(e)
(150)(f) 478
Intangibles, net............................................ 47,798 32,576 (32,576)(d)
88,899(c)
3,663(k)
(1,508)(i)
(2,177)(n) 136,675
Other assets................................................ 3,753 2,321 (735)(j)
(298)(x) 5,041
-------- -------- -------- --------
Total Assets........................................ $181,210 $154,839 $ 54,660 $390,709
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................ $ 38,147 $ 44,499 $ -- $ 82,646
Accrued liabilities......................................... 12,444 4,515 1,900(w)
(2,537)(l) 16,322
Current portion of long term debt........................... 13,044 12,528 (23,146)(l)
4,075(m) 6,501
-------- -------- -------- --------
Current liabilities................................. 63,635 61,542 (19,708) 105,469
Long-term debt.............................................. 60,712 20,488 (78,720)(l)
122,969(m)
11,080(g) 136,529
Subordinated debt to shareholder............................ 30,608 -- (30,608)(l) --
Other subordinated debt..................................... 3,250 19,020 (22,270)(l)
33,416(m) 33,416
Other liabilities........................................... 5,391 1,404 2,100(w) 8,895
-------- -------- -------- --------
Total liabilities................................... 163,596 102,454 18,259 284,309
Preferred stock............................................. -- -- -- --
Common stock................................................ -- 52 57(b) 109
Paid-in capital............................................. 24,392 32,191 (32,191)(h)
89,710(a)
1,584(m) 115,686
Subscriptions receivable.................................... (1,734) -- 110(e) (1,624)
Retained earnings (deficit)................................. (3,393) 20,364 (20,364)(h)
(516)(e)
(905)(i)
(1,306)(n) (6,120)
Accumulated other comprehensive loss........................ (1,651) (222) 222(h) (1,651)
-------- -------- -------- --------
Total equity........................................ 17,614 52,385 36,401 106,400
-------- -------- -------- --------
Total Liabilities and Shareholders' Equity.................. $181,210 $154,839 $ 54,660 $390,709
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
66
<PAGE> 76
FRESHPOINT AMERICA
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 27, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL FRESH PRO FORMA PRO FORMA
FRESHPOINT AMERICA(z) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $544,742 $540,887 $1,085,629
Costs of good sold........................... 419,637 473,246 $(23,082)(u) 869,801
-------- -------- -------- ----------
Gross profit................................. 125,105 67,641 23,082 215,828
Operating expenses........................... 107,243 51,059 23,082(u)
(343)(v) 181,041
Depreciation and amortization................ 7,717 4,264 (1,412)(o)
1,667(p) 12,236
Impairment of goodwill and restructuring
charge..................................... -- -- --
-------- -------- -------- ----------
Income from operations....................... 10,145 12,318 88 22,551
Interest expense............................. 6,682 3,657 (10,048)(q)
12,344(r) 12,635
Other income, net............................ (366) (1,294) (1,660)
-------- -------- -------- ----------
Income before income taxes................... 3,829 9,955 (2,208) 11,576
Provision for income taxes................... 1,723 4,775 (781)(s) 5,717
-------- -------- -------- ----------
Net income................................... $ 2,106 $ 5,180 $ (1,427) $ 5,859
======== ======== ======== ==========
Basic earnings per common share.............. $ 50.34 $ 0.99 $ 0.54
======== ======== ==========
Diluted earnings per common share............ $ 43.67 $ 0.95 $ 0.53
======== ======== ==========
Weighted average common shares outstanding
common-basic............................... 9 5,214 5,686 10,900
Weighted average common shares outstanding
common-diluted............................. 10 5,518 5,686 11,204
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
67
<PAGE> 77
FRESHPOINT AMERICA
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 27, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL FRESH PRO FORMA PRO FORMA
FRESHPOINT AMERICA(z) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales................................... $712,502 $765,103 $ -- $1,477,605
Costs of good sold.......................... 554,942 683,290 (28,058)(u) 1,210,174
-------- -------- -------- ----------
Gross profit................................ 157,560 81,813 28,058 267,431
Operating expenses.......................... 135,938 65,086 28,058(u) 229,082
Depreciation and amortization............... 9,070 4,826 (1,709)(o)
2,222(p) 14,409
Impairment of goodwill and restructuring
charge.................................... 6,938 -- -- 6,938
-------- -------- -------- ----------
Income from operations...................... 5,614 11,901 (513) 17,002
Interest expense............................ 9,259 3,841 (12,682)(q)
16,459(r) 16,877
Other income, net........................... (544) (441) (985)
-------- -------- -------- ----------
Income (loss) before income taxes........... (3,101) 8,501 (4,290) 1,110
Provision for income taxes.................. 1,251 3,836 (1,511)(s) 3,576
-------- -------- -------- ----------
Net income (loss)........................... $ (4,352) $ 4,665 $ (2,779) $ (2,466)
======== ======== ======== ==========
Basic earnings (loss) per common share...... $(732.73) $ 0.92 $ (0.23)(t)
======== ======== ==========
Diluted earnings (loss) per common share.... $(732.73) $ 0.87 $ (0.23)(t)
======== ======== ==========
Weighted average common shares outstanding
common-basic.............................. 9 5,090 5,686 10,776
Weighted average common shares outstanding
common-diluted(t)......................... 9 5,336 5,686 10,776
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
68
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
(a) Represents the fair value of FreshPoint's investment in Fresh America
calculated based on 5,241,051 outstanding shares of Fresh America at April
30, 1999 at an average stock price of $17.1375 per share less the par value
assigned to the total common shares to be outstanding at the effective time
of the merger.
(b) Represents 5,685,826 shares of Fresh America common stock issued to
FreshPoint for all of the equity securities (including warrants to purchase
common stock) of FreshPoint in connection with the merger multiplied by the
par value of Fresh America's common stock of $0.01.
(c) Represents FreshPoint's investment in Fresh America (see (a) above) plus
the estimated transaction costs and other liabilities assumed in the merger
in excess of the fair value of Fresh America's net tangible assets acquired
(i.e. goodwill to be recorded in the merger) as follows:
<TABLE>
<S> <C>
Fair value of merger consideration.......................... $ 89,819
Estimated transaction costs................................. 12,180
Other liabilities assumed (see (w) below)................... 4,000
Deferred tax asset related to other liabilities assumed..... (1,600)
--------
Subtotal.................................................... 104,399
--------
Fresh America historical book value......................... 52,385
Less:
Fresh America historical intangible assets................ 32,576
Fresh America notes receivable to be forgiven (see (f)
below)................................................. 150
Fresh America debt issue costs to be written off (see (j)
below)................................................. 735
Fresh America advance to be written off (see (x) below)... 298
Adjustment to fair value of assets acquired (see (y)
below)................................................. 6,000
Deferred tax asset related to the above items............. (2,874)
--------
Estimated fair value of net tangible assets acquired........ 15,500
--------
Goodwill to be recorded in merger........................... $ 88,899
========
</TABLE>
(d) Represents the elimination of Fresh America's historical goodwill balance.
(e) Represents the forgiveness of $860,000 of notes receivable owed by certain
members of FreshPoint management net of the related tax benefit of
$344,000. In connection with the merger, FreshPoint will forgive certain
notes owed by members of management. Compensation expense related to the
forgiveness of these notes has not been reflected in the pro forma
statements of operations but will be recognized by FreshPoint America at
the time the merger is consummated.
(f) Represents the forgiveness of $150,000 of notes receivable owed by certain
members of Fresh America management. In connection with the merger, Fresh
America will forgive certain notes owed by members of management
immediately prior to the merger. Compensation expense related to the
forgiveness of these notes has not been reflected in the pro forma
statements of operations but will be recognized by Fresh America at the
time the merger is consummated. This adjustment gives effect to the
reduction in the fair value of Fresh America's net assets that will result
from this forgiveness.
(g) Represents the estimated transaction costs related to the merger which are
expected to be funded by the new credit facilities.
(h) Represents the elimination of historical Fresh America equity accounts.
(i) Represents the write off of FreshPoint debt issuance costs in connection
with the new credit facilities and the related tax benefit of $603,000. An
extraordinary charge related to the write off of debt issuance costs has
not been reflected in the pro forma statement of operations but will be
recognized by FreshPoint America at the time the merger is consummated.
69
<PAGE> 79
(j) Represents the write off of Fresh America debt issuance costs of $735,000
in connection with the new credit facilities. An extraordinary charge
related to the write off of these debt issuance costs has not been
reflected in the pro forma statement of operations but will be recognized
by Fresh America at the time the merger is consummated. This adjustment
gives effect to the reduction in the fair value of Fresh America's net
assets that will result from this write-off.
(k) Represents the estimated debt issuance costs related to the new credit
facilities.
(l) Represents the pay-off of substantially all outstanding FreshPoint and
Fresh America existing debt and $2,537,000 of related accrued interest
which is to occur in connection with the new credit facilities.
(m) Represents new borrowings related to the new credit facilities. Fresh
America has negotiated the refinancing of substantially all outstanding
FreshPoint and Fresh America debt with several lenders. Fresh America has
received commitments for senior credit facilities totaling $175 million and
senior subordinated notes totaling $35 million. New borrowings will also be
made in connection with the new credit facilities to pay accrued interest
of FreshPoint and Fresh America related to the debt to be refinanced, all
transaction costs related to the merger and debt issuance costs related to
the new credit facilities. Accordingly, no net change in cash and cash
equivalents is reflected in the pro forma adjustments. Concurrent with the
funding of the new senior subordinated notes, warrants to purchase 155,483
shares of Fresh America common stock previously issued to John Hancock and
its affiliates will be amended to (1) reduce the exercise price from $22.70
to $19.00 per share and (2) extend the expiration date to the latter of (a)
the maturity date of the new notes or (b) the date on which all of the
senior subordinated note obligations are paid in full. The unaudited pro
forma combined financial data reflects the fair value of the warrants
($1,584,000) as an increase in paid-in capital and a discount to the face
value of the senior subordinated notes which is being amortized over the
term of the agreement.
(n) Represents the write-off of a FreshPoint non-competition agreement with
Albert Fisher which was terminated in connection with obtaining Albert
Fisher's consent to the merger net of related tax benefit of $871,000.
(o) Represents the elimination of Fresh America goodwill amortization.
(p) Represents goodwill amortization resulting from goodwill to be recorded in
connection with the merger ($89 million of goodwill to be amortized over 40
years).
(q) Represents the elimination of substantially all FreshPoint historical
interest expense and substantially all Fresh America interest expense to
reflect the new credit facilities.
(r) Represents estimated interest expense on new borrowings in connection with
the new credit facilities as well as the amortization of new debt issuance
costs over the terms of the new debt to be issued in the new credit
facilities. Interest expense on the new borrowings has been calculated
based on quoted interest rates as of July 12, 1999. The following table
sets forth the calculation of estimated interest expense (in thousands,
except percentages):
<TABLE>
<CAPTION>
INTEREST ESTIMATED
RATE USED IN ANNUAL
ANTICIPATED PRO FORMA INTEREST
DEBT ISSUE BASED INTEREST RATE BORROWINGS CALCULATION EXPENSE
---------- ----------------------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Revolving Credit Facility.... LIBOR plus 3% for the
outstanding balance and
0.5% on unused balance $13,124 8.31% $ 1,275
Term Loan A Facility......... LIBOR plus 3% 60,000 8.31% 4,986
Term Loan B Facility......... LIBOR plus 3.5% 35,000 8.81% 3,084
Term Loan C Facility......... LIBOR plus 3.75% 30,000 9.06% 2,718
Senior Subordinated Notes.... US Treasury Bond rate plus
4.75% 35,000 10.47% 3,665
Amortization of debt discount
and issuance costs......... 731
-------
Total pro forma
interest......... $16,459
=======
</TABLE>
70
<PAGE> 80
A 1/8% change in interest rates would cause interest expense to increase
or decrease by approximately $216,000 per year as compared to the amounts
estimated above.
(s) Represents the tax effect of additional interest expense as a result of the
new credit facilities and the elimination of $343,000 of non-recurring
transaction costs incurred by Fresh America in connection with the merger
(see note (v)). Amortization expense related to the goodwill balance
associated with the merger will not be deductible for tax purposes.
(t) The dilutive effect of options and warrants to purchase common stock is not
included in diluted weighted average common shares outstanding in net loss
periods as such securities are considered anti-dilutive. Results of
operations for the year ended June 27, 1998 include an impairment of
goodwill and restructuring charge of $6,938,000 which, net of the related
income tax benefit of $513,000, reduced basic and diluted pro forma
combined earnings per share by $0.60 and $0.59, respectively.
(u) Represents the reclassification of Fresh America distribution expense from
cost of goods sold to operating expense to conform with the FreshPoint
classification of distribution expenses.
(v) Represents the elimination of non-recurring transaction costs incurred by
Fresh America in connection with the merger and charged to results of
operations during the nine months ended April 2, 1999.
(w) Represents other liabilities of $4 million ($2.1 million classified as
long-term and $1.9 million classified as current) to be assumed by
FreshPoint in the merger represent the present value of future lease
payments associated with certain Fresh America distribution centers and
office space to be abandoned by FreshPoint America and related employee
severance costs.
(x) Represents a Fresh America advance to be written off relating to a
purchasing program with a third party that will be discontinued as a result
of the merger.
(y) Represents a $6 million adjustment to the fair value of Fresh America
assets acquired relating to certain information systems assets which will
be abandoned in connection with the merger in favor of more cost efficient
systems of FreshPoint.
(z) The following unaudited pro forma statements of operations of Fresh America
give effect to consummated acquisitions and the related pro forma
adjustments as if such acquisitions had been consummated on June 29, 1997,
the first day of FreshPoint's 1998 fiscal year end. Fresh America's fiscal
year end is the 52-week or 53-week period ending on the first Friday in
January. The historical balances for the nine months ended April 2, 1999
and twelve months ended July 3, 1998 have been derived from the annual and
quarterly consolidated financial statements included in Fresh America's
Form 10-Ks and Form 10-Qs.
71
<PAGE> 81
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FRESH AMERICA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 2, 1999
------------------------------------------------------------
CONSUMMATED PRO FORMA
HISTORICAL(1) ACQUISITIONS(2) ADJUSTMENTS PRO FORMA
-------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $490,312 $50,575 $ -- $540,887
Costs of good sold......................... 428,334 44,912 -- 473,246
-------- ------- ------- --------
Gross profit............................... 61,978 5,663 -- 67,641
-------- ------- ------- --------
Operating expenses......................... 46,456 4,630 (27)(3) 51,059
Depreciation and amortization.............. 3,883 225 156(4) 4,264
-------- ------- ------- --------
Operating income........................... 11,639 808 (129) 12,318
-------- ------- ------- --------
Interest expense......................... 3,293 52 312(5) 3,657
Other, net............................... (1,218) (76) -- (1,294)
-------- ------- ------- --------
Earnings before income taxes............... 9,564 832 (441) 9,955
Income taxes............................... 4,575 -- 200(6) 4,775
-------- ------- ------- --------
Net income................................. $ 4,989 $ 832 $ (641) $ 5,180
======== ======= ======= ========
Earnings per share:
Basic.................................... $ 0.98 $ 0.99
Diluted.................................. $ 0.92 $ 0.95
Weighted average common shares outstanding:
Basic.................................... 5,113 101 5,214
Diluted.................................. 5,474 44 5,518
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JULY 3, 1998
------------------------------------------------------------
CONSUMMATED PRO FORMA
HISTORICAL(1) ACQUISITIONS(2) ADJUSTMENTS PRO FORMA
-------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $521,056 $244,047 $ -- $765,103
Costs of good sold......................... 465,278 218,012 -- 683,290
-------- -------- ------- --------
Gross profit............................... 55,778 26,035 -- 81,813
-------- -------- ------- --------
Operating expenses......................... 43,534 21,950 (398)(3) 65,086
Depreciation and amortization.............. 2,594 1,301 931(4) 4,826
-------- -------- ------- --------
Operating income........................... 9,650 2,784 (533) 11,901
-------- -------- ------- --------
Interest expense......................... 1,320 441 2,080 3,841
Other, net............................... (501) 60 -- (441)
-------- -------- ------- --------
Earnings before income taxes............... 8,831 2,283 (2,613) 8,501
Income taxes............................... 3,863 191 (218)(6) 3,836
-------- -------- ------- --------
Net income................................. $ 4,968 $ 2,092 $(2,395) $ 4,665
======== ======== ======= ========
Earnings per share:
Basic.................................... $ 1.09 $ 0.92
Diluted.................................. $ 1.04 $ 0.87
Weighted average common shares outstanding:
Basic.................................... 4,571 519 5,090
Diluted.................................. 4,790 546 5,336
</TABLE>
- ---------------
(1) Represents the historical operating results of Fresh America for the periods
indicated in the accompanying unaudited pro forma statements of operations.
72
<PAGE> 82
(2) Represents the historical operating results of the companies acquired prior
to date of acquisition by Fresh America. A summary of the purchase price for
the companies acquired follows:
<TABLE>
<CAPTION>
EXCESS OF
PURCHASE PRICE COST OVER
-------------------------------------------- FAIR VALUE FAIR VALUE
NOTES COMMON OF NET OF ASSETS
PAYABLE STOCK TOTAL ASSETS ACQUIRED
CASH PAID ISSUED ISSUED CONSIDERATION ACQUIRED (GOODWILL)
--------- ------- ------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hereford Haven, Inc. d/b/a
Martin........................ $ 500 $ -- $ 750 $ 1,250 $ 422 $ 828
Francisco Distributing Co....... 5,644 2,219 5,500 13,363 2,823 10,540
Jos. Notarianni & Co............ 5,390 -- 2,451 7,841 5,838 2,003
Kings Onion House, Inc. ........ 4,000 600 1,100 5,700 3,351 2,349
Thompson's Produce Company...... 400 -- -- 400 -- 400
Sam Perricone Citrus Company.... 1,765 3,500 1,750 7,015 1,458 5,557
</TABLE>
The agreements related to each of the above acquired companies include
provisions for additional consideration to be paid to the former owners based on
future results of operations. Such potential additional consideration will be
recorded as goodwill at the time of payment. See Note 3 of notes to consolidated
financial statements included elsewhere in this proxy statement for further
discussion of Fresh America's contingent consideration arrangements.
The historical revenues, costs and expenses, and net income of the
companies acquired for the period from June 28, 1997 through the respective
dates of acquisition by Fresh America are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 2, 1999
-----------------------------------
COSTS AND NET
DATE ACQUIRED REVENUE EXPENSES INCOME (LOSS)
---------------- ------- --------- -------------
<S> <C> <C> <C> <C>
Hereford Haven, Inc. d/b/a Martin Bros..... January 2, 1998 $ -- $ -- $ --
Francisco Distributing Co.................. February 2, 1998 -- -- --
Jos. Notarianni & Co....................... August 14, 1998 9,917 10,158 (241)
Kings Onion House, Inc. ................... October 3, 1998 10,305 9,951 354
Thompson's Produce Company................. October 3, 1998 4,022 3,885 137
Sam Perricone Citrus Company............... October 30, 1998 26,331 25,749 582
------- ------- -----
$50,575 $49,743 $ 832
======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JULY 3, 1998
------------------------------------
COSTS AND NET
DATE ACQUIRED REVENUE EXPENSES INCOME
---------------- -------- --------- -------------
<S> <C> <C> <C> <C>
Hereford Haven, Inc. d/b/a Martin Bros... January 2, 1998 $ 8,647 $ 8,523 $ 124
Francisco Distributing Co................ February 2, 1998 39,394 39,187 207
Jos. Notarianni & Co..................... August 14, 1998 64,269 63,929 340
Kings Onion House, Inc. ................. October 3, 1998 38,572 37,970 602
Thompson's Produce Company............... October 3, 1998 14,653 14,642 11
Sam Perricone Citrus Company............. October 30, 1998 78,512 77,704 808
-------- -------- ------
$244,047 $241,955 $2,092
======== ======== ======
</TABLE>
- ---------------
(3) Reflects elimination of employment and consulting agreements that were
terminated as a result of the related acquisition.
(4) Reflects incremental increase in goodwill amortization as a result of the
excess of cost over the fair value of assets acquired in the purchase price.
73
<PAGE> 83
(5) Reflects incremental interest expense on debt used to fund the acquisitions.
For purposes of computing pro forma interest expense, cash payments made as
part of the purchase price were assumed to have been funded with proceeds
from debt. (See note 2 above).
(6) Reflects estimated effects of (a) the pro forma adjustments and (b) income
taxes where acquired companies were not direct tax paying entities at
assumed composite income tax rates which include consideration of statutory
United States federal and state income tax rates and Canadian federal and
provincial rates, and nondeductible amortization of goodwill and other
expenses.
74
<PAGE> 84
UNAUDITED PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the historical capitalization of Fresh
America and FreshPoint as of April 2, 1999 and March 27, 1999, respectively, and
as adjusted to give effect to the consummation of the Merger and the new credit
facilities, as if such transactions had been consummated on March 27, 1999. See
"Related Agreements -- New Credit Facilities" beginning on page 49 for a more
detailed discussion of the new credit facilities.
The as-adjusted information set forth below is presented for illustrative
purposes only and is not necessarily indicative of what FreshPoint America's
actual consolidated capitalization would have been had the foregoing
transactions been consummated on March 27, 1999, nor does it give effect to (1)
any transactions other than the foregoing transactions and those discussed in
the notes to unaudited pro forma combined financial data of FreshPoint America
included elsewhere herein or (2) Fresh America's or FreshPoint's respective
results of operations since April 2, 1999 and March 27, 1999, respectively.
Accordingly, the pro forma information set forth below does not purport to be
indicative of FreshPoint America's consolidated capitalization as of the date
hereof, the effective time of the merger, or any other future date.
The following table should be read in conjunction with the historical
financial statements of Fresh America and FreshPoint, the unaudited pro forma
combined financial data, the related notes, and the other information contained
elsewhere in this proxy statement. See "Index To Historical Financial
Statements" and "Selected Financial Information" beginning on pages F-1 and 64,
respectively.
75
<PAGE> 85
UNAUDITED PRO FORMA
COMBINED CAPITALIZATION
(AMOUNTS IN THOUSANDS)
MARCH 27, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- AS
FRESH AMERICA FRESHPOINT ADJUSTED
------------- ---------- --------
<S> <C> <C> <C>
Short-term debt:
Canadian revolver........................................ $ 6,690 $ -- $ --
Current portion of long-term debt........................ 5,838 13,044 6,501
-------- -------- --------
Total short-term debt...................................... 12,528 13,044 6,501
-------- -------- --------
Long-term debt:
Revolver -- Fresh America.................................. 15,519 -- --
Credit facility -- FreshPoint:
Revolving line of credit.............................. -- -- --
Facility A term loan.................................. -- 31,000 --
Facility B term loan.................................. -- 29,100 --
Notes related to acquisitions.............................. 3,234 -- 1,742
Mortgage note payable...................................... 322 -- --
Various equipment loans.................................... 1,287 -- --
Other...................................................... 126 612 738
Credit facility -- FreshPoint America:
Revolving credit facility................................ 13,124
Term Loan A Facility..................................... 56,250
Term Loan B Facility..................................... 34,825
Term Loan C Facility..................................... 29,850
Subordinated notes:
Fresh America............................................ 19,020 -- --
FreshPoint............................................... -- 33,858 --
FreshPoint America....................................... -- -- 33,416
-------- -------- --------
Total long-term debt..................................... 39,508 94,570 169,945
-------- -------- --------
Total debt....................................... 52,036 107,614 176,446
-------- -------- --------
Shareholders' equity:
Preferred stock.......................................... -- -- --
Common stock............................................. 52 -- 109
Additional paid-in capital............................... 32,191 24,392 115,686
Stock subscription receivable............................ -- (1,734) (1,624)
Accumulated other comprehensive loss (222) (1,651) (1,651)
Retained earnings (deficit)(1)........................... 20,364 (3,393) (6,120)
-------- -------- --------
Total shareholders' equity....................... 52,385 17,614 106,400
-------- -------- --------
Total capitalization............................. $104,421 $125,228 $282,846
======== ======== ========
Ratio of total debt to total capitalization................ 49.83% 85.93% 62.38%
======== ======== ========
</TABLE>
- ---------------
(1) The "as adjusted" retained deficit of $6,120 differs from the FreshPoint
historical retained deficit of $3,393 due to the impact of certain
FreshPoint notes receivable that are being forgiven in connection with the
merger, the impact of FreshPoint debt issuance costs that will be
written-off in connection with the new credit facilities and the write-off
of a FreshPoint non-competition agreement.
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<PAGE> 86
FRESH AMERICA HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present selected historical financial data of Fresh
America as of the dates and for the periods indicated. The financial data of
Fresh America for each of its fiscal years have been derived from the historical
consolidated financial statements which have been audited by KPMG LLP. The
financial data for the three months ended April 2, 1999 and April 3, 1998, have
been derived from the unaudited consolidated financial statements of Fresh
America. In the opinion of management of Fresh America, the financial data for
the periods ended April 2, 1999 and April 3, 1998 contain all adjustments,
consisting of only normal and recurring adjustments, necessary for the fair
presentation of the results of operations for such periods. The following tables
should be read in conjunction with the historical consolidated financial
statements and related notes thereto included elsewhere in this proxy statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED(1)(2)
------------------- --------------------------------------------------------------
APRIL 2, APRIL 3, JANUARY 1, JANUARY 2, JANUARY 3, JANUARY 5, JANUARY 1,
1999 1998 1999 1998 1997 1996 1995
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net Sales................. $173,427 $133,007 $609,490 $429,524 $323,775 $207,120 $193,661
Cost of Sales............. 151,421 118,487 537,556 386,161 291,810 177,013 167,009
-------- -------- -------- -------- -------- -------- --------
Gross Profit.............. 22,006 14,520 71,934 43,363 31,965 30,107 26,652
-------- -------- -------- -------- -------- -------- --------
Selling, general and
administrative
expenses................ 18,757 13,350 58,548 34,621 25,207 25,614 21,467
-------- -------- -------- -------- -------- -------- --------
Income from operations.... 3,249 1,170 13,386 8,742 6,758 4,493 5,185
Other income (expense).... (1,067) (505) (2,123) 389 (32) (188) (331)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes................... 2,182 665 11,263 9,131 6,726 4,305 4,854
Provision for income
taxes................... 1,001 211 5,041 3,921 2,500 1,350 1,159
-------- -------- -------- -------- -------- -------- --------
Net Income....... $ 1,181 $ 454 $ 6,222 $ 5,210 $ 4,226 $ 2,955 $ 3,695
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Basic................... $ .23 $ .10 $ 1.27 $ 1.19 $ 1.00 $ .72 $ 1.02
Diluted................. $ .22 $ .10 $ 1.20 $ 1.12 $ .94 $ .69 $ .98
Weighted average common
shares outstanding:
Basic................... 5,237 4,675 4,898 4,376 4,238 4,128 3,628
Diluted................. 5,571 4,948 5,204 4,639 4,488 4,280 3,777
BALANCE SHEET DATA:
Working capital......... $ 32,255 $ 12,577 $ 28,474 $ 11,219 $ 11,284 $ 8,219 $ 8,272
Property, plant and
equipment, net........ 25,967 13,646 23,900 13,581 10,100 9,216 6,750
Total assets............ 154,839 94,872 158,099 79,964 45,769 42,407 30,359
Long-term debt and
capital leases, less
current portion....... 39,508 11,668 35,985 6,193 547 610 213
Shareholders' equity.... 52,385 36,522 50,562 29,335 22,310 17,407 14,933
</TABLE>
- ---------------
(1) Fresh America's 1994 fiscal year was a 52-week period ending on the first
Sunday in January. Beginning with Fiscal 1995, Fresh America's fiscal year
is a 52-week period ending on the first Friday in January.
(2) Fresh America has made several acquisitions in the last three years that
affect the comparability of information reflected in the selected financial
data. See Note 3 of notes to consolidated financial statements included
elsewhere herein.
77
<PAGE> 87
FRESH AMERICA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
consolidated financial position of Fresh America as of April 2, 1999, and its
results of operations for the three months ended April 2, 1999 and April 3,
1998, and the twelve months ended January 1, 1999, January 2, 1998 and January
3, 1997. This discussion should be read in conjunction with Fresh America's
consolidated financial statements and related notes thereto appearing elsewhere
in this proxy statement. In the opinion of management, the unaudited interim
data reflect all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present Fresh America's financial position and results of
operations for the periods presented. The results of operations for any interim
period are not necessarily indicative of results to be expected for a full
fiscal year. For information relating to factors that could affect future
operating results, see "Risk Factors" beginning on page 17. Any forward-looking
statements should be considered in light of such factors, as well as the
discussion set forth below. See "Forward-Looking Statements" on page ii and
"Risk Factors" beginning on page 17.
Results of Operations for the Three Months Ended April 2, 1999 and April 3,
1998
The following table presents the components of the consolidated statements
of income as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
APRIL 2, APRIL 3,
1999 1998
-------- --------
<S> <C> <C>
Net sales................................................... 100.0% 100.0%
Cost of sales............................................... 87.3 89.1
----- -----
Gross profit................................................ 12.7 10.9
Selling, general and administrative expenses................ 10.6 8.9
Nonrecurring transaction costs.............................. 0.2 1.1
----- -----
Operating income............................................ 1.9 0.9
Other income (expense)...................................... (0.6) (0.4)
----- -----
Income before income taxes.................................. 1.3 0.5
Provision for income taxes.................................. 0.6 0.2
----- -----
Net income.................................................. 0.7% 0.3%
===== =====
</TABLE>
Fresh America's quarters ended April 2, 1999 and April 3, 1998 each include
13 weeks.
Comparison of Quarter Ended April 2, 1999 to Quarter Ended April 3, 1998
Net Sales. Net sales increased $40.4 million, or 30.4%, to $173.4 million
in the first quarter of 1999 from $133.0 million in the first quarter of 1998.
Of the total increase, approximately $47.7 million was due to acquisitions made
during or subsequent to the first quarter of 1998. Such increase was offset by a
decrease in Sam's Club revenue of $8.0 million due to the decrease of 46 clubs
serviced between the two periods. As a percentage of net sales, Sam's Club
represented 27.2% in the first quarter of 1999 compared to 41.4% in the first
quarter of 1998.
Cost of Sales. Cost of sales increased $32.9 million, or 27.8% to $151.4
million in the first quarter of 1999 from $118.5 million in the first quarter of
1998, primarily reflecting the increase in net sales above. As a percentage of
net sales, cost of sales decreased to 87.3% from 89.1%, which in turn increased
Fresh America's gross profit percentage to 12.7% from 10.9%. The increase in
gross profit percentage is primarily due to acquisitions made subsequent to the
first quarter of 1998, which included retail/wholesale, value-added and
foodservice companies that have historically contributed higher gross profit
percentages than Fresh America's already existing operations.
78
<PAGE> 88
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased by $5.4 million, or 40.5% to $18.7
million in the first quarter of 1999 from $13.4 million in the first quarter of
1998. The increase is primarily due to SG&A expenses related to acquired
businesses. Included in SG&A in the first quarter of 1999 are transaction
expenses of $300,000 related to the pending merger with FreshPoint. Included in
1998 are transaction costs of $1.4 million related to the acquisition of Ontario
Tree Fruits Limited in March 1998.
Operating Income (Expense). As a result of the foregoing factors, which
include transaction costs of $300,000 and $1.4 million in the first quarter of
1999 and 1998, respectively, operating income increased by $2.1 million, or
177.6%, to $3.2 million in the first quarter of 1999 from $1.2 million in the
first quarter of 1998. The following table summarizes the effect of the
transaction costs on operating income in the comparable periods (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
APRIL 2, % OF APRIL 3, % OF
1999 NET SALES 1998 NET SALES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Operating income as reported...................... $3,249 1.9% $1,170 0.9%
Transaction costs................................. 343 .2 1,395 1.0
------ --- ------ ---
Operating income before transaction costs......... $3,592 2.1% $2,565 1.9%
====== === ====== ===
</TABLE>
Other Income (Expense). Interest expense increased $900,000 to $1.3 million
in the first quarter of 1999 from $400,000 in the first quarter of 1998 due to
increased borrowings to help finance acquisitions that were made subsequent to
the first quarter of 1998.
Provision for Income Taxes. The effective tax rate was 45.9% in the first
quarter of 1999 compared to 31.7% in the first quarter of 1998. The increase is
due to two factors, one of which is a significant increase in earnings in Fresh
America's Canadian operations in the first quarter of 1999 versus a loss in the
1998 comparable period. Secondly, there has been an increase in non-deductible
goodwill due to several acquisitions made since the first quarter of 1998.
Net Income. As a result of the foregoing factors, net income increased
$700,000 or 160.0%, to $1.2 million in the first quarter of 1999 compared to
$0.5 million in the first quarter of 1998. The following table summarizes the
effect of the transaction costs on the net income and earnings per share in the
comparable periods (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
APRIL 2, APRIL 3,
1999 1998
-------- --------
<S> <C> <C>
Net income as reported...................................... $1,181 $ 454
Transaction costs, net of tax............................... 214 789
------ ------
Net income before effect of transaction costs............... $1,395 $1,243
====== ======
Earning per share as reported:
Basic..................................................... $ 0.23 $ 0.10
Diluted................................................... $ 0.22 $ 0.10
Effect of transaction costs:
Basic..................................................... $ 0.04 $ 0.17
Diluted................................................... $ 0.04 $ 0.16
Earnings per share before effect of transaction costs:
Basic..................................................... $ 0.27 $ 0.27
Diluted................................................... $ 0.26 $ 0.26
</TABLE>
Results of Operations for Fiscal 1998, Fiscal 1997 and Fiscal 1996
The following table presents the components of Fresh America's consolidated
statements of income as a percentage of sales for the periods indicated and
includes the results of operations for all acquired companies
79
<PAGE> 89
from their date of acquisition, except that results of operations from Ontario
Tree Fruits Limited (acquired in March 1998) are included for all periods since
it has been accounted for as a pooling of interests. The fiscal years ended
January 1, 1999 (fiscal 1998), January 2, 1998 (fiscal 1997) and January 3, 1997
(fiscal 1996) are all 52-week periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 88.2 89.9 90.1
----- ----- -----
Gross profit................................................ 11.8 10.1 9.9
Selling, general and administrative expenses................ 9.6 8.1 7.8
----- ----- -----
Operating income............................................ 2.2 2.0 2.1
Other income (expense)...................................... (0.4) 0.1 0.0
----- ----- -----
Income before taxes......................................... 1.8 2.1 2.1
Provision for income taxes.................................. 0.8 0.9 0.8
----- ----- -----
Net income.................................................. 1.0% 1.2% 1.3%
===== ===== =====
</TABLE>
Comparison of Fiscal 1998 to Fiscal 1997
Net Sales. Net sales increased $180.0 million, or 41.9%, to $609.5 million
in fiscal 1998 from $429.5 million in fiscal 1997. The increase was primarily
due to: (1) acquisitions made in late 1997 and during 1998 which represented
$153.3 million of the sales increase, and (2) expansion and increase in sales of
several distribution programs amounting to $22.8 million. As a percentage of
total net sales, Sam's Club represented 36.5% in fiscal 1998 compared with 54.8%
in fiscal 1997.
Cost of Sales. Cost of sales increased by $151.4 million, or 39.2%, to
$537.6 million in fiscal 1998 from $386.2 million in fiscal 1997, primarily
reflecting the increase in net sales explained above. As a percentage of net
sales, cost of sales decreased to 88.2% from 89.9%, which in turn increased
Fresh America's gross profit percentage to 11.8% from 10.1%. The increase in
gross profit percentage is primarily due to acquisitions made during the last
quarter of fiscal 1997 and during fiscal 1998, which expanded Fresh America's
distribution and cross-selling capabilities resulting in higher profit margins.
Such acquisitions represented 25.1% of total net sales in fiscal 1998.
Additionally, gross profit from the Sam's Club contract increased to 9.9% in
fiscal 1998 from 8.9% in fiscal 1997.
Selling, General and Administrative Expenses. SG&A expenses increased by
$23.9 million or 69.1% to $58.5 million in fiscal 1998, from $34.6 million in
fiscal 1997. Included in the 1998 period are transaction costs of $1.0 million
related to the acquisition of Ontario Tree Fruits Limited. The remaining
increase is primarily due to SG&A expenses related to acquired businesses ($15.6
million) and, to a lesser extent, additional headcount and other costs required
to support Fresh America's increased acquisition, integration and operating
activities.
Operating Income. As a result of the factors discussed above, which include
$1.0 million of nonrecurring transaction costs in fiscal 1998, operating income
increased by $4.7 million, or 53.1% to $13.4 million in fiscal 1998 from $8.7
million in fiscal 1997. Operating income, as a percentage of net sales, remained
relatively consistent at 2.2% in fiscal 1998 compared to 2.0% in fiscal 1997.
Other Income (Expense). Interest expense increased $2.5 million to $3.0
million in fiscal 1998 from $500,000 in fiscal 1997 due to increased borrowings
to help finance acquisitions that were made in fiscal 1998. Interest income
increased $700,000 to $1.0 million in fiscal 1998 from $300,000 in fiscal 1997
primarily due to interest recognized by Ontario Tree Fruits Limited in fiscal
1998 related to a settled insurance claim that had been in dispute for several
years.
80
<PAGE> 90
Provision for Income Taxes. The effective tax rate increased to 44.8% in
fiscal 1998 from $42.9% in fiscal 1997 primarily due to net non-cash transaction
costs of $500,000 related to the acquisition of Ontario Tree Fruits Limited that
were not deductible for income tax purposes.
Net Income. As a result of the factors discussed above, net income
increased by $1.0 million, or 19.4% to $6.2 million in fiscal 1998 from $5.2
million in fiscal 1997. As a percentage of net sales, net income decreased to
1.0% from 1.2%.
Comparison of Fiscal 1997 to Fiscal 1996
Net Sales. Net sales increased $105.7 million, or 32.7%, from $323.8
million in fiscal 1996 to $429.5 million in fiscal 1997. The increase was
primarily due to: (1) acquisitions made in late 1996 and during 1997 which
represented $48.0 million of the sales increase, (2) expansion and increase in
sales of several distribution programs amounting to $37.4 million, and (3) a
$20.8 million increase in Sam's Club revenues between the two comparable
periods. As a percentage of total net sales, Sam's Club represented of 54.8% in
fiscal 1997 compared with 66.3% in fiscal 1996.
Cost of Sales. Cost of sales increased by $94.4 million, or 32.4% from
$291.8 million in fiscal 1996 to $386.2 million in fiscal 1997, primarily
reflecting the increase in net sales explained above. As a percentage of net
sales, cost of sales decreased from 90.1% to 89.9% due primarily to an increase
in revenue from higher margined specialty food and value-added distribution and
services. Revenues from these services were 15.5% of total revenue in fiscal
1997 compared to 4.6% in fiscal 1996.
Selling, General and Administrative Expenses. SG&A expenses increased by
$9.4 million or 37.3% from $25.2 million in fiscal 1996 to $34.6 million in
fiscal 1997. As a percentage of net sales, SG&A expenses increased from 7.8% to
8.1%. The increase is due primarily to $8.2 million in SG&A expenses related to
new businesses, and approximately $3.7 million in increased headcount and other
costs required to support increased acquisition and operating activity. These
increases were partially offset by a decrease in Ontario Tree Fruits Limited
management bonuses of $2.5 million.
Operating Income. As a result of the factors discussed above, operating
income increased by $2.0 million from $6.7 million in fiscal 1996 to $8.7
million in fiscal 1997. As a percentage of net sales, operating income decreased
from 2.1% in fiscal 1996 to 2.0% in fiscal 1997.
Provision for Income Taxes. The increase in the effective tax rate from
37.2% in fiscal 1996 to 42.9% in fiscal 1997 is due to an increase in Ontario
Tree Fruits Limited's income before tax, which is taxed at a higher rate.
Net Income. As a result of the factors discussed above, net income
increased by $1.0 million from $4.2 million in fiscal 1996 to $5.2 million in
fiscal 1997. As a percentage of net sales, net income decreased from 1.3% in
fiscal 1996 to 1.2% in fiscal 1997.
Liquidity and Capital Resources
Cash provided by operating activities was $8.0 million for the first
quarter of 1999 compared to $2.9 million in the first quarter of 1998. Cash used
in investing activities decreased $3.2 million to $3.1 million in the first
quarter of 1999 from $6.3 million in the first quarter of 1998. The decrease
from the prior year is due primarily to the acquisition of Francisco
Distributing Company, LLC during the first quarter of 1998. Cash provided by
financing activities was $1.5 million in the first quarter of 1999 compared to
$3.0 million in the first quarter of 1998. The decrease in cash flows from
financing activities compared to the prior year is primarily due to borrowings
used to finance the cash portion of the Francisco acquisition in 1998.
At April 2, 1999, Fresh America had working capital of $32.3 million
compared to $28.5 million at January 1, 1999. On February 2, 1998, Fresh America
entered into a new $17 million revolving line of credit and bridge loan bank
facility to be used for general corporate purposes, including acquisitions. In
May 1998, the $5.0 million bridge loan portion of the facility was prepaid and
the revolving line of credit was increased from $12 million to $15 million. On
March 4, 1999, Fresh America further amended the terms of the
81
<PAGE> 91
revolving line of credit to increase the borrowing availability to $20 million.
As of April 2, 1999, there was $15.5 million in borrowings outstanding under the
facility. Fresh America also has revolving credit facilities of up to CDN $20
million ($13.4 million), through its Canadian subsidiaries. The Canadian
facilities had an outstanding balance of CDN $10.0 million ($6.7 million) as of
April 2, 1999. In May 1998, Fresh America completed a $20 million, 12%
subordinated debt financing that matures in May 2003.
Fresh America has contingent payments related to certain acquired companies
that will be due in accordance with the related purchase agreements. The amount
of the payments are linked to future earnings of the acquired companies and will
be paid in cash, common stock or a combination thereof. See Note 3 of Fresh
America's notes to consolidated financial statements.
Management believes that the combination of cash generated from operating
activities, availability under its bank lines of credit, the proceeds generated
from its subordinated debt financing and the use of operating leases, where
appropriate, is sufficient to meet its current needs for operations, computer
system implementations and near-term debt service requirements, subject to the
matters set forth in the following paragraph. Fresh America intends to continue
its expansion activities and most likely will require additional debt or equity
capital to meet such requirements. Fresh America believes it has access to
capital markets and can also obtain additional credit from financial
institutions in order to raise the capital necessary to fund such expansion
activities.
In connection with the merger, most of the existing debt of Fresh America
and FreshPoint will be refinanced. Fresh America is in the process of
considering financing proposals received from its existing senior and
subordinated lenders as well as other debt financing alternatives. While there
can be no assurance that the required refinancing can be completed, based on
current market conditions Fresh America believes that it can arrange such
financing on a timely basis. Fresh America expects that any refinancing will
subject Fresh America to numerous operating and financial covenants, including
limitations on future borrowings and acquisitions. See "Related
Agreements -- New Credit Facilities" beginning on page 49.
Year 2000
The Year 2000 will have a broad impact on the business environment in which
Fresh America operates due to the possibility that many computerized systems
across all industries will be unable to process information containing dates
beginning in the Year 2000. Due to its growth and expansion, Fresh America has
been in the process of implementing a new enterprise-wide management information
technology ("IT") system which better meets its diverse and long-term needs.
Fresh America has received assurances from the provider of the system that it
meets requirements for Year 2000 compliance. As a result of the pending merger
with FreshPoint, Fresh America has suspended further implementation of its
system beyond the initial sites in which it has already been installed.
Management feels that Fresh America can achieve its technology strategy quicker
and with less additional cost by utilizing FreshPoint's current technology. The
six sites affected by this suspension that had Year 2000 compliance issues, as
well as the three sites scheduled for implementation in 2000, have reached
agreement with their software vendors to upgrade their current systems for Year
2000 compliance. All such upgrades will be completed no later than October 1,
1999 at an immaterial cost. Fresh America has also reviewed its critical non-IT
systems and has determined that none contain embedded technology that would lead
to failure due to the Year 2000 issue.
The nature of Fresh America's business is such that the business risks
associated with the Year 2000 can be reduced by working closely with and
assessing the vendors supplying Fresh America's produce. In addition, such
business risks can be reduced by working with Fresh America's customers to
ensure that they are aware of the Year 2000 business risks and are appropriately
assessing and addressing them.
Because third party failures could have a material impact on Fresh
America's ability to conduct business, Fresh America has sent out questionnaires
to all of Fresh America's significant suppliers and customers to obtain
reasonable assurance that they have plans to address the Year 2000 issues within
their companies. Fresh America will work individually with its most critical
suppliers to insure their Year 2000 readiness. To the extent that suppliers do
not provide Fresh America with satisfactory evidence of their readiness to
handle Year 2000 issues, contingency plans will be developed to obtain qualified
replacement suppliers by the end of
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the 1999 calendar year. Fresh America's most likely worst-case scenario would be
delayed billings to customers and the inability of customers to order and pay on
a timely basis.
In addition, Fresh America has not identified any costs, whether internal
or external, related to Fresh America addressing its Year 2000 issues which it
considers to be material to its financial position or results of operations.
However, unanticipated failures by critical suppliers or customers, as well as
the failure by Fresh America to execute its own Year 2000 plan, could have a
material adverse effect on the cost related to the Year 2000 issue.
Quarterly Results and Seasonality
Fresh America's business is seasonal, with its greatest quarterly sales
volume historically occurring in the fourth quarter. A substantial portion of
Fresh America's produce sales consists of staple items such as apples, oranges,
grapefruit, potatoes, onions, lettuce and tomatoes which are generally strongest
during the fall, winter and spring. The supply of certain of these items
declines during the summer, although lost sales are replaced to some extent by
more seasonal products such as peaches, plums, nectarines, grapes, strawberries
and melons. Sales of imported fresh fruit such as Clementine oranges,
tangerines, grapes, and refrigerated, pre-packaged products, such as vegetable
trays, are strongest during the fourth quarter holiday season. Because Fresh
America's results of operations depend significantly on sales generated during
the fourth quarter, any adverse development affecting Fresh America's operations
during this period, such as the unavailability of high quality produce, harsh
weather conditions, or product costs, could have a disproportionate impact on
Fresh America's results of operations for the full year.
Inflation
Although Fresh America cannot determine the precise effects of inflation,
management does not believe inflation has had a material effect on Fresh
America's sales or results of operations. However, independent of normal
inflationary pressures, Fresh America's produce products are subject to
fluctuating prices which result from factors discussed in "Quarterly Results and
Seasonality" above.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk. Fresh America's Canadian operations are subject to
foreign currency risk; however, Fresh America has not experienced any material
foreign currency transaction gains or losses during the last three fiscal years.
Foreign currency translation adjustments are recorded to consolidated
shareholders' equity under accumulated comprehensive income. Fresh America
manages foreign currency risk by maintaining portfolios of currency denominated
in the currency for which it is required to make payments.
Interest Rate Risk. Fresh America's senior credit facilities accrue
interest at a market rate at the time of borrowing plus an applicable margin on
certain borrowings. The interest rate is based on the lending bank's prime rate
or the Eurodollar rate. Fresh America manages its borrowings under its credit
facilities each day in order to minimize interest expense. The impact on Fresh
America's results of operations of a one-percentage point interest rate change
on the outstanding balance of the variable rate debt as of April 2, 1999 would
be immaterial.
Commodity Pricing Risk. For reasons discussed previously, prices of high
quality produce can be extremely volatile. In order to reduce the impact of
these factors, Fresh America generally sets its prices based on current
delivered cost.
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FRESHPOINT HISTORICAL FINANCIAL DATA
The following tables present selected historical financial data of
FreshPoint as of the dates and for the periods indicated. The selected financial
data for the nine-month periods ended March 27, 1999 and March 28, 1998, have
been derived from the unaudited consolidated financial statements of FreshPoint.
The selected financial data as of and for the year ended June 27, 1998 and as of
and for the two-hundred nineteen day period ended June 28, 1997 have been
derived from FreshPoint's historical consolidated financial statements, which
have been audited by Ernst & Young LLP. The predecessor to FreshPoint was
comprised of a combined group of companies including Albert Fisher Distribution,
Royal Foods Company, Inc., Albert Fisher Canada Limited and I&S Produce Ltd. The
selected financial data of the predecessor as of and for the eighty-two day
period ended November 21, 1996 and as of and for the years ended August 31, 1996
and August 31, 1995 was derived from the predecessor's historical combined
financial statements, which have also been audited by Ernst & Young LLP. The
selected financial data of the predecessor as of and for the year ended August
31, 1994 was derived from the unaudited combined financial statements of the
predecessor. In the opinion of management of FreshPoint, the selected historical
financial data for the year ended August 31, 1994 and the two nine-month periods
ended March 27, 1999 and March 28, 1998, contain all normal and recurring
adjustments necessary for the fair presentation of the financial position and
results of operations as of and for such periods. The following table should be
read in conjunction with the financial statements and related notes thereto
included elsewhere in this proxy statement.
<TABLE>
<CAPTION>
FRESHPOINT(1)(2)
------------------------------------------------
NINE NINE
MONTHS MONTHS YEAR TWO HUNDRED
ENDED ENDED ENDED NINETEEN DAY
MARCH 27, MARCH 28, JUNE 27, PERIOD ENDED
1999 1998 1998 JUNE 28, 1997
--------- --------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................... $544,742 $521,170 $712,502 $381,865
Cost of goods sold........... 419,637 405,952 554,942 293,569
-------- -------- -------- --------
Gross profit................. 125,105 115,218 157,560 88,296
Operating expenses........... 114,960 106,882 145,008 78,757
Impairment of goodwill and
restructuring charges...... -- -- 6,938 --
-------- -------- -------- --------
Income from operations....... 10,145 8,336 5,614 9,539
Other income (loss), net..... (6,316) (6,500) (8,715) (5,464)
-------- -------- -------- --------
Income (loss) before income
taxes...................... 3,829 1,836 (3,101) 4,075
Provision for income taxes... 1,723 845 1,251 2,031
-------- -------- -------- --------
Net income (loss)............ $ 2,106 $ 991 $ (4,352) $ 2,044
Preferred stock dividends.... 1,663 1,572 2,096 1,114
-------- -------- -------- --------
Net income (loss)
attributable to common
shareholders............... $ 443 $ (581) $ (6,448) $ 930
======== ======== ======== ========
Earnings (loss) per common
share:
Basic...................... $ 50.34 $ (66.02) $(732.73) $ 105.68
Diluted.................... $ 43.67 $ (66.02) $(732.73) $ 91.68
BALANCE SHEET DATA:
Working capital.............. $ 17,336 $ 25,540 $ 21,742 $ 29,782
Property, plant, and
equipment, net............. 47,488 46,956 46,773 45,734
Total assets................. 181,210 195,471 195,910 192,407
Long-term debt, less current
portion.................... 94,570 86,831 94,163 97,077
Shareholders' equity......... 17,614 21,694 15,312 20,270
<CAPTION>
PREDECESSOR(1)(2)
-----------------------------------------------------
EIGHTY-TWO
DAY PERIOD YEAR YEAR
ENDED ENDED ENDED YEAR ENDED
NOVEMBER 21, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1995 1994
------------ ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................... $133,219 $602,301 $646,030 $572,757
Cost of goods sold........... 103,498 470,966 503,786 441,768
-------- -------- -------- --------
Gross profit................. 29,721 131,335 142,244 130,989
Operating expenses........... 28,294 125,552 136,925 131,222
Impairment of goodwill and
restructuring charges...... -- -- -- 2,955
-------- -------- -------- --------
Income from operations....... 1,427 5,783 5,319 (3,188)
Other income (loss), net..... 508 (5,748) (4,601) (2,505)
-------- -------- -------- --------
Income (loss) before income
taxes...................... 1,935 35 718 (5,693)
Provision for income taxes... 1,364 2,386 2,030 552
-------- -------- -------- --------
Net income (loss)............ $ 571 $ (2,351) $ (1,312) $ (6,245)
======== ======== ======== ========
Preferred stock dividends....
Net income (loss)
attributable to common
shareholders...............
Earnings (loss) per common
share:
Basic......................
Diluted....................
BALANCE SHEET DATA:
Working capital.............. $ 32,747 $ 25,802 $ 17,284 $ 10,570
Property, plant, and
equipment, net............. 48,203 49,497 53,876 54,865
Total assets................. 223,410 218,830 230,357 236,457
Long-term debt, less current
portion.................... 466 86,921 79,548 79,803
Shareholders' equity......... 166,180 74,759 79,802 78,632
</TABLE>
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- ---------------
(1) The accompanying historical financial data reflects operating results and
financial position of FreshPoint and its predecessor, a combined group of
companies including Albert Fisher Distribution, Royal Foods Company, Inc.,
Albert Fisher Canada Limited and I&S Produce Ltd. The historical financial
data of the predecessor reflects the historical cost basis of the
predecessor's assets and liabilities. The historical financial data of
FreshPoint reflects a new basis of accounting established at the date
FreshPoint acquired the predecessor; accordingly, historical financial data
of the predecessor and FreshPoint is not comparable in its entirety.
(2) FreshPoint utilizes a 52- or 53-week accounting period which ends on the
Saturday closest to June 30. The fiscal year end of the predecessor was
August 31.
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FRESHPOINT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
consolidated financial position of FreshPoint as of March 27, 1999, and its
results of operations for the nine months ended March 27, 1999 and March 28,
1998, and the twelve months ended June 27, 1998, and June 28, 1997. This
discussion should be read in conjunction with FreshPoint's consolidated
financial statements and related notes thereto appearing elsewhere in this proxy
statement. In the opinion of FreshPoint's management, the unaudited interim data
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present FreshPoint's financial position and results of
operations for the periods presented. The results of operations for any interim
period are not necessarily indicative of results to be expected for a full
fiscal year. For information relating to factors that could affect future
operating results, see "Risk Factors" beginning on page 17. Any forward-looking
statements should be considered in light of such factors, as well as the
discussion set forth below. See "Forward-Looking Statements" on page ii and
"Risk Factors" beginning on page 17.
Because FreshPoint's predecessor's financial results reflect the
predecessor's historical cost basis in its assets and liabilities and
FreshPoint's financial results reflect a new basis of accounting established in
November 1996, the financial results of FreshPoint and the predecessor are not
comparable.
Results of Operations
The following table presents the components of the consolidated statements
of operations in thousands of dollars and as a percentage of sales. The twelve
months ended June 27, 1998, the nine months ended March 28, 1998 and the nine
months ended March 27, 1999 include the results of operations of FreshPoint. The
pro forma period ended June 28, 1997 includes 219 days of FreshPoint's results
of operations and 144 days of the predecessors results of operations presented
as if FreshPoint's acquisition had occurred on June 30, 1996. Predecessor
information is provided for the twelve months ended August 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS PRO FORMA
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 27, 1999 MARCH 28, 1998 JUNE 27, 1998 JUNE 28, 1997 AUGUST 31, 1996
-------------- -------------- ------------- ------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $544,742 100% $521,170 100% $712,502 100% $620,092 100% $602,301 100%
Cost of goods sold........... 419,637 77.0 405,952 77.9 554,942 77.9 477,947 77.1 470,966 78.2
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Gross profit................. 125,105 23.0 115,218 22.1 157,560 22.1 142,145 22.9 131,335 21.8
Operating expenses........... 114,960 21.1 106,882 20.5 145,008 20.4 131,929 21.3 125,552 20.8
Impairment of goodwill and
restructuring charge....... -- -- -- -- 6,938 1.0 -- -- -- --
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
</TABLE>
<TABLE>
Income from operations. 10,145 1.9 8,336 1.6 5,614 0.8 10,216 1.6 5,783 1.0
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other income (expense)....... (6,316) (1.2) (6,500) (1.2) (8,715) (1.2) (8,524) (1.4) (5,748) (1.0)
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Income (loss) before income
taxes...................... 3,829 0.7 1,836 0.4 (3,101) (0.4) 1,692 0.3 35 0.0
Provision for income taxes... 1,723 0.3 845 0.2 1,251 0.2 777 0.1 2,386 0.4
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Net income (loss)............ $ 2,106 0.4% $ 991 0.2% $ (4,352) (0.6)% $ 915 0.2% $ (2,351) (0.4)%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
Comparison of Nine Months Ended March 27, 1999 to Nine Months Ended March 28,
1998
Net Sales. Net sales increased $23.5 million, or 4.5%, to $544.7 million
for the nine months ended March 27, 1999 from $521.2 million for the nine months
ended March 28, 1998. The increase reflects an increase in case volume. Case
volume increased 1.3 million cases (excluding acquisitions), or 3.3%, to 39.6
million for the nine months ended March 27, 1999 from 38.3 million for the nine
months ended March 28, 1998. The increase in sales dollars also reflects the
acquisition of JDS&R Produce in January 1998. The nine month period ended March
27, 1999 included a full nine months of results of JDS&R while the nine month
period ended March 28, 1998 included only three months of JDS&R results since
the January 1998 acquisition, resulting in a net increase in sales of $12.4
million for the period ended March 27, 1999.
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Cost of Goods Sold. Cost of goods sold increased by $13.7 million, or 3.4%,
to $419.6 million for the nine months ended March 27, 1999 from $406.0 million
for the nine months ended March 28, 1998, primarily reflecting the increase in
net sales explained above. As a percentage of net sales, cost of goods sold
decreased to 77.0% from 77.9%. FreshPoint's gross profit percentage increased to
23.0% for the nine months ended March 27, 1999 from 22.1% for the nine months
ended March 28, 1998. The main factor accounting for the decrease in the
percentage of cost of goods sold and the corresponding increase in the gross
profit percentage was the increased purchasing through FreshPoint's centralized
procurement office which has resulted in lower product costs.
Operating Expenses. Operating expenses increased by $8.0 million or 7.6% to
$114.9 million for the nine months ended March 27, 1999 from $106.9 million for
the nine months ended March 28, 1998. As a percentage of sales, operating
expenses increased to 21.1% for the nine months ended March 27, 1999 from 20.5%
for the nine months ended March 28, 1998. The increase in operating expenses is
attributable to additional headcount and costs required to support FreshPoint's
increased operating activities and a full nine months of JDS&R Produce results
in the most recent period. Additionally, depreciation and amortization expense
increased $1.2 million due to additional capital expenditures for the purchase
of additional trucks and facility improvements and additional amortization on
acquisition related intangibles.
Income from Operations. Income from operations increased by $1.8 million,
or 21.7%, to $10.1 million for the nine months ended March 27, 1999 from $8.3
million for the nine months ended March 28, 1998. Operating income as a
percentage of sales increased to 1.9% for the nine months ended March 27, 1999
compared to 1.6% for the nine months ended March 27, 1998.
Comparison of Year Ended June 27, 1998 to Pro Forma Year Ended June 28, 1997
Net Sales. Net sales increased $92.4 million, or 14.9%, to $712.5 million
for the year ended June 27, 1998 from $620.1 million for the pro forma year
ended June 28, 1997. Case volume increased 4.8 million, or 10.1%, to 52.4
million (excluding acquisitions) for the year ended June 27, 1998 from 47.6
million for the pro forma year ended June 28, 1997. Additionally, a portion of
the sales increase is attributable to acquisitions made from January 1997
through June 1998.
Cost of Goods Sold. Cost of goods sold increased by $77.0 million, or
16.1%, to $554.9 million for the year ended June 27, 1998 from $477.9 million
for the pro forma year ended June 28, 1997, primarily as a result of the
increase in net sales as discussed above. As a percentage of net sales, cost of
goods sold increased to 77.9% for the year ended June 27, 1998 from 77.1% for
the pro forma year ended June 28, 1997. FreshPoint's gross profit percentage
decreased to 22.1% for the year ended June 27, 1998 from 22.9% for the pro forma
year ended June 28, 1997. During the fall and spring of the fiscal year ending
June 1998, the impact of El Nino, the infrequent weather system causing unusual
weather conditions, resulted in increased cost of product, which in turn
decreased the gross profit margin.
Operating Expenses. Operating expenses increased by $13.1 million, or 9.9%,
to $145.0 million for the year ended June 27, 1998 from $131.9 million for the
pro forma year ended June 28, 1997. As a percentage of sales, operating expenses
decreased to 20.4% for the year ended June 27, 1998 from 21.3% for the pro forma
year ended June 28, 1997.
Impairment of Goodwill and Restructuring Charges. In connection with the
purchase of Glendale Produce Company, FreshPoint expected to achieve certain
efficiencies through combining the operations of Glendale with Fresh Point's
previously existing Los Angeles, California area distribution facility.
FreshPoint did not realize the projected synergies during the fiscal year ended
June 27, 1998. Therefore, FreshPoint determined that a portion of the original
goodwill associated with the Glendale acquisition was not recoverable and
recorded an impairment loss of $5.7 million. See Note 4 of FreshPoint's notes to
consolidated financial statements.
In April 1998, FreshPoint adopted a plan to restructure its Canadian
operations which included the closing of two Canadian distribution centers. In
connection with the closure of the Canadian distribution centers, FreshPoint
recorded a restructuring charge of $1.2 million related primarily to employee
severance
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costs and lease related termination costs. See Note 4 of FreshPoint's notes to
consolidated financial statements.
Income From Operations. Income from operations for the year ended June 27,
1998 was $12.6 million, exclusive of the impairment of goodwill and
restructuring charge discussed above. This represents a $2.4 million, or 23.5%,
increase from income from operations of $10.2 million for the pro forma year
ended June 28, 1997. Income from operations, exclusive of the impairment of
goodwill and restructuring charge discussed above, as a percentage of sales
increased to 1.8% for the year ended June 27, 1998 from 1.6% for the pro forma
year ended June 28, 1997.
Provisions for Income Taxes. The provision for income taxes for the year
ended June 27, 1998 of $1.3 million on a loss before income taxes is a result of
the $5.7 million impairment of goodwill which was not deductible for income tax
purposes. The $1.3 million provision for income taxes for the year ended June
27, 1998, on taxable income, exclusive of the impairment of goodwill and
restructuring charge, of $3.8 million results in an effective tax rate of 45.9%.
The effective tax rate for the pro forma year ended June 27, 1997 was also
45.9%.
Comparison of Pro Forma June 28, 1997 to Year Ended August 31, 1996
Net Sales. Net sales increased $17.8 million, or 3.0%, to $620.1 million
for the pro forma year ended June 28, 1997 from $602.3 million for the year
ended August 31, 1996 due to organic growth.
Cost of Goods Sold. Cost of goods sold increased by $6.9 million, or 1.4%,
from $471.0 million for the year ended August 31, 1996 to $477.9 million for the
pro forma year ended June 28, 1997. As a percentage of sales, cost of goods sold
decreased to 77.1% for the pro forma year ended June 28, 1997 from 78.2% for the
year ended August 31, 1996. The increase in sales addressed above and the
decrease in cost of goods sold resulted in the increased gross profit percentage
of 22.9% for the pro forma year ended June 28, 1997 compared to 21.8% for the
year ended August 31, 1996. Cost of goods sold decreased and gross profit
percentages increased subsequent to the November 1996 transaction as FreshPoint
began to leverage its combined procurement resources which has resulted in lower
produce cost.
Operating Expenses. Operating expenses increased by $6.3 million, or 5.0%,
to $131.9 million for the pro forma year ended June 28, 1997 from $125.6 million
for the year ended August 31, 1996. As a percentage of sales, operating expenses
were 21.3% for the pro forma year ended June 28, 1997 compared to 20.8% for the
predecessor year ended August 31, 1996. Operating expenses are not comparable
from the predecessor periods due to three main factors. First, due to the
accounting and allocation methods of the predecessor, corporate overhead
attributable to the FreshPoint business is not fully reflected in the
predecessor period. Additionally, all fixed assets were revalued to actual fair
market value as of November 1996 resulting in different depreciable bases and
associated depreciation expense from the predecessor periods. Finally,
amortization of intangibles recorded as a result of the November 1996
transaction is reflected in the results for the pro forma year ended June 28,
1997.
Income from Operations. Income from operations for the pro forma year ended
June 28, 1997 was $10.2 million compared to $5.8 million for the predecessor
year ended August 31, 1996.
Interest Expense. Interest expense was $8.5 million for the pro forma year
ended June 28, 1997 as compared to $5.7 million for the predecessor year ended
August 31, 1996. As with operating expenses discussed above, the interest
expenses between the two periods is not comparable. The interest expense for the
pro forma year ended June 28, 1997 is interest expense incurred on the debt
associated with FreshPoint's acquisition of its predecessor for the 219 day
period ended June 28, 1997 on an annualized basis. The interest expense for the
predecessor period was based on an allocation of the U.S. parent company's
interest expense, which was based on its intragroup loan with its United Kingdom
parent company.
Provision for Income Taxes. The effective tax rate for the pro forma year
ended June 28, 1997 was 45.9%. This rate is not comparable to the effective tax
rate for the year ended August 31, 1996 because the predecessor had
substantially different tax attributes than those of FreshPoint. For example,
the predecessor had significant state net operating loss carryforwards for which
the benefit was not recognized in the tax
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provision. Additionally, at the time FreshPoint was formed, the predecessor's
assets were re-valued in accordance with purchase accounting rules resulting in
tax deductible goodwill and other intangibles.
Liquidity and Capital Resources
Net cash provided by operating activities was $5.6 million for the
nine-month period ended March 27, 1999 compared with net cash used of $2.9
million for the nine-month period ended March 28, 1998. The difference was due
primarily to the increase in net income of $1.1 million and the change in
accounts receivable of $10.5 million due to cash collections, offset by the
change in accounts payable of $5.8 million due to cash payments.
Net cash used in investing activities was $6.0 million for the nine-month
period ended March 27, 1999 compared with net cash used of $12.4 million for the
nine-month period ended March 28, 1998. The decrease in the amounts expended
between the two periods was due primarily to cash paid for acquisitions for
JDS&R Produce and AAA Packaging, as well as other investing activities occurring
during the nine months ended March 28, 1998. Cash expended for the nine months
ended March 27, 1999 was due primarily to capital expenditures related to
additions to fixed assets. FreshPoint expanded its fleet of trucks as well as
made investments in computer equipment to facilitate the continued
implementation of FreshPoint's customized distribution software in its
facilities. In addition, capital expenditures were made for leasehold
improvements, such as refrigeration equipment, for existing facilities.
Additionally, cash payments were made with respect to contingent payments in
connection with the acquisitions.
FreshPoint has contingent payments related to certain acquired companies
that will be due in accordance with the related purchase agreements. The amounts
of the payments are linked to future earnings of the acquired companies and will
be paid in cash. See Notes 13 and 16 to FreshPoint's notes to consolidated
financial statements.
Net cash used by financing activities was $7.3 million for the nine-month
period ended March 27, 1999. Activity was due primarily to payments of $4.0
million on long-term debt and redemption of $8.5 million of preferred stock
funded by borrowings of $5.3 million on FreshPoint's revolving line of credit
and issuances of $3.2 million of unsecured subordinated notes. See Note 7 to
FreshPoint's notes to consolidated financial statements.
FreshPoint's working capital was $17.3 million at March 27, 1999 compared
with $21.7 million at June 27, 1998, and $29.8 million at June 28, 1997. The
decrease in working capital at March 27, 1999 was due primarily to borrowings of
$6.7 million outstanding on the revolving line of credit. Borrowings on the line
of credit were necessary to fund circumstances outside FreshPoint's normal
operations. Specifically, the borrowings were required for the earn-out payment
in connection with the JDS&R Produce acquisition, as discussed previously, and
for a one-time redemption of preferred stock. In connection with the acquisition
of Glendale Produce in 1997, $8.5 million of Series B preferred stock,
redeemable at the holders option, was issued. During the nine-month period ended
March 27, 1999, the shareholder exercised the right to redeem his preferred
shares. FreshPoint redeemed the investment by issuing a note payable of $3.2
million and paying the remaining balance of $5.3 million in cash.
In connection with the acquisition of the predecessor, FreshPoint entered
into a credit facility with a bank which provides a $20.0 million revolving line
of credit, a $45 million facility A term loan, and a $40 million facility B term
loan. Borrowings under the credit facility bear interest based upon the bank's
reference rate or the London Interbank Offered Rate "LIBOR", at the option of
FreshPoint. At March 27, 1999, the LIBOR rates were 7.69% for the facility A
term loan and 8.69% for the facility B term loan. Principal repayments for the
facility A term loan and the facility B term loan are payable in escalating
quarterly installments ranging from $750,000 to $3,125,000 and $75,000 to
$3,800,000, respectively. The credit facility matures on December 31, 2002.
FreshPoint's availability under the line of credit at March 27, 1999 was $13.3
million. In addition, FreshPoint also had available a line of credit which
provides for borrowings and letters of credit of up to $3.0 million Canadian
dollars based upon eligible receivables and inventory of the Canadian
operations. FreshPoint did not have any borrowings on the Canadian line of
credit at March 27, 1999. See Note 7 to FreshPoint's notes to consolidated
financial statements.
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In addition to the above, at inception of FreshPoint, FreshPoint issued $25
million of unsecured subordinated notes to Albert Fisher, a stockholder of
FreshPoint. The subordinated notes accrue interest at 9%, payable through the
issuance of additional subordinated notes, of which all accrued interest and
principal is due November 20, 2006. At March 27, 1999, the subordinated debt was
$31 million including both principal and accrued interest. Management expects
that payment of the subordinated debt will be funded through the acquisition of
additional bank debt.
Management believes that the combination of cash generated from operating
activities and availability under its bank lines of credit is sufficient to meet
its needs for operations and capital expenditure requirements for the
foreseeable future.
Year 2000 Issues
The risk of unforeseen problems regarding the ability of computerized
systems of FreshPoint, its customers and suppliers to process dates beginning in
the Year 2000 could have a material adverse effect on FreshPoint and its ability
to operate.
FreshPoint recognized the issue of Year 2000 date recognition some years
ago and began work in 1994 to ensure that the computer systems that support the
operations of FreshPoint would function through the Year 2000. FreshPoint is
addressing the Year 2000 issue with respect to the following: (1) FreshPoint's
information technology and operating systems, including its billing, accounting
and financial reporting systems and (2) FreshPoint non-information technology
systems, such as buildings, plant, equipment, telephone systems and other
infrastructure systems that may contain embedded microcontroller technology.
FreshPoint's computerized systems are a combination of software and
hardware purchased from third parties as well as internally developed programs.
The nature of these systems is such that through regular maintenance and
upgrades 16 of the 19 systems were Year 2000 compliant by March 27, 1999. The
remaining three locations will be Year 2000 compliant by October 1999. In
addition, FreshPoint has also reviewed its critical non-information technology
systems and has determined that none contain embedded technology that would lead
to failure due to the Year 2000 issue.
Because FreshPoint could potentially experience disruptions to some aspects
of its various activities and operations as a result of non-compliant systems
utilized by unrelated third parties, FreshPoint is in the process of sending
letters to its major suppliers and significant service providers and customers,
requesting them to provide FreshPoint with assurance of Year 2000 compliancy.
Contingency plans are under development to mitigate the extent of any
potential disruption to business operations due to the Year 2000 issue.
FreshPoint's most likely worst case scenario would be delayed billings to
customers and the inability of customers to order and pay on a timely basis.
The costs incurred to date by FreshPoint of addressing potential Year 2000
issues have not resulted in a material adverse impact on FreshPoint's
consolidated results of operations or financial position.
There can be no assurance that the efforts or the contingency plans related
to FreshPoint's systems, or those of other entities relied upon, will be
successful or that any failure to convert, upgrade or appropriately plan for
contingencies would not have a material adverse effect on FreshPoint.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk. FreshPoint has Canadian operations and is therefore
subject to currency transaction gains and losses. FreshPoint has not experienced
any material foreign currency transaction gains or losses. Foreign currency risk
is managed by maintaining currencies in the denomination for which it is
required to make payment. Foreign currency translation adjustments are stated as
a separate line item in FreshPoint's historical consolidated financial
statements as a component of shareholders' equity.
Interest Rate Risk. Borrowings under FreshPoint's credit facility bears
interest based upon the bank's reference rate or the LIBOR at the option of
FreshPoint. In addition, FreshPoint has entered into an interest rate swap
agreement. The swap agreement involves the receipt of fixed rate amounts in
exchange for floating
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rate interest payments over the life of the agreement for the portion of the
facility committed. FreshPoint also has a line of credit based on FreshPoint's
Canadian operations that bears interest at the bank's prime rate. FreshPoint
manages its borrowings on a daily basis to minimize interest expense. The impact
on FreshPoint's results of operations of a one-percentage point interest rate
change on the outstanding balances of the variable rate debt and the swap
agreement would be immaterial. See the notes to FreshPoint's consolidated
financial statements.
Commodity Pricing Risk. Prices of high quality produce can be extremely
volatile depending on supply and demand. FreshPoint attempts to reduce the
impact of volatile pricing by setting our prices based on current delivered
cost.
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FRESH AMERICA BUSINESS
GENERAL
Fresh America provides procurement, processing, repacking, warehousing and
distribution services of fresh produce and other refrigerated products for a
wide variety of customers in the retail, foodservice and food distribution
businesses. Additional services such as "just-in-time" inventory planning,
system integration and customer support are also provided as areas of unique
specialization. Because of the perishable nature of fresh fruits and vegetables,
it requires specialized distributors such as Fresh America that can maintain the
"cold chain" of distribution to ensure safety, quality and yield for the wide
variety of products available in today's marketplace. As one of the largest
distributors of fresh produce in North America, Fresh America serves over 4,000
customers in 47 states and Canada through 27 distribution and processing
facilities located in Arizona, California, Florida, Georgia, Illinois, Indiana,
Louisiana, Nevada, Ohio, Pennsylvania, Texas and Ontario, Canada.
Fresh America was founded in 1989 and commenced operations by delivering
produce to one Sam's Club. The success of the initial venture in Houston, Texas
allowed Fresh America to rapidly expand its relationship with Sam's Club. Today,
under an exclusive supply agreement, Fresh America procures, warehouses and
distributes produce and other perishable products to 289 Sam's Club stores in
the Midwest, Northeast, Southeast and Southwest.
Over the last three years, Fresh America has diversified its operations
through an active acquisition strategy, which led to 16 acquisitions over this
time frame, 14 having occurred in the last two years. Through these acquisitions
and new customer outsourcing relationships, Fresh America has expanded its cold
chain distribution network, diversified its customer and supplier relationships
and expanded its value-added processing capabilities. Fresh America plans to
continue to capitalize upon a favorable consolidation climate and positive
industry trends as it continues to grow through acquisitions and internal
expansion.
BUSINESS STRATEGY
Fresh America is focused on leveraging its infrastructure and cash flow
associated with its existing businesses in order to diversify and broaden its
customer base, geographic coverage, market penetration and service offerings.
Embedded in this strategy is Fresh America's continued pursuit of strategic
acquisitions. To meet these objectives, management has developed a number of
important strategies considered key to the success of the business:
- Adhere to its proven operating model requiring high food safety standards
while providing quality products with high yields at reasonable prices.
- Actively support and enhance customer and supplier relationships.
- Maintain a low operating cost structure.
- Utilize technology for competitive advantage.
- Proactively pursue acquisitions, alliances and internal expansions that
capitalize upon synergistic opportunities, increase distribution
capabilities, diversify product and service offerings and expand its
national presence.
Fresh America intends to continue to seek acquisition candidates, as well
as expand its existing operations in various locations. Fresh America believes
there will continue to be numerous acquisition opportunities for several reasons
including acquisition targets being subject to (1) generational turnover, (2)
lack of sufficient capital to grow and invest in systems and facilities and (3)
insufficient buying power to receive competitive prices from suppliers.
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ACQUISITIONS
Since late 1995, Fresh America has completed 16 acquisitions that have
expanded its distribution and service capabilities. All companies deal in all
service areas, however the table below identifies the acquisitions and their
primary areas of distribution and specialization:
<TABLE>
<CAPTION>
PRIMARY
DATE COMPANY LOCATION SERVICES*
- ---- ------- -------- ---------
<S> <C> <C> <C>
September 1995 Lone Star Produce, Inc. Austin, TX 1
November 1996 Produce Plus, Inc.** Houston, TX 1
January 1997 Chef's Produce Team Los Angeles, CA 1
March 1997 One More Tomato, Inc.** Houston, TX 3
May 1997 Pittman Produce of Orlando, Inc. Orlando, FL 1
August 1997 C. Kalil Fruit & Vegetable, Inc.** Houston, TX 1,2,3
September 1997 Bano Quality Produce, Inc. Baton Rouge, LA 1,3
December 1997 Premier Produce, Inc. San Antonio, TX 1
December 1997 Tomahawk Produce, Inc. Atlanta, GA 1,2,3
January 1998 Hereford Haven, Inc.
d/b/a Martin Bros. Dallas, TX 2,3
February 1998 Francisco Distributing Co. Norwalk, CA 2
March 1998 Ontario Tree Fruits Ltd.
Toronto,
and Affiliates Ontario 2
August 1998 Jos. Notarianni & Co. Scranton, PA 2,3
October 1998 Kings Onion House Phoenix, AZ 2,3
October 1998 Thompson's Produce Company Pensacola, FL 1,3
November 1998 Sam Perricone Citrus Company Los Angeles, CA 2
</TABLE>
- ---------------
* Primary Services: 1. Specialty Foodservice; 2. Retail/Wholesale; 3.
Value-Added.
** Subsequent to their acquisition dates, these companies were integrated into
one location in Houston, Texas in order to reduce costs and increase
efficiencies.
SERVICES
Fresh America provides produce and related products and services in four
primary areas of specialization: outsourcing programs, specialty foodservice
distribution, retail/wholesale and value-added processing and repacking. Within
each area, Fresh America provides a broad array of services, which may include
centralized purchasing, processing, repacking, warehousing, distribution,
inventory planning, system integration and customer support. An expanded
description of the four areas of specialization follows.
Outsourcing Programs
Due to the specialized handling requirements associated with fresh fruits
and vegetables and Fresh America's integrated distribution network and related
services, Fresh America is uniquely positioned to offer outsourcing
opportunities to various retail, wholesale and distribution companies. These
services allow customers, such as Sam's Club, Dole Fresh Vegetables, Inc. and
Fast Food Merchandiser's, Inc., to outsource certain aspects of their fresh
produce distribution function to Fresh America primarily for the purpose of
eliminating the infrastructure required to perform those activities.
In its program distribution business, Fresh America is typically
compensated on a fee for service or a predetermined margin basis. For example,
with respect to the Sam's Club program, Fresh America coordinates the purchase,
transportation and consolidation of produce based on the requirements of each
Sam's Club location. Fresh America purchases the produce and coordinates the
shipment to one of its distribution centers where it is combined with other
produce and shipped to the Sam's Club location by Fresh America's trucks or
third-party carriers. For its services, Fresh America earns a pre-determined
margin in a cost-plus arrangement.
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Specialty Foodservice Distribution
Food service customers include restaurants, hotels, schools, hospitals and
other institutions. Produce is purchased by Fresh America and shipped to a
number of customers. Distribution of produce to foodservice accounts generally
requires a higher level of service, entailing as many as six deliveries a week.
Retail/Wholesale
Fresh America sells produce and provides distribution services to national
and regional retail or wholesale accounts which include supermarkets,
independent grocers and other purchasers of fresh produce and other food
products. Fresh America provides a variety of services, which include procuring,
repackaging, warehousing and distributing of fresh produce for these customers.
Produce is generally distributed to central warehouses or directly to grocery
store locations.
Value-Added Capabilities
Fresh America performs certain value-added functions for customers that
complement the other services it provides. These functions include produce
ripening and repackaging activities, the assembly and preparation of fruit
baskets and party trays of precut vegetables and the processing and packing of
various produce items. Certain operations employ highly specialized ripening,
sorting and packing equipment designed to increase efficiency and drive down
costs.
PRODUCTS
Fresh America provides and procures approximately 500 items in several
product categories, including fresh produce, refrigerated prepackaged produce,
and processed foods. Fresh produce includes staple items such as apples, lemons,
lettuce, bananas, oranges, grapefruit, onions, tomatoes, potatoes and garlic,
and seasonal items such as strawberries, blueberries, cherries, grapes, peaches,
plums, avocados and watermelons. Refrigerated prepackaged produce includes
chopped lettuce and presliced fruits and vegetables, including party trays of
fresh, precut vegetables. Processed foods include prepackaged salads, prepared
salads and a limited selection of salad dressings. Fresh America also provides
certain specialty types of produce. For example, Francisco Distributing Co.
ships and repackages mangos, peppers and honey dew melons in the United States,
while Ontario Tree Fruits Limited and affiliates imports various specialty items
such as chestnuts and clementines.
OPERATIONS
Warehouse and Distribution
Fresh America conducts its operations out of 27 operating facilities
located in Texas, California, Florida, Illinois, Louisiana, Nevada, Georgia,
Arizona, Indiana, Ohio, Pennsylvania and Ontario, Canada. In addition, Fresh
America maintains executive offices in Dallas, Texas where its senior management
is based and an administrative and accounting office in Houston, Texas.
Each distribution center employs between 20 and 200 employees, most of whom
are involved in receiving and shipping, as well as driving Fresh America's
transportation fleet. The distribution centers are designed for receiving, cold
storage, sorting and shipping, and are located to allow Fresh America to
distribute perishable products by truck to its customers throughout the
respective regional geographical area. Fresh America has over 1.1 million square
feet of warehousing and processing space.
Fresh America's products are delivered from its distribution centers to
customers utilizing Fresh America's fleet of leased and owned tractors,
refrigerated trailers and refrigerated trucks, as well as third party trucking
companies.
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Purchasing
Fresh America employs purchasing agents in most of its operating locations
who purchase produce directly from growers and shippers and cooperatives
representing growers.
Fresh America selects its suppliers carefully and regularly monitors their
ability to provide quality products at competitive prices. As a result of its
substantial volume of purchases, Fresh America is able to obtain fresh produce
of premium size, quality and appearance at competitive costs. In many cases,
Fresh America purchases produce only from selected warehouses within a
supplier's system, based on management's assessment of the quality provided by
the particular warehouses. Produce is usually acquired for delivery within four
days, and Fresh America generally does not operate under contractual supply
agreements for its produce. Although purchases by Fresh America frequently
constitute a significant portion of a particular supplier's sales, no single
supplier accounts for more than 10% of Fresh America's costs of goods sold.
Management believes that all of the items stocked in its inventory are available
from numerous suppliers at competitive prices.
In addition, Fresh America has a central buying department located in
Dallas to handle the particular requirements of much of its program business, to
purchase certain staple items common to all business units and to enhance its
buying power.
Quality Control
Fresh America focuses on quality and freshness at each step of the receipt,
processing and distribution process. Because most of the products delivered by
Fresh America are perishable, proper handling, including maintenance of constant
temperature and humidity, is critical to the control of product spoilage.
Equally important is Fresh America's ability to accurately order the correct
quantity of each product to meet the demands of its customers. Although the
nature of Fresh America's business is such that some amount of its inventory
will be lost through spoilage, management attempts to minimize this expense.
Produce is transported to and from Fresh America's operating locations in
refrigerated, temperature monitored trucks. When produce is to be received,
Fresh America's personnel inspect the products to ensure that quality
specifications have been satisfied. Accepted items are immediately stored in
product specific, temperature controlled environments. Purchased product
typically spends no more than three days in Fresh America's facilities before
delivery to a specific customer.
Personnel
Fresh America refers to its employees as "associates" and attempts to
maintain a team spirit among all of its associates. Management believes that
Fresh America's relations with its associates are good. As of June 30, 1999
Fresh America employed a total of 1,398 full-time associates and 28 part-time
associates, including 71 corporate associates and 1,355 regional associates.
Certain operations of Fresh America have collective bargaining agreements with
their warehouse associates.
Competition
Fresh America operates in highly competitive markets, and its success will
be largely dependent on its ability to provide quality products at the lowest
possible prices. The produce industry is highly fragmented and is primarily
comprised of smaller, family-owned operations serving local and regional
markets. Fresh America also competes with national foodservice and wholesale
food distribution companies, some of which have substantially greater financial
resources than Fresh America.
SAM'S CLUB
Fresh America's relationship with Sam's Club is governed by the terms and
conditions of a five-year agreement which became effective December 1, 1995 and
expires on November 30, 2000. The agreement replaced Fresh America's
pre-existing license agreement that expired on November 30, 1995.
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The agreement gives Fresh America the exclusive right to distribute fresh
fruit and vegetables, refrigerated prepackaged produce and produce-related
refrigerated processed foods to Sam's Club stores located in the Midwest,
Northeast, Southeast and Southwest. Under the agreement, Sam's Club takes
ownership of the product as it enters the clubs and resells it to Sam's Club
members. Sam's Club has complete operational authority within the produce
department in each club. Accordingly, Sam's Club has assumed all costs and
liabilities related to the operation of the departments, including all
merchandising and product shrink responsibilities. Fresh America electronically
invoices Sam's Club based on deliveries to each club and payment is due
electronically from Sam's Club nineteen days after receipt of product. Under the
prior license agreement, Fresh America was responsible for such costs and
maintained ownership of the product until it was sold directly to Sam's Club
members. Thus, Fresh America bore the merchandising and product shrink risks
under such agreement.
The agreement may be terminated for cause if Fresh America commits a
material breach under the agreement or there are material documented problems
with the distribution of products by Fresh America (after notice from Sam's Club
and a 30 day opportunity to cure), if Fresh America loses its permit to operate
under the Perishable Agricultural Commodities Act, or if Fresh America becomes
bankrupt or insolvent or fails to pay its suppliers. Further, upon prior notice,
Sam's Club may terminate the agreement with respect to no more than 40 stores
per year within Fresh America's exclusive territory if a Wal-Mart or Sam's Club
distribution center that is opened to service Wal-Mart Supercenters and/or Sam's
Club elects to distribute produce to such clubs and is capable of doing so in
the ordinary course of its business. During the fourth and fifth years of the
term, the limit of 40 clubs per year will apply on a cumulative basis.
Management believes that Fresh America is in compliance with all of the terms of
the agreement. The agreement is generally not assignable by Fresh America
without the consent of Sam's Club.
Each year since 1997, Sam's Club has elected to exercise its existing
option under the Agreement to distribute produce directly with respect to 40
stores, thereby reducing the number of stores to which Fresh America
distributes. Accordingly, Fresh America has conducted its operations assuming
that Sam's Club will continue to withdraw 40 stores per year for each of the
remaining years of the agreement. With respect to 1999, the revenue attributed
to the loss of 40 stores is expected to be less than three percent of Fresh
America's total 1999 revenues.
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FRESHPOINT BUSINESS DESCRIPTION
GENERAL
FreshPoint provides foodservice distribution, wholesale supply, procurement
and transportation of fresh produce through a network of company-owned
distribution facilities located throughout the United States and Canada.
FreshPoint serves its customers through its 28 distribution facilities
strategically located throughout North America, including Washington, D.C.,
Georgia, Florida, Texas, Colorado, California, and the British Columbia and
Alberta provinces of Canada.
FreshPoint began operating in November 1996 when a private investor group
purchased substantially all of the North American produce distribution business
of Albert Fisher, a London, England-based conglomerate of food distribution
companies. In order to consummate the acquisition, the investor group formed
FreshPoint Holdings, which is owned approximately 50% by the investor group,
approximately 30% by management, and approximately 20% by a subsidiary of Albert
Fisher.
Prior to the acquisition of Albert Fisher's North American produce
distribution companies by FreshPoint, Albert Fisher had acquired a number of
leading produce distribution companies in select markets throughout the United
States and Canada. Many of these companies have recently celebrated 40, 80, and
even 100-year anniversaries. These companies have established reputations and
are recognized as the premier produce distributor in their respective
marketplace. Several of the companies continue to operate using its original
trade name under the FreshPoint umbrella.
Since November 1996, FreshPoint has strengthening its core businesses and
relationships, building its reputation in the marketplace, and capitalizing on
its critical mass. Several additional acquisitions have been consummated to
complement the established operations. In addition to growth through
acquisitions, FreshPoint is expanding its distribution network in strategic
markets by aligning itself with leading produce distributors in those markets.
As a result of this alliance, member companies are provided access to
FreshPoint's procurement and transportation expertise.
SERVICES
FreshPoint's produce distribution business may be categorized into three
areas of specialization: foodservice distribution, wholesale distribution and
value-added processing and repackaging, and procurement services. Services
within these areas consist of a variety of functions including, but not limited
to, processing, packaging, warehousing and distribution.
Foodservice Distribution
Foodservice distribution of fresh produce and other refrigerated products
is the largest component of FreshPoint's business and encompasses distribution
directly to every type of foodservice account, both commercial and
noncommercial, including restaurants, hotels, schools, grocery stores,
hospitals, government facilities, cruise ships, and many other institutions.
FreshPoint's distribution cycle includes product procurement, arranging
transportation to our local distribution facility, inventory maintenance, and
final delivery of the product to the customer. Due to the perishable nature of
these products, FreshPoint's specialized distribution processes secure
maintenance of the "cold chain" to ensure product quality, safety, and yield.
The "cold chain" is the maintenance of the correct temperature and humidity for
each specific product type from the grower's field to the customer's plate.
Wholesale Distribution And Value-Added Capabilities
The wholesale distribution operations of FreshPoint are very similar to the
foodservice distribution operations discussed above. The customer mix includes
grocery stores, government outlets, and other produce distributors. FreshPoint
also performs certain value-added functions. These include ripening,
repackaging, and processing. Several of FreshPoint's distribution facilities
include ripening rooms, which allow the management of the ripening process for
such items as bananas and tomatoes. Repackaging involves the sorting and
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repacking of certain produce items such as potatoes and tomatoes by size and/or
grade. Processing services are also provided at certain distribution facilities.
These services include the slicing and dicing of such items as carrots and
onions.
Procurement Services
The procurement services component of FreshPoint's business is a leading
fresh produce purchasing and transportation brokering organization headquartered
in the heart of the nation's produce growing region: Salinas, California.
FreshPoint seeks to leverage the collective purchasing power of its 28
distribution facilities, as well as third party customers of its procurement
services, in procuring the highest quality produce from the best produce
suppliers.
PRODUCTS
FreshPoint's product mix is approximately 60% fresh vegetables, 25% percent
fresh fruit and 15% other produce and refrigerated products. Each individual
operating company's product mix may vary slightly depending on the individual
company's customer base. Products include a wide range of produce that varies by
region. Staple vegetable items include such products as lettuce, onions,
mushrooms, broccoli, and potatoes. Staple fruit items include such items as
bananas, apples, tomatoes, avocados, various citrus products, and seasonal
berries. In addition to produce, certain distribution facilities also carry
meats, cheeses, dairy products and other dry goods. In addition, FreshPoint's
distribution facilities carry specialty items such as herbs, edible flowers, and
rare produce which is distributed primarily to "white tablecloth" hotels and
restaurants. Through its vast purchasing network, FreshPoint is able to procure
and supply a wide variety of produce outside of traditional staple products.
OPERATIONS
Warehouse and Distribution
FreshPoint's distribution operations are conducted by regionally managed
distribution subsidiaries and divisions which are grouped as follows: Eastern
U.S.: Georgia, Florida, and Washington, D.C.; Central Region: Texas and
Colorado; Western Region: Northern and Southern California; and Canadian Region:
Provinces of British Columbia and Alberta. In addition, FreshPoint maintains
executive offices in Dallas, Texas.
Each of FreshPoint's distribution facilities employs between 14 and 310
employees. Personnel are primarily responsible for the procurement, handling,
preparation, and distribution of fresh produce. Distribution centers are
equipped with computerized ordering, pricing and inventory systems in addition
to state-of-the-art refrigerated facilities and equipment, which allow for the
efficient distribution of product and maintenance of the "cold chain."
FreshPoint currently occupies approximately 565 thousand square feet of
warehousing and processing space.
FreshPoint delivers its products through utilization of FreshPoint's fleet
of leased and owned tractors, refrigerated trailers and refrigerated trucks, as
well as third-party trucking companies.
Purchasing
FreshPoint sources its product directly from select growers and shippers
and maintains a continuous program of inspection and field reporting. Due to
FreshPoint's purchasing volume, FreshPoint is able to obtain premium produce at
competitive prices and does not operate under contractual supply agreements for
its produce.
Product is purchased at both the local operating company level and through
the FreshPoint procurement office in California. Both local and national
suppliers are selected and regularly monitored to ensure the availability of
quality product at competitive prices.
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No single supplier accounts for more than ten percent of FreshPoint's costs
of goods sold. Management believes that all of the items stocked in its
inventory are available from numerous suppliers at competitive prices.
Quality Control
Quality control is an integral component of FreshPoint's business.
Precautions are taken throughout the receiving, warehousing, processing and
distribution process to ensure that the freshest produce possible is delivered
to FreshPoint's customers. FreshPoint purchases its inventory from a select list
of suppliers that have a history of providing quality produce.
Due to the perishable nature of FreshPoint's product, maintenance of the
"cold chain" is critical. To accomplish this, the distribution facilities
include cold storage areas for delicate items, which are monitored to maintain
constant temperature and humidity. Several distribution facilities have
refrigerated receiving and shipping areas on their docks. FreshPoint also
ensures that all transportation activities are conducted in refrigerated,
temperature-monitored trucks.
Personnel
FreshPoint employed a total of approximately 2,450 full-time and 65
part-time associates as of June 30, 1999. The majority of FreshPoint's
associates are directly involved in the procurement, handling, and delivery of
the fresh produce. Three operating companies have collective bargaining
arrangements with their warehouse associates. Management believes that
FreshPoint's relations with its associates are good.
Competition And Other Factors
The produce distribution industry is highly fragmented, with most of
FreshPoint's competitors being small, proprietary businesses operating on a
local or regional scale. The success of FreshPoint is largely dependent on its
ability to provide quality products at a competitive price on a timely basis.
FreshPoint's earnings are dependent on several factors outside its control.
Price volatility may affect FreshPoint's performance and is caused by supply
imbalances, weather conditions, quality available and consumer demand. In
addition to the above factors, FreshPoint may encounter competition from new
market entrants and competitors, which have substantially greater financial
resources than FreshPoint.
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DESCRIPTION OF FRESH AMERICA CAPITAL STOCK
GENERAL
Currently, the authorized capital stock of Fresh America consists of
10,000,000 shares of common stock and 1,000,000 shares of preferred stock, $1.00
par value, for a total authorized capital of 11,000,000 shares. Of the presently
authorized shares of Fresh America common stock, as of July 8, 1999, 5,241,051
shares were issued and outstanding, an additional 978,182 shares were reserved
for issuance pursuant to stock option plans and warrants and an estimated
1,111,000 shares will be issued in connection with contingent payments incurred
in connection with prior acquisitions. No shares of preferred stock were
outstanding.
If the proposed charter amendment and the stock option plan amendment are
approved at the annual meeting and the merger is consummated, (1) approximately
10,926,877 shares of FreshPoint America common stock will be outstanding
immediately after the merger, (2) an additional 1,603,182 shares of FreshPoint
America common stock will be reserved for issuance pursuant to stock option
plans and warrants, (3) an estimated 1,111,000 shares will be issued in
connection with contingent payments incurred in connection with prior
acquisitions, and (4) approximately 36,358,941 shares of FreshPoint America
common stock will be available for future issuance.
The following description contains a summary of all the material features
of the capital stock of Fresh America -- and the capital stock of FreshPoint
America in the event the merger is consummated -- but does not purport to be
complete and is subject in all respects to the applicable provisions of the
Texas Business Corporation Act.
COMMON STOCK
The outstanding shares of Fresh America common stock are fully paid and
nonassessable. Holders of Fresh America common stock:
- are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders,
- have no preemptive rights, and
- are not entitled to cumulative voting rights with respect to the election
of directors.
The common stock is neither redeemable nor convertible into other securities,
and there are no sinking fund provisions.
Subject to the preferences of Fresh America preferred stock, holders of
Fresh America common stock are entitled to dividends declared by the Board of
Directors. In the event of liquidation, common shareholders are entitled to
share ratably in all assets remaining after payment of liabilities. If the
merger is consummated, none of the above provisions will be materially altered.
PREFERRED STOCK
Preferred stock may be issued with such designations, powers, preferences
and rights as the Board of Directors may from time to time determine. Fresh
America presently does not have plans to issue preferred stock. If the merger is
consummated, none of the provisions pertaining to preferred stock will be
materially altered.
CHANGE IN CONTROL
Some provisions of Fresh America's articles of incorporation and
bylaws -- and those of FreshPoint America if the merger is consummated -- may
act to delay, defer or prevent a change in control of Fresh America or
FreshPoint America. Fresh America's current articles of incorporation and bylaws
provide that the Board of Directors is to be divided into three classes which
are to be as nearly equal in number as possible. Directors are elected by
classes to three-year terms, so that approximately one-third of the directors of
Fresh
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America are elected at each annual meeting of the shareholders. In addition,
Fresh America's bylaws provide that the power to fill vacancies is vested in the
Board of Directors. The overall effect of such provisions may be to prevent a
person or entity from seeking to acquire control of Fresh America through an
increase in the number of directors on the Fresh America Board of Directors and
the election of designated nominees to fill such newly created vacancies.
At the annual meeting, as part of the approval of the merger, Fresh
America's shareholders will be asked to consider and act upon the amendment and
restatement of Fresh America's articles of incorporation to, among other things,
(1) change Fresh America's name to "FreshPoint America, Inc.," (2) increase the
number of authorized shares of Fresh America common stock from 10,000,000 to
50,000,000, and (3) expand the Fresh America Board of Directors from a
six-member Board of Directors to an eleven-member Board of Directors. The eleven
designated directors will hold office upon the effectiveness of the merger until
the expiration of their terms and until their successors are elected and
qualified.
If the merger becomes effective, the bylaws of FreshPoint America will
provide that, as with the current Fresh America Board, the eleven-member Board
of Directors will be divided into three classes, each class to be nearly as
equal in number as possible. The initial Class I directors will serve a term
expiring at the first annual meeting after the merger; the initial Class II
directors will serve a term expiring at the second annual meeting after the
merger; and the initial Class III directors will serve a term expiring at the
third annual meeting after the merger. Upon the expiration of the term of office
of each class, the nominees for such class will be elected for a term of three
years to succeed the directors whose terms of office expire.
The Board of Directors believes that the authorization of the 50,000,000
shares of common stock contemplated by the charter amendment is desirable so
that there will be sufficient shares available for issuance after the merger for
purposes that the Board of Directors may determine in the future to be in the
best interests of FreshPoint America and its shareholders. Such purposes could
include offers of shares for cash, issuances for acquisitions, as well as the
declaration of stock splits and stock dividends and other general corporate
purposes.
The proposed increase in authorized FreshPoint America common stock is
designed to provide flexibility to the Board of Directors. However, these
additional shares, if issued, could be used to create impediments to, or
otherwise discourage, persons attempting to gain control of FreshPoint America,
and could have a dilutive effect on shareholders.
With respect to preferred stock, the Fresh America Board can, without
shareholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights which could dilute the voting strength of the holders of
the Fresh America common stock and may assist management in impeding an
unfriendly takeover or attempted change in control.
AFFILIATES' RESTRICTION ON SALE OF FRESH AMERICA COMMON STOCK
Shares of Fresh America common stock received by persons who are deemed to
be "affiliates" of FreshPoint (as "affiliate" is defined for purposes of Rule
145 under the Securities Act) prior to the merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act or as otherwise permitted under the Securities Act. Rule 145,
as currently in effect, imposes restrictions in the manner in which such
affiliates, and others with whom they might act in concert, may sell Fresh
America common stock within any three-month period. Persons who may be deemed to
be affiliates of FreshPoint generally include individuals or entities that
control, are controlled by or are under common control with FreshPoint and may
include certain officers and directors as well as principal stockholders of
FreshPoint. FreshPoint stockholders who are identified as affiliates will be so
advised by FreshPoint prior to the effective date of the merger.
Each of Fresh America and FreshPoint will use its best efforts to cause
each and any FreshPoint stockholder who is an affiliate to agree not to make any
public sale of any Fresh America common stock received upon consummation of the
merger except in compliance with Rule 145 under the Securities Act or otherwise
in compliance with the Securities Act. In general, Rule 145, as currently in
effect, imposes
101
<PAGE> 111
restrictions on the manner in which such affiliates may make resales of Fresh
America common stock and also on the quantity of resales that such stockholders,
and others with whom they may act in concert, may make within any three-month
period for a period of two years after consummation of the merger. In addition,
officers and directors of Fresh America following the merger will be subject to
the resale restrictions of Rule 144 as it applies to affiliates of an issuer.
INDEPENDENT AUDITORS
Representatives of KPMG LLP, who were Fresh America's independent auditors
for the year 1998, are expected to be present at the annual meeting. They will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires Fresh America's directors and
officers, and persons who own more than 10% of Fresh America common stock to
file initial reports of ownership and reports of changes in ownership with the
SEC and Nasdaq. Such persons are required by securities regulations to furnish
Fresh America with copies of all Section 16(a) forms that they file.
Based solely on Fresh America's review of the copies of such forms
furnished to it and written representations from the executive officers and
directors, Fresh America believes that all Section 16(a) filing requirements
were met.
WHERE YOU CAN FIND MORE INFORMATION
Fresh America files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that the company files at the SEC's public
reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the SEC located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Fresh America's public filings are also available to the public from
commercial document retrieval services and at the Internet World Wide Website
maintained by the SEC at "http://www.sec.gov."
The SEC allows Fresh America to "incorporate by reference" information into
this document, which means that Fresh America can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information contained directly in this
document. This document incorporates by reference the other documents which are
listed below that Fresh America has previously filed within the last several
months with the SEC. The documents contain important information about its
financial condition.
Fresh America SEC Filings (File No. 000-24124)
<TABLE>
<S> <C>
Quarterly Report on Form 10-Q dated May 17, 1999
Current Report on Form 8-K dated May 7, 1999
Amended Annual Report on Form 10-K/A dated April 30, 1999
Annual Report on Form 10-K dated March 26, 1999
</TABLE>
Fresh America incorporated by reference additional documents that it might
file with the SEC between the date of this document and the date of the annual
meeting. These include periodic reports, such as Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K.
FreshPoint has supplied all information contained in this document relating
to FreshPoint.
102
<PAGE> 112
Documents incorporated by reference are available from Fresh America
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this document, at the following address:
Fresh America Corp.
6600 LBJ Freeway, Suite 180
Dallas, Texas 75240
Attention: Corporate Secretary
Telephone No. (972) 774-0575
If you would like to request documents from Fresh America, please do so by
August 13, 1999 to receive them before the annual meeting. If you request any
incorporated documents from us we will mail them to you by first-class mail, or
other equally prompt means, within one business day of our receipt of your
request.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the annual meeting. Fresh
America has not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated July
22, 1999. You should not assume that the information contained in this document
is accurate as of any date other than that date, and neither the mailing of this
document to shareholders nor the issuance of Fresh America's securities in the
merger shall create any implication to the contrary.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this document or in any of the materials that we
have incorporated into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
If the merger agreement is adopted by Fresh America's shareholders and the
merger is consummated, the combined company will not have the same year-end that
Fresh America has currently. The date of the annual meeting in this situation
has not been set. The bylaws of the combined entity will provide that any
proposals that shareholders of FreshPoint America desire to have presented at
the next annual meeting must be received by FreshPoint America at its principal
executive offices no later than 60 days before the annual meeting and no earlier
than 90 days before the annual meeting for inclusion in FreshPoint America's
proxy materials. Such proposals should be directed to FreshPoint America, Inc.,
6600 LBJ Freeway, Suite 180, Dallas, Texas 75240, Attention: Corporate
Secretary. Proposals must comply with the proxy rules of the SEC relating to
shareholder proposals in order to be included in the proxy materials.
If the merger is not consummated, any proposals that shareholders of Fresh
America desire to have presented at the next annual meeting must be received by
Fresh America at its principal offices no later than March 19, 2000 for
inclusion in Fresh America's proxy materials. Such proposals should be directed
to Fresh America Corp., 6600 LBJ Freeway, Suite 180, Dallas, Texas 75240,
Attention: Corporate Secretary. Proposals must comply with the proxy rules of
the SEC relating to shareholder proposals in order to be included in the proxy
materials.
103
<PAGE> 113
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Fresh America Corp. Historical Consolidated Financial
Statements:
Independent Auditors' Report.............................. F-2
Consolidated balance sheets as of April 2, 1999
(unaudited), January 1, 1999 and January 2, 1998....... F-3
Consolidated statements of income for the three months
ended April 2, 1999 (unaudited) and April 3, 1998
(unaudited), and for the years ended January 1, 1999,
January 2, 1998 and January 3, 1997.................... F-4
Consolidated statements of shareholders' equity for the
three months ended April 2, 1999 (unaudited), and for
the years ended January 1, 1999, January 2, 1998 and
January 3, 1997........................................ F-5
Consolidated statements of cash flows for the three months
ended April 2, 1999 (unaudited) and April 3, 1998
(unaudited), and for the years ended January 1, 1999,
January 2, 1998 and January 3, 1997.................... F-6
Notes to consolidated financial statements................ F-7
FreshPoint Holdings, Inc. Historical Financial Statements:
Report of Ernst & Young LLP, Independent Auditors......... F-21
Consolidated balance sheets as of March 27, 1999
(unaudited), June 27, 1998 and June 28, 1997........... F-22
Consolidated statements of operations for the nine months
ended March 27, 1999 (unaudited) and March 28, 1998
(unaudited), the year ended June 27, 1998 and the two
hundred nineteen day period ended June 28, 1997 and
combined statements of operations for the eighty two
day period ended November 21, 1996 and the year ended
August 31, 1996........................................ F-23
Consolidated statements of shareholders' equity for the
nine months ended March 27, 1999 (unaudited), the year
ended June 27, 1998, the two hundred nineteen day
period ended June 28, 1997, the eighty two day period
ended November 21, 1996 and the year ended August 31,
1996................................................... F-24
Consolidated statements of cash flows for the nine months
ended March 27, 1999 (unaudited) and March 28, 1998
(unaudited), the year ended June 27, 1998, and the two
hundred nineteen day period ended June 28, 1997 and
combined statements of cash flows for the eighty two
day period ended November 21, 1996 and the year ended
August 31, 1996........................................ F-25
Notes to combined and consolidated financial statements... F-26
</TABLE>
F-1
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders:
Fresh America Corp.:
We have audited the accompanying consolidated balance sheets of Fresh
America Corp. and subsidiaries as of January 1, 1999 and January 2, 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended January 1, 1999.
Theses consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fresh
America Corp. and subsidiaries as of January 1, 1999 and January 2, 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 1, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Dallas, Texas
March 11, 1999
F-2
<PAGE> 115
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
APRIL 2, JANUARY 1, JANUARY 2,
1999 1999 1998
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 7,563 $ 1,171 $ 2,725
Accounts receivable, net.................................. 68,556 80,674 43,361
Advances to growers....................................... 4,663 2,238 --
Inventories............................................... 9,937 11,450 7,360
Prepaid expenses.......................................... 2,627 2,504 1,313
Deferred income taxes..................................... 404 338 362
Income tax receivable..................................... 47 363 237
-------- -------- -------
Total current assets.............................. 93,797 98,738 55,358
Property, plant and equipment, net.......................... 25,967 23,900 13,581
Notes receivable from shareholders.......................... 178 178 166
Goodwill, net of amortization of $2,060, $1,557 and $261,
respectively.............................................. 32,576 33,005 9,138
Other assets................................................ 2,321 2,278 1,721
-------- -------- -------
$154,839 $158,099 $79,964
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt....... $ 12,528 $ 14,807 $10,750
Accounts payable....................................... 44,499 51,979 27,711
Accrued salaries and wages............................. 1,987 1,460 3,434
Other accrued expenses................................. 2,528 2,018 920
Income taxes payable................................... -- -- 1,324
-------- -------- -------
Total current liabilities......................... 61,542 70,264 44,139
Long-term debt, less current portion...................... 39,508 35,985 6,193
Deferred income taxes..................................... 1,166 1,070 198
Other liabilities......................................... 238 218 99
-------- -------- -------
Total liabilities................................. 102,454 107,537 50,629
-------- -------- -------
Shareholders' Equity:
Common stock $.01 par value. Authorized 10,000,000 shares
issued 5,239,051, 5,202,511 and 4,483,983 shares
respectively........................................... 52 52 45
Additional paid-in capital................................ 32,191 31,672 16,508
Foreign currency translation adjustment................... (222) (345) (179)
Retained earnings......................................... 20,364 19,183 12,961
-------- -------- -------
Total shareholders' equity........................ 52,385 50,562 29,335
-------- -------- -------
Commitments and contingencies............................... $154,839 $158,099 $79,964
======== ======== =======
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-3
<PAGE> 116
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
------------------- ------------------------------------
APRIL 2, APRIL 3, JANUARY 1, JANUARY 2, JANUARY 3,
1999 1998 1999 1998 1997
-------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $173,427 $133,007 $609,490 $429,524 $323,775
Cost of sales........................... 151,421 118,487 537,556 386,161 291,810
-------- -------- -------- -------- --------
Gross profit.................. 22,006 14,520 71,934 43,363 31,965
-------- -------- -------- -------- --------
Selling, general and administrative
expenses:
Salaries and related costs............ 10,809 7,261 33,538 20,903 15,945
Rent, maintenance and related costs... 3,390 2,309 10,916 6,358 4,196
Insurance expense..................... 416 348 1,507 1,047 1,032
Automobile, travel and related
costs.............................. 490 346 1,854 1,167 612
Communication expense................. 507 326 1,515 1,101 610
Depreciation and amortization......... 1,515 755 3,987 1,805 1,534
Other................................. 1,630 2,005 5,231 2,240 1,278
-------- -------- -------- -------- --------
18,757 13,350 58,548 34,621 25,207
-------- -------- -------- -------- --------
Operating income.............. 3,249 1,170 13,386 8,742 6,758
-------- -------- -------- -------- --------
Other income (expense):
Interest expense...................... (1,279) (428) (3,048) (487) (515)
Interest income....................... 65 49 1,010 362 286
Other, net............................ 147 (126) (85) 514 197
-------- -------- -------- -------- --------
(1,067) (505) (2,123) 389 (32)
-------- -------- -------- -------- --------
Income before income taxes.............. 2,182 665 11,263 9,131 6,726
Provision for income taxes.............. 1,001 211 5,041 3,921 2,500
-------- -------- -------- -------- --------
Net income.................... $ 1,181 $ 454 $ 6,222 $ 5,210 $ 4,226
======== ======== ======== ======== ========
Earnings per share:
Basic................................. $ 0.23 $ 0.10 $ 1.27 $ 1.19 $ 1.00
======== ======== ======== ======== ========
Diluted............................... $ 0.22 $ 0.10 $ 1.20 $ 1.12 $ 0.94
======== ======== ======== ======== ========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-4
<PAGE> 117
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN TRANSLATION RETAINED SHAREHOLDERS'
STOCK CAPITAL ADJUSTMENT EARNINGS EQUITY
------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 5, 1996.............. $35 $13,983 $ -- $ 2,479 $16,497
Adjustment for pooling of interests.... 6 163 26 715 910
--- ------- ----- ------- -------
Balances at January 5, 1996, restated.... 41 14,146 26 3,194 17,407
Exercise of warrants................... 1 -- -- -- 1
Stock issued in acquisitions........... 266 -- -- 266
Other.................................. -- -- -- (17) (17)
Net income of OTF for the four months
ended January 3, 1997............... -- -- (3) 322 319
Exercise of employee stock options..... 1 444 -- -- 445
Net income............................. -- -- -- 4,226 4,226
Foreign currency translation
adjustments......................... -- -- (17) -- (17)
-------
Comprehensive income........... 4,209
--- ------- ----- ------- -------
Balances at January 3, 1997.............. 43 14,856 6 7,725 22,630
Stock issued in acquisitions........... 1 1,110 -- -- 1,111
Exercise of employee stock options..... 1 542 -- -- 543
Other.................................. -- -- -- 26 26
Net income............................. -- -- -- 5,210 5,210
Foreign currency translation
adjustments......................... -- -- (185) -- (185)
-------
Comprehensive income........... 5,025
--- ------- ----- ------- -------
Balances at January 2, 1998.............. 45 16,508 (179) 12,961 29,335
Stock issued in acquisitions........... 7 13,434 -- -- 13,441
Exercise of employee stock options..... -- 488 -- -- 488
Issuance of warrants related to
subordinated debt................... -- 1,242 -- -- 1,242
Net income............................. -- -- -- 6,222 6,222
Foreign currency translation
adjustments......................... -- -- (166) -- (166)
-------
Comprehensive income........... 6,056
--- ------- ----- ------- -------
Balances at January 1, 1999.............. 52 31,672 (345) 19,183 50,562
Stock issued in acquisition
(unaudited)......................... -- 500 -- -- 500
Exercise of employee stock options
(unaudited)......................... -- 19 -- -- 19
Net income (unaudited)................. -- -- -- 1,181 1,181
Foreign currency translation adjustment
(unaudited)......................... -- -- 123 -- 123
-------
Comprehensive income
(unaudited).................. 1,304
--- ------- ----- ------- -------
Balances at April 2, 1999 (unaudited).... $52 $32,191 $(222) $20,364 $52,385
=== ======= ===== ======= =======
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-5
<PAGE> 118
FRESH AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
------------------- ------------------------------------
APRIL 2, APRIL 3, JANUARY 1, JANUARY 2, JANUARY 3,
1999 1998 1999 1998 1997
-------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 1,181 $ 454 $ 6,222 $ 5,210 $ 4,226
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............... 1,515 755 3,987 1,805 1,534
Bad debt expense............................ 159 74 1,230 82 156
Noncash transaction costs................... -- 519 519 -- --
Deferred income taxes....................... 30 (23) 655 91 (171)
Other....................................... 102 23 326 (324) 24
Change in assets and liabilities, excluding
the effects of acquisitions:
Accounts receivable....................... 12,384 3,450 (18,491) (8,052) 447
Growers Advances.......................... (2,439) (1,061) (1,175) -- --
Inventories............................... 1,597 1,183 (1,576) 10 150
Prepaid expenses.......................... (121) 76 1,343 (721) (48)
Other assets.............................. (465) 291 (244) (675) (438)
Accounts payable.......................... (7,740) (647) 13,508 4,637 1,073
Accrued expenses and other current
liabilities............................ 1,813 (2,239) (4,699) (2,140) 1,706
-------- -------- --------- -------- -------
Total adjustments...................... 6,835 2,401 (4,617) (5,287) 4,433
-------- -------- --------- -------- -------
Net cash provided by (used in)
operating activities................. 8,016 2,855 1,605 (77) 8,659
-------- -------- --------- -------- -------
Cash flows from investing activities:
Additions to property, plant and equipment,
net......................................... (3,095) (362) (6,118) (4,713) (1,771)
Cost of acquisitions, exclusive of cash
acquired.................................... -- (5,965) (17,176) (6,672) (829)
Proceeds from sale of equipment............... -- -- -- 354 30
-------- -------- --------- -------- -------
Net cash used in investing
activities........................... (3,095) (6,327) (23,294) (11,031) (2,570)
-------- -------- --------- -------- -------
Cash flows from financing activities:
Proceeds from revolving line of credit........ 43,563 31,219 124,572 34,906 --
Repayments of revolving line of credit........ (41,753) (32,757) (117,777) (26,569) (4,709)
Proceeds from short term indebtedness......... 29 5,000 5,449 -- --
Repayments of short term indebtedness......... (661) (469) (11,808) -- --
Proceeds from shareholder loans............... -- -- -- 1,046 --
Additions to long-term indebtedness........... 415 -- 20,017 154 --
Payments of long-term indebtedness............ (153) (89) (703) (373) (80)
Net proceeds from exercise of employee stock
options..................................... 14 130 498 543 445
Other......................................... -- -- -- (89) (17)
-------- -------- --------- -------- -------
Net cash provided by (used in)
financing activities................. 1,454 3,034 20,248 9,618 (4,361)
-------- -------- --------- -------- -------
Effect of exchange rate changes on cash......... 17 18 (113) (32) (2)
Net increase (decrease) in cash and
cash equivalents..................... 6,392 (420) (1,554) (1,522) 1,726
Cash and cash equivalents at beginning of
year.......................................... 1,171 2,725 2,725 4,247 2,664
-------- -------- --------- -------- -------
Cash and cash equivalents at end of year........ $ 7,563 $ 2,305 $ 1,171 $ 2,725 $ 4,390
======== ======== ========= ======== =======
Supplemental disclosures of cash flow
information:
Cash paid for interest........................ $ 514 $ 357 $ 1,753 $ 437 315
Cash paid for income taxes.................... $ 604 $ 113 $ 5,420 $ 3,093 2,520
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-6
<PAGE> 119
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1999 AND JANUARY 2, 1998
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fresh America Corp ("Fresh America," or the "Company") provides
procurement, processing, re-packing, warehousing and distribution services of
fresh produce and other refrigerated products for a wide variety of customers in
the retail, food service and food distribution businesses.
The Company was founded in 1989 and commenced operations by delivering
produce to one Sam's Club ("Sam's"), a division of Wal-Mart Stores, Inc.
("Wal-Mart"). The success of the initial venture in Houston, Texas allowed the
Company to rapidly expand its relationship with Sam's. Today, under an exclusive
supply agreement serviced from 5 distribution centers, the Company procures,
warehouses and distributes produce and other perishable products to 289 Sam's
Clubs in the Midwest, Northwest, Southeast and Southwest. See the following
discussion in this section under "Sam's Club" for further information on the
Sam's relationship.
Over the last three years, the Company has diversified its operations
through an active acquisition strategy which led to 16 acquisitions over this
time frame, 14 having occurred in the last two years. Through these acquisitions
and new customer outsourcing relationships, the Company has expanded its cold
chain distribution network, diversified its customer and supplier relationships
and expanded its value-added processing capabilities.
The following are the significant accounting policies followed by Fresh
America in the preparation of the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Fresh America
Corp. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year is a 52-week or 53-week period ending on the
first Friday in January. The fiscal years ended January 1, 1999 (fiscal 1998),
January 2, 1998 (fiscal 1997), and January 3, 1997 (fiscal 1996) were 52-week
periods.
Unaudited Interim Financial Information
The consolidated balance sheet as of April 2, 1999, and the related
consolidated statements of income and cash flows for the quarters ended April 2,
1999 and April 3, 1998 and related notes have been prepared by the Company and
are unaudited. In the opinion of the Company, the interim financial information
includes all adjustments (consisting of only normal recurring adjustments)
necessary for a fair statement of the results of the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. The
results for the quarters ended April 2, 1999 and April 3, 1998 may not be
indicative of operating results for the full year.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of less than three months to
be cash equivalents.
F-7
<PAGE> 120
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments included in the Company's financial
statements include cash and cash equivalents, accounts receivable, notes
receivable from shareholders, other assets, accounts payable and other current
liabilities, notes payable and long-term debt. Unless otherwise disclosed in the
notes to the consolidated financial statements, the carrying value of financial
instruments is considered to approximate fair value due to the short maturity
and characteristics of those instruments. The carrying value of long-term debt
approximates fair value as terms approximate those currently available for
similar debt instruments.
Inventories
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out basis.
Property, Plant, and Equipment
Depreciation of plant and equipment are calculated on the straight-line
method over the estimated useful lives of the assets (from 5 to 40 years). Plant
and equipment held under capital leases and leasehold improvements are amortized
on the straight-line method over the shorter of the lease term or estimated
useful life of the asset.
Impairment of Long-Lived Assets
If facts and circumstances indicate that long-lived assets may be impaired,
an evaluation of recoverability is performed by comparing the estimated future
cash flows associated with the asset to the asset's carrying amount to determine
if a write-down is necessary. If such asset is considered impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 15 to 20 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. The Company also
provides certain proforma disclosures for employee stock option grants made in
1995 and later years as if the fair-value-based method defined in Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" had been applied.
F-8
<PAGE> 121
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
During November 1995, the Company commenced operations under its current
Agreement with Sam's and, as a consequence, recognizes revenue upon delivery of
product. For all other customers, revenue is recognized at such time as the
product has been delivered or the service has been rendered.
Income Taxes
Deferred tax assets and liabilities are established for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities, and for operating loss and tax credit
carryforwards, at enacted tax rates expected to be in effect when such amounts
are realized or settled. See Note 7 -- Income Taxes for additional information.
Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income
(available to common shareholders) by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Shares used in calculating basic and diluted EPS are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------- FISCAL YEAR
APRIL 2, APRIL 3, ---------------------
1999 1998 1998 1997 1996
-------- -------- ----- ----- -----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding -- basic........................ 5,237 4,675 4,898 4,376 4,238
Dilutive securities:
Common stock options........................ 143 159 149 190 250
Contingent shares related to acquisitions... 191 114 157 73 --
----- ----- ----- ----- -----
Weighted average common shares
outstanding -- diluted...................... 5,571 4,948 5,204 4,639 4,488
===== ===== ===== ===== =====
</TABLE>
The number of weighted average common shares outstanding used in the
computation of diluted EPS includes the effect of dilutive options using the
treasury stock method. For the quarters ended April 2, 1999 and April 3, 1998
and the fiscal years 1998, 1997 and 1996, there are 182,000 (unaudited), 6,000
(unaudited), 125,000, 5,000 and 9,000 options, respectively, to purchase common
stock that were not included in the computation of diluted EPS because to do so
would have been antidilutive for the fiscal years presented.
Comprehensive Income
In fiscal 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. Components of comprehensive income are
net income and all other nonowner changes in equity such as the change in the
cumulative foreign currency translation adjustment. This statement requires that
an enterprise: (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the shareholders' equity section of a balance sheet.
F-9
<PAGE> 122
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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.
Reclassifications
Certain amounts previously reported have been reclassified to conform to
current year presentation.
2. AGREEMENT WITH SAM'S CLUB
In August 1995, the Company entered into a five-year distribution Agreement
with Sam's Club. This Agreement, which began on December 1, 1995, replaced the
Company's previously existing license agreement with Sam's Club, which expired
on November 30, 1995. Under terms of the Agreement, the Company expanded its
distribution arrangement with Sam's into specified exclusive new territories
approximately doubling the number of Sam's clubs serviced by Fresh America. The
Company and Sam's mutually agreed to begin the transition to the new Agreement
during November 1995. Expansion under the Agreement was effected on January 2,
1996. The Company serviced 190 Sam's clubs before expansion and as of January 1,
1999 services 289 clubs.
The Agreement transfers ownership of the product to Sam's as it enters the
clubs and complete operational authority within the produce departments of each
club. Accordingly, Sam's assumed all costs and liabilities related to the
operation of the departments, including all in-club personnel costs,
merchandising and sales costs, customer returns and credits, and product shrink.
Under the Agreement, the Company invoices Sam's for product delivered to the
clubs in accordance with purchase orders issued by Sam's. The Agreement also
provides Sam's the option to reduce the number of clubs within the Company's
exclusive territory by 40 per year under certain circumstances and to
discontinue service for clubs in which Sam's elects not to offer produce, if
any.
Each year since 1997, Sam's has elected to exercise its existing option
under the Agreement to distribute produce directly with respect to 40 clubs,
thereby reducing the number of clubs to which the Company distributes.
Accordingly, the Company has conducted its operations assuming that Sam's will
continue to withdraw 40 clubs per year for each of the remaining years of the
Agreement.
Sam's Club is the Company's largest customer, and accounted for
approximately 37%, 55% and 66% of the Company's sales for fiscal years 1998,
1997 and 1996, respectively. Receivables from Sam's included in trade accounts
receivable as of January 1, 1999 and January 2, 1998 totaled $16,338,000 and
$15,096,000, respectively.
3. ACQUISITIONS
Pooling of Interests
On March 4, 1998, the Company acquired Ontario Tree Fruits Limited and its
affiliated companies (collectively, "OTF") by exchanging 609,713 shares of its
common stock or exchangeable common stock for all of the capital stock of OTF
and certain residual equity interests. OTF imports and distributes fresh produce
to large retail chains and hundreds of independent grocers and wholesalers in
Canada and the Northeastern United States.
The acquisition of OTF constituted a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, all prior period
consolidated financial statements presented have been restated to
F-10
<PAGE> 123
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include the combined results of operations, financial position and cash flows of
OTF as though it had always been a part of the Company.
The following table presents a reconciliation of net sales and net income,
as reported in the consolidated statement of income with those previously
reported by the Company. The references to Fresh America in this table are to
the Company's historical consolidated operating results prior to the acquisition
of OTF, along with the post merger combined results of operations for the period
from March 4, 1998 through January 1, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Fresh America.............................. $598,632 $349,304 $239,177
OTF........................................ 10,858 80,220 84,598
-------- -------- --------
Total.............................. $609,490 $429,524 $323,775
======== ======== ========
Net Income:
Fresh America.............................. $ 6,158 $ 4,713 $ 4,043
OTF........................................ 64 497 183
-------- -------- --------
Total.............................. $ 6,222 $ 5,210 $ 4,226
======== ======== ========
</TABLE>
Prior to the acquisition, OTF's fiscal year ended on August 31. In
recording the pooling of interests combination, OTF's financial statements for
the twelve months ended January 2, 1998 were combined with Fresh America's
financial statements for the same period. OTF's financial statements for the
fiscal year ended August 31, 1996 were combined with Fresh America's financial
statements for the fiscal year ended January 3, 1997. An adjustment has been
made to shareholder's equity as of January 3, 1997, to include OTF's results of
operations for the four months ended January 3, 1997.
There were no transactions between OTF and the Company prior to the
combination, and immaterial adjustments were recorded to conform OTF's
accounting policies to those of the Company. Certain reclassifications were made
to the OTF financial statements to conform to the Company's presentations.
In connection with the acquisition of OTF, the Company incurred
nonrecurring transaction costs of approximately $1,000,000, which were expensed
in the first quarter of 1998. The nonrecurring transaction costs included
approximately $519,000 of non-cash expenses (net of tax) related to the issuance
of 52,342 shares (which were included in the total 609,713 shares issued) of the
Company's common stock to the financial advisors of OTF.
Acquisitions under the Purchase Method of Accounting
On February 2, 1998, the Company acquired substantially all of the net
operating assets and the business of Francisco Distributing Company, L.L.C.
("Francisco"), a produce marketing, distribution and repackaging company based
in Norwalk, California. As consideration for the net assets received, the
Company paid $5,575,000 in cash, 285,437 shares of Company common stock valued
at $19.27 per share based on the market value of the stock at the time of the
transaction, and contingent consideration subject to a minimum of $2.5 million
with a maximum of $16.6 million based on the pre-tax earnings of the business of
Francisco for the 1998 and 1999 fiscal years subject to certain adjustments. The
minimum contingent payments have been recorded as a liability and are payable in
cash, common stock or a combination of cash and common stock. In January 1999,
the Company paid $1,000,000 in satisfaction of the minimum amount due for the
contingent payment related to fiscal 1998. The payment was made in the form of
$500,000 cash and issuance of 35,540 shares of common stock valued at $14.07 per
share.
F-11
<PAGE> 124
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 14, 1998, the Company acquired by merger all of the capital stock
of Jos. Notarianni & Co. ("Notarianni"), a produce distribution and value-added
company based in Scranton, Pennsylvania. As consideration, the Company paid
$5,390,000 in cash and issued 292,951 shares of Company common stock valued at
$19.15 per share based on the market value of the stock at the time of the
transaction. On December 14, 1998, the agreement was amended to reduce the
number of shares issued by 165,000 in exchange for a contingent payment of 1.4
times Notarianni's average annual pretax earnings over a three-year period
beginning October 3, 1998. Any contingent payment will be payable in cash or
common stock at the Company's sole discretion.
Effective October 3, 1998, the Company acquired substantially all of the
net operating assets and the business of King's Onion House, Inc. ("King"), a
produce distribution and value-added company based in Phoenix, Arizona. As
consideration for the net assets received, the Company paid $4,000,000 in cash,
issued 164,667 shares of Company common stock valued at $14.57 per share based
on the market value of the stock at the time of the transaction, and a
contingent payment of 1.7 times King's average annual pretax profit over a three
year term beginning October 3, 1998. Any contingent payment will be payable by
50 percent cash and 50 percent common stock. On December 23, 1998, the agreement
was amended to reduce the number of shares issued by 89,193 in exchange for the
return of certain assets totaling $700,000 and the issuance of a $600,000
promissory note to the former owner of King. The promissory note is due in
installments (along with accrued interest at 7.75%) of $200,000 on April 12,
1999 and $400,000 on January 5, 2000.
Effective October 30, 1998, the Company acquired all of the capital stock
of Sam Perricone Citrus Company ("Perricone"), a wholesale distributor of
produce based in Los Angeles, California. As consideration, the Company paid
cash of $1,765,300, issued 119,301 shares of common stock valued at $14.67 per
share based on the market value of the stock at the time of the transaction,
promissory notes totaling $3,500,000 and contingent payments. The promissory
notes are payable in two installments (plus accrued interest at 7.75%), 50
percent due on the first anniversary of the agreement and 50 percent due on the
second anniversary of the agreement. The contingent payments will be equal to
67% of pretax earnings of Perricone for each of three consecutive 12-month
periods beginning October 2, 1998. The notes and any contingent payment will be
payable by 50 percent cash and 50 percent common stock.
During fiscal 1997, the Company acquired all of the capital stock of two
businesses and substantially all of the net assets of six other businesses.
These acquisitions were accounted for using the purchase method of accounting
and were acquired through the payment of $4,300,000 in cash, issuance of 54,000
shares of the Company's common stock (valued at $1,100,000), and assumption of
$4,800,000 in liabilities.
For those acquisitions accounted for using the purchase method of
accounting, the results of operations of the acquired companies are included in
the consolidated financial statements of the Company from their respective
acquisition dates. At the acquisition dates, the purchase price was allocated to
assets acquired and liabilities assumed based on their relative fair market
values. The excess of total purchase price over fair values of the net assets
acquired was recorded as goodwill, which is being amortized over a 15 to 20 year
period. The 1998, 1997 and 1996 acquisitions resulted in $24,131,000, $8,325,000
and $476,000 of goodwill, respectively.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the acquired businesses
("Acquisitions") discussed above as if the acquisitions occurred as of the
beginning of 1997, after giving effect to certain adjustments, including
amortization of goodwill, decreased interest income, increased interest expense
and related income tax effects. The pro forma financial
F-12
<PAGE> 125
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
information does not necessarily reflect the results of operations that would
have occurred had the Company and Acquisitions constituted a single entity
during such periods.
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR
---------------------- ---------------------
APRIL 2, APRIL 3,
1999 1998 1998 1997
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
---------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $173,427 $186,963 $739,939 $760,645
======== ======== ======== ========
Net income................................. $ 1,181 $ 691 $ 7,877 $ 6,175
======== ======== ======== ========
Earnings per share -- diluted.............. $ 0.22 $ 0.13 $ 1.44 $ 1.18
======== ======== ======== ========
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1999 1998
---------- ----------
<S> <C> <C>
Accounts receivable......................................... $82,371 $44,304
Less allowance for doubtful accounts........................ 1,697 943
------- -------
$80,674 $43,361
======= =======
</TABLE>
The following table summarizes the activity in the Company's allowance for
doubtful accounts in fiscal 1996 through 1998 (in thousands):
<TABLE>
<CAPTION>
BALANCE AT BALANCE
FISCAL BEGINNING BAD DEBT ACQUIRED AT END OF
YEAR OF PERIOD EXPENSE COMPANIES WRITE-OFFS PERIOD
------ ---------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1998.............................. $943 $1,230 $700 $(1,176) $1,697
1997.............................. 42 82 864 (45) 943
1996.............................. 20 156 20 (154) 42
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1999 1998
---------- ----------
<S> <C> <C>
Land........................................................ $ 727 $ 464
Buildings................................................... 5,223 3,593
Machinery, furniture, fixtures and equipment................ 14,581 8,380
Trucks and trailers......................................... 5,862 1,173
Leasehold improvements...................................... 7,212 5,466
------- -------
33,605 19,076
Less accumulated depreciation and amortization.............. (9,705) (5,495)
------- -------
Property, plant and equipment, net.......................... $23,900 $13,581
======= =======
</TABLE>
F-13
<PAGE> 126
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 2, JANUARY 1, JANUARY 2,
1999 1999 1998
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Subordinated note.................................... $19,020 $18,944 $ --
Revolver............................................. 15,519 12,400 5,518
Canadian Revolver.................................... 6,690 7,779 9,108
Notes related to acquisitions (see Note 3)........... 8,309 9,415 1,459
Mortgage note payable, prime plus 1/4% due in
monthly payments through March 2000; secured by
land and building.................................. 322 322 374
Various equipment loans with interest rates from
6.75% to 14%; maturities of one to 5 years......... 2,176 1,932 484
------- ------- -------
Total debt........................................... 52,036 50,792 16,943
Current portion...................................... 12,528 14,807 10,750
------- ------- -------
Long-term debt, less current portion................. $39,508 $35,985 $ 6,193
======= ======= =======
</TABLE>
The aggregate maturities of long-term debt for the five fiscal years
subsequent to January 1, 1999 are as follows (in thousands): 1999 -- $14,807;
2000 -- $4,154; 2001 -- $19,418; 2002 -- $6,778; 2003 -- $5,635.
On May 15, 1998 the Company completed a $20 million, 12% subordinated debt
financing with a major national insurance company. The note has a final maturity
of May 1, 2003 with principal payments of $6,666,666 due on May 1, 2001 and May
1, 2002. Interest payments are due semi-annually in May and November. A total of
$15 million was funded on May 15, 1998 with the remaining $5 million funded on
August 3, 1998. A portion of the initial proceeds was used to prepay the Bridge
Loan in full and the remainder to pay off existing balances on the Revolver (see
description below). In connection with the subordinated note, the Company issued
116,612 warrants on May 15, 1998 and 38,871 warrants on August 3, 1998 with a
fair value of $953,000 and $289,000, respectively. The warrants become
exercisable on May 1, 1999 at an exercise price of $22.70 per share and expire
on May 1, 2003.
On February 2, 1998, the Company restructured its existing loan agreement
with a major bank to provide a revolving line of credit ("Revolver") of up to
$12 million and a bridge loan of $5 million (the "Bridge Loan"). On May 15,
1998, the Company amended the terms of the above referenced loan agreement and
increased the borrowing availability under the Revolver to $15 million. On March
4, 1999, the Company amended the terms of the above referenced loan agreement
and increased the borrowing availability under the Revolver to $20 million. The
Revolver, which expires February 2, 2001, is subject to certain covenants and
borrowing base requirements and is collateralized by accounts receivable and
inventory of the Company and the capital stock of its subsidiaries. Outstanding
principal amounts under the Revolver ($12.4 million outstanding as of January 1,
1999) accumulate interest at the bank prime rate (7.75% as of January 1, 1999),
or at the Company's election, the eurodollar rate plus 1.75% (6.69% as of
January 1, 1999).
Additionally, OTF has a demand agreement with a Canadian bank to provide
revolving credit facilities (the "Canadian Revolver") of up to CDN $20 million
($13.0 million), subject to certain covenant and borrowing base requirements.
The Canadian Revolver is collateralized by substantially all assets of OTF.
Interest on borrowings accrue at U.S. prime plus 0.75% (8.5% at January 1, 1999)
or Canadian prime plus 0.75% (7.5%), depending on the denomination of the
borrowings.
F-14
<PAGE> 127
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of the provision for income tax expense (benefit) consisted
of (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Foreign............................................. $1,709 $1,001 $ 208
Federal............................................. 2,346 2,455 2,103
State............................................... 331 374 360
Deferred.............................................. 655 91 (171)
------ ------ ------
$5,041 $3,921 $2,500
====== ====== ======
</TABLE>
Income tax expense differed from the amount computed by applying the U.S.
federal income tax rate to income taxes as a result of the following (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes at statutory rates............... $3,942 $3,105 $2,287
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense.................. -- -- (52)
Tax rate and other differences related to Canadian
subsidiaries..................................... 573 557 --
Non-deductible transaction costs.................... 233 -- --
State income taxes, net of federal income tax
benefit.......................................... 215 247 238
Other............................................... 78 12 27
------ ------ ------
$5,041 $3,921 $2,500
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 115 $191
Accruals not currently deductible......................... 224 382
Other..................................................... 148 134
------ ----
Total deferred tax assets......................... 487 707
------ ----
Deferred tax liabilities:
Income not currently taxable.............................. 716 --
Property, plant and equipment depreciation................ 374 457
Goodwill.................................................. 129 --
Other..................................................... -- 86
------ ----
Total deferred tax liabilities.................... 1,219 543
------ ----
Net deferred tax asset (liability)................ $ (732) $164
====== ====
</TABLE>
F-15
<PAGE> 128
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes that
it is more likely than not that its deferred tax assets will be realized and a
valuation allowance for such assets is not required.
At January 1, 1999, the Company has a net operating loss ("NOL")
carryforward for federal income tax purposes of approximately $291,000 available
to reduce future income taxes. If not utilized to offset future taxable income,
the NOL carryforward will expire in 2006 through 2007.
During 1992, the Company experienced an "ownership change" as defined by
the Internal Revenue Code of 1986. After an ownership change, utilization of a
loss corporation's NOL carryforward is limited annually to a prescribed rate
times the value of the loss corporation's stock immediately before the ownership
change. In general, an ownership change occurs if ownership of more than 50% in
value of the stock of the loss corporation changes during the three-year period
proceeding the test date. The Company's NOL carryforward is limited to the use
of approximately $193,000 on an annual basis.
8. OPTIONS AND WARRANTS
In connection with the Company's issuance of Preferred Stock in 1992,
five-year Common Stock Purchase Warrants (the "Warrants") entitling the holder
to purchase up to 143,656 shares of the Company's Common Stock at a price of
$4.89 per share were issued to the placement agent. On April 2, 1996, the
Company issued 90,134 shares of Common Stock in exchange for all of the
Warrants.
In connection with the Company's acquisition of a minority ownership
interest in Henri Morris & Associates, Inc. on November 6, 1996, a warrant was
issued to purchase 5,000 restricted shares of the Company's common stock at a
price of $19.75 per share. The warrant expires in ten years if not exercised.
In July 1993, the Company adopted the Fresh America Corp. 1993 Stock Option
and Award Plan (the "1993 Plan"), which reserved 450,000 shares of the Company's
common stock for issuance to employees and directors. At January 2, 1998,
options for 8,177 shares were available for issuance. Effective May 22, 1998,
the 1993 Plan was frozen, which prevents any additional options from being
granted under the plan.
In July 1996, the Company adopted the Fresh America Corp. 1996 Stock Option
and Award Plan (the "1996 Plan"), which reserved 150,000 shares of the Company's
common stock for issuance to employees and directors. Effective May 22, 1998,
the Company amended and restated the 1996 Plan, which increased the number of
shares reserved from 150,000 to 625,000. At January 1, 1999 and January 2, 1998,
options for 472,000 and 48,000 shares, respectively, were available for
issuance.
Options under the 1993 and 1996 Plans are granted at an exercise price
equal to at least 100% of the fair market value of the Company's common stock on
the date of grant. Unless determined otherwise by the Company's Board of
Directors, each non-employee director is automatically granted an option to
purchase 5,000 shares of common stock each year. Such option grants vest
immediately and will expire in ten years if not exercised. Options granted to
employees generally vest in one year from the date of grant and expire within
ten years if not exercised. The Plans restrict the rights to exercise based on
employment status and percentage of stock ownership in accordance with Section
422 of the Internal Revenue Code.
F-16
<PAGE> 129
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity under the Plans for
fiscal 1996 through fiscal 1998:
<TABLE>
<CAPTION>
OPTION PRICE WEIGHTED
STOCK OPTIONS RANGE AVERAGE
---------------------- --------------- EXERCISE
ISSUED EXERCISABLE LOW HIGH PRICE
-------- ----------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
At January 5, 1996............................... 374,467 239,467 $ 0.02 $ 9.90 $ 5.18
Granted........................................ 114,000 11.75 17.75 13.46
Exercised...................................... (88,958) 0.02 9.00 5.00
Canceled....................................... (2,000) 11.75 11.75 11.75
--------
At January 3, 1997............................... 397,509 305,509 $ 0.02 $17.75 $ 7.56
Granted........................................ 51,500 14.00 25.50 15.61
Exercised...................................... (115,670) 0.02 11.75 3.56
Canceled....................................... (7,000) 14.00 14.00 14.00
--------
At January 2, 1998............................... 326,339 291,839 $ 3.55 $25.50 $10.11
Granted........................................ 78,500 12.75 19.88 16.51
Exercised...................................... (30,140) 3.55 11.75 7.11
Canceled....................................... (1,000) 14.00 14.00 14.00
--------
At January 1, 1999............................... 373,699 315,199 $ 3.55 $25.50 $11.69
========
</TABLE>
The following table summarizes information about the Company's stock
options outstanding as of January 1, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- -------------------------------
WEIGHTED-
NUMBER AVERAGE
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT WEIGHTED-
RANGE OF JANUARY 1, CONTRACTUAL AVERAGE JANUARY 1, AVERAGE
EXERCISE PRICES 1999 LIFE EXERCISE PRICE 1999 EXERCISE PRICE
- ----------------------------- -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$3.00 to $5.00............... 57,196 5.5 years $ 4.60 57,196 $ 4.60
5.01 to 7.00............... 38,253 5.9 5.91 38,253 5.91
7.01 to 9.00............... 39,750 5.5 8.94 39,750 8.94
9.01 to 11.00............... 15,000 5.4 9.90 15,000 9.90
11.01 to 13.00............... 81,500 8.2 12.06 56,500 11.75
13.01 to 15.00............... 42,500 8.1 14.00 42,500 14.00
17.01 to 19.00............... 78,500 8.5 17.51 45,000 17.67
19.01 to 21.00............... 20,000 9.6 19.88 20,000 19.88
23.01 to 25.50............... 1,000 9.0 25.50 1,000 25.50
------- -------
373,699 315,199
======= =======
</TABLE>
The Company has adopted the disclosure-only provision SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's two stock option plans been determined for grant dates subsequent to
January 1, 1995 based on the fair value at the grant date of awards consistent
with the provisions of SFAS
F-17
<PAGE> 130
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT EARNINGS
PER SHARE DATA)
<S> <C> <C> <C>
Net income -- as reported.................................. $6,222 $5,210 $4,226
Net income -- pro forma.................................... 5,801 4,808 3,966
Earnings per share -- as reported:
Basic.................................................... 1.27 1.19 1.00
Diluted.................................................. 1.20 1.12 0.94
Earnings per share -- pro forma:
Basic.................................................... 1.18 1.10 0.94
Diluted.................................................. 1.11 1.04 0.88
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for fiscal 1998, 1997 and 1996 for both plans: no dividend
yield; expected volatility of 95% in 1998, 78% in 1997 and 49% in 1996;
risk-free interest rates 4.2% to 5.6% in 1998, 5.7% in 1997 and of 6.2% to 6.4%
in 1996; and expected lives of three to five years. The weighted average fair
value per share of the options granted during fiscal 1998, 1997 and 1996 is
estimated to be $12.29, $9.18 and $6.19, respectively. As of January 1, 1999,
the weighted-average remaining contractual life of outstanding options was 7.3
years.
9. EMPLOYEE BENEFIT PLAN
Effective January 1, 1992, the Company adopted the Fresh America Corp.
401(k) Profit Sharing Plan (the "Plan"), which provides for the Company, at its
option, to make a matching contribution of up to 6% of each qualifying
employee's annual earnings. The Company's matching contribution under the Plan
was $301,000, $111,000 and $81,000 for the fiscal years 1998, 1997 and 1996,
respectively.
10. CONTINGENCIES AND COMMITMENTS
The Company is obligated under certain noncancelable operating leases (with
initial or remaining lease terms in excess of one year). The future minimum
lease payments under such leases as of January 1, 1999 are (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDING:
- --------------------
<S> <C>
1999...................................................... $ 8,203
2000...................................................... 6,869
2001...................................................... 5,912
2002...................................................... 4,181
2003...................................................... 2,910
Thereafter................................................ 11,155
-------
Total minimum lease payments.................... $39,230
=======
</TABLE>
Rental expense amounted to approximately $6,829,000, $5,048,000 and
$2,698,000 for the fiscal years 1998, 1997 and 1996 respectively, of which
approximately $3,383,000, $2,463,000 and $1,012,000 relates to truck and trailer
rental which is included in cost of sales.
F-18
<PAGE> 131
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (in thousands, except
earnings per share data):
<TABLE>
<CAPTION>
FISCAL 1998(a)
-----------------------------------------
FIRST SECOND THIRD FOURTH
QTR. QTR. QTR. QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $133,007 $159,598 $140,259 $176,626
Gross profit............................... 14,520 17,442 15,437 24,535
Gross margin............................... 10.9% 10.9% 11.0% 13.9%
Net income................................. 454 1,960 589 3,219
Earnings per share -- basic................ 0.10 0.41 0.12 0.63
Earnings per share -- diluted.............. 0.10 0.40 0.11 0.59
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997(b)
----------------------------------------
FIRST SECOND THIRD FOURTH
QTR. QTR. QTR. QTR.
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................... $90,448 $110,625 $102,009 $126,442
Gross profit................................ 8,329 11,218 9,299 14,517
Gross margin................................ 9.2% 10.1% 9.1% 11.5%
Net income.................................. 1,032 1,624 813 1,741
Earnings per share -- basic................. 0.24 0.37 0.19 0.40
Earnings per share -- diluted............... 0.23 0.36 0.18 0.37
</TABLE>
- ---------------
(a) Each quarter in the 52-week year contains 13 weeks.
(b) The 52-week year is spread 12, 13, 13, and 14 weeks, respectively.
12. SEGMENT AND RELATED INFORMATION
During the current year, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which establishes
standards for the way public business enterprises report information about
products and services. It is impractical for the Company to report the revenues
from external customers for each product and service or each group of products
and services. The management of the Company measures performance based on the
gross margins and pretax income generated from each of the Company's operations.
Pretax income for the purpose of management's analysis does not include
corporate overhead such as selling, general and administrative expenses and
income tax expense. Since each business unit is similarly engaged in
procurement, processing and distribution services, the business units have been
aggregated into one reportable segment for reporting purposes. See Note
2 -- "Agreement with Sam's Club" for discussion of the Company's major customer.
F-19
<PAGE> 132
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized information regarding the Company's significant operations in
different geographic areas, including domestic operations, as of and for the
three fiscal years ended January 1, 1999 follows (in thousands):
<TABLE>
<CAPTION>
LONG-LIVED
NET SALES ASSETS
--------- ----------
<S> <C> <C>
January 1, 1999
United States........................................ $523,566 $55,924
Canada............................................... 85,924 3,437
-------- -------
Total........................................ $609,490 $59,361
======== =======
January 2, 1998
United States........................................ $349,304 $20,791
Canada............................................... 80,220 3,815
-------- -------
Total........................................ $429,524 $24,606
======== =======
January 3, 1997
United States........................................ $239,177 $ 7,628
Canada............................................... 84,598 4,180
-------- -------
Total........................................ $323,775 $11,808
======== =======
</TABLE>
13. SUBSEQUENT EVENT (UNAUDITED)
On May 3, 1999, the Company, and Dallas based, privately held FreshPoint
Holdings, Inc. signed a definitive agreement to merge the two companies. The
merger is subject to approval of the shareholders of the Company, refinancing of
certain outstanding debt, approval by regulatory authorities and other customary
conditions. The merger will be structured as a tax-free stock for stock
exchange, whereby Fresh America will exchange approximately 5,685,826 shares of
newly issued common stock for 100% of the capital stock of FreshPoint Holdings,
Inc. Upon completion of the merger, the Company's name will be FreshPoint
America, Inc.
F-20
<PAGE> 133
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
FreshPoint Holdings, Inc.
We have audited the accompanying consolidated balance sheets of FreshPoint
Holdings, Inc. and subsidiaries as of June 27, 1998 and June 28, 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year ended June 27, 1998 and the two hundred nineteen day period
ended June 28, 1997, and the combined statements of operations and cash flows of
Albert Fisher Distribution, Inc. (the Predecessor) for the eighty-two day period
ended November 21, 1996 and the year ended August 31, 1996. These financial
statements are the responsibility of the respective Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FreshPoint
Holdings, Inc. and subsidiaries at June 27, 1998 and June 28, 1997, and the
consolidated results of operations and cash flows for the year ended June 27,
1998 and the two hundred nineteen day period ended June 28, 1997 of FreshPoint
Holdings, Inc., and for the eighty-two day period ended November 21, 1996, and
the year ended August 31, 1996, the combined results of operations and cash
flows of Albert Fisher Distribution, Inc., in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
August 14, 1998
F-21
<PAGE> 134
FRESHPOINT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 27, JUNE 27, JUNE 28,
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 8,296 $ 15,975 $ 24,237
Accounts receivable, net.................................. 58,258 60,817 50,066
Inventory................................................. 9,247 11,496 11,948
Taxes receivable.......................................... -- -- 1,569
Other current assets...................................... 5,170 5,972 4,401
-------- -------- --------
Total current assets.............................. 80,971 94,260 92,221
Property and equipment, net................................. 47,488 46,773 45,734
Note receivable -- officer.................................. 750 -- --
Notes receivable -- other................................... 450 450 --
Intangibles and other assets:
Goodwill, net............................................. 39,092 38,890 38,725
Other intangibles, net.................................... 8,706 11,784 13,092
Other assets.............................................. 3,753 3,753 2,635
-------- -------- --------
Total intangibles and other assets................ 51,551 54,427 54,452
-------- -------- --------
Total assets...................................... $181,210 $195,910 $192,407
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 38,147 $ 52,460 $ 48,076
Accrued liabilities....................................... 12,403 13,680 9,465
Current portion of long-term debt......................... 13,044 5,981 4,898
Taxes payable............................................. 41 397 --
-------- -------- --------
Total current liabilities......................... 63,635 72,518 62,439
Long-term debt.............................................. 60,712 65,470 70,733
Subordinated debt to shareholder............................ 30,608 28,693 26,344
Other subordinated debt..................................... 3,250 -- --
Other liabilities........................................... 5,391 5,324 4,121
Commitments and contingencies...............................
Series B redeemable preferred stock......................... -- 8,593 8,500
Shareholders' equity:
Series A exchangeable preferred stock $0.01 par value.
Authorized 45,000 shares; issued 15,592 shares, 13,923
shares and 13,200 shares, respectively. Liquidation
value of $17,275, $15,848 and $14,150, respectively.... -- -- --
Common stock $0.01 par value. Authorized 20,000 shares;
issued 8,800 shares.................................... -- -- --
Paid-in capital........................................... 24,392 22,723 22,000
Subscriptions receivable.................................. (1,734) (2,634) (3,460)
Retained earnings (deficit)............................... (3,393) (3,593) 1,880
Accumulated other comprehensive loss...................... (1,651) (1,184) (150)
-------- -------- --------
Total shareholders' equity........................ 17,614 15,312 20,270
-------- -------- --------
Total liabilities and shareholders' equity........ $181,210 $195,910 $192,407
======== ======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 135
FRESHPOINT HOLDINGS, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------------------------------------------- -------------------------
TWO HUNDRED EIGHTY-TWO
NINE MONTHS ENDED NINETEEN DAY DAY PERIOD
------------------------- YEAR ENDED PERIOD ENDED ENDED YEAR ENDED
MARCH 27, MARCH 28, JUNE 27, JUNE 28, NOVEMBER 21, AUGUST 31,
1999 1998 1998 1997 1996 1996
----------- ----------- ---------- ------------ ------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $544,742 $521,170 $712,502 $381,865 $133,219 $602,301
Cost of goods sold.......... 419,637 405,952 554,942 293,569 103,498 470,966
-------- -------- -------- -------- -------- --------
Gross profit................ 125,105 115,218 157,560 88,296 29,721 131,335
Operating expenses.......... 107,243 100,401 135,938 74,392 26,132 115,517
Depreciation and
amortization.............. 7,717 6,481 9,070 4,365 2,162 10,035
Impairment of goodwill and
restructuring charge...... -- -- 6,938 -- -- --
-------- -------- -------- -------- -------- --------
Income from operations...... 10,145 8,336 5,614 9,539 1,427 5,783
Interest expense............ 6,682 6,973 9,259 5,890 -- 5,751
Interest income............. 366 473 544 426 372 --
Other income, net........... -- -- -- -- 136 3
-------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... 3,829 1,836 (3,101) 4,075 1,935 35
Provision for income
taxes..................... 1,723 845 1,251 2,031 1,364 2,386
-------- -------- -------- -------- -------- --------
Net income (loss)........... $ 2,106 $ 991 $ (4,352) $ 2,044 $ 571 $ (2,351)
======== ========
Preferred stock dividends... 1,663 1,572 2,096 1,114
-------- -------- -------- --------
Net income (loss)
attributable to common
shareholders.............. $ 443 $ (581) $ (6,448) $ 930
======== ======== ======== ========
Earnings per common share:
Basic..................... $ 50.34 $ (66.02) $(732.73) $ 105.68
======== ======== ======== ========
Diluted................... $ 43.67 $ (66.02) $(732.73) $ 91.68
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 136
FRESHPOINT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
PAID-IN SUBSCRIPTIONS EARNINGS COMPREHENSIVE
CAPITAL RECEIVABLE (DEFICIT) LOSS TOTAL
------- ------------- --------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance at November 21, 1996........... $22,000 $(3,460) $ -- $ -- $18,540
Series B preferred stock dividend.... -- (164) -- (164)
Net income........................... -- 2,044 -- 2,044
Currency translation adjustment...... -- -- (150) (150)
-------
Comprehensive income................. -- -- -- -- 1,894
------- ------- ------- ------- -------
Balance at June 28, 1997............... 22,000 (3,460) 1,880 (150) 20,270
Stock subscriptions receivable....... -- (386) -- -- (386)
Payment on stock subscription
receivable........................ -- 1,212 -- -- 1,212
Issuance of Series A preferred stock
in lieu of dividends.............. 723 -- (723) -- --
Series B preferred stock dividend.... -- (398) -- (398)
Net loss............................. -- -- (4,352) -- (4,352)
Currency translation adjustment...... -- -- -- (1,034) (1,034)
-------
Comprehensive loss................... -- -- -- -- (5,386)
------- ------- ------- ------- -------
Balance at June 27, 1998............... 22,723 (2,634) (3,593) (1,184) 15,312
Payment on stock subscriptions
receivable -- unaudited........... -- 900 -- -- 900
Issuance of Series A preferred stock
in lieu of
dividends -- unaudited............ 1,669 -- (1,669) -- --
Series B preferred stock dividend --
unaudited......................... -- -- (237) -- (237)
Net income -- unaudited.............. -- -- 2,106 -- 2,106
Currency translation adjustment --
unaudited......................... -- -- -- (467) (467)
-------
Comprehensive income -- unaudited.... -- -- -- -- 1,639
------- ------- ------- ------- -------
Balance at March 27,
1999 -- unaudited.................... $24,392 $(1,734) $(3,393) $(1,651) $17,614
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-24
<PAGE> 137
FRESHPOINT HOLDINGS, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------------------------------------------- -------------------------
TWO HUNDRED EIGHTY-TWO
NINE MONTHS ENDED NINETEEN DAY DAY PERIOD
------------------------- YEAR ENDED PERIOD ENDED ENDED YEAR ENDED
MARCH 27, MARCH 28, JUNE 27, JUNE 28, NOVEMBER 21, AUGUST 31,
1999 1998 1998 1997 1996 1996
----------- ----------- ---------- ------------ ------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ 2,106 $ 991 $ (4,352) $ 2,044 $ 571 $ (2,351)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................. 3,699 3,135 3,886 1,939 1,147 5,360
Amortization............................. 4,018 3,346 5,184 2,426 1,015 4,675
Impairment of goodwill and restructuring
charge................................. -- -- 6,938 -- -- --
Provision for losses on accounts
receivable............................. 836 1,256 1,689 527 481 1,610
Provision (benefit) for deferred income
taxes.................................. 255 -- (1,374) 387 (824) (419)
Non-cash interest expense................ 273 328 432 268 -- --
Paid-in-kind interest on subordinated
debt with shareholder.................. 1,915 1,816 2,349 1,344 -- --
Changes in operating assets and
liabilities, net of affects from
acquisitions:
Accounts receivable.................... 1,418 (9,099) (10,366) (1,014) (2,598) (7,552)
Inventories............................ 2,141 (241) 866 925 (3,053) 1,519
Other current assets................... 832 (2,932) (305) (3,686) (3,544) (2,419)
Accounts payable....................... (10,374) (4,539) 5,270 8,423 257 (16,206)
Accrued liabilities.................... (1,216) 2,191 1,591 830 1,026 624
Taxes receivable/payable............... (356) 845 1,966 (1,569) 1,617 (793)
Other liabilities...................... -- -- 1,013 -- (1,455) 1
-------- -------- -------- ------- ------- --------
Net cash (used in) provided by operating
activities................................. 5,547 (2,903) 14,787 12,844 (5,360) (15,951)
INVESTING ACTIVITIES
Cost of acquisitions, exclusive of cash
acquired................................. (1,418) (8,228) (9,742) (3,000) (286) (1,285)
Payments received on stock subscriptions
receivable............................... 900 762 762 40 -- --
Issuance of notes receivable............... (750) -- (888) -- -- --
Purchases of property and equipment........ (4,975) (4,982) (5,598) (3,071) (299) (3,597)
Disposals of property and equipment........ 288 51 1,099 566 702 1,980
-------- -------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities............................... (5,955) (12,397) (14,367) (5,465) 117 (2,902)
FINANCING ACTIVITIES
Payments on long-term debt................. (4,018) (3,465) (4,281) (825) (40) (289)
Borrowings on line of credit............... 6,700 -- -- -- -- --
(Decrease) increase in bank overdrafts..... (4,340) 3,689 (2,997) 2,962 (617) 6,724
Payments on capital lease obligations...... -- -- -- -- -- (2,869)
Redemptions of preferred stock............. (5,343) -- -- -- -- --
Net advances from parent................... -- -- -- -- 3,936 7,703
Dividends paid to parent................... -- -- -- -- -- (2,454)
Dividends paid............................. (237) (300) (398) (164) -- --
-------- -------- -------- ------- ------- --------
Net cash (used in) provided by financing
activities............................... (7,238) (76) (7,676) 1,973 3,279 8,815
Effect of exchange rate changes on cash.... (33) (89) (1,006) 288 79 248
-------- -------- -------- ------- ------- --------
Net (decrease) increase in cash............ (7,679) (15,465) (8,262) 9,640 (1,885) (9,790)
Cash and cash equivalents at beginning of
period................................... 15,975 24,237 24,237 14,597 6,264 16,054
-------- -------- -------- ------- ------- --------
Cash and cash equivalents at end of
period................................... $ 8,296 $ 8,772 $ 15,975 $24,237 $ 4,379 $ 6,264
======== ======== ======== ======= ======= ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 138
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 1998
1. DESCRIPTION OF BUSINESS
FreshPoint Holdings, Inc. (the Company) was formed in connection with the
acquisition of the North American produce distribution businesses of The Albert
Fisher Group PLC (collectively referred to as Albert Fisher Distribution, AFD or
the Predecessor)(see Note 3). The principal operations of the Company are the
distribution of fresh vegetables, fruit, and other perishable food items to
customers in the foodservice, wholesale, and retail industries. The Company's
operations are conducted through its wholly owned subsidiary, FreshPoint, Inc.,
which operates regionally managed distribution subsidiaries and divisions which
are located in the United States and Canada.
The North American produce distribution businesses of The Albert Fisher
Group PLC included the produce distribution companies of Albert Fisher
Distribution, which was formed on September 1, 1995, and three other companies
noted below. AFD was a wholly owned subsidiary of Albert Fisher Holdings, Inc.
(AFH), which is a wholly owned subsidiary of Albert Fisher North America, Inc.
(AFNA), which is a wholly owned subsidiary of The Albert Fisher Group PLC. The
combined operations of the Predecessor include the consolidated operations of
AFD and the operations of Royal Foods Company, Inc., Albert Fisher Canada
Limited, and I & S Produce, Ltd., which were also companies controlled by The
Albert Fisher Group PLC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Accounting Basis
The accompanying consolidated financial statements include the accounts of
FreshPoint Holdings, Inc. and its subsidiaries, and the accompanying combined
statements of operations and cash flows include the accounts of Albert Fisher
Distribution, Inc., Royal Foods Company, Inc., Albert Fisher Canada Limited, and
I & S Produce Ltd. All significant intercompany accounts and transactions in
both the combined and consolidated financial statements have been eliminated.
The accompanying combined results of operations and cash flows of the
predecessor reflect the historical cost basis of the predecessor's assets and
liabilities. The accompanying consolidated financial statements of the Company
reflect a new basis of accounting established at the date the Company acquired
AFD (see Note 3). Accordingly, financial information of the Predecessor and the
Company is not comparable in its entirety.
Unaudited Interim Financial Information
The accompanying consolidated balance sheet of the Company at March 27,
1999, and the related consolidated statements of operations and cash flows for
the nine month periods ended March 27, 1999 and March 28, 1998, are unaudited.
In the opinion of management, the interim financial information includes all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations for such
periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. The
results for the nine-month period ended March 27, 1999, may not be indicative of
operating results for the full year.
Fiscal Year
The Company utilizes a 52- or 53-week accounting period which ends on the
Saturday closest to June 30.
The fiscal year-end of the Predecessor was August 31.
F-26
<PAGE> 139
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Financial instruments in the financial statements include accounts
receivable, other assets, accounts payable, accrued liabilities, debt and
subscriptions receivable. The carrying value of financial instruments, other
than debt, approximates fair value due to the short maturity characteristics of
these instruments. The carrying value of long-term debt approximates fair value
as terms approximate those currently available for similar debt instruments.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of less
than three months to be cash equivalents.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market.
Revenue Recognition
The Company recognizes revenue at the date product is shipped to customers.
Property and Equipment
Property and equipment are recorded at cost.
Annual depreciation is provided using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives for the
following categories of assets are:
<TABLE>
<S> <C>
Buildings and improvements........................... 20 - 40 years
Machinery and equipment.............................. 3 - 7 years
</TABLE>
Repairs and maintenance are charged to expense as incurred.
Income Taxes
The deferred tax accounts are maintained under the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes." Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The Predecessor was included in the
consolidated federal and the combined California tax returns of its parent. The
combined financial statements of the Predecessor reflect income tax expense as
if the Predecessor were a separate taxpayer.
Intangibles
Intangibles consist of goodwill which is amortized over 40 years using a
straight-line method, non-competition agreements which are amortized using a
straight-line method over the terms of the agreements (three to five years),
customer lists which are amortized over a five to eight year period using a
straight-line method, and debt issuance costs which are amortized over the term
of the related debt. Accumulated
F-27
<PAGE> 140
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization related to goodwill is $1,136,000 and $523,000 at June 27, 1998 and
June 28, 1997, respectively. Accumulated amortization related to all other
intangibles is $6,931,000 and $2,453,000 at June 27, 1998 and June 28, 1997,
respectively.
The Company has selected a 40 year life for goodwill because many of the
businesses it has acquired have been in operation for several decades and their
value is viewed as having an unlimited life primarily because the fundamental
business of produce distribution has not changed significantly over the last
century, nor is it expected to change significantly in the foreseeable future.
However, the carrying value of goodwill is reviewed if facts and circumstances
suggest that it may be permanently impaired. If the review indicates that
goodwill will not be recoverable, as determined using a discounted cash flow
method, the goodwill will be reduced to its estimated recoverable value.
Foreign Currency Translation and Transactions
Canadian operations use the Canadian dollar as their functional currency.
Assets and liabilities are translated from the functional currency into the U.S.
dollar using the period-end exchange rates. Income and expense accounts are
translated from the functional currency into the U.S. dollar using the average
exchange rate for the period. Translation gains or losses are included as a
component of shareholders' equity. Gains and losses resulting from foreign
currency transactions are reflected currently in the statements of operations.
Comprehensive Income
On June 28, 1998, the Company adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
and displaying comprehensive income (loss) and its components. The Company's
comprehensive income is comprised of net income (loss) and foreign currency
translation adjustments and is presented in the accompanying consolidated
statements of shareholders' equity. Comprehensive income for the nine months
ended March 28, 1998 was $986,000 (unaudited).
Earning Per Share
Basic earnings per share is computed by dividing net income (loss)
attributable to common shareholders by the 8,800 common shares outstanding. For
periods with net income attributable to common shareholders, diluted earnings
per common share is calculated by dividing net income attributable to common
shareholders by 10,144 equivalent common shares which reflects the dilutive
effect of outstanding warrants to purchase shares of the Company's common stock.
For periods with a net loss attributable to common shareholders, diluted
earnings per common share is equivalent to basic earnings per share.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial
F-28
<PAGE> 141
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. Statement 131 is effective for fiscal years beginning after December
15, 1997; therefore the Company will adopt the new requirements retroactively in
1999. Because each of the Company's business units are engaged in similar
procurement and distribution services, management believes the Company's
business units will be aggregated into one reportable segment under the new
Statement.
3. ACQUISITIONS
On November 21, 1996, the Company acquired AFD for approximately $108.5
million, including $7.1 million of transaction costs. The purchase price was
funded through the initial capitalization of the Company ($22 million), the
issuance of subordinated debt ($25 million; see Note 8) and proceeds from the
Company's Credit Facilities (see Note 7). The purchase price has been allocated
to the assets and liabilities acquired based on their fair values. The Company
recorded $33.6 million of goodwill related to the acquisition which is being
amortized over 40 years. As a part of the consideration paid to PLC, the Company
paid $10 million for a non-competition agreement which is being amortized over
the three-year term of the agreement.
On January 30, 1997, the Company acquired in a tax-free stock for stock
exchange all the assets and certain liabilities of Glendale Produce Company
(Glendale). The Glendale acquisition was accounted for using the purchase method
of accounting and, accordingly, the Company consolidated the operations of
Glendale from the date of acquisition. The total purchase price for the Glendale
acquisition consisted of the issuance of $8.5 million of Holdings mandatorily
redeemable preferred stock in exchange for all of the outstanding stock of
Glendale. In addition, the Company entered into an employment and
non-competition agreement with the former owner of Glendale for which it paid $3
million, which is being amortized over the 5-year term of the agreement. The
Company recorded $8 million of goodwill related to the acquisition which is
being amortized over 40 years.
On June 30, 1997, the Company acquired all of the outstanding common stock
of AAA Packaging, Inc. (AAA) for approximately $2.8 million, consisting of $1.8
million in cash, the forgiveness of a $450 thousand note receivable from an
officer of the Company, and the issuance of notes payable totaling $550
thousand. AAA was partially owned by an officer of the Company. AAA is engaged
in the business of purchasing, repackaging, and selling potatoes, onions, and
other fresh fruits and vegetables. The AAA acquisition has been accounted for
under the purchase method of accounting and, accordingly, the Company
consolidated the operations of AAA from the date of acquisition. The Company
recorded $2.1 million of goodwill related to the acquisition, which is being
amortized over 40 years.
On January 1, 1998, the Company acquired all of the assets and certain
liabilities of JDS&R Produce, Inc. (JDS&R) for approximately $3.0 million in
cash. The JDS&R acquisition was accounted for using the purchase method of
accounting and, accordingly, the Company consolidated the operations of JDS&R
from the date of acquisition. The Company recorded $1.9 million of goodwill
related to the acquisition, which is being amortized over 40 years. The
acquisition agreement also provides for annual payments of $400,000 on the
first, second and third anniversaries of the acquisition related to a
non-competition agreement which is being amortized over the five-year term of
the agreement. The Company is contingently liable to the former owners of JDS&R
for additional cash consideration based upon the achievement of specific future
earnings levels.
On June 18, 1998, the Company acquired the customer list of Atlanta
Culinary Herbs, Inc. (Atlanta Culinary) at a cost of $1.1 million in cash which
is being amortized over a five-year life. The Company is contingently liable to
the former owners of Atlanta Culinary for additional cash consideration based
upon the achievement of specific future earnings levels.
F-29
<PAGE> 142
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma disclosure of results of operations as if the fiscal 1998
acquisitions had occurred at the beginning of the fiscal year has not been
presented as the effect on fiscal 1998 operating results is not material.
4. IMPAIRMENT OF GOODWILL AND RESTRUCTURING CHARGE
In connection with the purchase of Glendale, the Company expected to
achieve certain efficiencies through combining the operations of Glendale with
the Company's previously existing Los Angeles, California area distribution
facility. The Company has experienced below average operating results and
aggressive competition in Southern California, which is serviced by Glendale.
Accordingly, the Company revised its projected operating results which do not
support the recoverability of a portion of the goodwill associated with the
Glendale acquisition. The methodology used by the Company in determining the
amount of goodwill impairment related to the Glendale acquisition involved
discounting future projected cash flows for the remaining amortization period
for the Glendale goodwill which resulted in a non-cash impairment charge of $5.7
million.
In April 1998, the Company adopted a plan to restructure its Canadian
operations which involved closing two Canadian distribution centers. In
connection with the closure of the Canadian distribution centers, the Company
has recorded a charge of $1.2 million for lease termination costs, employee
severance costs, and the write-off of leasehold improvements and fixed assets.
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
-------- --------
<S> <C> <C>
Trade accounts receivable................................. $62,888 $51,906
Less allowance for doubtful accounts...................... 2,071 1,840
------- -------
$60,817 $50,066
======= =======
</TABLE>
The following summarizes the activity in the allowance for doubtful
accounts for the following periods (in thousands):
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BAD DEBT BALANCE AT
PERIOD PERIOD EXPENSE WRITE-OFFS END OF PERIOD
------ ------------ -------- ---------- -------------
<S> <C> <C> <C> <C>
COMPANY:
June 28, 1997-June 27, 1998........... $1,840 $1,689 $(1,458) $2,071
November 21, 1996-June 28, 1997....... $2,149 $ 527 $ (836) $1,840
PREDECESSOR:
August 31, 1996-November 21, 1996..... $1,693 $ 481 $ (25) $2,149
September 1, 1995-August 31, 1996..... $2,384 $1,610 $(2,301) $1,693
</TABLE>
F-30
<PAGE> 143
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
-------- --------
<S> <C> <C>
Land................................................... $ 7,319 $ 8,102
Buildings and improvements............................. 24,453 24,297
Machinery and equipment................................ 20,895 15,274
------- -------
52,667 47,673
Less accumulated depreciation.......................... 5,894 1,939
------- -------
$46,773 $45,734
======= =======
</TABLE>
7. LONG-TERM DEBT
The Company's long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 27, JUNE 27, JUNE 28,
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Credit Facility:
Revolving Line of Credit............................ $ 6,700 $ -- $ --
Facility A Term Loan................................ 37,000 40,750 44,250
Facility B Term Loan................................ 29,400 29,625 29,925
Other................................................. 656 1,076 1,456
------- ------- -------
$73,756 $71,451 $75,631
======= ======= =======
</TABLE>
In connection with the acquisition of AFD, the Company entered into a
Credit Facility with a bank which provides a $20.0 million Revolving Line of
Credit, a $45.0 million Facility A Term Loan, and a $30.0 million Facility B
Term Loan (collectively referred to as the Credit Facility). The Credit Facility
also provides for up to $5.0 million in letter of credit availability. The
letter of credit availability is limited by the unused portions of the revolving
line of credit. The Credit Facility is secured by substantially all of the
assets of the Company. Borrowings under the Credit Facility bear interest based
upon the bank's reference rate or the London Interbank Offered Rate (LIBOR), at
the option of the Company (7.69% for Facility A Term Loan and 8.69% for Facility
B Term Loan at June 27, 1998 and March 27, 1999). The Credit Facility requires
the Company to pay a 0.5% commitment fee on the unused balance of the revolving
line of credit. Principal repayments for the Facility A Term Loan and the
Facility B Term Loan are payable in escalating quarterly installments ranging
from $750,000 to $3,125,000 and $75,000 to $3,800,000, respectively. Interest
and commitment fees are paid quarterly. The Revolving Line of Credit and the
Facility A Term Loan mature on December 31, 2002. The Facility B Term Loan
matures on December 31, 2004. The Credit Facility requires the Company to
maintain certain financial and other covenants. In addition, the Credit Facility
also requires the Company to make prepayments of principal based on a percentage
of excess cash flow as defined in the Credit Facility.
The Company has entered into an interest rate swap agreement to modify the
interest characteristics of its outstanding debt from a floating to fixed rate
basis. The Company's interest rate swap agreement with the bank fixes the
interest rate on a notional principal amount of $37.5 million of the Facility
Term Loans at a weighted average rate of 8.85% through December 31, 2000. The
interest rate swap agreement involves the receipt of fixed rate amounts in
exchange for floating rate interest payments over life of the agreement without
an exchange of the underlying principal amount. The differential to be paid or
received is accrued as interest rates change and recognized as an adjustment to
interest expense related to the debt. The related amount
F-31
<PAGE> 144
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable to or receivable from counterparties is included in accrued liabilities.
The fair values of the swap agreements are not recognized in the financial
statements.
The Company also has available a line of credit which provides for
borrowings and letters of credit of up to three million Canadian dollars (U.S.
dollar equivalent of approximately $2.0 million (unaudited), $2.0 million and
$2.2 million at March 27, 1999, June 27, 1998 and June 28, 1997, respectively)
based upon the eligible receivables and inventory of its Canadian operations.
The line of credit bears interest at the bank's prime rate, and borrowings under
the line of credit are payable on demand. The Company had approximately $0
(unaudited), $377,000 and $935,000 outstanding under the line of credit and had
issued letters of credit of approximately $0 (unaudited), $129,000 and $72,000
at March 27, 1999, June 27, 1998 and June 28, 1997, respectively.
The Company paid interest of approximately $4,504,000 (unaudited),
$6,612,000 and $2,564,000 during the nine months ended March 27, 1999, the year
ended June 27, 1998 and the 219 days ended June 28, 1997, respectively.
Future maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27,
1998
--------
<S> <C>
1999...................................................... $ 5,981
2000...................................................... 6,844
2001...................................................... 9,309
2002...................................................... 11,362
2003...................................................... 12,912
Thereafter................................................ 25,043
-------
$71,451
=======
</TABLE>
8. SUBORDINATED DEBT WITH SHAREHOLDER
In connection with the purchase of AFD, the Company issued $25 million of
unsecured subordinated notes to The Albert Fisher Group PLC, a shareholder of
the Company. The subordinated notes accrue interest at 9%, payable through the
issuance of additional subordinated notes, of which all accrued interest and
principal is due November 20, 2006. The subordinated notes are due upon demand
if a change in control occurs, as defined.
9. PREFERRED STOCK
In connection with the formation of the Company, the Company issued 13,200
shares of Series A Cumulative Exchangeable Preferred Stock. The holders of
Series A Exchangeable Preferred Stock are entitled to cumulative dividends from
the date of issuance at a rate of 12% payable in the form of cash or additional
shares of Series A Preferred Stock at the option of the Company. The Series A
Preferred Stock can be exchanged into 12% Junior Subordinated Notes at
liquidation value plus accrued unpaid dividends at the option of the holder upon
the occurrence of certain events. In addition, the Series A Exchangeable
Preferred Stock is redeemable at the option of the Company or if certain events
occur by the holders of Series A Exchangeable Preferred Stock.
In connection with the acquisition of Glendale (see Note 3), the Company
issued 525 shares of Series B-1, 300 shares of Series B-2 and 25 shares of
Series B-3 Voting Redeemable Preferred Stock, collectively referred to as the
Series B Preferred Stock. The par value of the Series B Preferred Stock is $0.01
and the Series B Preferred stock has a liquidation value of $8.5 million. The
Series B Preferred Stock ranks senior to the Series A Exchangeable Preferred
Stock. The Series B Preferred Stock is cumulative and has a
F-32
<PAGE> 145
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
coupon rate of 4.65%. The Series B-1 preferred stock is mandatorily redeemable
for cash of $5,343,000 on January 30, 1999. The Series B-2 preferred stock and
the Series B-3 preferred stock are mandatorily redeemable on January 30, 1999,
for $3,250,000 of 9% junior subordinated notes which require full payment of
principal and interest on November 20, 2006 .
10. SUBSCRIPTION RECEIVABLE
In connection with the capitalization of Holdings, certain management and
other shareholders of Holdings were issued Holdings equity securities in
exchange for notes receivable. The notes provide for quarterly interest payments
at 7.875% and require balloon payments of principal and interest at maturity,
November 21, 2001.
11. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
COMPANY
-------------------
JUNE 27, JUNE 28,
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation/amortization................. $(2,061) $(1,550)
Prepaid expenses........................................ (264) (232)
------- -------
Total deferred tax liabilities.................. (2,325) (1,782)
Deferred tax assets:
Bad debt reserves....................................... 183 21
Insurance reserves...................................... -- 12
Restructuring reserves.................................. 513 --
Inventory capitalization................................ 89 100
Deferred compensation................................... 1,136 212
State taxes............................................. 176 56
Other................................................... 230 148
------- -------
Total deferred tax assets....................... 2,327 549
------- -------
Total net deferred tax asset (liability)........ $ 2 $(1,233)
======= =======
</TABLE>
As of June 27, 1998 and June 28, 1997, a net current deferred tax asset of
$1,573,000 and $253,000, respectively, is included in other current assets and a
net noncurrent deferred tax liability of $1,571,000 and $1,486,000,
respectively, is included in other liabilities.
F-33
<PAGE> 146
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
COMPANY
-------------------------- PREDECESSOR
TWO HUNDRED ----------------------------
NINETEEN DAYS EIGHTY-TWO DAYS
YEAR ENDED ENDED ENDED YEAR ENDED
JUNE 27, JUNE 28, NOVEMBER 21, AUGUST 31,
1998 1997 1996 1996
---------- ------------- --------------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.......................... $ 1,116 $1,185 $1,337 $ 729
State............................ 1,311 343 281 599
Foreign.......................... 198 116 562 526
------- ------ ------ ------
Total current............ 2,625 1,644 2,180 1,854
Deferred taxes:
Federal.......................... (193) 221 (726) 291
State............................ (717) 166 (91) 208
Foreign.......................... (464) -- 1 33
------- ------ ------ ------
Total deferred........... (1,374) 387 (816) 532
------- ------ ------ ------
$ 1,251 $2,031 $1,364 $2,386
======= ====== ====== ======
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory tax rate to pre-tax income due to state income taxes and the effect of
nondeductible items. The reconciliation of income tax computed at the federal
statutory tax rate to income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
COMPANY
-------------------------- PREDECESSOR
TWO HUNDRED ----------------------------
NINETEEN DAYS EIGHTY-TWO DAYS
YEAR ENDED ENDED ENDED YEAR ENDED
JUNE 27, JUNE 28, NOVEMBER 21, AUGUST 31,
1998 1997 1996 1996
---------- ------------- --------------- ----------
<S> <C> <C> <C> <C>
Tax at U.S. statutory rate......... $(1,054) $1,385 $ 658 $ 12
State income taxes, net of federal
tax benefit...................... (199) 336 80 659
Goodwill amortization and other
nondeductible expenses........... 117 194 251 999
Impairment of goodwill............. 2,357 --
Canadian taxes..................... 30 116 154 397
Other.............................. -- -- 221 319
------- ------ ------ ------
Total tax expense........ $ 1,251 $2,031 $1,364 $2,386
======= ====== ====== ======
</TABLE>
The Company paid income taxes of approximately $1,581,000 and $2,473,000
during the year ended June 27, 1998 and the 219 days ended June 28, 1997,
respectively. The Predecessor had a tax sharing arrangement with AFH whereby
income tax was determined on a separate return basis and all income tax amounts
were paid by AFH on behalf of the Predecessor; therefore, Predecessor income tax
expense resulted in increases to intercompany loans to AFH.
12. RELATED PARTY TRANSACTIONS
AFNA provided administrative support services for the Predecessor such as
data processing, accounting, legal, and other corporate office services. The
Predecessor financial statements include $475,000 and $2,800,000 of allocated
administrative support services expense for the eighty-two day period ended
F-34
<PAGE> 147
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 21, 1996 and the year ended August 31, 1996, respectively. The
administrative services were allocated based on sales and are included in
operating expenses. Additionally, AFH charged the Predecessor interest at the
prime rate as established by a major financial institution, which was added to
the outstanding balance of an intercompany loan on a monthly basis. AFH did not
charge the Company for interest on intercompany borrowings for the period from
September 1, 1996 through November 21, 1996; accordingly, the combined statement
of operations for that period reflects no interest expense.
The Company has an agreement to pay annual management fees to affiliates of
shareholders of the Company for management services through November 20, 2006.
During the year ended June 27, 1998 and the 219 days ended June 28, 1997, the
Company incurred $459,000 and $268,000 of management fees, respectively. In
addition, the Company pays fees to these same affiliates based on completed
acquisitions. During the year ended June 27, 1998, the Company incurred $408,000
in acquisition-related fees which were capitalized as costs of the related
acquisitions.
The Company leases a produce distribution facility from an entity owned by
officers of one of the Company's subsidiaries. Lease payments made under the
lease agreement during the year ended June 27, 1998 and the 219 days ended June
28, 1997, were approximately $622,000 and $360,000, respectively. The lease
provides for monthly rental payments through February 28, 2007. The lease terms
provide for an escalation in the rental payments determined annually based on
the Producers Price Index.
The Company leases another produce distribution facility from an entity
which is partially owned by an officer of one of the Company's subsidiaries.
Lease payments made under the lease agreement during the year ended June 27,
1998 and the 219 days ended June 28, 1997, were approximately $409,000 and
$240,000, respectively. The lease term is for a one-year period and is renewable
annually by the Company.
13. EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan (the Plan). The Plan is a defined
contribution plan covering all U.S. full-time employees of the Company who are
not members of a group represented by a collective bargaining agreement and who
have completed one year of service. Eligible employees may defer 1% to 15% of
their annual compensation subject to certain Internal Revenue Service
restrictions. The Plan provides for Company contributions based upon a certain
percentage of each participant's contribution as well as a discretionary
contribution of 1% of annual compensation of all participants employed for the
entire calendar year preceding the year in which the payment is made. Expense
recognized by the Company related to the Plan during the year ended June 27,
1998 and the 219 days ended June 28, 1997, was $779,000 and $343,000,
respectively. The Predecessor maintained a similar employee savings plan.
Expense recognized by the Predecessor related to its savings plan during the
eighty-two day period ended November 21, 1996 and the year ended August 31, 1996
was $156,000 and $532,000, respectively.
The Company also makes contributions to multiemployer defined benefit and
defined contribution plans for employees who are members of a group represented
by a collective bargaining agreement. Amounts charged to pension cost and
contributed to these plans by the Company during the year ended June 27, 1998
and the 219 days ended June 28, 1997, was $623,000 and $366,000, respectively.
Amounts charged to expense and contributed to these plans by the Predecessor
during the eighty-two day period ended November 21, 1996 and the year ended
August 31, 1996 were $138,000 and $583,000, respectively.
In addition to the above plans, the Company has a non-qualified deferred
compensation plan for its senior management. The Select Executive Retirement
Plan (the SERP) provides deferred compensation and survivor benefits in addition
to the benefits paid under the employee savings plan. Expense recognized by the
Company related to the SERP during the year ended June 27, 1998 and the 219 days
ended June 28, 1997, was $272,000 and $181,000, respectively. The Predecessor
also maintained a SERP. Expense recognized by
F-35
<PAGE> 148
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Predecessor related to its SERP during the eighty-two day period ended
November 21, 1996 and the year ended August 31, 1996 was $18,000 and $138,000,
respectively.
14. WARRANTS
In connection with the formation of the Company, immediately exercisable
warrants to purchase up to 608.6 shares of the Company's common stock at a price
of $1,000 per share were issued to certain initial shareholders. The right to
exercise the warrants to purchase common stock of the Company expires on
November 21, 2006. None of the warrants issued to the shareholders have been
exercised.
In January 1997, the Company issued warrants to purchase up to 735.4 shares
of the Company's common stock at a price of $1,000 per share to three members of
management. In December 1997, management warrants covering 319.5 shares of
common stock were canceled in connection with the termination of an officer of
the Company. At that same time, the warrant agreements with the other two
members of management were amended and restated to include the right to purchase
an additional 319.5 shares of common stock at an estimated value of $1,000 per
share. Additionally, the vesting terms, which involve both the passage of time
and performance based targets, of the warrants were modified. At June 27, 1998,
there were 735.4 management warrants outstanding, of which 175.5 were
exercisable. At June 28, 1997, there were 735.4 management warrants outstanding,
of which none were exercisable. The right to exercise the warrants to purchase
common stock of the Company expires on November 30, 2006. None of the warrants
issued to management have been exercised.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for the warrants issued to management. Compensation costs
related to warrants issued to management was not material as calculated using
the minimum value method.
15. OPERATING LEASE COMMITMENTS
The Company has obligations under noncancelable operating leases for
certain processing, distribution and office facilities, and vehicles and
equipment. Rental expense for the periods ended June 27, 1998 and June 28, 1997,
was $9,943,000 and $5,501,000, respectively. Rental expense of the Predecessor
for 82-day period ended November 21, 1996 and the year ended August 31, 1996 was
$1,743,000 and $7,634,000, respectively.
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms of one year or more were as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27,
1998
--------
<S> <C>
1999....................................................... $ 5,591
2000....................................................... 4,392
2001....................................................... 3,984
2002....................................................... 3,079
2003....................................................... 1,934
Thereafter................................................. 3,382
-------
Total minimum payments........................... $22,362
=======
</TABLE>
F-36
<PAGE> 149
FRESHPOINT HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions incident to its
operations, both as plaintiff and defendant. In the opinion of management, after
consultation with legal counsel, none of these claims is expected to have a
material adverse effect on the Company's results of operations or financial
position.
The Company is contingently liable for additional purchase consideration
related to acquisitions based upon the achievement of specified earnings levels.
The maximum additional purchase consideration to be paid related to the
acquisitions is approximately $2,950,000.
The majority of the labor force at one of the Company's subsidiaries,
representing approximately 10% of the Company's work force, is covered by a
collective bargaining agreement. The existing agreement expires on June 30,
2001. The Company considers its union relations to be good.
F-37
<PAGE> 150
APPENDICES
<TABLE>
<S> <C>
Appendix A -- Agreement and Plan of Merger
Exhibit A -- Form of Articles of Incorporation
Exhibit B -- Form of Bylaws
Exhibit C -- Directors and Executive Officers
Exhibit D -- Form of Employment Agreement
Exhibit E -- Legal Opinions of Holdings Counsel
Exhibit F -- Form of Shareholders' Agreement
Exhibit G -- Form of Affiliates Letters
Exhibit H -- Albert Fisher Consent
Exhibit I -- Legal Opinions of Company Counsel
Exhibit J -- Registration Rights Agreement
Appendix B -- Opinion of Bear Stearns
</TABLE>
<PAGE> 151
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FRESH AMERICA CORP.
AND
FRESHPOINT HOLDINGS, INC.
DATED AS OF MAY 3, 1999
<PAGE> 152
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE I THE MERGER....................................... 1
SECTION 1.01. The Merger................................. 1
SECTION 1.02. Closing; Closing Date; Effective Time...... 1
SECTION 1.03. Effect of the Merger....................... 2
SECTION 1.04. Directors and Executive Officers........... 2
SECTION 1.05. Headquarters............................... 2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF 2
CERTIFICATES..............................................
SECTION 2.01. Merger Consideration; Conversion and 2
Cancellation of Securities.............................
SECTION 2.02. Exchange and Surrender of Certificates..... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS..... 4
SECTION 3.01. Organization and Qualification; 4
Subsidiaries...........................................
SECTION 3.02. Charter and Bylaws......................... 5
SECTION 3.03. Capitalization............................. 5
SECTION 3.04. Authority.................................. 6
SECTION 3.05. No Conflict; Required Filings and 6
Consents...............................................
SECTION 3.06. Compliance With Laws....................... 6
SECTION 3.07. Financial Statements....................... 7
SECTION 3.08. Absence of Certain Changes or Events....... 7
SECTION 3.09. No Undisclosed Liabilities................. 8
SECTION 3.10. Absence of Litigation...................... 8
SECTION 3.11. Employee Benefit Plans; Labor Matters...... 8
SECTION 3.12. Taxes...................................... 10
SECTION 3.13. Stockholders and Affiliates................ 10
SECTION 3.14. Material Contracts......................... 10
SECTION 3.15. Insurance.................................. 11
SECTION 3.16. Properties................................. 11
SECTION 3.17. Year 2000 Compliance....................... 11
SECTION 3.18. Intellectual Property Rights............... 12
SECTION 3.19. Customers and Suppliers.................... 12
SECTION 3.20. Vote Required.............................. 12
SECTION 3.21. Brokers.................................... 12
SECTION 3.22. Information Supplied....................... 12
SECTION 3.23. Transactions with Affiliates............... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY....... 12
SECTION 4.01. Organization and Qualification; 12
Subsidiaries...........................................
SECTION 4.02. Charter and Bylaws......................... 13
SECTION 4.03. Capitalization............................. 13
SECTION 4.04. Authority.................................. 13
SECTION 4.05. No Conflict; Required Filings and 14
Consent................................................
SECTION 4.06. Compliance With Laws....................... 14
SECTION 4.07. SEC Reports; Financial Statements.......... 15
SECTION 4.08. Absence of Certain Changes or Events....... 15
SECTION 4.09. No Undisclosed Liabilities................. 16
SECTION 4.10. Absence of Litigation...................... 16
SECTION 4.11. Employee Benefit Plans; Labor Matters...... 16
SECTION 4.12. Tax Matters................................ 18
SECTION 4.13. Material Contracts......................... 18
SECTION 4.14. Insurance.................................. 19
SECTION 4.15. Properties................................. 19
</TABLE>
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<TABLE>
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PAGE NO.
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<S> <C>
SECTION 4.16. Year 2000 Compliance....................... 19
SECTION 4.17. Intellectual Property Rights............... 19
SECTION 4.18. Customers and Suppliers.................... 20
SECTION 4.19. Vote Required.............................. 20
SECTION 4.20. Brokers.................................... 20
SECTION 4.21. Opinion of Financial Advisor............... 20
SECTION 4.22. Transactions with Affiliates............... 20
SECTION 4.23. Certain Statutes........................... 20
SECTION 4.24. Information Supplied....................... 20
ARTICLE V COVENANTS........................................ 21
SECTION 5.01. Affirmative Covenants of Holdings.......... 21
SECTION 5.02. Negative Covenants of Holdings............. 21
SECTION 5.03. Affirmative Covenants of Company........... 22
SECTION 5.04. Negative Covenants of Company.............. 23
SECTION 5.05. Financing Arrangement...................... 25
SECTION 5.06. No Solicitation by Company................. 25
SECTION 5.07. Access and Information..................... 26
SECTION 5.08. Appropriate Action; Consents; Filings...... 26
SECTION 5.09. Tax Treatment.............................. 27
SECTION 5.10. Public Announcements....................... 28
SECTION 5.11. NASDAQ Listing............................. 28
SECTION 5.12. Meeting of Shareholders.................... 28
SECTION 5.13. Registration Statement; Proxy Statement.... 28
SECTION 5.14. Insurance and Indemnification.............. 29
SECTION 5.15. Employee Loans............................. 29
SECTION 5.16. Takeover Statutes.......................... 29
ARTICLE VI CLOSING CONDITIONS.............................. 30
SECTION 6.01. Conditions to Obligations of Each Party 30
Under This Agreement...................................
SECTION 6.02. Additional Conditions to Obligations of 30
Company................................................
SECTION 6.03. Additional Conditions to Obligations of 31
Holdings...............................................
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............. 32
SECTION 7.01. Termination................................ 32
SECTION 7.02. Effect of Termination...................... 33
SECTION 7.03. Amendment.................................. 33
SECTION 7.04. Waiver..................................... 33
SECTION 7.05. Expenses and Other Payments................ 33
ARTICLE VIII GENERAL PROVISIONS............................ 34
SECTION 8.01. Effectiveness of Representations, 34
Warranties and Agreements..............................
SECTION 8.02. Notices.................................... 34
SECTION 8.03. Certain Definitions........................ 35
SECTION 8.04. Headings................................... 36
SECTION 8.05. Severability............................... 36
SECTION 8.06. Entire Agreement........................... 36
SECTION 8.07. Assignment................................. 36
SECTION 8.08. Parties in Interest........................ 36
SECTION 8.09. Failure or Indulgence Not Waiver; Remedies 37
Cumulative.............................................
SECTION 8.10. Governing Law.............................. 37
SECTION 8.11. Counterparts............................... 37
</TABLE>
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<TABLE>
<S> <C> <C>
EXHIBITS
Exhibit A Form of Articles of Incorporation
Exhibit B Form of Bylaws
Exhibit C Directors and Executive Officers
Exhibit D Form of Employment Agreement
Exhibit E Legal Opinions of Holdings Counsel
Exhibit F Form of Shareholders' Agreement
Exhibit G Form of Affiliate Letters
Exhibit H Fisher Consent
Exhibit I Legal Opinions of Company Counsel
Exhibit J Registration Rights Agreement
</TABLE>
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<PAGE> 155
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 3,
1999, is by and between Fresh America Corp., a Texas corporation ("Company"),
and FreshPoint Holdings, Inc., a Delaware corporation ("Holdings").
RECITALS
WHEREAS, Holdings, upon the terms and subject to the conditions of this
Agreement, will merge with and into Company (the "Merger"), and pursuant
thereto, the issued and outstanding shares of common stock, $.01 par value, of
Holdings (the "Holdings Common Stock") and Holdings Preferred Stock (as defined
in Section 3.03(a)) will be converted into the right to receive shares of common
stock, $0.01 par value, of Company (the "Company Common Stock");
WHEREAS, the Board of Directors of Company has determined that the Merger
is fair to, and in the best interests of, Company and its shareholders, and has
approved and adopted this Agreement and the transactions contemplated hereby;
WHEREAS, the Board of Directors of Holdings has determined that the Merger
is fair to, and in the best interests of, Holdings and its stockholders, and has
approved and adopted this Agreement and the transactions contemplated hereby;
WHEREAS, as a condition and an inducement to Company's willingness to enter
into this Agreement, Albert Fisher Holdings, Inc. ("Fisher") has executed and
delivered to Holdings a consent letter (the "Fisher Consent"), which is attached
hereto as Exhibit H;
WHEREAS, as a condition and an inducement to Company's willingness to enter
into this Agreement, this Agreement and the transactions contemplated hereby
have been approved by any required vote of Holdings Common Stock and Holdings
Preferred Stock, subject to the terms of the Fisher Consent;
WHEREAS, as a condition and an inducement to Holdings' willingness to enter
into this Agreement, certain shareholders of Company (the "Company Principal
Shareholders") have granted irrevocable proxies to Holdings (the "Company
Proxies") to vote all Company Common Stock beneficially owned by such Company
Principal Shareholders in favor of approval and adoption of this Agreement and
the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
AGREEMENT
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Texas Business Corporation
Act (the "Texas Act") and the Delaware General Corporation Law (the "DGCL"), at
the Effective Time (as defined in Section 1.02), Holdings shall be merged with
and into Company. As a result of the Merger, the separate corporate existence of
Holdings shall cease and Company shall continue as the surviving corporation of
the Merger (the "Surviving Corporation"). Certain terms used in this Agreement
are defined in Section 8.03.
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this Agreement
shall have been terminated pursuant to Section 7.01, and subject to the
satisfaction or waiver of the conditions set forth in Article VI, the
consummation of the Merger and the closing of the transactions contemplated by
this Agreement (the
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"Closing") shall take place at the offices of Hughes & Luce, L.L.P., 1717 Main
Street, Dallas, Texas as soon as practicable (but in any event within two
business days) after the satisfaction or waiver of the conditions set forth in
Article VI (other than those conditions which by their nature are to be
satisfied at the Closing), or at such other date, time and place as Company and
Holdings may agree. The date on which the Closing takes place is referred to
herein as the "Closing Date." As promptly as practicable on the Closing Date,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger with the Texas Secretary of State and a certificate of
merger with the Delaware Secretary of the State, in such form as required by,
and executed in accordance with the relevant provisions of, the Texas Act and
the DGCL (the date and time of such filing, or such later date or time agreed
upon by Company and Holdings and set forth therein, being the "Effective Time").
SECTION 1.03. Effect of the Merger.
(a) The effect of the Merger shall be as provided in the applicable
provisions of the Texas Act and the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges and powers of Holdings will vest in the Surviving
Corporation, and all debts, liabilities and duties of Holdings shall become the
debts, liabilities and duties of the Surviving Corporation.
(b) The name of the Surviving Corporation shall be "FreshPoint America,
Inc."
(c) The articles of incorporation of Company, as in effect immediately
prior to the execution of this Agreement, shall be amended and restated as of
the Effective Time as set forth in Exhibit A and, as so amended and restated,
such articles of incorporation shall be the articles of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(d) The bylaws of Company, as in effect immediately prior to the execution
of this Agreement, shall be as set forth in Exhibit B and, as so amended and
restated, such bylaws shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.04. Directors and Executive Officers. The Board of Directors
(including classes thereof) and executive officers of the Surviving Corporation
shall be as set forth in Exhibit C, each to hold office in accordance with the
articles of incorporation and bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed, as the case may be. If any
director set forth on Exhibit C shall be unable to serve as a director at the
Effective Time, the party which designated such individual as indicated in
Exhibit C shall designate another individual to serve in such individual's
place. The committees of the Board of Directors of the Surviving Corporation
will include an audit committee, compensation committee, finance committee and
stock option plan administration committee, the members of which shall be duly
elected by the Board of Directors of the Surviving Corporation in accordance
with the bylaws of the Surviving Corporation, as amended and restated.
SECTION 1.05. Headquarters. The Surviving Corporation's headquarters will
be in Dallas, Texas.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of Company, Holdings or their respective shareholders:
(a) Subject to the other provisions of this Article II, the aggregate
shares of Holdings Common Stock and Holdings Preferred Stock issued and
outstanding immediately prior to the Effective Time (excluding any Holdings
Common Stock described in Section 2.01(d) and any Holdings Preferred Stock
described in Section 2.01(d)) shall be converted into the Merger Consideration.
The term "Merger Consideration" shall mean 5,685,826 shares of Company Common
Stock.
(b) Subject to the other provisions of this Article II, each share of
Holdings Common Stock issued and outstanding immediately prior to the Effective
Time (excluding any Holdings Common Stock described in
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Section 2.01(d)) shall be converted into the Merger Consideration Per Common
Share. The term "Merger Consideration Per Common Share" shall mean the Common
Stock Merger Consideration divided by the number of issued and outstanding
shares of Holdings Common Stock at the Effective Time. The term "Common Stock
Merger Consideration" shall mean the Merger Consideration minus the Preferred
Stock Merger Consideration (as defined below).
(c) Subject to the other provisions of this Article II, each share of
Holdings Preferred Stock issued and outstanding immediately prior to the
Effective Time (excluding any Holdings Preferred Stock described in Section
2.01(d)) shall be converted into the Merger Consideration Per Preferred Share.
The term "Merger Consideration Per Preferred Share" shall mean the Preferred
Stock Merger Consideration divided by the number of issued and outstanding
shares of Holdings Preferred Stock at the Effective Time. The term "Preferred
Stock Merger Consideration" shall mean the number of shares of Company Common
Stock determined by dividing the aggregate of the Deemed Value of all of the
shares of Holdings Preferred Stock issued and outstanding five business days
prior to the Effective Time by the Company Common Stock Market Value. "Deemed
Value" for each share shall mean $1,000 per share plus any accrued and unpaid
dividends. The "Company Common Stock Market Value" shall mean the average of the
closing price per share (as published in the Wall Street Journal) of the Company
Common Stock during the period which is the lesser of (i) ninety trading days
ending five trading days prior to the Closing Date or (ii) the number of trading
days commencing on the day of public announcement of the Merger (no later than
one day after this Agreement is executed and delivered) and ending five trading
days prior to the Closing Date.
(d) Each share, if any, of Holdings Common Stock or Holdings Preferred
Stock owned by Holdings or by any subsidiary of Holdings immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof and no consideration shall be made with respect thereto.
(e) Each certificate previously evidencing Holdings Common Stock or
Holdings Preferred Stock outstanding immediately prior to the Effective Time
(other than Holdings Common Stock or Holdings Preferred Stock described in
Section 2.01(d)) (the "Converted Shares") shall thereafter represent the right
to receive, subject to Section 2.02(d), that number of shares of Company Common
Stock determined pursuant to the Merger Consideration Per Common Share or Merger
Consideration Per Preferred Share, as applicable, and, if applicable, cash in
lieu of fractional shares pursuant to Section 2.02(d). The holders of
certificates previously evidencing Converted Shares shall cease to have any
rights with respect to such Converted Shares except as otherwise provided herein
or by law. Such certificates previously evidencing Converted Shares shall be
exchanged for certificates evidencing whole shares of Company Common Stock upon
the surrender of such certificates evidencing Converted Shares in accordance
with the provisions of Section 2.02, without interest.
(f) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding after the
Effective Time.
(g) In the event that prior to the Effective Time there shall be a change
in the number of shares of Company Common Stock, Holdings Common Stock or
Holdings Preferred Stock issued and outstanding by reason of any issuance
(except for issuances contemplated in Section 5.04), distribution, stock
dividend, subdivision, reclassification, recapitalization, split, reverse split,
combination or plan of exchange or similar transaction, the Common Stock Merger
Consideration and the Preferred Stock Merger Consideration shall be
correspondingly adjusted to eliminate the effects of such event.
SECTION 2.02 Exchange and Surrender of Certificates.
(a) At or as soon as practicable after the Effective Time, the holders of
certificates previously evidencing Converted Shares shall be entitled to
receive, upon surrender of such certificates to Company, a certificate or
certificates representing the number of shares of Company Common Stock into
which the Converted Shares so surrendered shall have been converted as
aforesaid, in such denominations and registered in such names as the applicable
holder may request. Until so surrendered and exchanged, each certificate
previously evidencing Converted Shares shall represent solely the right to
receive Company Common Stock and cash in lieu of fractional shares in accordance
with the provisions of Section 2.02(d). Unless and until any such certificates
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representing Converted Shares shall be so surrendered and exchanged, no
dividends or other distributions payable to the holders of record of Company
Common Stock as of any time on or after the Effective Time shall be paid to the
holders of record of Converted Shares; provided, however, that, upon any such
surrender and exchange of such certificates, there shall be paid to the holders
of record of Converted Shares (i) the amount, without interest thereon, of
dividends and other distributions, if any, with a record date on or after the
Effective Time paid with respect to such whole shares of Company Common Stock,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions, if any, with a record date on or after the Effective Time but
prior to surrender and a payment date occurring after surrender, payable with
respect to such shares of Company Common Stock. Notwithstanding the foregoing,
no party hereto shall be liable to any former holder of Converted Shares for any
cash, Company Common Stock or dividends or distributions thereon delivered to a
public official pursuant to applicable abandoned property, escheat or similar
law.
(b) All shares of Company Common Stock issued upon the surrender for
exchange of certificates previously representing Converted Shares in accordance
with the terms hereof (including any cash paid in lieu of fractional shares
pursuant to Section 2.02(d)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Converted Shares. At and after the
Effective Time, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of Holdings Common Stock or Holdings
Preferred Stock that was outstanding immediately prior to the Effective Time.
If, after the Effective Time, certificates which previously evidenced Converted
Shares are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article II.
(c) If certificates for shares of Company Common Stock are to be issued in
a name other than the holder of Converted Shares, it shall be a condition of the
issuance thereof that the certificates so surrendered shall be properly
endorsed, with signatures guaranteed, and otherwise in proper form for transfer
and that such holder shall have paid to Company or its transfer agent any
transfer or other taxes required by reason of the issuance of a certificate for
shares of Company Common Stock in any name other than that of such holder, or
established to the satisfaction of Company or its transfer agent that such tax
has been paid or is not payable.
(d) No certificates or scrip evidencing fractional shares of Company Common
Stock shall be issued upon the surrender for exchange of certificates
representing Holdings Common Stock or Holdings Preferred Stock, and such
fractional share interests will not entitle the holder thereof to any rights of
a shareholder of Company. In lieu of any such fractional shares, the holder
thereof, upon surrender of such certificate for exchange pursuant to this
Article II, shall be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (i) the closing price for a share of
Company Common Stock on the NASDAQ Stock Market ("NASDAQ") as reported in the
Wall Street Journal (Southwestern Edition) on the Closing Date, by (ii) the
fractional interest to which the holder thereof would otherwise be entitled
(after taking into account all Converted Shares held of record by such holder).
(e) Company shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any former holder of Converted
Shares such amounts as Company (or any affiliate thereof) is required to deduct
and withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Company, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the former holder of the Converted Shares
in respect of which such deduction and withholding was made by Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Holdings hereby represents and warrants to Company that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of
Holdings and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of the business conducted by it or the ownership or leasing of its
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properties makes such qualification necessary, other than where the failure to
be so duly qualified and in good standing would not have a Material Adverse
Effect. Schedule 3.01 sets forth a true and complete list of all of Holdings'
directly or indirectly owned subsidiaries, together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each subsidiary's
outstanding capital stock owned by Holdings or another subsidiary of Holdings.
SECTION 3.02. Charter and Bylaws. Holdings has made available to Company
complete and correct copies of the charter and the bylaws, in each case as
amended or restated, of Holdings and each of its subsidiaries. Holdings is not
in violation of any of the provisions of its charter or bylaws.
SECTION 3.03. Capitalization.
(a) The authorized capital stock of Holdings consists of (i) 20,000 shares
of Holdings Common Stock, of which on the date hereof (A) 8,800 shares are
issued and outstanding, (B) no shares were held in treasury, and (C) 1,344
shares were reserved for future issuance pursuant to warrants, and (ii) 45,000
shares of preferred stock, $.01 par value, of which the following are issued and
outstanding on the date hereof: (A) 3,796.7 shares of Series A Exchangeable
Preferred Stock, (B) 8,467.2 shares of Series A-1 Exchangeable Preferred Stock
and (C) 3,328.3 shares of Series A-2 Exchangeable Preferred Stock (collectively,
the "Holdings Preferred Stock"). All of the issued and outstanding shares of
Holdings' capital stock are owned as set forth in the shareholder summary in
Schedule 3.03(a). Except as described in this Section 3.03, no shares of capital
stock of Holdings are reserved for any purpose. The outstanding shares of
capital stock of Holdings and its subsidiaries are duly authorized, validly
issued, fully paid and nonassessable, and have not been issued in violation of
any securities laws, preemptive or similar rights created by statute, the
charter or bylaws of Holdings or any of its subsidiaries, or any agreement to
which Holdings or any of its subsidiaries is a party or bound.
(b) Holdings and the holders of all of the warrants to purchase shares of
Holdings' capital stock (the "Holdings Warrants") have agreed that prior to the
Effective Time, all Holdings Warrants will be converted, by cashless exercise in
accordance with their terms, into shares of Holdings Common Stock. At the
Effective Time, (i) no other class of Holdings' capital stock will be issued and
outstanding other than Holdings Common Stock or Holdings Preferred Stock, and
(ii) no options, warrants or other rights, agreements, arrangements or
commitments of any character obligating Holdings or any of its subsidiaries to
grant, issue or sell any shares of its capital stock will be in effect.
(c) Except for the exercise or exchange of the Holdings Warrants for shares
of Holdings Common Stock and as set forth in Section 3.03(a) or in Schedule
3.03(c), there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which Holdings or any of its
subsidiaries is a party relating to the issued or unissued capital stock of
Holdings or any of its subsidiaries or obligating Holdings or any of its
subsidiaries to grant, issue or sell any shares of its capital stock. Except as
set forth in Schedule 3.03(c), there are no obligations, contingent or
otherwise, of Holdings or any of its subsidiaries to (i) repurchase, redeem or
otherwise acquire any shares of the capital stock of Holdings or any of its
subsidiaries or (ii) provide material funds to, or make any material investment
in (in the form of a loan, capital contribution or otherwise), or provide any
guarantee with respect to the obligations of, any other person, other than
advances to subsidiaries in the normal course of business. Except as described
in Schedule 3.03(c), neither Holdings nor any of its subsidiaries (x) directly
or indirectly owns, (y) has agreed to purchase or otherwise acquire or (z) holds
any interest convertible into or exchangeable or exercisable for, any capital
stock (or equivalent equity interest) of any corporation, partnership, joint
venture or other business association or entity. Except as set forth in Schedule
3.03(c), there are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on the revenues or earnings, or calculated in
accordance therewith, of Holdings or any of its subsidiaries. Except for the
Holdings Proxies and as set forth in Schedule 3.03(c), there are no voting
trusts, proxies or other agreements or understandings to which Holdings or any
of its subsidiaries is a party or by which Holdings or any of its subsidiaries
is bound with respect to the voting of any shares of capital stock of Holdings
or any of its subsidiaries.
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SECTION 3.04. Authority. Holdings has all requisite corporate power and
authority to execute and deliver this Agreement and the other agreements,
documents, instruments and certificates contemplated by this Agreement to which
it is a party (collectively with this Agreement, the "Holdings Documents"), to
perform its obligations hereunder and under the other Holdings Documents and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the other Holdings Documents by Holdings and the
consummation by Holdings of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of Holdings are necessary to authorize this
Agreement or the other Holdings Documents or to consummate the transactions
contemplated hereby or thereby. This Agreement has been duly executed and
delivered by Holdings and constitutes the legal, valid and binding obligation of
Holdings enforceable against Holdings in accordance with its terms, and upon
execution and delivery, the other Holdings Documents will constitute legal,
valid and binding obligations of Holdings enforceable against Holdings in
accordance with their terms.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 3.05(a), the execution and delivery of
this Agreement and the other Holdings Documents by Holdings does not, and the
consummation of the transactions contemplated hereby and thereby will not (i)
conflict with or violate the charter or bylaws, in each case as amended or
restated, of Holdings or any of its subsidiaries, (ii) conflict with or violate
in any material respect any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively, "Laws")
applicable to Holdings or any of its subsidiaries or by which any of their
properties is bound or subject or (iii) result in any material breach of or
constitute a material default (or an event that with notice or lapse of time or
both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a security interest, lien, claim, pledge,
charge or encumbrance (a "Lien") on any of the properties or assets of Holdings
or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Holdings or any of its subsidiaries is a party or by or to
which Holdings or any of its subsidiaries or any of their properties is bound or
subject.
(b) The execution and delivery of this Agreement and the other Holdings
Documents by Holdings does not, and consummation of the transactions
contemplated hereby and thereby will not, require Holdings to obtain any
consent, license, permit, approval, waiver, authorization or order of, or to
make any filing with or notification to, any governmental or regulatory
authority, domestic or foreign (collectively, "Governmental Entities"), except
for (i) the filing of a premerger notification and report form by Holdings under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (ii) the filing of a certificate of merger with the Delaware Secretary of
State, a certificate of merger with the Texas Secretary of State and appropriate
documents with the relevant authorities of other states in which Holdings is
qualified to do business; (iii) the filing of notifications as may be required
by the Perishable Agricultural Commodities Act ("PACA"); (iv) such other filings
and consents set forth on Schedule 3.05(b) that may be required under any
environmental, health or safety Laws ("Environmental Laws") pertaining to any
notification, disclosure or required approval necessitated by the Merger or the
transactions contemplated by this Agreement or the other Holdings Documents; and
(v) such consents, approvals, orders or authorizations the failure of which to
be made or obtained could not reasonably be expected to have a Material Adverse
Effect on Holdings or prevent or materially delay the consummation of the
Merger.
SECTION 3.06. Compliance With Laws. (a) Each of Holdings and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses (including licenses under PACA), permits, easements, variances,
exemptions, consents, certificates, approvals and orders which are material to
the operation of the business of Holdings and its subsidiaries taken as a whole
(collectively, the "Holdings Permits"), and there is no action, proceeding or
investigation pending or, to Holdings' knowledge, threatened regarding
suspension or cancellation of any of Holdings Permits. Holdings and its
subsidiaries are in compliance in all material respects with the terms of the
Holdings Permits. The businesses of Holdings and its subsidiaries are being
conducted in compliance in all material respects with the Laws of Governmental
Entities, including under PACA and similar state Laws. Neither Holdings nor any
of its subsidiaries is in conflict with, or in default or violation of,
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any order, judgment or decree applicable to Holdings or any of its subsidiaries
or by which any property or asset of Holdings or any of its subsidiaries is
bound or affected. No action, demand, requirement or investigation by any
Governmental Entity with respect to Holdings or any of its subsidiaries is
pending or, to the knowledge of Holdings, threatened, other than, in each case,
those the outcome of which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on Holdings.
(b) Except as disclosed on Schedule 3.06(b):
(i) Holdings and its subsidiaries are in material compliance with all
Environmental Laws that are applicable to Holdings or its subsidiaries or
their respective properties or assets;
(ii) Holdings and its subsidiaries have all permits and authorizations
required pursuant to Environmental Laws; all such permits and
authorizations are in full force and effect; and no actions are pending or
threatened to revoke, limit or modify any of such permits or
authorizations; and
(iii) no material Environmental Claims are pending or threatened
against Holdings or its subsidiaries and there are no civil, criminal or
administrative judgments or notices of violation against Holdings or its
subsidiaries pursuant to Environmental Laws.
For purposes of this Section 3.06(b), "Environmental Claims" shall mean any
written notification pursuant to Environmental Laws that any of the current or
past operations of Holdings or its subsidiaries, or any of the property owned,
leased or operated by Holdings or its subsidiaries in connection with their
respective businesses, is or may be implicated in or subject to any proceeding,
action, complaint, suit, demand, litigation, investigation, claim, order,
hearing, notice or agreement by any governmental authority or any other person.
SECTION 3.07. Financial Statements. The consolidated balance sheets of
Holdings and its subsidiaries as of June 28, 1997 and June 27, 1998 and the
consolidated statements of operations, shareholders' equity and cash flows of
Holdings and its subsidiaries for the year ended June 27, 1998 and the 219 day
period ended June 28, 1997, and all related schedules and notes to the foregoing
have been audited by Ernst & Young LLP, independent auditors. Each of the
foregoing consolidated financial statements (including, in each case, any
related schedules and notes thereto) as well as the unaudited consolidated
balance sheets of Holdings and its subsidiaries as of December 27, 1997 and
December 26, 1998 and the unaudited consolidated statements of operations,
stockholders' equity and cash flows of Holdings and its subsidiaries for the six
months ended December 27, 1997 and December 26, 1998 (including, in each case,
any related schedules and notes thereto) and any financial statements of
Holdings and/or its subsidiaries hereafter delivered to Company (a) have been,
or will be, prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except to the
extent required by changes in generally accepted accounting principles and as
may be indicated in the notes of the financial statements previously delivered
to Company), and (b) are, or will be, correct and complete and fairly present,
or will fairly present, in all material respects the financial position of
Holdings and its subsidiaries as of the respective dates thereof and the results
of operations and cash flows for the periods indicated, except that any
unaudited interim financial statements were, or will be, subject to normal and
recurring year-end adjustments that individually or in the aggregate will not be
material.
SECTION 3.08. Absence of Certain Changes or Events. Except as set forth in
Schedule 3.08 or as contemplated by this Agreement, since December 26, 1998 each
of Holdings and its subsidiaries has conducted its businesses only in the
ordinary course and in a manner consistent with past practice and since such
date there has not been: (a) any material damage, destruction or loss (whether
or not covered by insurance) with respect to any assets of Holdings or any of
its subsidiaries; (b) any material change by Holdings or any of its subsidiaries
in their accounting methods, principles or practices; (c) any declaration,
setting aside or payment of any dividends or distributions in respect of shares
of the capital stock of Holdings or any of its subsidiaries, or any redemption,
purchase or other acquisition by Holdings or any of its subsidiaries of any of
their securities; (d) any increase in the benefits under, or the establishment
or amendment of, any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, or any increase in the compensation payable or to become
payable to directors, officers or key employees of Holdings or any of its
subsidiaries, except for annual
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increases in salaries or wages in the ordinary course of business and consistent
with past practice; (e) any revaluation by Holdings or any of its subsidiaries
of any of their assets, including the writing down or off of assets, other than
in the ordinary course of business and consistent with past practices; (f) any
entry by Holdings or any of its subsidiaries into any commitment or transaction
material to Holdings and its subsidiaries, taken as a whole; (g) any increase in
indebtedness for borrowed money; or (h) any event or circumstance that has had
or could have a Material Adverse Effect on Holdings.
SECTION 3.09. No Undisclosed Liabilities. Except (a) as reflected in
Holdings' consolidated balance sheet as of December 26, 1998, (b) as
contemplated by this Agreement, (c) for current liabilities and obligations
incurred since December 26, 1998 in the ordinary course of business consistent
with past practice, and (d) as set forth on Schedule 3.09, neither Holdings nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect on
Holdings.
SECTION 3.10. Absence of Litigation. Except as set forth in Schedule 3.10,
there is no claim, action, suit, litigation, proceeding, arbitration or, to
Holdings' knowledge, investigation of any kind, at law or in equity (including
actions or proceedings seeking injunctive relief), pending or, to Holdings'
knowledge, threatened against Holdings or any of its subsidiaries or any
properties or rights of Holdings or any of its subsidiaries, except for claims,
actions, suits, litigation, proceedings, arbitrations or investigations which
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on Holdings or could not prevent or materially delay
consummation of the Merger. Except as set forth on Schedule 3.10, neither
Holdings nor any of its subsidiaries is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of Holdings continuing investigation by, any Governmental
Entity, or any judgment, order, writ, injunction, decree or award of any
Government Entity or arbitrator, including, without limitation, cease-and-desist
or other orders.
SECTION 3.11. Employee Benefit Plans; Labor Matters.
(a) Set forth in Schedule 3.11(a) is a list of all "employee benefit plans"
(as defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), all material plans or policies providing for "fringe benefits"
(including but not limited to vacation, paid holidays, personal leave, employee
discount, educational benefit or similar programs), and each other material
bonus, incentive compensation, deferred compensation, profit sharing, stock,
severance, retirement, health, life, disability, group insurance, stock option,
stock purchase, stock appreciation right, supplemental unemployment, layoff, or
any other similar plan, agreement, policy or understanding, and any trust,
escrow or other agreement related thereto, which (i) is established, maintained
or contributed to by Holdings or any of its subsidiaries or with respect to
which Holdings or any of its subsidiaries has any liability, including liability
as a result of being a Holdings ERISA Affiliate (as defined below), or (ii)
provides benefits, or describes policies or procedures applicable, to any
current or former officer, employee or director of Holdings or any of its
subsidiaries, or any dependent thereof, regardless of whether funded
(collectively, the "Holdings Employee Plans"). The term "Holdings ERISA
Affiliate" shall mean any corporation, trade or business the employees of which,
together with the employees of Holdings, are required to be treated as employed
by a single employer under the provisions of ERISA or Code Section 414.
(b) Except as set forth on Schedule 3.11(b) and to the extent of coverage
required under Code Section 4980B or other applicable continuation of coverage
laws, no representations have been made to any current or former employee or
officer of Holdings or any of its subsidiaries promising or guaranteeing any
coverage under any employee welfare plan for any period of time beyond the end
of the current plan year. Neither the Merger nor the consummation of any other
transaction contemplated by this Agreement will accelerate the time of payment
or vesting, or increase the amount of compensation (including amounts due under
any Holdings Employee Plans) due to any current or former employee or officer of
Holdings or any of its subsidiaries.
(c) There are no agreements which will or may provide payments as a result
of the transactions contemplated hereby to any officer, employee, stockholder or
highly compensated individual which will be
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"excess parachute payments" under Code Section 280G that are nondeductible to
Holdings or subject to tax under Code Section 4999 for which Holdings or any of
its subsidiaries would have withholding liability.
(d) With respect to each Holdings Employee Plan (other than any Holdings
Multi-Employer Plans (as defined below)), Holdings has made available to Company
true, correct and complete copies of (i) the plan documents and summary plan
description; (ii) the most recent determination letter received from the
Internal Revenue Service; (iii) the annual reports required to be filed for the
two most recent plan years of each such Holdings Employee Plan; (iv) all related
trust agreements, insurance contracts or other funding agreements which
implement such Holdings Employee Plan; and (v) all other material documents,
records or other materials related thereto reasonably requested by Company in
writing.
(e) Each Holdings Employee Plan (other than any Holdings Multi-Employer
Plans) which purports to satisfy the requirements of Code Section 401(a)
("Holdings Qualified Plan") is qualified in form and operation under Code
Section 401(a) and each trust for each Holdings Qualified Plan is exempt from
federal income tax under Code Section 501(a). No event has occurred or
circumstances exist that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any Holdings Qualified Plan or
related trust. Each Holdings Qualified Plan has received a favorable
determination letter from the Internal Revenue Service, and all such
determination letters remain in effect and have not been revoked.
(f) (i) No Holdings Employee Plan is a single employer plan that is subject
to Part 3 of Title I of ERISA or Title IV of ERISA; (ii) each Holdings Employee
Plan has been operated in all material respects in compliance with its terms,
ERISA, the Code and all other applicable Laws; (iii) none of the Holdings
Employee Plans is a "multiple employer plan" or "multi-employer plan" (as
described or defined in ERISA or the Code), and neither Holdings nor any of its
subsidiaries has within the past six years contributed or been required to
contribute to any such plan, except for the multi-employer plans set forth on
Schedule 3.11(f) (the "Holdings Multi-Employer Plans"); and (iv) except as
otherwise set forth on Schedule 3.11(f), there are no material unfunded
liabilities existing under any Holdings Employee Plans (other than any Holdings
Multi-Employer Plan), and each such Holdings Employee Plan could be terminated
as of the Closing Date without any liability to Company, Holdings or any
Holdings ERISA Affiliate.
(g) Other than routine claims for benefits, there are no actions, suits,
claims, audits, or investigations pending or, to Holdings' knowledge, threatened
against, or with respect to, any of the Holdings Employee Plans (other than any
Holdings Multi-Employer Plan) or their assets; and all contributions required to
be made to the Holdings Employee Plans have been made timely.
(h) Except as described on Schedule 3.11(h), neither Holdings nor any of
its subsidiaries is a party to any collective bargaining or other labor union
contract. No collective bargaining agreement is being negotiated by Holdings or
any of its subsidiaries, and to Holdings' knowledge there is no organizing
effort or representation question pending. Holdings and its subsidiaries are in
compliance in all material respects with all applicable collective bargaining
agreements and Laws respecting employment, employment practices and wages and
hours.
(i) With respect to each Holdings Multi-Employer Plan, (i) Holdings and
each Holdings ERISA Affiliate has or will have, as of the Effective Time, made
all contributions to each Holdings Multi-Employer Plan required by the terms of
such Holdings Multi-Employer Plan or any collective bargaining agreement; and
(ii) except as set forth on Schedule 3.11(i), Holdings would not be subject to
any withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA if, as
of the Effective Time, Holdings or any Holdings ERISA Affiliate were to engage
in a complete withdrawal (as defined in ERISA Section 4203) or a partial
withdrawal (as defined in ERISA Section 4205) from any Holdings Multi-Employer
Plan. Neither Holdings nor any Holdings ERISA Affiliate has within the past six
years (w) incurred any liabilities under the provisions of Section 4062 of
ERISA; (x) withdrawn as a substantial employer so as to become subject to the
provisions of Section 4063 of ERISA; (y) ceased making contributions to any
Holdings Multi-Employer Plan; or (z) made a complete or partial withdrawal from
a Holdings Multi-Employer Plan so as to incur withdrawal liability as defined in
Section 4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under Section 4207 or 4208 of ERISA).
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SECTION 3.12. Taxes.
(a) Except as set forth on Schedule 3.12(a), (i) all material returns and
reports ("Tax Returns") of or with respect to any Tax which is required to be
filed on or before the Closing Date by or with respect to Holdings or any of its
subsidiaries have been or will be duly and timely filed, (ii) all material items
of income, gain, loss, deduction and credit or other items required to be
included in each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and complete in
all material respects, (iii) all material Taxes which have become or will become
due with respect to the period covered by each such Tax Return have been or will
be timely paid in full, and (iv) all withholding Tax requirements imposed on or
with respect to Holdings or any of its subsidiaries have been or will be
satisfied in all material respects.
(b) Except as set forth on Schedule 3.12(b), there is not in force any
extension of time with respect to the due date for the filing of any Tax Return
of or with respect to Holdings or any of its subsidiaries or any waiver or
agreement for any extension of time for the assessment, collection or payment of
any Tax of or with respect to Holdings or any of its subsidiaries.
(c) There are no material pending audits, actions, proceedings,
investigations, disputes or claims with respect to or against Holdings or any of
its subsidiaries for or with respect to any Taxes, and no material assessment,
deficiency or adjustment has been assessed or proposed with respect to any Tax
Return of or with respect to Holdings or any of its subsidiaries, other than
those set forth on Schedule 3.12(c).
(d) Holdings has previously delivered to Company true and complete copies
of each written Tax allocation or sharing agreement and a true and complete
description of each unwritten Tax allocation or sharing arrangement affecting
Holdings or any of its subsidiaries, if any.
(e) Except for statutory liens for current Taxes not yet due, no liens for
Taxes exist upon the assets of any of Holdings or its subsidiaries.
(f) Except as set forth on Schedule 3.12(f), none of the property of
Holdings or any of its subsidiaries is held in an arrangement for which
partnership Tax Returns are being filed, and neither Holdings nor any of its
subsidiaries owns any interest in any controlled foreign corporation (as defined
in section 957 of the Code), passive foreign investment company (as defined in
section 1296 of the Code) or other entity the income of which is required to be
included in the income of Holdings or such subsidiary.
(g) Neither Holdings nor any of its subsidiaries has made an election under
section 341(f) of the Code.
(h) Neither Holdings nor any subsidiary has ever been a member of an
affiliated group of corporations (as defined in Section 1504(a) of the Code),
other than an affiliated group of which Holdings is the parent.
(i) Except for Canada, neither Holdings nor any subsidiary is or has ever
been subject to Taxes in any jurisdiction outside the United States.
(j) Neither Holdings nor, to the knowledge of Holdings, any of its
affiliates has taken or agreed to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of section
368(a) of the Code.
SECTION 3.13. Stockholders and Affiliates. Schedule 3.13 identifies all
persons who may, in the opinion of Holdings, be deemed to be "affiliates" of
Holdings for purposes of Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"), including, without limitation, all directors and executive
officers of Holdings (the "Affiliates").
SECTION 3.14. Material Contracts.
(a) Schedule 3.14(a) lists each agreement to which Holdings or any of its
subsidiaries is a party or by which Holdings or any of its subsidiaries is bound
that is material to the financial condition or results of operations or current
or future business or operations of Holdings or any of its subsidiaries
(collectively, the "Holdings Material Contracts"), including, without
limitation, (i) any contracts with directors, officers, stockholders, employees,
agents or representatives involving payments of at least $100,000 per year or
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$250,000 in the aggregate; (ii) any contract upon which Holdings' or any of its
subsidiary's business is substantially dependent, including without limitation
contracts to sell a major part of its products or services or to purchase a
major part of its requirements of products or services and distributorship,
marketing, agency, dealer or similar contracts; (iii) any franchise or license
or other agreement to use a trade secret, process or trade name upon which
Holdings' or any of its subsidiary's business depends to a material extent; (iv)
any executory contract for the acquisition or sale of any property, plant or
equipment for a consideration not included in Holdings' 1999 budget and
exceeding $1,000,000; (v) any lease under which any material property is leased
by or to Holdings or any of its subsidiaries; (vi) any agreement evidencing,
securing or otherwise relating to indebtedness for borrowed money; (vii) any
management contract or any compensatory plan, contract or arrangement with any
director or any officer; (viii) partnership or joint venture agreements; (ix)
contracts containing covenants of Holdings or any of its subsidiaries not to
compete in any line of business or with any person in any geographical area or
covenants of any other person not to compete with Holdings or any of its
subsidiaries in any line of business or in any geographical area; (x) contracts
relating to the acquisition by Holdings or any of its subsidiaries of any
operating business or the capital stock of any other person; or (xi) any other
contracts pursuant to the terms of which there is either a current or future
obligation or right of Holdings or any of its subsidiaries to make or receive
payments in excess of $500,000 in any year or $2,000,000 in the aggregate.
(b) There have been made available to the Company true and complete copies
of all the Holdings Material Contracts listed on Schedule 3.14(a) or any other
Schedule. All of the Holdings Material Contracts referred to in the preceding
sentence are valid and binding upon Holdings or one of its subsidiaries, as the
case may be, in accordance with their respective terms. Holdings and its
subsidiaries have performed in all material respects all of their obligations
under each Holdings Material Contract and there exists no material breach,
violation or default (or event that with notice or lapse of time would
constitute a material breach, violation or default) under any Holdings Material
Contract.
(c) Except as set forth in Schedule 3.14(c), no consent of any person is
required in connection with the transactions contemplated by this Agreement or
any of the other Holdings Documents in order to preserve the rights of Holdings
or any of its subsidiaries under any Holdings Material Contract after the
Effective Time.
SECTION 3.15. Insurance. Holdings and each of its subsidiaries are
currently insured, and since December 1, 1996 have been insured, for reasonable
amounts against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured. All of Holdings'
and its subsidiaries' policies of insurance are in full force and effect, all
premiums due with respect thereto have been paid, and no notice of cancellation
or termination has been received with respect to any such policies. Schedule
3.15 sets forth the amount of each pending claim in an amount exceeding $50,000
made by Holdings to the insurers under such policies and each other claim in an
amount exceeding $100,000 made by Holdings to the insurers under such policies
since December 31, 1997.
SECTION 3.16. Properties. Except as set forth on Schedule 3.16 and
properties and assets disposed of in the ordinary course of business after
December 26, 1998, Holdings and its subsidiaries have good and merchantable
title, free and clear of all Liens, to all their material properties and assets,
whether tangible or intangible, real, personal or mixed, reflected in the
December 26, 1998 consolidated balance sheet of Holdings as being owned by
Holdings and its subsidiaries as of the date thereof or purported to be owned on
the date hereof.
SECTION 3.17. Year 2000 Compliance. Except as set forth on Schedule 3.17,
all hardware, firmware, software and computer systems of Holdings and its
subsidiaries and to Holdings' knowledge, of their respective material customers
and suppliers, are, or will be by the Effective Time, Year 2000 Compliant (as
hereinafter defined) and shall continue to function in accordance with their
intended purpose without material error or material interruption as a result of
the transition to the year 2000. Schedule 3.17 includes (a) a reasonable
estimate of the additional costs Holdings and its subsidiaries will incur to
become Year 2000 Compliant; (b) a reasonable estimate as to when such costs will
be incurred and (c) a summary of the implementation plan of Holdings and its
subsidiaries to become Year 2000 Compliant. As used herein, "Year 2000
Compliant" means, with respect to any person, that the hardware, firmware,
software and computer systems of such person
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(a) will completely and accurately address, produce, store and calculate data
involving dates before, on and after January 1, 2000 and will not produce
abnormally ending or incorrect results involving such dates as used in any
forward or regression dated based functions; and (b) will provide that all
"date'-related functionalities and data fields include the indication of century
and millennium, and will perform calculations which involve a four-digit year.
SECTION 3.18. Intellectual Property Rights. There are no registered
patents, trademarks, service marks, trade names or copyrights, or applications
for or licenses (to or from Holdings or any of its subsidiaries) with respect to
any of the foregoing, that (a) is owned by Holdings or any of its subsidiaries,
or with respect to which Holdings or any of its subsidiaries has any rights, or
(b) is used, whether directly or indirectly, by Holdings or any of its
subsidiaries, other than the trade names and trademarks set forth on Schedule
3.18. Except as set forth on Schedule 3.18, Holdings or its subsidiaries owns or
has the exclusive right to use, sell, license and dispose of all of the trade
names and trademarks listed on Schedule 3.18. Neither Holdings nor any of its
subsidiaries has to its knowledge infringed upon or otherwise violated the
intellectual property rights of third parties or received any pending written
claim alleging any infringement or violation.
SECTION 3.19. Customers and Suppliers. Schedule 3.19 sets forth a list of
the ten largest customers and ten largest suppliers of Holdings and its
subsidiaries, taken as a whole, during the twelve months ended December 26,
1998. Since such date, except as set forth on Schedule 3.19, none of such
customers or suppliers has canceled or otherwise modified in any material
adverse respect its relationship with Holdings, and Holdings has not received
notice or is otherwise aware that any such customer or supplier intends to
cancel or otherwise modify in any material adverse respect its relationship with
Holdings.
SECTION 3.20. Vote Required. The Merger and this Agreement have been
approved by any required vote of Holdings Common Stock and Holdings Preferred
Stock, subject to the terms of the Fisher Consent.
SECTION 3.21. Brokers. Except for Salomon Smith Barney Inc. pursuant to an
engagement letter with Holdings (as amended), a true and complete copy of which
has been furnished to Company, and Rosecliff, Inc. ("Rosecliff") and Buttonwood
Capital ("Buttonwood") pursuant to their respective consulting agreements with
Holdings, true and complete copies of which have been furnished to Company, and
in the amounts disclosed in Schedule 5.02, no broker, finder, investment banker
or other person is entitled to any brokerage, finder's, financial advisory or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Holdings.
SECTION 3.22. Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of Holdings contained in this Agreement and no statement by Holdings or other
information contained in any schedule to this Agreement, as of the date of such
representation, warranty or statement, contains any untrue statement of material
fact, or omits to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements were made, not misleading.
SECTION 3.23. Transactions with Affiliates. Other than the transactions
contemplated by this Agreement and except to the extent disclosed in writing
prior to the execution and delivery of this Agreement, since January 1, 1998
there have been no transactions, agreements, arrangements or understandings
between Holdings or its subsidiaries, on the one hand, and Holdings' affiliates
(other than subsidiaries of Holdings) or any other person, on the other hand,
that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act if Holdings were subject thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Holdings that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of Company
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its
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business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary, other than where the failure to be so duly qualified
and in good standing would not have a Material Adverse Effect on Company.
Schedule 4.01 sets forth a true and complete list of all of Company's directly
or indirectly owned subsidiaries, together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each subsidiary's
outstanding capital stock owned by Company or another subsidiary of Company.
SECTION 4.02. Charter and Bylaws. Company has made available to Holdings
complete and correct copies of the charter and bylaws, in each case as amended
or restated, of Company and each of its subsidiaries. Company is not in
violation of any of the provisions of its charter or bylaws.
SECTION 4.03. Capitalization.
(a) The authorized capital stock of Company consists of (i) 10,000,000
shares of Company Common Stock, of which as of March 11, 1999, (A) 5,239,051
shares were issued and outstanding, (B) no shares were held in treasury, and (C)
1,932,572 shares were reserved for future issuance pursuant to Company's
employee stock option plans, warrants and contingent seller notes incurred in
connection with acquisitions; and (ii) 1,000,000 shares of preferred stock, par
value $1.00 per share, of which no shares are issued and outstanding. Except as
described in this Section 4.03, no shares of capital stock of Company are
reserved for any purpose. The outstanding shares of capital stock of Company and
its subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and have not been issued in violation of any securities laws,
preemptive or similar rights created by statute, the charter or bylaws of
Company or any of its subsidiaries, or any agreement to which Company or any of
its subsidiaries is a party or bound.
(b) Except as set forth in Section 4.03(a) above or in Schedule 4.03(b),
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character to which Company or any of its subsidiaries are a
party relating to the issued or unissued capital stock of Company or any of its
subsidiaries or obligating Company or any of its subsidiaries to grant, issue or
sell any shares of its capital stock. Except as set forth in Schedule 4.03(b),
there are no obligations, contingent or otherwise, of Company or any of its
subsidiaries to (i) repurchase, redeem or otherwise acquire any shares of the
capital stock of Company or any of its subsidiaries or (ii) provide material
funds to, or make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any other person, other than advances to subsidiaries in the
normal course of business. Except as described in Schedule 4.03(b), neither
Company nor any of its subsidiaries (x) directly or indirectly owns, (y) has
agreed to purchase or otherwise acquire or (z) holds any interest convertible
into or exchangeable or exercisable for, any capital stock (or equivalent equity
interest) of any corporation, partnership, joint venture or other business
association or entity. Except as set forth in Schedule 4.03(b), no options,
warrants or other rights, agreements, arrangements or commitments of any
character obligating Company or any of its subsidiaries to grant, issue or sell
any shares of its capital stock will be in effect.
(c) Upon issuance, the Merger Shares will be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, the Surviving Corporation's charter or bylaws or any
agreement to which Company is a party or is bound.
SECTION 4.04. Authority. Company has all requisite corporate power and
authority to execute and deliver this Agreement and the other agreements,
documents, instruments and certificates contemplated by this Agreement to which
it is a party (collectively with this Agreement, the "Company Documents"), to
perform its obligations hereunder and under the other Company Documents and to
consummate the transactions contemplated hereby and thereby (subject to, with
respect to the consummation of the Merger, the adoption and approval of this
Agreement and the Merger by the holders of Company Common Stock as described in
Section 4.19). The execution and delivery of this Agreement and the other
Company Documents by Company and the consummation by Company of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of Company are
necessary to authorize this Agreement or the other Company Documents or to
consummate the transactions contemplated hereby or thereby (subject to, with
respect to the consummation of the Merger, the
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adoption and approval of this Agreement and the Merger by the holders of Company
Common Stock as described in Section 4.19). This Agreement has been duly
executed and delivered by Company and constitutes the legal, valid and binding
obligation of Company enforceable against Company in accordance with its terms,
and upon execution and delivery, the other Company Documents will constitute
legal, valid and binding obligations of Company enforceable against Company in
accordance with their terms.
SECTION 4.05. No Conflict; Required Filings and Consent.
(a) Except as set forth on Schedule 4.05(a), the execution and delivery of
this Agreement and the other Company Documents by Company does not, and the
consummation of the transactions contemplated hereby and thereby will not (i)
conflict with or violate the charter or bylaws, in each case as amended or
restated, of Company or any of Company's subsidiaries, (ii) conflict with or
violate in any material respect any Laws applicable to Company or any of its
subsidiaries or by which any of their properties is bound or subject, or (iii)
result in any breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a Lien on any of the properties or assets of
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or any of its subsidiaries is a party
or by or to which Company or any of its subsidiaries or any of their respective
properties is bound or subject.
(b) The execution and delivery of this Agreement and the other Company
Documents by Company does not, and the consummation of the transactions
contemplated hereby and thereby will not, require Company to obtain any consent,
license, permit, approval, waiver, authorization or order of, or to make any
filing with or notification to, any Governmental Entities, except for (i) the
filing of a premerger notification and report form by Company under the HSR Act;
(ii) the filing of the Proxy Statement and the Registration Statement (as such
terms are defined in Section 5.13(a)) with the Securities and Exchange
Commission (the "SEC"); (iii) the filing of the certificate of merger with the
Texas Secretary of State and a certificate of merger with the Delaware Secretary
of State and appropriate documents with the relevant authorities of other states
in which Company is qualified to do business; (iv) the filing of notifications
that may be required by PACA; (v) such other filings and consents set forth on
Schedule 4.05(b) that may be required under any Environmental Laws pertaining to
any notification, disclosure or required approval necessitated by the Merger or
the transactions contemplated by this Agreement or the other Company Documents;
and (vi) such consents, approvals, orders or authorizations the failure of which
to be made or obtained could not reasonably be expected to have a Material
Adverse Effect on Company or prevent or materially delay the consummation of the
Merger.
SECTION 4.06. Compliance With Laws
(a) Each of Company and its subsidiaries is in possession of all material
franchises, grants, authorizations, licenses (including licenses under PACA),
permits, easements, variances, exemptions, consents, certificates, approvals and
orders which are material to the operation of the business of Company and its
subsidiaries taken as a whole (collectively, the "Company Permits"), and there
is no action, proceeding or investigation pending or, to the knowledge of
Company, threatened regarding suspension or cancellation of any of the Company
Permits. Company and its subsidiaries are in compliance in all material respects
with the terms of the Company Permits. Neither Company nor any of its
subsidiaries is in conflict with, or in default or violation of, any order,
judgment or decree applicable to Company or any of its subsidiaries or by which
any property or asset of Company or any of its subsidiaries is bound or
affected. The businesses of Company and its subsidiaries are being conducted in
compliance in all material respects with the Laws of Governmental Entities,
including PACA and similar state Laws. No action, demand, requirement or
investigation by any Governmental Entity with respect to Company or any of its
subsidiaries is pending or, to the knowledge of Company, threatened, other than,
in each case, those the outcome of which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on Company.
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(b) Except as disclosed on Schedule 4.06(b):
(i) Company and its subsidiaries are in material compliance with all
Environmental Laws that are applicable to Company or its subsidiaries or
their respective properties or assets;
(ii) Company and its subsidiaries have all permits and authorizations
required pursuant to Environmental Laws; all such permits and
authorizations are in full force and effect; and no actions are pending or
threatened to revoke, limit or modify any of such permits or
authorizations; and
(iii) no material Environmental Claims are pending or threatened
against Company or its subsidiaries and there are no civil, criminal or
administrative judgments or notices of violation against Company or its
subsidiaries pursuant to Environmental Laws.
For purposes of this Section 4.06(b), "Environmental Claims" shall mean any
written notification pursuant to Environmental laws that any of the current or
past operations of Company or its subsidiaries, or any of the property owned,
leased or operated by Company or its subsidiaries in connection with their
respective businesses, is or may be implicated in or subject to any proceeding,
action, complaint, suit, demand, litigation, investigation, claim, order,
hearing, notice or agreement by any governmental authority or any other person.
SECTION 4.07. SEC Reports; Financial Statements.
(a) Since April 14, 1994, Company and its subsidiaries have filed all
material forms, reports, statements and other documents (including all material
exhibits, annexes, supplements and amendments to such documents) required to be
filed with the SEC, including, without limitation, (i) all Annual Reports on
Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy statements
relating to meetings of shareholders (whether annual or special), (iv) all
Current Reports on Form 8-K and (v) all other material reports, registration
statements or other documents (collectively, the "SEC Reports"). The SEC
Reports, including all SEC Reports filed after the date of this Agreement and
prior to the Effective Time, (x) were, or will be, prepared in all material
respects in accordance with the requirements of applicable Law, and (y) did not
at the time they were filed, or will not at the time they are filed, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. No
subsidiary of the Company is subject to the periodic reporting requirements of
the Exchange Act or is otherwise required to file any documents with the SEC or
any national security exchange or quotation service or comparable Governmental
Entity.
(b) Each of the consolidated balance sheets of Company and its subsidiaries
and the consolidated statements of operations, shareholder's equity and cash
flows (including, in each case, any related notes thereto) contained in the SEC
Reports filed prior to the Effective Time (i) have been, or will be, prepared in
accordance with the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except to the extent required by changes in generally accepted
accounting principles and with respect to SEC Reports filed prior to the date of
this Agreement, as may be indicated in such SEC Reports), and (ii) fairly
present, or will fairly present, in all material respects the consolidated
financial position of Company and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated, except that (x) any unaudited interim financial statements
were, or will be, subject to normal and recurring year-end adjustments that
individually or in the aggregate will not be material and (y) any unaudited pro
forma financial information contained in such consolidated financial statements
is not necessarily indicative of the consolidated financial position of Company
and its subsidiaries as of the respective dates thereof and the consolidated
results of operations and cash flows for the periods indicated.
SECTION 4.08. Absence of Certain Changes or Events. Except as set forth in
Schedule 4.08 or in the SEC Reports or as otherwise contemplated by this
Agreement, since January 1, 1999, each of Company and its subsidiaries has
conducted its business only in the ordinary course and in a manner consistent
with past practice since such date and there has not been: (a) any material
damage, destruction or loss (whether or not covered by insurance) with respect
to any assets of Company or any of its subsidiaries; (b) any material
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change to Company or any of its subsidiaries in their accounting methods,
principles or practices; (c) any declaration, setting aside or payment of any
dividends or distributions in respect of shares of the capital stock of Company
or any of its subsidiaries, or any redemption, purchase or other acquisition by
Company or any of its subsidiaries of any of their securities; (d) any increase
in the benefits under, or the establishment or amendment of, any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option, stock purchase or other employee benefit plan, or any
increase in the compensation payable or to become payable to directors, officers
or key employees of Company or any of its subsidiaries, except for annual
increases in salaries or wages in the ordinary course of business and consistent
with past practice; (e) any revaluation by Company or any of its subsidiaries of
any of their assets, including the writing down or off of assets, other than in
the ordinary course consistent with past practice; (f) any entry by Company or
any of its subsidiaries into any commitment or transaction material to Company
and its subsidiaries taken as a whole, (g) any increase in indebtedness for
borrowed money; or (h) any event or circumstance that has had or could have a
Material Adverse Effect on Company.
SECTION 4.09. No Undisclosed Liabilities. Except (a) as set forth in the
SEC Reports, (b) as contemplated by this Agreement, and (c) for current
liabilities and obligations incurred since January 1, 1999 in the ordinary
course of business consistent with past practice, neither Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Company.
SECTION 4.10. Absence of Litigation. Except as set forth in Schedule 4.10,
there is no claim, action, suit, litigation, proceeding, arbitration or, to
Company's knowledge, investigation of any kind, at law or in equity (including
actions or proceedings seeking injunctive relief), pending or, to the knowledge
of Company, threatened against Company or any of its subsidiaries or any
properties or rights of Company or any of its subsidiaries, except for claims,
actions, suits, litigation, proceedings, arbitrations or investigations which
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on Company or could not prevent or materially delay
consummation of the Merger. Except as set forth on Schedule 4.10, neither
Company nor any of its subsidiaries is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of Company, continuing investigation by, any Governmental
Entity, or any judgment, order, writ, injunction, decree or award of any
Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
SECTION 4.11. Employee Benefit Plans; Labor Matters.
(a) Set forth in Schedule 4.11(a) is a list of all "employee benefit plans"
(as defined in ERISA), all material plans or policies providing for "fringe
benefits" (including but not limited to vacation, paid holidays, personal leave,
employee discount, educational benefit or similar programs), and each other
material bonus, incentive compensation, deferred compensation, profit sharing,
stock, severance, retirement, health, life, disability, group insurance, stock
appreciation right, supplemental unemployment, layoff, or any other similar
plan, agreement, policy or understanding, and any trust, escrow or other
agreement related thereto, which (i) is or has been established, maintained or
contributed to by Company or any of its subsidiaries or with respect to which
Company or any of its subsidiaries has any liability, including liability as a
result of being a Company ERISA Affiliate (as defined below), or (ii) provides
benefits, or describes policies or procedures applicable, to any current or
former officer, employee or director of Company or any of its subsidiaries, or
any dependent thereof, regardless of whether funded (collectively, the "Company
Employee Plans"). The term "Company ERISA Affiliate" shall mean any corporation,
trade or business the employees of which, together with the employees of
Company, are required to be treated as employed by a single employer under the
provisions of ERISA or Code Section 414.
(b) Except to the extent of coverage required under Code Section 4980B or
other applicable continuation of coverage laws, no representations have been
made to any current or former employee or officer of Company or any of its
subsidiaries promising or guaranteeing any coverage under any employee welfare
plan for any period of time beyond the end of the current plan year. Neither the
Merger nor the consummation of any other transaction contemplated by this
Agreement will accelerate the time of payment or vesting, or
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increase the amount of compensation (including amounts due under any Company
Employee Plans) due to any current or former employee or officer of Company or
any of its subsidiaries.
(c) There are no agreements which will or may provide payments as a result
of the transactions covered hereby to any officer, employee, shareholder or
highly compensated individual which will be "excess parachute payments" under
Code Section 280G that are nondeductible to Company or subject to tax under Code
Section 4999 for which Company or any of its subsidiaries would have withholding
liability.
(d) With respect to each Company Employee Plan (other than any Company
Multi-Employer Plans (as defined below)), Company has made available to Holdings
true, correct and complete copies of (i) the plan documents and summary plan
description; (ii) the most recent determination letter, if any, received from
the Internal Revenue Service; (iii) the annual reports required to be filed for
the two most recent plan years of each such Company Employee Plan; (iv) all
related trust agreements, insurance contracts or other funding agreements which
implement such Company Employee Plan; and (v) all other material documents,
records or other materials related thereto reasonably requested by Holdings.
(e) Each Company Employee Plan (other than any Company Multi-Employer Plans
(as defined below)) which purports to satisfy the requirements of Code Section
401(a) ("Company Qualified Plan") is qualified in form and operation under Code
Section 401(a) and each trust for each Company Qualified Plan is exempt from
federal income tax under Code Section 501(a). No event has occurred or
circumstances exist that will or could reasonably be expected to give rise to
disqualification or loss of tax exempt status of any Company Qualified Plan or
related trust.
(f) (i) No Company Employee Plan is a single employer plan that is subject
to Part 3 of Title I of ERISA or Title IV of ERISA; (ii) each Company Employee
Plan has been operated in all material respects in compliance with ERISA, the
Code and all other applicable Laws; (iii) none of the Company Employee Plans is
a "multiple employer plan" or "multi-employer plan" (as described or defined in
ERISA or the Code), and neither Company nor any Company ERISA Affiliate has
within the past six years contributed or been required to contribute to any such
plan, except for the multi-employer plans set forth on Schedule 4.11(f) (the
"Company Multi-Employer Plans"); and (iv) there are no material unfunded
liabilities existing under any Company Employee Plans (other than any Company
Multi-Employer Plans), and each such Company Employee Plan could be terminated
as of the Closing Date without any liability to Company, or any Company ERISA
Affiliate.
(g) Other than routine claims for benefits, there are no actions, suits,
claims, audits, or investigations pending or, to Company's knowledge, threatened
against, or with respect to, any of the Company Employee Plans (other than any
Company Multi-Employer Plans) or their assets; and all contributions required to
be made to the Company Employee Plans have been made timely.
(h) Except as described on Schedule 4.11(h), neither Company nor any of its
subsidiaries is a party to any collective bargaining or other labor union
contract. No collective bargaining agreement is being negotiated by Company or
any of its subsidiaries, and to Company's knowledge there is no organizing
effort or representation question pending. Company and its subsidiaries are in
compliance in all material respects with all applicable collective bargaining
agreements and Laws respecting employment, employment practices and wages and
hours.
(i) With respect to each Company Multi-Employer Plan, (i) Company and each
Company ERISA Affiliate has or will have, as of the Effective Time, made all
contributions to each Company Multi-Employer Plan required by the terms of such
Company Multi-Employer Plan or any collective bargaining agreement; and (ii)
except as set forth on Schedule 4.11(i), Company would not be subject to any
withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA if, as of
the Effective Time, Company or any Company ERISA Affiliate were to engage in a
complete withdrawal (as defined in ERISA Section 4203) or a partial withdrawal
(as defined in ERISA Section 4205) from any Company Multi-Employer Plan. Neither
Company nor any Company ERISA Affiliate has within the past six years (w)
incurred any liabilities under the provisions of Section 4062 of ERISA; (x)
withdrawn as a substantial employer so as to become subject to the provisions of
Section 4063 of ERISA; (y) ceased making contributions to any Company
Multi-Employer
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Plan; or (z) made a complete or partial withdrawal from a Company Multi-Employer
Plan so as to incur withdrawal liability as defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under
Section 4207 or 4208 of ERISA).
SECTION 4.12. Tax Matters.
(a) Except as set forth on Schedule 4.12(a), (i) all material Tax Returns
of or with respect to any Tax which is required to be filed on or before the
Closing Date by or with respect to Company or any of its subsidiaries have been
or will be duly and timely filed, (ii) all material items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
Return have been or will be so included and all information provided in each
such Tax Return is true, correct and complete in all material respects, (iii)
all material Taxes which have become or will become due with respect to the
period covered by each such Tax Return have been or will be timely paid in full,
and (iv) all withholding Tax requirements imposed on or with respect to Company
or any of its subsidiaries have been or will be satisfied in all material
respects.
(b) Except as set forth on Schedule 4.12(b), there is not in force any
extension of time with respect to the due date for the filing of any Tax Return
of or with respect to Company or any of its subsidiaries or any waiver or
agreement for any extension of time for the assessment, collection or payment of
any Tax of or with respect to Company or any of its subsidiaries.
(c) There are no material pending audits, actions, proceedings,
investigations, disputes or claims with respect to or against Company or any of
its subsidiaries for or with respect to any Taxes, and no material assessment,
deficiency or adjustment has been assessed or proposed with respect to any Tax
Return of or with respect to Company or any of its subsidiaries, other than
those set forth on Schedule 4.12(c).
(d) Company has previously delivered to Holdings true and complete copies
of each written Tax allocation or sharing agreement and a true and complete
description of each unwritten Tax allocation or sharing arrangement affecting
Company or any of its subsidiaries, if any.
(e) Except for statutory liens for current Taxes not yet due, no liens for
Taxes exist upon the assets of any of Company or its subsidiaries.
(f) Except as set forth on Schedule 4.12(f), none of the property of
Company or any of its subsidiaries is held in an arrangement for which
partnership Tax Returns are being filed, and neither Company nor any of its
subsidiaries owns any interest in any controlled foreign corporation (as defined
in section 957 of the Code), passive foreign investment company (as defined in
section 1296 of the Code) or other entity the income of which is required to be
included in the income of Company or such subsidiary.
(g) Neither Company nor any of its subsidiaries has made an election under
section 341(f) of the Code.
(h) Neither Company nor any subsidiary has ever been a member of an
affiliated group of corporations (as defined in Section 1504(a) of the Code),
other than an affiliated group of which Company is the parent.
(i) Except for Canada, neither Company nor any subsidiary is or has ever
been subject to Taxes in any jurisdiction outside the United States.
(j) Neither Company nor, to the knowledge of Company, any of its affiliates
has taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of section 368(a)
of the Code.
SECTION 4.13. Material Contracts.
(a) Schedule 4.13(a) lists each agreement to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries is bound
that is material to the financial condition or results of operations or current
or future business or operations of Company or any of its subsidiaries
(collectively, the "Company Material Contracts"), including, without limitation,
(i) any contracts with directors, officers, five percent or greater
stockholders, employees, agents or representatives involving payments of at
least $100,000 per year or $250,000 in the aggregate; (ii) any contract upon
which Company's or any of its subsidiary's business is substantially dependent,
including without limitation contracts to sell a major part of
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its products or services or to purchase a major part of its requirements of
products or services and distributorship, marketing, agency, dealer or similar
contracts; (iii) any franchise or license or other agreement to use a trade
secret, process or trade name upon which Company's or any of its subsidiary's
business depends to a material extent; (iv) any executory contract for the
acquisition or sale of any property, plant or equipment for a consideration not
included in Company's 1999 budget and exceeding $1,000,000; (v) any lease under
which any material property is leased by or to Company or any of its
subsidiaries; (vi) any agreement evidencing, securing or otherwise relating to
indebtedness for borrowed money; (vii) any management contract or any
compensatory plan, contract or arrangement with any director or any officer;
(viii) partnership or joint venture agreements; (ix) contracts containing
covenants of Company or any of its subsidiaries not to compete in any line of
business or with any person in any geographical area or covenants of any other
person not to compete with Company or any of its subsidiaries in any line of
business or in any geographical area; (x) contracts relating to the acquisition
by Company or any of its subsidiaries of any operating business or the capital
stock of any other person; or (xi) any other contracts pursuant to the terms of
which there is either a current or future obligation or right of Company or any
of its subsidiaries to make or receive payments in excess of $500,000 in any
year or $2,000,000 in the aggregate.
(b) There have been made available to Holdings true and complete copies of
all the Company Material Contracts listed on Schedule 4.13(a) or any other
Schedule. All of the Company Material Contracts referred to in the preceding
sentence are valid and binding upon Company or one of its subsidiaries, as the
case may be, in accordance with their respective terms. Company and its
subsidiaries have performed in all material respects all of their obligations
under each Company Material Contract and there exists no material breach,
violation or default (or event that with notice or lapse of time would
constitute a material breach, violation or default) under any Company Material
Contract.
(c) Except as set forth in Schedule 4.13(c), no consent of any person is
required in connection with the transactions contemplated by this Agreement or
any of the other Company Documents in order to preserve the rights of Company or
any of its subsidiaries under any Company Material Contract after the Effective
Time.
SECTION 4.14. Insurance. Company and each of its subsidiaries are currently
insured, and during each of the past three years have been insured, for
reasonable amounts against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured. All of
Company's and its subsidiaries' policies of insurance are in full force and
effect, all premiums due with respect thereto have been paid, and no notice of
cancellation or termination has been received with respect to any such policies.
Schedule 4.14 sets forth the amount of each pending claim in an amount exceeding
$50,000 made by Company to the insurers under such policies and each other claim
in an amount exceeding $100,000 made by Company to the insurers under such
policies since December 31, 1997.
SECTION 4.15. Properties. Except as set forth on Schedule 4.15 and
properties and assets disposed of in the ordinary course of business after
January 1, 1999, Company and its subsidiaries have good and merchantable title,
free and clear of all Liens, to all their material properties and assets,
whether tangible or intangible, real, personal or mixed, reflected in the
January 1, 1999 consolidated balance sheet of Company as being owned by Company
and its subsidiaries as of the date thereof or purported to be owned on the date
hereof.
SECTION 4.16. Year 2000 Compliance. Except as set forth in the SEC Reports
or on Schedule 4.16, all hardware, firmware, software and computer systems of
Company and its subsidiaries and to Company's knowledge, of their respective
material customers and suppliers, are, or will be by the Effective Time, Year
2000 Compliant and shall continue to function in accordance with their intended
purpose without material error or material interruption as a result of the
transition to the year 2000. Schedule 4.16 includes (a) a reasonable estimate of
the additional costs Company and its subsidiaries will incur to become Year 2000
Compliant, (b) a reasonable estimate as to when such costs will be incurred and
(c) a summary of the implementation plan of Company and its subsidiaries to
become Year 2000 Compliant.
SECTION 4.17. Intellectual Property Rights. There are no registered
patents, trademarks, service marks, trade names or copyrights, or applications
for or licenses (to or from Company or any of its subsidiaries) with
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respect to any of the foregoing, that (a) is owned by Company or any of its
subsidiaries, or with respect to which Company or any of its subsidiaries has
any rights, or (b) is used, whether directly or indirectly, by Company or any of
its subsidiaries, other than the trade names and trademarks set forth on
Schedule 4.17. Except as set forth on Schedule 4.17, Company or its subsidiaries
owns or has the exclusive right to use, sell, license and dispose of all of the
trade names and trademarks listed on Schedule 4.17. Neither Company nor any of
its subsidiaries has to its knowledge infringed upon or otherwise violated the
intellectual property rights of third parties or received any pending written
claim alleging any infringement or violation.
SECTION 4.18. Customers and Suppliers. Schedule 4.18 sets forth a list of
the ten largest customers and ten largest suppliers of Company and its
subsidiaries, taken as a whole, during the fiscal year ended January 1, 1999.
Since such date, except as set forth on Schedule 4.18, none of such customers or
suppliers has canceled or otherwise modified in any material adverse respect its
relationship with Company, and Company has not received notice or is otherwise
aware that any such customer or supplier intends to cancel or otherwise modify
in any material adverse respect its relationship with Company.
SECTION 4.19. Vote Required. The only vote of the shareholders of any class
or series of Company's capital stock necessary to approve the Merger and adopt
this Agreement is, the affirmative vote of the holders of a two-thirds of all
outstanding shares of Company Common Stock.
SECTION 4.20. Brokers. Except for Bear, Stearns & Co., Inc. pursuant to an
engagement letter with Company (as amended), a true and complete copy of which
has been furnished to Holdings, no broker, finder, investment banker or other
person is entitled to any brokerage, finder's, financial advisory or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Company.
SECTION 4.21. Opinion of Financial Advisor. Company has received the
opinion of Bear, Stearns & Co., Inc. to the effect that, as of the date of
delivery of such opinion, the Merger Consideration is fair to the shareholders
of Company from a financial point of view. The Company has delivered or will
deliver, promptly after receipt, a copy of the written opinion of Bear, Stearns
& Co., Inc., to such effect.
SECTION 4.22. Transactions with Affiliates. Other than the transactions
contemplated by this Agreement and except to the extent disclosed in the SEC
Reports or disclosed in writing prior to the execution and delivery of this
Agreement, since January 1, 1998 there have been no transactions, agreements,
arrangements or understandings between Company or its subsidiaries, on the one
hand, and Company's affiliates (other than subsidiaries of Company) or any other
person, on the other hand, that would be required to be disclosed under Item 404
of Regulation S-K under the Securities Act.
SECTION 4.23. Certain Statutes. The Board of Directors of Company has taken
or will take all appropriate and necessary actions to ensure that the
restrictions on business combinations in Section 203 of the DGCL will not have
any effect on the Merger or the other transactions contemplated by this
Agreement. No "fair price," "moratorium," "control share acquisition" or similar
state or federal anti-takeover statute or regulation applicable to Company (each
a "Takeover Statute") is, as of the date of this Agreement, applicable to the
Merger or any of the transactions contemplated by this Agreement.
SECTION 4.24. Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of Company contained in this Agreement and no statement by Company or other
information contained in any schedule to this Agreement, as of the date of such
representation, warranty or statement, contains any untrue statement of material
fact, or omits to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements were made, not misleading.
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ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of Holdings. Holdings hereby covenants
and agrees that, from the date of this Agreement to the Effective Time, unless
otherwise expressly contemplated by this Agreement or consented to in writing by
Company (which consent will not be unreasonably withheld or delayed), Holdings
will and will cause its subsidiaries to:
(a) operate its business only in the usual and ordinary course consistent
with past practices and in compliance in all material respects with all
applicable Laws;
(b) use reasonable commercial efforts to preserve intact its business
organization, maintain all Holdings Material Contracts, Holdings Permits and
other material rights, retain the services of all respective officers and key
employees and maintain relationships with material customers and suppliers;
(c) use reasonable commercial efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that currently
maintained;
(d) use reasonable commercial efforts to cause to be delivered to Company a
comfort letter from Ernst & Young LLP, dated within two business days before the
date of the mailing of the Proxy Statement to the shareholders of Company and
the stockholders of Holdings, addressed to Holdings and Company, in form and
substance reasonably satisfactory to Company and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with proxy statements and registration statements similar to the
Proxy Statement and Registration Statement; and
(e) promptly supplement or amend any schedule to this Agreement delivered
by Holdings with respect to any matter that arises or is discovered after the
date hereof that, if existing or known at the date hereof, would have been
required to be set forth or listed in any such schedule; provided, that, for
purposes of determining the rights and obligations of the parties hereunder
(other than the obligation of Holdings under this Section 5.01(e)), any such
supplemental or amended disclosure will be deemed to have been disclosed to
Company as of the date hereof unless Company otherwise objects in writing within
five business days after receipt.
SECTION 5.02. Negative Covenants of Holdings. Except for (i) the
termination payments to Rosecliff and Buttonwood with respect to the termination
of their respective Consulting Agreements with Holdings and in the amounts set
forth in Schedule 5.02; (ii) the payment of a $1,250,000 fee to Fisher at the
Effective Time and the payment in full at or prior to the Closing Date of the
subordinated promissory note executed by Holding to Fisher on November 21, 1996
and due November 20, 2006 (the "Fisher Note"); and (iii) except as expressly
contemplated by this Agreement or otherwise consented to in writing by Company
(which consent will not be unreasonably withheld or delayed), from the date of
this Agreement until the Effective Time, Holdings will not do, and will not
permit any of its subsidiaries to do, any of the foregoing:
(a) increase the compensation payable to or to become payable to any
director, officer, key employee or consultant (other than annual increases and
bonuses in the ordinary course of business consistent with past practices and
increases resulting from the operation of compensation arrangements in effect
prior to the date hereof), or grant any severance or termination pay (other than
pursuant to the normal severance policy of Holdings or its subsidiaries as in
effect on the date of this Agreement or as otherwise may be required under the
Workers Adjustment Retraining Notification Act) to, or enter into or amend any
employment or severance agreement with, any director, officer or key employee or
pay any benefit not required by any existing plan or arrangement (including the
granting of stock options, stock appreciation rights, shares of restricted stock
or performance units) or establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred compensation,
employment, termination, severance or other employee benefit plan, agreement,
trust, fund, policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees, except in each case to the extent
required by Law; provided, however, that nothing in this Agreement will be
deemed to prohibit the payment of benefits as they become payable;
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(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, except for dividends by a
wholly-owned subsidiary of Holdings to Holdings or another wholly-owned
subsidiary of Holdings;
(c) except for the exercise or exchange of Holdings Warrants for Holdings
Common Stock, (i) redeem, purchase or otherwise acquire any shares of its or any
of its subsidiaries' capital stock or any securities or obligations convertible
into or exchangeable for any shares of its or its subsidiaries' capital stock,
or any options, warrants or conversion or other rights to acquire any shares of
its or its subsidiaries' capital stock or any such securities or obligations;
(ii) effect any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its subsidiaries' capital stock;
(d) except for the exercise or exchange of Holdings Warrants for Holdings
Common Stock, (i) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any Liens)
of any shares of any class of its or its subsidiaries' capital stock (including
shares held in treasury), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to acquire
any such shares; or (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof;
(e) acquire or agree to acquire equity interests in or all or a portion of
the assets of any business or person (by purchase, merger, consolidation or any
other means), except for the purchasing of assets from suppliers or vendors in
the ordinary course of business consistent with past practice;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, any material portion of its assets, except for dispositions of
inventories, equipment and other assets in the ordinary course of business and
consistent with past practice;
(g) adopt or propose to adopt any amendments to its charter or bylaws;
(h) incur any obligation for borrowed money or purchase money indebtedness,
whether or not evidenced by a note, bond, debenture or similar instrument,
except under existing credit lines in the ordinary course of business consistent
with past practice and provided that the aggregate amount of all outstanding
indebtedness after giving effect to such incurrence in no event exceeds
$124,500,000;
(i) make any tax election or settle or compromise any income tax liability
that could reasonably be expected to be material to Holdings and its
subsidiaries taken as a whole;
(j) make any material commitments or agreements for capital expenditures or
capital additions or betterments except as materially consistent with the budget
for capital expenditures as of the date of this Agreement and consistent with
past practices;
(k) except in the ordinary course of business, modify, amend, assign or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which Holdings or any of its subsidiaries is a party or
waive any material rights of Holdings or any of its subsidiaries thereunder;
(l) make any material loans or advances to any other person, other than to
its wholly-owned subsidiaries and other than routine advances to employees or
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except in the ordinary course of business;
(m) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
practice or as required pursuant to applicable Law or generally accepted
accounting principles; or
(n) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03. Affirmative Covenants of Company. Company hereby covenants
and agrees that, from the date of this Agreement to the Effective Time, unless
otherwise expressly contemplated by this Agreement
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or consented to in writing by Holdings (which consent will not be unreasonably
withheld or delayed), Company will and will cause its subsidiaries to:
(a) operate its business only in the usual and ordinary course consistent
with past practices and in compliance in all material respects with all
applicable Laws;
(b) use reasonable commercial efforts to preserve intact its business
organization, maintain all material contracts, Company Permits and other
material rights, retain the services of all respective officers and key
employees and maintain relationships with material customers and suppliers;
(c) use reasonable commercial efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that currently
maintained;
(d) use reasonable commercial efforts to cause to be delivered to Holdings
a letter from KPMG LLP, dated within two business days before the date of the
mailing of the Proxy Statement to the shareholders of Company and the
stockholders of Holdings, addressed to Company and Holdings, in form and
substance reasonably satisfactory to Holdings and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with proxy statements and registration statements similar to the
Proxy Statement and Registration Statement;
(e) promptly supplement or amend any schedule to this Agreement delivered
by Company with respect to any matter that arises or is discovered after the
date hereof that, if existing or known at the date hereof, would have been
required to be set forth or listed in any such schedule; provided, that, for
purposes of determining the rights and obligations of the parties hereunder
(other than the obligation of Company under this Section 5.03(e)), any such
supplemental or amended disclosure will be deemed to have been disclosed to
Holdings as of the date hereof unless Holdings otherwise expressly objects in
writing within five business days after receipt; and
(f) enter into a Registration Rights Agreement with the Affiliates
substantially in the form of Exhibit J.
SECTION 5.04. Negative Covenants of Company. Except as expressly
contemplated by this Agreement or Schedule 5.04, or otherwise consented to in
writing by Holdings (which consent will not be unreasonably withheld or
delayed), from the date of this Agreement until the Effective Time, Company will
not do, and will not permit any of its subsidiaries to do, any of the foregoing:
(a) increase the compensation payable to or to become payable to any
director, officer, key employee or consultant (other than for annual merit
increases and bonuses in the ordinary course of business consistent with past
practices and increases resulting from the operation of compensation
arrangements in effect prior to the date hereof), or grant any severance or
termination pay (other than pursuant to the normal severance policy of Company
or its subsidiaries as in effect on the date of this Agreement or as otherwise
may be required under the Workers Adjustment Retraining Notification Act) to, or
enter into or amend any employment or severance agreement with, any director,
officer or key employee or pay any benefit not required by any existing plan or
arrangement (including the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units not permitted under Section
5.04(d)(i)(w)) or establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred compensation,
employment, termination, severance or other employee benefit plan, agreement,
trust, fund, policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees, except in each case to the extent
required by applicable Law; provided, however, that nothing in this Agreement
will be deemed to prohibit the payment of benefits as they become payable;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, except for dividends by a
wholly-owned subsidiary of Company to Company or another wholly-owned subsidiary
of Company;
(c) (i) redeem, purchase or otherwise acquire any shares of its or any of
its subsidiaries' capital stock or any securities or obligations convertible
into or exchangeable for any shares of its or its subsidiaries' capital stock,
or any options, warrants or conversion or other rights to acquire any shares of
its or its subsidiaries'
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capital stock or any such securities or obligations; (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any of
its or its subsidiaries' capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its or its subsidiaries' capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale (including the grant of any Liens) of
any shares of any class of its or its subsidiaries' capital stock, any
securities convertible into or exercisable or exchangeable for any such shares,
or any rights, warrants or options to acquire any such shares, except for (w)
the issuance of stock options under Company's employee stock option plans in
effect on the date hereof in the ordinary course and consistent with past
practice; provided, that such options can not be exercised prior to the
Effective Time; (x) the issuance of Company Common Stock upon the exercise of
employee stock options and warrants outstanding on the date of this Agreement;
and (y) the issuance of Company Common Stock upon conversion of all or any part
of contingent payment obligations incurred in connection with acquisitions made
prior to the date of this Agreement and disclosed on Schedule 4.03(b); and in
each of the cases set forth in the foregoing clauses (w), (x) and (y), in
accordance with their present terms; or (ii) amend or otherwise modify the terms
of any such rights, warrants, options, employee stock option plans or contingent
payment obligations the effect of which shall be to make such terms more
favorable to the holders thereof;
(e) acquire or agree to acquire equity interests in or all or a portion of
the assets of any business or person (by purchase, merger, consolidation or any
other means), except for the purchasing of assets from suppliers or vendors in
the ordinary course of business and consistent with past practice;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, any material portion of its assets, except for dispositions of
inventories, equipment and other assets in the ordinary course of business and
consistent with past practice;
(g) adopt or propose to adopt any amendments to its charter or bylaws;
(h) incur any obligation for borrowed money or purchase money indebtedness,
whether or not evidenced by a note, bond, debenture or similar instrument,
except under existing credit lines in the ordinary course of business consistent
with past practice and provided that the aggregate amount of all outstanding
indebtedness after giving effect to such incurrence in no event exceeds
$53,000,000;
(i) take any action which would result in a failure to maintain the trading
of Company Common Stock on NASDAQ;
(j) make any tax election or settle or compromise any income tax liability
that could reasonably be expected to be material to Company and its subsidiaries
taken as a whole;
(k) make any material commitments or agreements for capital expenditures or
capital additions or betterments except as materially consistent with the budget
for capital expenditures as of the date of this Agreement and consistent with
past practices;
(l) make any material loans or advances to any other person, other than to
its wholly-owned subsidiaries and other than routine advances to employees or
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except in the ordinary course of business;
(m) except in the ordinary course of business, modify, amend, assign or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which Company or any of its subsidiaries is a party or
waive any material rights of Company or any of its subsidiaries thereunder;
(n) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
practice or as required pursuant to applicable Law or generally accepted
accounting principles; or
(o) agree in writing to do any of the foregoing.
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SECTION 5.05. Financing Arrangement. Company and Holdings shall use their
reasonable commercial efforts to jointly arrange a senior credit facility of not
less than $195,000,000 to be provided to the Surviving Corporation immediately
after the Effective Time (the "Senior Financing"). The Senior Financing will be
on terms that are reasonably acceptable to each of Company's Board of Directors
and Holdings' Board of Directors.
SECTION 5.06. No Solicitation by Company.
(a) Company shall not, nor shall it permit any of its subsidiaries to, nor
shall it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes any
Company Competing Transaction (as hereinafter defined) or (ii) participate in
any discussions or negotiations regarding any Company Competing Transaction;
provided, however, that if, at any time prior to the approval and adoption of
the Merger and this Agreement by the requisite holders of Company Common Stock,
the Board of Directors of Company determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to Company's shareholders under applicable Law, Company may, in
response to a Company Competing Transaction which was not solicited by it or
which did not otherwise result from a breach of this Section 5.06(a), and
subject to compliance with Section 5.06(c), (x) furnish information with respect
to Company and its subsidiaries to any person pursuant to a customary
confidentiality agreement (as determined by Company after consultation with its
outside counsel), the benefits of the terms of which, if more favorable to the
other party to such Confidentiality Agreement than those in place with Holdings,
shall be extended to Holdings, and (y) participate in negotiations regarding
such Company Competing Transaction. For purposes of this Agreement, "Company
Competing Transaction" means any bona fide written inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of 20
percent or more of the assets of Company and its subsidiaries on a consolidated
basis or 20 percent or more of any class of equity securities of Company, or any
tender offer (including a self-tender offer), merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Company, other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 5.06, neither the Board
of Directors of Company nor any committee thereof shall (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to Holdings, the
approval or recommendation by such Board of Directors or such committee of the
Merger and this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Company Competing Transaction, or (iii) cause Company
to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement (each, a "Company Acquisition Agreement")
related to any Company Competing Transaction. Notwithstanding the foregoing, in
the event that prior to the approval and adoption of the Merger and this
Agreement by the requisite holders of Company Common Stock, the Board of
Directors of Company determines in good faith, after it has an offer for a
Company Superior Proposal (as defined below) and after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to Company's shareholders under applicable Law, the Board of Directors of
Company may, subject to Holdings' rights under Section 7.05, withdraw or modify
its approval or recommendation of the Merger and this Agreement or terminate
this Agreement and on at least two business days' notice and after such
termination, if it so chooses, cause Company to enter into any Company
Acquisition Agreement with respect to any Company Superior Transaction. For
purposes of this Agreement, a "Company Superior Proposal" means a Company
Competing Transaction on terms which the Board of Directors of Company
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to Company's
shareholders than the Merger and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Board of Directors of
Company, after consultation with its financial advisor, is reasonably likely to
be obtained by such third party.
(c) In addition to the obligations of Company set forth in subsections (a)
and (b) of this Section 5.06, Company shall immediately advise Holdings orally
and in writing of any request for information relating to
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any Company Competing Transaction or of any Company Competing Transaction,
including the material terms thereof and the identity of the person making such
request or Company Competing Transaction. Company will keep Holdings informed of
the status of any such request or Company Competing Transaction, including the
principal steps the Company is taking in response thereto.
(d) Nothing contained in this Section 5.06 shall prohibit Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act of 1934, as amended (the "Exchange
Act") or from making any disclosure to Company's shareholders if, in the good
faith judgment of the Board of Directors of Company, after consultation with
outside counsel, failure so to disclose would be inconsistent with its fiduciary
duties to Company's shareholders under applicable Law; provided, however, that
neither Company nor its Board of Directors nor any committee thereof shall,
except as permitted by Section 5.06(b), withdraw or modify, or propose publicly
to withdraw or modify, its position with respect to this Agreement and the
Merger, or approve or recommend, or propose publicly to approve or recommend, a
Company Competing Transaction.
SECTION 5.07. Access and Information.
(a) Holdings shall, and shall cause its subsidiaries to, (i) afford to
Company and its officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, the "Company
Representatives") reasonable access at reasonable times, upon reasonable prior
notice, to the officers, employees, agents, properties, offices and other
facilities of Holdings and its subsidiaries and to the books and records
thereof, and (ii) furnish promptly to Company and the Company Representatives
such information concerning the business, properties, contracts, records and
personnel of Holdings and its subsidiaries (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by Company.
(b) Company shall, and shall cause its subsidiaries to, (i) afford to
Holdings and its officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, the "Holdings
Representatives") reasonable access at reasonable times, upon reasonable prior
notice, to the officers, employees, accountants, agents, properties, offices and
other facilities of Company and its subsidiaries and to the books and records
thereof, and (ii) furnish promptly to Holdings and the Holdings Representatives
such information concerning the business, properties, contracts, records and
personnel of Company and its subsidiaries (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by Holdings.
(c) Notwithstanding the foregoing provisions of this Section 5.07, neither
party shall be required to grant access or furnish information to the other
party to the extent that such access or the furnishing of such information is
prohibited by Law or would waive any rights to privileged communications. No
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are herein contained and
each such representation and warranty shall survive such investigation.
(d) The information received pursuant to subsections (a) and (b) of this
Section 5.07 shall be deemed to be "Confidential Information" for purposes of
the reciprocal Confidentiality Agreements, dated September 28, 1998 between
Company and FreshPoint, Inc., a subsidiary of Holdings (the "Confidentiality
Agreements").
SECTION 5.08. Appropriate Action; Consents; Filings.
(a) Upon the terms and subject to the conditions hereof, each of Company
and Holdings shall use (and shall cause each of their respective subsidiaries to
use, as applicable) reasonable commercial efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger and the other transactions contemplated by this
Agreement; (ii) obtain from any Governmental Entities or other third parties any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Company or Holdings or any of their
subsidiaries, as applicable, in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby or required to prevent a Material Adverse Effect from occurring to
Company, Holdings or the Surviving
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Corporation; and (iii) make all necessary filings, and thereafter make any other
required submissions, with respect to this Agreement and the Merger required
under (u) the DGCL, (v) the Texas Act, (w) NASDAQ, (x) the Securities Act and
the Exchange Act and the rules and regulations thereunder, and any other
applicable federal or state securities Laws; (y) the HSR Act, and (z) any other
applicable Law.
(b) Each of Company and Holdings shall (and shall cause their respective
subsidiaries to, as applicable) cooperate and consult with each other in
connection with the making of all filings referred to in Section 5.08(a),
including providing copies of all such documents to the nonfiling party and its
advisors prior to filings and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith, and shall
furnish all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law.
(c) In the event that either Company or Holdings (or any of their
respective subsidiaries) shall fail to obtain any Governmental Entity or other
third party consent, waiver, approval, authorization or order required to be
obtained or made in connection with the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby, and
the parties agree to consummate the Merger without such consent, waiver,
approval, authorization or order, such party shall use its best efforts, and
shall take any such actions reasonably requested by the other party, prior to
Closing to limit the adverse effect upon the Surviving Corporation, its
respective subsidiaries, and their respective businesses resulting, which could
reasonably be expected to result after the Effective Time, from the failure to
obtain such consent, waiver, approval, authorization or order.
(d) Company and Holdings agree to cooperate with respect to, and shall
cause each of their respective subsidiaries, as applicable, to cooperate with
respect to, and agree to use best efforts vigorously to contest and resist, any
action, including legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (an "Order"), of any
Governmental Entity that is in effect and that restricts, prevents or prohibits
the consummation of the Merger or any other transaction contemplated by this
Agreement.
(e) Each of Company and Holdings shall promptly notify the other of (i) any
material change in its current or future business, financial condition or
results of operations, (ii) any material complaints, investigations or hearings
(or communications indicating that the same may be contemplated) of any
Governmental Entities with respect to its business or the transactions
contemplated hereby, (iii) the institution or the threat of material litigation
involving it or any of its subsidiaries, (iv) any material notice or
communication from any regulatory authority or NASDAQ in connection with the
Merger or the other transactions contemplated by this Agreement, or (v) any
event or condition that might reasonably be expected to cause any of its
representations, warranties, covenants or agreements set forth herein not to be
true and correct at the Effective Time.
(f) Each party hereto shall promptly inform the other of any material
communication from the Federal Trade Commission, the Department of Justice or
any other domestic or foreign government or governmental or multinational
antitrust authority regarding any of the transactions contemplated by this
Agreement. If any party or any affiliate thereof receives a request for
additional information or documentary material from any such government or
authority with respect to the transactions contemplated by this Agreement, then
such party will endeavor in good faith to make, or cause to be made, as soon as
reasonably practical after consultation with the other party, an appropriate
response in compliance with such request. Company will advise Holdings promptly
in respect of any understandings, undertakings or agreements (oral or written)
which Company proposes, or has proposed to it, to make or enter into with the
Federal Trade Commission, the Department of Justice or any other domestic or
foreign government or governmental or multinational authority in connection with
the transactions contemplated by this Agreement.
SECTION 5.09. Tax Treatment. Each party hereto shall use best efforts to
cause the Merger to qualify, and shall not take, and shall use best efforts to
prevent any affiliate of such party from taking, any actions which could prevent
the Merger from qualifying as a reorganization under the provisions of section
368(a) of the Code.
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SECTION 5.10. Public Announcements. Each party hereto shall consult with
the other parties hereto before issuing any press release or otherwise making
any public announcements with respect to the Merger and shall not issue any such
press release or make any such public announcements prior to such consultation,
except as otherwise required by applicable Law or the rules of NASDAQ. The press
release announcing the execution and delivery of this Agreement shall be a joint
press release of Company and Holdings.
SECTION 5.11. NASDAQ Listing. Company shall use best efforts to cause the
Merger Shares to be approved for listing (subject to official notice of
issuance) on NASDAQ prior to the Effective Time.
SECTION 5.12. Meeting of Shareholders. Company will, as soon as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a special meeting of its shareholders (the "Company Shareholders' Meeting")
for the purpose of obtaining the adoption and approval of this Agreement and the
Merger by its shareholders. Company will, through its Board of Directors,
recommend to its shareholders the adoption and approval of this Agreement and
the Merger, except to the extent that the Board of Directors of Company shall
have withdrawn or modified its approval or recommendation of the Merger and this
Agreement or terminated this Agreement in accordance with Section 5.06(b).
Company shall use its reasonable commercial efforts (through its agents or
otherwise) to solicit from its shareholders proxies in favor of the adoption of
this Agreement, and shall take all other reasonable action to seek the necessary
affirmative vote by its shareholders approving this Agreement and the Merger,
except to the extent that the Board of Directors of Company determines in good
faith after consultation with outside counsel that doing so would cause the
Board of Directors of Company to breach its fiduciary duties to Company's
shareholders under applicable law.
SECTION 5.13. Registration Statement; Proxy Statement.
(a) As promptly as practicable after the execution of this Agreement, (i)
Company shall prepare and Company shall file with the SEC a proxy statement
(together with any amendments thereof or supplements thereto, in each case in
the form or forms mailed to Company's shareholders, the "Proxy Statement") and
(ii) Company shall prepare and file with the SEC a registration statement to
register the Merger Shares (in which the Proxy Statement will be included) on
Form S-4 (such registration statement, together with any amendments thereof or
supplements thereto, being the "Registration Statement"). Holdings shall
cooperate with Company in the preparation of the Proxy Statement and the
Registration Statement and shall be provided a reasonable opportunity to review
and comment on such documents. Company shall, as promptly as practicable,
provide Holdings with any comments received from the SEC with respect to the
Proxy Statement or the Registration Statement. Company and Holdings shall
promptly advise the other if any event or circumstance arises with respect to it
or its affiliates or its officers or directors that should be set forth in a
supplement or amendment to the Proxy Statement or the Registration Statement.
Company shall use reasonable commercial efforts to cause the Registration
Statement to be declared effective as promptly as practicable, and shall use
reasonable commercial efforts to take any action required to be taken under any
applicable federal or state securities Laws in connection with the issuance of
the Merger Shares. As promptly as practicable after the Registration Statement
shall have been declared effective, each of Company and Holdings shall mail the
Proxy Statement to its respective shareholders. Company shall cause the
Registration Statement and the Proxy Statement to conform as to form and
substance in all material respects with all applicable requirements of (i) the
Exchange Act including Section 14(a) thereof, and the respective regulations
promulgated thereunder, (ii) the Securities Act, (iii) the rules and regulations
of NASDAQ, (iv) Delaware Law and (v) Texas Law.
(b) The Proxy Statement shall include the recommendation of the Board of
Directors of Company to the shareholders of Company that they vote in favor of
the adoption of this Agreement and the Merger; provided, however, that the Board
of Directors of Company may, at any time prior to the Effective Time, withdraw,
modify or change such recommendation if the Board of Directors of Company
determines in good faith after consultation with outside counsel that failure to
so withdraw, modify or change its recommendation would cause the Board of
Directors of Company to breach its fiduciary duties to Company's shareholders
under applicable law. In addition, the Proxy Statement will include a copy of
the written opinion of Bear Stearns referred to in Section 4.21.
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(c) No amendment or supplement to the Registration Statement or the Proxy
Statement will be made without the approval of each of Holdings and Company,
which approval will not be unreasonably withheld or delayed. Company will advise
Holdings promptly after it receives notice thereof, of the issuance of any stop
order, of the suspension of the qualification of the Company Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC or NASDAQ for amendment of the Registration Statement
or the Proxy Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(d) The information supplied by Holdings for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The information supplied by Holdings for
inclusion in the Proxy Statement shall not, at the date the Proxy Statement is
first mailed or at the time of the Company Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. If, at
any time prior to the Effective Time, any event or circumstance relating to
Holdings for any of its subsidiaries, or any of their respective officers or
directors, should be discovered by Holdings that should be set forth in an
amendment or supplement to the Registration Statement or the Proxy Statement,
Holdings shall promptly inform Company.
(e) The information supplied by Company for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The information supplied by Company for
inclusion in the Proxy Statement shall not, at the date the Proxy Statement is
first mailed or at the time of the Company Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. If, at
any time prior to the Effective Time, any event or circumstance relating to
Company or its subsidiaries, or any of their respective officers or directors,
should be discovered by Company that should be set forth in an amendment or
supplement to the Registration Statement or the Proxy Statement, Company shall
promptly inform Holdings.
SECTION 5.14. Insurance and Indemnification. (a) For a period of three
years after the Effective Time, the Surviving Corporation shall provide
officers' and directors' liability insurance in respect of acts or omissions
occurring up to and including the Effective Time covering each person currently
covered by Holdings' and Company's officers' and directors' liability insurance
policies on terms with respect to coverage and in amounts (including
deductibles) no less favorable than those of such policies in effect on the date
hereof. For a period of six years after the Effective Time, the Surviving
Corporation shall not amend or otherwise modify Article Nine of the articles of
incorporation of the Surviving Corporation (as in effect at the Effective Time)
in a manner that would adversely affect the indemnification rights thereunder of
any individuals who at any time prior to the Effective Time were directors or
officers of Holdings or Company in respect of acts or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), unless such amendment or modification is
required by Law.
(b) The provisions of this Section 5.14 are intended for the benefit of,
and shall be enforceable by, each insured or indemnified party and his or her
heirs and representatives.
SECTION 5.15. Employee Loans. Prior to the Effective Time, the principal
balance of the employee loans owing to Company and Holdings described on
Schedule 5.15 will be forgiven by Company or Holdings, as applicable.
SECTION 5.16. Takeover Statutes. If any "fair price", "moratorium",
"control share acquisition" or similar state or federal anti-takeover statute or
regulation is or may become applicable to the Merger or the transaction
contemplated hereby each of Company and Holdings and its respective Board of
Directors shall grant such approvals and take such actions as are necessary so
that such transactions may be consummated as
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promptly as practicable on the terms contemplated by this Agreement and
otherwise act to eliminate or minimize the effects of such statute or regulation
on such transactions.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.01. Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Closing Date of the following conditions, any or all of which
may be waived in writing by the parties hereto, in whole or in part, to the
extent permitted by applicable Law:
(a) This Agreement and the Merger shall have been approved by the requisite
vote of the shareholders of Company and the stockholders of Holdings.
(b) No Governmental Entity or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order,
whether temporary, preliminary or permanent (an "Order"), which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting or
materially delaying consummation of the Merger; and no such Governmental Entity
shall have initiated or threatened to initiate any proceeding seeking any of the
foregoing.
(c) The applicable waiting period under the HSR Act with respect to the
transactions contemplated by this Agreement shall have expired or been
terminated.
(d) The Senior Financing shall be in full force and effect as of the
Effective Time.
(e) Hughes & Luce, L.L.P. shall have delivered to each of Company, Holdings
and Holdings' stockholders its written opinion substantially to the effect that
(i) the Merger will constitute a reorganization within the meaning of section
368(a) of the Code, (ii) Company and Holdings will each be a party to that
reorganization within the meaning of section 368(b) of the Code, and (iii)
Company, Holdings and Holdings' stockholders will not recognize any gain or loss
for U.S. federal income tax purposes as a result of the Merger, except that
Hughes & Luce, L.L.P. shall not express an opinion concerning whether the
receipt of shares of Company Common Stock exchanged for Holdings Preferred
Stock, insofar as measured with respect to accrued and unpaid dividends on
Holdings Preferred Stock, will result in taxable income to the holders of
Holdings Preferred Stock.
(f) Each of David Sheinfeld, Mitt Parker, Brian Sturgeon and John Gray
shall have entered into an employment agreement with the Surviving Corporation
substantially in the form of Exhibit D, which shall be signed as of the date
hereof and shall be in full force and effect on the Closing Date.
(g) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order. The Proxy Statement shall have been delivered to the
shareholders of the Company in accordance with the requirements of the Exchange
Act.
(h) The Company shall have received all state securities and "blue sky"
permits and approvals necessary to consummate the Merger and the transactions
contemplated hereby.
(i) The Fisher Consent shall be in full force and effect without amendment
or modification since the date of this Agreement, and the Fisher Note shall have
been paid in full at or prior to the Closing Date, and all obligations of
Holdings or any of its subsidiaries thereunder shall be released upon payment of
all obligations thereunder.
(j) The shareholders listed on Schedule 6.01(j) shall have entered into a
Shareholders' Agreement with the Company and subsidiary substantially in the
form of Exhibit F.
SECTION 6.02. Additional Conditions to Obligations of Company. The
obligations of Company to effect the Merger and the other transactions
contemplated hereby are also subject to the satisfaction at or prior to
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the Closing Date of the following conditions, any or all of which may be waived
in writing by Company, in whole or in part:
(a) Each of the representations and warranties of Holdings set forth in
this Agreement that contains any materiality qualification shall be true and
correct in all respects as of the Closing Date as though made on and as of the
Closing Date (except to the extent any such representation and warranty
specifically relates to an earlier date, in which case such representation and
warranty shall be true and correct in all respects as of such earlier date), and
each of the representations and warranties of Holdings set forth in this
Agreement that does not contain any materiality qualification shall be true and
correct in all material respects as of the Closing Date as though made on and as
of the Closing Date (except to the extent any such representation and warranty
specifically relates to an earlier date, in which case such representation and
warranty shall be true and correct in all material respects as of such earlier
date). Company shall have received certificates of the President and the Chief
Financial Officer of Holdings dated the Closing Date, to such effect.
(b) Holdings shall have performed or complied in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. Company shall have received
certificates of the President and the Chief Financial Officer of Holdings, as
applicable, dated the Closing Date, to that effect.
(c) Since December 26, 1998, there shall have been no change, event,
occurrence or circumstance in the current or future business, financial
condition or results of operations of Holdings or any of its subsidiaries having
or reasonably likely to have a Material Adverse Effect on Holdings. Company
shall have received a certificate of the President and the Chief Financial
Officer of Holdings, dated the Closing Date, to such effect.
(d) Counsel to Holdings shall provide a written legal opinion to Company,
in form and substance satisfactory to Company and its counsel, covering the
matters set forth in Exhibit E.
(e) All of the Holdings Warrants shall have been exchanged or exercised for
shares of Holdings Common Stock.
(f) Holdings shall have delivered to Company affiliate letters executed by
the Affiliates substantially in the form of Exhibit G.
(g) Holdings shall provide written evidence to Company of the termination
of the credit facility of Holdings and its subsidiaries with NationsBank of
Texas, N.A. at or prior to the Effective Time, and all obligations of Holdings
or any of its subsidiaries thereunder shall be released upon payment of all
obligations thereunder.
(h) Holdings shall provide written evidence to Company of the termination
of the consulting agreements with Rosecliff and Buttonwood as of the Effective
Time, and all obligations of Holdings or any of its subsidiaries to Rosecliff
and Buttonwood thereunder or otherwise shall be terminated as of the Effective
Time.
(i) Holdings shall provide written evidence that all filings,
authorizations, consents, approvals or other actions listed on Schedule 6.02(i)
shall have been filed, obtained, or taken, as the case may be.
(j) Holdings shall provide written evidence that all of the Company Common
Stock received by the Holdings stockholders described in the shareholder summary
in Schedule 3.03(a), except for those listed under the caption "Rosecliff
Investors and Affiliates" on that schedule, shall have been distributed at or
promptly after the Closing Date.
SECTION 6.03. Additional Conditions to Obligations of Holdings. The
obligations of Holdings to effect the Merger and the other transactions
contemplated hereby are also subject to the satisfaction at or prior to the
Closing Date of the following conditions, any or all of which may be waived in
writing by Holdings, in whole or in part:
(a) Each of the representations and warranties of Company set forth in this
Agreement that contains any materiality qualification shall be true and correct
in all respects as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representation and warranty specifically
relates to an earlier date, in which case such representation and warranty shall
be true and correct in all respects as of such
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earlier date), and each of the representations and warranties of Company set
forth in this Agreement that does not contain any materiality qualification
shall be true and correct in all material respects as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation and warranty specifically relates to an earlier date, in which
case such representation and warranty shall be true and correct in all material
respects as of such earlier date). Holdings shall have received a certificate of
the President and the Chief Financial Officer of Company, dated the Closing
Date, to such effect.
(b) Company shall have performed or complied in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. Holdings shall have
received a certificate of the President and the Chief Financial Officer of
Company, dated the Closing Date, to that effect.
(c) Since October 2, 1998, there shall have been no change, event,
occurrence or circumstance in the current or future business, financial
condition or results of operations of Company or any of its subsidiaries having
or reasonably likely to have a Material Adverse Effect on Company. Holdings
shall have received a certificate of the President and the Chief Financial
Officer of Company, dated the Closing Date, to such effect.
(d) Company shall provide written evidence that all filings,
authorizations, consents, approvals or other actions listed on Schedule 6.03(d)
shall have been filed, obtained or taken, as the case may be.
(e) Counsel to Company shall provide a written legal opinion to Holdings,
in form and substance satisfactory to Holdings and its counsel, covering the
matters set forth in Exhibit I.
(f) Company shall provide written evidence to Holdings of the termination
of the credit facility of Company and its subsidiaries with Bank of America
Texas, N.A. at or prior to the Effective Time, and all obligations of Company or
any of its subsidiaries thereunder shall be released upon payment of all
obligations thereunder.
(g) The Merger Shares shall be approved for listing on NASDAQ.
(h) The Affiliates shall have entered into a Registration Rights Agreement
with the Company substantially in the form of Exhibit J.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the shareholders of Company or Holdings:
(a) by mutual written consent of Company and Holdings;
(b) by either Company or Holdings, if there shall be any Order which is
final and nonappealable preventing the consummation of the Merger, except if the
party relying on such Order to terminate this Agreement has not complied with
its obligations under Section 5.08(d) of this Agreement;
(c) by either Company or Holdings, if the Merger shall not have been
consummated before September 30, 1999 unless the failure to consummate the
Merger by such date is the result of a willful material breach of this Agreement
by the party seeking to terminate;
(d) by either Company or Holdings if this Agreement and the Merger shall
fail to receive the requisite vote for approval and adoption at the Company
Shareholders' Meeting;
(e) by Holdings, upon a breach of any representation, warranty, covenant or
agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either case
such that the conditions set forth in Section 6.03(a), (b), (c) or (d), as the
case may be, would be incapable of being satisfied by September 30, 1999;
provided, that in any case, a willful material
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breach shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 7.01(e);
(f) by Holdings, if the Board of Directors of Company or any committee
thereof shall have withdrawn or modified in a manner adverse to Holdings its
approval or recommendation of the Merger or this Agreement or failed to
reconfirm its recommendation within 15 business days after a written request to
do so, or approved or recommended any Company Competing Transaction;
(g) by Company, upon a breach of any representation, warranty, covenant or
agreement on the part of Holdings set forth in this Agreement, or if any
representation or warranty of Holdings shall have become untrue, in either case
such that the conditions set forth in Section 6.02(a), (b), (c) or (i), as the
case may be, would be incapable of being satisfied by September 30, 1999;
provided, that in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this Section
7.01(g); or
(h) by Company, in accordance with Section 5.06(b), provided that it has
complied with all provisions thereof, including the notice provisions therein,
and that it complies with applicable requirements of Section 7.05.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 7.02. Effect of Termination. Except as provided in Section 5.06(b),
7.05, 9.01 or this Section 7.02, in the event of the termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void,
there shall be no liability on the part of the parties to the other parties and
all rights and obligations of any party hereto shall cease, except to the extent
that such termination results from the willful breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, in which case the non-breaching party shall have the rights and
remedies available to it at Law or in equity as a result of such willful breach.
SECTION 7.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
or committee thereof, as applicable, at any time prior to the Effective Time;
provided, however, (a) no amendment, which under applicable Law may not be made
without the approval of the shareholders of Holdings, may be made without such
approval and (b) no amendment, which under applicable Law, may not be made
without the approval of the stockholders of Company, may be made without such
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 7.04. Waiver. Subject to Section 7.03, at any time prior to the
Effective Time, any party hereto may (a) extend the time for the performance of
any of the obligations or other acts of any other party hereto, (b) waive any
inaccuracies in the representations and warranties of any other party contained
herein or in any document delivered pursuant hereto, or (c) waive compliance by
any other party with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
SECTION 7.05. Expenses and Other Payments.
(a) Except as set forth in this Section 7.05, all Expenses incurred by
Company in connection with the negotiation, execution and performance of this
Agreement or any of the transactions contemplated hereby shall be borne solely
and entirely by Company, and all Expenses incurred by Holdings in connection
with the negotiation, execution and performance of this Agreement or any of the
transactions contemplated hereby shall be borne solely and entirely by Holdings;
provided, however, that Expenses borne by Holdings shall not include any
out-of-pocket expenses of counsel and advisors to Fisher or counsel and advisors
to the estate of Peter T. Joseph.
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(b) Holdings and Company agree that if this Agreement is terminated by
Company pursuant to Sections 7.01(c), (d) or (h) or by Holdings pursuant to
Sections 7.01(c), (d) or (f), and at or prior to such termination there exists a
Company Competing Transaction and prior to or within 12 months of such
termination, Company recommends or enters into a letter of intent or definitive
agreement for, or consummates, a Company Competing Transaction, Company shall
pay to Holdings a termination fee equal to $3,000,000, plus all documented
out-of-pocket Expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by Holdings in connection with this
Agreement and the transactions contemplated by this Agreement in an amount not
to exceed $750,000.
(c) Holdings and Company agree that if this Agreement is terminated (i) by
Holdings pursuant to Section 7.01(e), subject to the provision in Section 7.02
regarding willful breach, Company shall reimburse all of Holdings' Expenses
relating to the Merger in an amount not to exceed $1,000,000; provided, however,
that Expenses borne by Holdings shall not include any out-of-pocket expenses of
counsel and advisors to Fisher or counsel and advisors to the estate of Peter T.
Joseph, or (ii) by Company pursuant to Section 7.01(g), subject to the provision
in Section 7.02 regarding willful breach, Holdings shall reimburse all of
Company's Expenses relating to the Merger in an amount not to exceed $1,000,000.
(d) Any payment required to be made pursuant to Section 7.05(b) shall be
made contemporaneously with the recommendation, execution of a letter of intent
or definitive agreement or consummation, as applicable, of the Company Competing
Transaction, and shall be made by wire transfer of immediately available funds
to an account designated by Holdings.
(e) Any filing fees under the HSR Act shall be shared equally by Holdings
and Company.
(f) Company and Holdings acknowledge that the agreements contained in this
Section 7.05 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Holdings and Company would not
enter into this Agreement; accordingly, if either Company or Holdings fails to
pay promptly the amount due pursuant to this Section 7.05, and, in order to
obtain such payment, the other party commences a suit which results in a
judgment against Company or Holdings for such amount, Company shall pay to
Holdings or Holdings shall pay to Company Expenses in connection with such suit,
together with interest on the amount of such amount at the prime rate of Bank of
America in effect on the date such payment was required to be made.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 8.01(b), the representations, warranties
and agreements of each party hereto shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers,
directors, representatives or agents, whether prior to or after the execution of
this Agreement.
(b) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VII, except that the agreements set forth in Articles I, II
and VIII shall survive the Effective Time and those set forth in Sections 7.02
and 7.05 and Article VIII shall survive termination. Nothing herein shall be
construed to cause the Confidentiality Agreements to terminate upon the
termination of this Agreement pursuant to Article VII.
SECTION 8.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at
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such other address for a party as shall be specified by like changes of address)
or sent by electronic transmission to the facsimile number specified below:
(a) If to Company, to:
Fresh America Corp.
6600 LBJ Freeway
Suite 180
Dallas, Texas 75240
Attention: David I. Sheinfeld
Facsimile: (972) 774-0515
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
Facsimile: (214) 939-5849
(b) If to Holdings, to:
FreshPoint Holdings, Inc.
15305 Dallas Parkway
Suite 1010
Dallas, Texas 75248
Attention: Mitt Parker
Facsimile: (972) 392-8120
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Kenneth M. Schneider
Facsimile: (212) 373-2825
SECTION 8.03. Certain Definitions. For the purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person.
(b) a "person" shall be deemed a "beneficial owner" of or to have
"beneficial ownership" of Holdings Common Stock or Company Common Stock, as the
case may be, in accordance with the interpretation of the term "beneficial
ownership" as defined in Rule 13d-3 under the Exchange Act, as in effect on the
date hereof; provided that a person shall be deemed to be the beneficial owner
of, and to have beneficial ownership of, Holdings Common Stock or Company Common
Stock, as the case may be, that such person or any affiliate of such person has
the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise.
(c) "business day" means any day other than a day on which banks in the
State of Texas are authorized or obligated to be closed.
(d) "control" (including the terms "controlled," "controlled by," and
"under common control with") means the possession, directly or indirectly, or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise.
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(e) "Expenses" shall include all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Registration Statement, the
Proxy Statement, the solicitation of shareholder approvals and all other matters
related to the consummation of the transactions contemplated hereby.
(f) "knowledge" or "known" means with respect to any matter in question, if
an executive officer of Holdings or Company, as the case may be, has actual
knowledge after reasonable inquiry of such matter.
(g) "Material Adverse Effect" means, when used in connection with Company
or Holdings, any change, circumstance or effect that, individually or when taken
together with all other such changes, circumstances or effects, could reasonably
be expected to be materially adverse to the business, operations, assets,
financial condition, results of operations or prospects of such party and of its
subsidiaries, taken as a whole.
(h) "Merger Shares" means Company Common Stock issued pursuant to Sections
2.01(a) and (b).
(i) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as used in Section
13(d) of the Exchange Act).
(j) "subsidiary" or "subsidiaries" of Holdings, Company, the Surviving
Corporation or any other person, means any corporation, partnership, joint
venture or other legal entity of which Holdings, Company, the Surviving
Corporation or any such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly, 50
percent or more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
(k) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
assessments, duties or other amounts payable to any federal, state, local or
foreign taxing authority or agency, including, without limitation, (i) income,
franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, excise,
stamp, windfall profits, transfer and gains taxes, (ii) customs, duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto.
SECTION 8.04. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
SECTION 8.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 8.06. Entire Agreement. This Agreement (together with the Exhibits
and Schedules) and the Confidentiality Agreements constitute the entire
agreement of the parties, and supersede all prior agreements and undertakings,
both written and oral, among the parties or between any of them, with respect to
the subject matter hereof.
SECTION 8.07. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 8.08. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied (other than as contemplated by
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Article II or Section 5.14), is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 8.09. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 8.10. Governing Law. Except to the extent the laws of the State of
Delaware are mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of Texas,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law thereof.
SECTION 8.11. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
FRESH AMERICA CORP.
By: /s/ DAVID SHEINFELD
---------------------------------
Name: David Sheinfeld
Title: Chairman and Chief Executive
Officer
FRESHPOINT HOLDINGS, INC.
By: /s/ MITT PARKER
---------------------------------
Name: Mitt Parker
Title: President and Chief Executive
Officer
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EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
FRESHPOINT AMERICA, INC.
(FORMERLY "FRESH AMERICA CORP.")
Fresh America Corp., pursuant to the provisions of Article 4.02 of the
Texas Business Corporation Act, hereby adopts restated articles of
incorporation, which, except for Articles One, Four, Six, Seven, Ten, Eleven and
Twelve, which have been amended, correctly set forth without change the articles
of incorporation as heretofore amended.
Each amendment made by the Restated Articles of Incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
(the "TBCA"), and the Restated Articles of Incorporation and such amendments
were duly adopted by the shareholders at the annual meeting of shareholders on
, 1999 in accordance with the provisions of Article 4.02 of the
TBCA. The number of shares of common stock outstanding and entitled to vote on
the Restated Articles of Incorporation is , more than two-thirds of
which shares were voted in favor thereof at the annual meeting on ,
1999.
ARTICLE ONE
The name of the corporation is FRESHPOINT AMERICA, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purposes for which the corporation is organized are to transact any
lawful business for which corporations may be incorporated under the Texas
Business Corporation Act.
ARTICLE FOUR
CAPITAL STOCK
The aggregate number of shares that the corporation shall have the
authority to issue is 50,000,000 shares of common stock having a par value of
$0.01 per share (the "Common Stock") and 5,000,000 shares of Preferred Stock
having a par value of $.10 per share (the "Preferred Stock"). The preferences,
limitations and relative rights in respect of the shares of each class of
capital stock of the corporation and the authority vested in the Board of
Directors to divide the Preferred Stock into series and the variations in the
relative rights and preferences between the shares of such series so established
are as follows:
SECTION 1. Preferred Stock. The shares of Preferred Stock may be divided
into and issued in series, and each series shall be so designated as to
distinguish the shares from the shares of all other series. All shares of
Preferred Stock shall be of equal rank and identical except to the extent that
variations in the relative rights and preferences enumerated in subparagraphs
(a) through (h) may be fixed and determined, from time to time, by the Board of
Directors between series hereinafter established; and each share of a series
shall be identical in all respects with the other shares of such series, except
that shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative. Shares of any series
which have been retired or cancelled in any manner, including shares redeemed or
treasury shares returned and shares which have been converted into Common Stock
or exchanged for shares of Preferred Stock of any other series, shall have the
status of authorized but unissued shares of Preferred Stock.
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Authority is expressly granted to the Board of Directors, within the
limitations and restrictions stated herein, to divide the shares of Preferred
Stock into one or more series and, with respect to each series, to fix and
determine in the resolution or resolutions providing for the issue of such
shares the following relative rights and preferences as to which there may be
variations between the series so established:
(a) the distinctive designation of such series and the number of shares
that shall constitute such series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
(b) the rate or rates of dividends payable on shares of such series, the
conditions upon which and the dates when such dividends shall be payable;
(c) the price or prices at, and the terms and conditions on which, shares
of such series may be redeemed;
(d) the amount payable on shares of such series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the corporation;
(e) the terms and conditions and the date or dates on which the shares of
such series may be converted into shares of Common Stock;
(f) subject to the limitations contained in Article 2.12B of the Texas
Business Corporation Act, the rights, if any, of the holders of shares of such
series to convert such shares into, or exchange shares for, shares of any other
class or shares of any series of the same or any other class, and the terms and
conditions of such conversion or exchange;
(g) whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the manner in which any
such retirement or sinking fund shall be applied to the purchase or redemption
of the shares of such series for retirement and the terms and provisions
relative to the operation thereof; and
(h) the rights, if any, of the holders of shares of such series to vote.
SECTION 2. Common Stock. The Common Stock is junior to the Preferred Stock
and is subject to all the rights, privileges, preferences and priorities of the
Preferred Stock as herein set forth or as may be stated in any resolution or
resolutions of the Board of Directors providing for the issue of a series of
Preferred Stock. Subject to the prior and superior rights of the Preferred Stock
and subject to the provisions and on the conditions set forth in Section 1 of
this Article Four, or in any resolution or resolutions providing for the issue
of a series of Preferred Stock, such dividends (payable in cash, stock or
otherwise) as may be determined by the Board of Directors, may be declared and
paid on the Common Stock from time to time out of any funds legally available
therefor. In the event of any liquidation, dissolution or winding up of the
affairs of the corporation, after payment to the holders of Preferred Stock of
the amounts to which they are entitled pursuant to the resolution or resolutions
of the Board of Directors providing for the issue of a series of Preferred
Stock, the holders of Common Stock shall be entitled to share ratably in all
assets then remaining subject to distribution to the shareholders.
SECTION 3. Voting Rights. Except as otherwise provided by law, by these
Articles of Incorporation, or by the resolution or resolutions of the Board of
Directors providing for the issue of any series of Preferred Stock, the holders
of Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, each holder of Common Stock being entitled
to one vote for each share held. The right to cumulative voting is expressly
prohibited.
ARTICLE FIVE
The corporation will not commence business until it has received for the
issuance of shares, consideration of the value of at least $1,000 in money,
labor done or property actually received.
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ARTICLE SIX
The street address of the registered office is c/o C T Corporation System,
811 Dallas Avenue, Houston, Texas 77002, and the name of the registered agent at
such address is C T Corporation System.
ARTICLE SEVEN
SECTION 1. Board of Directors. The number of directors shall from time to
time be fixed by, or in the manner provided in, the Bylaws of the corporation.
SECTION 2. Names and Addresses. The names of the persons currently serving
as directors of the corporation are:
Thomas M. Hubbard
Lawrence Jackson
David I. Sheinfeld
Sheldon I. Stein
Colon Washburn
John J. Geisler
Mitt Parker
Donald R. Kendall
Brian Sturgeon
John Gutfreund
Bob Dussler
The address of all such persons is 6600 LBJ Freeway, Suite 180, Dallas,
Texas 75240.
SECTION 3. Increase or Decrease of Directors. The number of directors may
be increased or decreased from time to time by amendment to, or in the manner
provided in, the Bylaws of the corporation; but no decrease shall have the
effect of shortening the term of any incumbent director.
ARTICLE EIGHT
Pre-emptive rights are hereby denied. No shareholder of this corporation
shall, by reason of such shareholder's ownership of stock, have a pre-emptive or
other right to purchase, subscribe for, receive or acquire all or any part of
any capital stock (either the unissued or treasury stock), notes, bonds,
debentures, securities, stock options or warrants, or other securities
convertible into or entitling the holder thereof to purchase any such capital
stock (whether authorized by the Articles of Incorporation or by any amendment
thereto) to be issued, optioned, sold, transferred or otherwise disposed of by
the corporation at any time. Any part of any such stock, notes, bonds,
debentures, securities, stock options or warrants may at any time be issued,
optioned, sold, transferred or otherwise disposed of by this corporation to such
persons and upon such terms as may seem proper to the Board of Directors in its
absolute discretion, without first offering same or any part thereof to any
existing shareholder.
ARTICLE NINE
(a) The corporation shall indemnify, to the fullest extent permitted by
Texas law, every person who is or was a director of the corporation or is or was
serving at the request of the corporation with respect to all costs and expenses
incurred by such person as a result of such person being made or threatened to
be made a defendant or respondent in a proceeding by reason of such person being
a director of the corporation.
(b) The corporation shall indemnify, to the fullest extent that
indemnification for directors is permitted by Texas law, every person who is or
was an executive officer of the corporation and any person who, while a director
or executive officer of the Corporation, is or was serving at the request of the
corporation as a director or officer or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole
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proprietorship, trust, employee benefit plan or other enterprise with respect to
all costs and expenses incurred by such person as a result of such person being
made or threatened to be made a defendant or respondent in a proceeding by
reason of his holding a position named above in this paragraph.
(c) The corporation shall advance expenses to any person named in paragraph
(a) or (b) of this Article who was, is or is threatened to be made a party in a
proceeding by reason of such person's holding a position named in paragraph (a)
or (b), to the fullest extent permitted by Texas law.
(d) It is the intent of the corporation to indemnify the persons referred
to in this Article to the fullest extent permitted by law. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any law, agreement,
vote of shareholders or directors, the corporation's bylaws or otherwise, or
under any policy or policies of insurance purchased and maintained by the
corporation on behalf of any such person, both as to action in such person as
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(e) The indemnification provided by this Article shall be subject to all
valid and applicable laws, including, without limitation, Article 2.02-1 of the
Texas Business Corporation Act, and, in the event this Article or any of the
provisions hereof or the indemnification contemplated hereby are found to be
inconsistent with or contrary to any such valid laws, the latter shall be deemed
to control and this Article shall be regarded as modified accordingly, and, as
so modified, shall continue in full force and effect.
ARTICLE TEN
A director of the corporation is not liable to the corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this provision does not eliminate or limit
such director's liability for:
1. A breach of the director's duty of loyalty to the corporation or
its shareholders;
2. An act or omission not in good faith that constitutes a breach of
duty of the director to the corporation, or an act or omission that
involves intentional misconduct or a knowing violation of the law;
3. A transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope
of the director's office; or
4. An act or omission for which the liability of a director is
expressly provided for by an applicable statute.
ARTICLE ELEVEN
Special meetings of the shareholders of the corporation may be called by
the Chairman of the Board, the President, the Board of Directors or the holders
of at least fifty percent (50%) of all the shares entitled to vote at the
proposed special meeting, but not by any other person or persons.
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ARTICLE TWELVE
The Bylaws of the corporation may be altered, amended or repealed in whole
or in part by the affirmative vote of the majority of the directors of the Board
of Directors or by the affirmative vote of the holders of at least 66 2/3% of
the issued and outstanding shares then entitled to vote on such amendment. The
words "amend" and "amended" shall be broadly interpreted to include alterations,
modifications, additions and repeal, in whole or in part.
EXECUTED THIS day of , 1999.
FRESHPOINT AMERICA, INC.
By:
----------------------------------
David I. Sheinfeld,
Chairman of the Board
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EXHIBIT B
FRESHPOINT AMERICA, INC.
RESTATED BYLAWS
ARTICLE I.
OFFICES
SECTION 1. Principal Office and Agent. The principal office of the
corporation shall be at c/o C T Corporation System, 811 Dallas Avenue, Houston,
Texas 77002, and the name of the resident agent in charge thereof is C T
Corporation System. Such office and agent may be changed by majority vote of the
Board of Directors and filing of a statement to such effect with the Secretary
of State, as required by law.
SECTION 2. Additional Office. The corporation may also have an office or
offices at such other place or places as the Board of Directors may from time to
time designate.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
SECTION 1. Place. Meetings of shareholders for any purpose may be held at
the registered office of the corporation or at such other place as shall be
stated in the notice of the meeting, or in a duly executed waiver of notice
thereof.
SECTION 2. Annual Meeting. The annual meeting of the shareholders shall be
held at 10:00 o'clock A.M. on the first Friday of November of each year, or the
next business day following if such day is a legal holiday. Failure to hold the
annual meeting shall not work a forfeiture or dissolution of the corporation.
The Board of Directors may from time to time by resolution provide that the
annual meeting will be held on a date other than the first Friday of November of
each year.
SECTION 3. Order of Business at Annual Meeting. No business may be
transacted at an annual meeting of shareholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
shareholder of the corporation (i) who is a shareholder of record on the date of
the giving of the notice provided for in this Section 3 and on the record date
for the determination of shareholders entitled to vote at such annual meeting
and (ii) who complies with the notice procedures set forth in Section 4.
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 3 and in Section 4; provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 3 or in Section 4 shall be deemed to
preclude discussion by any shareholder of any such business. If the presiding
officer at an annual meeting determines that business was not properly brought
before the annual meeting in accordance with the foregoing procedures, the
presiding officer shall declare to the meeting that the business was not
properly brought before the meeting and such business shall not be transacted.
SECTION 4. Notices by Shareholders for an Annual Meeting. In addition to
any other applicable requirements for business to be properly brought before an
annual meeting by a shareholder, including a nomination to be made by a
shareholder, such shareholder must have given timely notice thereof in proper
written form to the Secretary of the corporation. No person shall be eligible
for election as a shareholder nominee of the corporation unless nominated in
accordance with the procedures set forth in this Section 4. If the presiding
officer of the meeting determines that a nomination was not made in accordance
with the
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foregoing procedures, the presiding officer shall declare to the meeting that
the nomination was defective and such defective nomination shall be disregarded.
(a) Timely Notice. To be timely, a shareholder's notice to the Secretary
must be delivered to or mailed and received at the principal executive offices
of the corporation (i) in the case of an annual meeting, not less than sixty
(60) days nor more than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided, however, in the
event that the annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the shareholder in
order to be timely must be so received not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs; and (ii) in the case of a special meeting of
shareholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
(b) Proper Written Form of Notice. To be in proper written form, a
shareholder's notice to the Secretary must set forth as to each matter such
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of such shareholder, (iii) the class or series and number of shares of
capital stock of the corporation which are owned beneficially or of record by
such shareholder, (iv) a description of all arrangements or understandings
between such shareholder and any other person or persons (including their names)
in connection with the proposal of such business by such shareholder and any
material interest of such shareholder in such business and (v) a representation
that such shareholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
To be in proper written form with respect to shareholder nominations for
director, a shareholder's notice to the Secretary must set forth (i) as to each
person whom the shareholder proposes to nominate for election as a director (A)
the name, age, business address and residence address of the person, (B) the
principal occupation or employment of the person, (C) the class or series and
number of shares of capital stock of the corporation which are owned
beneficially or of record by the person and (D) any other information relating
to the person that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder; and (ii) as to the shareholder giving the notice (A) the
name and record address of such shareholder, (B) the class or series and number
of shares of capital stock of the corporation which are owned beneficially or of
record by such shareholder, (C) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such shareholder, (D) a representation that such shareholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (E) any other information relating to such shareholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
SECTION 5. Special Meetings. Special meetings of the shareholders may be
called by the Chairman, the Board of Directors or by the holders of at least
fifty percent (50%) of all of the Shares entitled to vote at the proposed
special meeting but not by any other person or persons.
SECTION 6. Notice of Meetings. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman, to each
shareholder of record entitled to vote at such meeting. If a notice is mailed to
a shareholder at such shareholder's address as it appears on the stock transfer
books of
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the corporation, with postage thereon prepaid, such notice shall be deemed to
have been delivered three (3) days after mailing. A waiver of notice signed by
the person entitled to such notice, whether before or after the meeting, shall
be equivalent to the giving of such notice.
SECTION 7. Fixing Date for Determination of Shareholders Entitled to Notice
of and to Vote at Shareholders' Meetings.
(a) Action by Board of Directors. For the purpose of determining
shareholders entitled to notice of any meeting of shareholders or any
adjournment thereof, the Board of Directors may by resolution provide that the
stock transfer books shall be closed for a period, to be stated in such
resolution, not to exceed twenty (20) days.
(b) Failure of Action by Board of Directors. If the Board of Directors do
not provide for the closing of the stock transfer books relative to a particular
meeting then and in such event the record time and date for the determination of
shareholders entitled to notice of and to vote at such meeting shall be the
close of business on the 15th day immediately preceding such meeting.
SECTION 8. Voting List. The officer or agent having charge of the
corporation's stock transfer books shall make, at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof. Such list shall be arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original stock transfer books shall be prima facie evidence as
to who are the shareholders entitled to examine such list or transfer books and
to vote at any meeting of shareholders.
SECTION 9. Quorum. The holders of a majority of the shares entitled to
vote, represented in person or by proxy at a meeting of shareholders, shall
constitute a quorum at such meeting for all matters to be voted on at such
meeting. The vote of the holders of a majority of the shares represented at a
meeting at which a quorum is present and entitled to vote on a particular matter
shall be the act of the shareholders at such meeting with respect to such
matter, unless the vote of a greater number of shares is required by law or by
these bylaws or by the corporation's Articles of Incorporation.
SECTION 10. Voting of Shares.
(a) Each outstanding share, regardless of class, shall be entitled to one
vote on each matter submitted to a vote of a meeting of shareholders, except to
the extent that the voting rights of the shares of any class or classes are
limited or denied by the Articles of Incorporation as permitted by the Texas
Business Corporation Act.
(b) Treasury shares, shares of stock owned by another corporation, the
majority of the voting stock of which is owned or controlled by this
corporation, and shares of stock held by this corporation in a fiduciary
capacity shall not be voted, directly or indirectly, at any meeting and shall
not be counted in determining the total number of outstanding shares at any
given time.
(c) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the bylaws of such
corporation may authorize, or, in the absence of such authorization, as the
Board of Directors of such corporation may determine.
(d) Shares held by an administrator, executor, guardian or conservator may
be voted by such person so long as such shares forming part of an estate are in
such person's possession and forming a part of the estate being served by such
person, either in person of by proxy, without a transfer of such shares into
such person's name. Shares standing in the name of a trustee may be voted by
such trustee, either in person or by proxy, but no trustee shall be entitled to
vote shares held by such trustee without at transfer of such shares into such
trustee's name as trustee.
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(e) A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(f) A shareholder may vote either in person or by proxy executed in writing
by the shareholder or by such shareholder's duly authorized attorney-in-fact.
(g) Voting on any question or in any election may be by voice vote or show
of hands unless the presiding officer shall order or any shareholder shall
demand that voting be by written ballot.
ARTICLE III.
DIRECTORS
SECTION 1. Number of Directors; Classified Board.
(A) The number of directors constituting the full Board of Directors of the
corporation shall be fixed from time to time by resolution of the Board of
Directors; in the absence of such designation the number shall be eleven (11).
No decrease in the number of directors shall have the effect of reducing the
term of any incumbent director. Directors shall be elected at the annual meeting
of the holders of shares entitled to vote in the election of directors, except
as provided in Section 2 of this Article III, and each director shall hold
office for the term for which such director is elected and until (i) such
director's successor is elected and qualified, (ii) such director dies, (iii)
such director resigns, or (iv) such director is removed in accordance with
Section 2 of this Article III. Directors need not be residents of the State of
Texas or shareholders of the corporation.
(B) The corporation's directors shall be divided into three classes, each
class to be as nearly equal in number as possible. The directors of Class I
shall be originally elected for a term expiring on the first annual meeting of
shareholders after their election; the directors in Class II shall be originally
elected for a term expiring on the second annual meeting of shareholders after
their election; and the directors in Class III shall be originally elected for a
term expiring on the third annual meeting of shareholders to be held after their
election. At each annual meeting of shareholders following the original election
of the classified board, a number of directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to hold office
until the third succeeding annual meeting of shareholders.
SECTION 2. Removal; Vacancies and Filling of Vacancies.
(A) Shareholders holding 66 2/3% or more of the issued and outstanding
shares then entitled to vote at an election of directors may terminate the term
of office of all or any of the directors, with cause, by a vote at any annual or
special meeting. Such removal shall be effective immediately upon such
shareholder action even if successors are not elected simultaneously.
(B) Any vacancy occurring in the Board of Directors may be filled as
provided in this Subparagraph (B):
(i) Vacancies in the Board of Directors caused by action of the
shareholders pursuant to Subparagraph (A) above shall be filled only by
action of the shareholders at an annual or special meeting of the
shareholders. Any other vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors
though the remaining directors may constitute less than a quorum of the
Board of Directors as fixed by Section 1 of this Article III. A director
elected to fill a vacancy shall be elected for the unexpired term of such
director's predecessor in office.
(ii) Any directorship to be filled by reason of an increase in the
number of directors may be filled by the Board of Directors for a term of
office continuing only until the next election of one or more directors by
the shareholders.
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(iii) The provisions of this Subparagraph (B) are subject to the
provisions of the Stockholders Agreement dated , 1999; provided,
however, the Board of Directors shall not be prevented from taking any
action if the failure to take such action would be a breach of its
fiduciary duties.
SECTION 3. Quorum. A majority of the Directors fixed by the Bylaws shall
constitute a quorum for the transaction of business. The action of a majority of
the Directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. Any meeting of the Directors may be adjourned from
time to time by those present, whether or not a quorum is present.
SECTION 4. Regular Meetings. A regular meeting of the Board of Directors
shall be held each year immediately following the annual meeting of the
shareholders, at the place of such meeting, for the election of officers and the
consideration of any other business that may properly be brought before such
meeting. No notice of any kind of such annual meeting of the Board of Directors
shall be necessary.
SECTION 5. Special Meetings. A special meeting of the Board of Directors
shall be held at any time upon the call of the Chairman of the Board or a
majority of the Directors. At least two (2) days notice of such special meeting
shall be given and such notice shall be in writing and shall be sent by mail,
personal delivery, or telegraph to the last known address of each of the
Directors. Notice of any special meeting may be waived in a writing signed by
the person or persons entitled to such notice; such waiver may be executed at
any time before or after the time herein specified for the giving of such notice
but not later than the time specified in such notice for the holding of such
special meeting. Attendance of a Director at a special meeting shall constitute
a waiver of notice of such meeting, except where a Director attends a meeting
for the express purpose of objecting to the transaction of any business on the
ground the meeting is not lawfully called or convened. Neither the business
proposed to be transacted, nor the purpose of any special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting, except as may be otherwise provided by statute or by the Articles of
Incorporation.
SECTION 6. Compensation. Directors as such shall not receive any stated
salary for their services, but by resolution of the Board a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each meeting of
the Board, and directors may be awarded stock options under the corporation's
Stock Option Plan; provided that nothing contained herein shall be construed to
preclude any Director from serving the corporation in any other capacity or
receiving compensation therefor.
SECTION 7. Actions Without a Meeting. Notwithstanding any other provision
of the Articles of Incorporation of this corporation or these Bylaws, any action
required or permitted to be taken at a meeting of the Board of Directors may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all of the members of the Board of Directors. Such consent
shall have the same force and effect as a unanimous vote at a meeting.
SECTION 8. Telephone Meetings of Directors. Directors may participate in
and hold a meeting of the Directors by use of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting in this manner shall
constitute presence in person, except where a person participates in a meeting
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
SECTION 9. General Powers. In addition to the power and authorities
expressly conferred by these Bylaws, the Board of Directors may exercise all
such powers of the corporation and do all such lawful acts and things are not by
law or by the Articles of Incorporation or by these Bylaws directed or required
to be exercised or done by the shareholders.
ARTICLE IV.
OFFICERS
SECTION 1. Designation. The officers of the corporation shall be elected by
the Board of Directors and shall consist of a Chairman of the Board, a Chief
Executive Officer, a President or Co-Presidents, one or more
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Vice Presidents, Secretary, and a Treasurer (if the Board so determines). The
Board of Directors may also elect one or more Assistant Secretaries and
Assistant Treasurers. Two or more offices may be held by the same person.
SECTION 2. Additional Appointments. The Board of Directors may appoint such
other officers and assistant officers and agents as they shall deem necessary,
who shall hold their offices for such terms and shall have such authority and
exercise such powers and perform such duties as shall be determined from time to
time by the Board by Resolution not inconsistent with these Bylaws.
SECTION 3. Election and Term of Office. The officers of the corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of shareholders or as soon
thereafter as is conveniently possible. Vacancies may be filled or new offices
filled at any meeting of the Board of Directors. Each officer shall hold office
until such officer's successor shall have been duly elected and shall have
qualified or until such officer's death or until such officer shall resign or
shall have been removed in the manner herein provided.
SECTION 4. Removal. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors, with or without cause,
whenever in its judgment the best interest of the corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
SECTION 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 6. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the Board of Directors and shareholders and shall have such
other powers and duties as may from time to time be prescribed by the Board of
Directors.
SECTION 7. Chief Executive Officer. The Chief Executive Officer shall be
the chief executive operating officer of the corporation and, subject to the
authority of the Board of Directors and the Chairman of the Board, shall
supervise and control all of the business and operations of the corporation in
the ordinary course of its business. If the office of the Chairman of the Board
shall not be created or shall not be filled, the Chief Executive Officer shall
preside at all meetings of the shareholders and all meetings of the Board of
Directors. The Chief Executive Officer shall sign, with the Secretary or an
Assistant Secretary, certificates for shares of the corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be delegated by the Board of Directors to some other officer or
agent of the corporation, or shall be required by law to be otherwise signed or
executed; and in general the Chief Executive Officer shall perform all duties
incident to such office and such other duties as may be prescribed by the Board
of Directors from time to time.
SECTION 8. President and Vice Presidents. In the absence of the Chief
Executive Officer or in the event of such officer's inability or refusal to act,
the President (or in the event there be more than one President, the Presidents
in the order designated, or in the absence of any designation, then jointly)
shall perform the duties of the Chief Executive Officer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. Any Vice President shall perform such duties as from
time to time may be assigned to such Vice President by the Chief Executive
Officer or by the Board of Directors.
SECTION 9. Secretary. The Secretary shall: (a) keep the Minutes of the
shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these Bylaws; (d) keep a register of the post office address of each
shareholder; (e) sign with the Chief Executive Officer certificates for shares
of the corporation, the issue of which shall have been authorized by Resolution
of the Board of Directors; (f) have general charge of the stock transfer books
of the corporation; (g) in general perform all duties incident to the
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office of Secretary and such other duties as from time to time may be assigned
to the Secretary by the Chief Executive Officer or by the Board of Directors.
SECTION 10. Treasurer. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of the Treasurer's duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
The Treasurer shall: (a) have charge and custody of and be responsible for all
funds and securities of the corporation, receive and give receipts for moneys
due and payable to the corporation from any source whatsoever and deposit all
such moneys in the name of the corporation in such banks, trust companies or
other depositaries as shall be selected by the Board of Directors; (b) in
general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to the Treasurer by the Board
of Directors.
SECTION 11. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries as thereunto authorized by the Chief Executive Officer (or Board of
Directors) may sign, with the Chief Executive Officer, certificates for shares
of the corporation, the issue of which shall have been authorized by a
Resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Chief Executive Officer or Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the President and Chief Executive Officer or Board of Directors
shall determine. The Assistant Treasurers and Assistant Secretaries, in general,
shall perform such duties as shall be assigned to them by the Treasurer or the
Secretary, respectively, or by the Chief Executive Officer or the Board of
Directors.
SECTION 12. Salaries. The salaries of the officers shall be fixed, from
time to time, by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the corporation.
SECTION 13. Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chief Executive Officer or the
Secretary of the corporation. The resignation shall take effect at the time
specified in the notice. Unless otherwise specified in the notice, acceptance of
the resignation shall not be necessary to make it effective.
ARTICLE V.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The certificates for shares of stock of
the corporation shall be numbered and shall be entered in the corporation as
they are issued. They shall exhibit the holder's name and number of shares and
shall be signed by the Chief Executive Officer, a Vice-President or the Chairman
of the Board and the Secretary or an assistant secretary and shall be sealed
with the seal of the corporation or a facsimile thereof. If the corporation has
a transfer agent or a registrar, other than the corporation itself or an
employee of the corporation, the signatures of the chairman or such officer may
be facsimile. In case the Chairman of the Board, officer or officers who shall
have signed or whose facsimile signature or signatures shall have been used on
any such certificate or certificates shall cease to be such Chairman of the
Board, officer or officers of the corporation, whether because of death,
resignation or otherwise, before said certificate or certificates shall have
been issued, such certificate may nevertheless be issued by the corporation with
the same effect as though the person or persons who signed such certificates or
whose facsimile signature or signatures shall have been used thereon had been
such Chairman of the Board, officer or officers at the date of its issuance.
Certificates shall be in such form as shall in conformity to law be prescribed
from time to time by the board of directors.
The corporation may appoint from time to time transfer agents and
registrars, who shall perform their duties under the supervision of the
secretary.
SECTION 2. Transfers of Certificates. Transfers of certificates of stock
may be made only upon the books of the corporation by the holder in person or by
attorney, and on the surrender and cancellation of the certificate or
certificates for such shares or upon compliance with such conditions as the
Board of Directors may determine in the case that any such Certificate cannot be
produced.
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ARTICLE VI.
CONTRACTS, DEPOSITS, TRANSACTIONS WITH SHAREHOLDERS
SECTION 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. Deposits. All funds of the corporation not otherwise employed
shall be deposited, from time to time, to the credit of the corporation in such
banks, trust companies, or other depositaries as the Board of Directors or the
Treasurer may select.
SECTION 3. Transactions With Shareholders, Etc. The corporation may enter
into contracts or transact business with one or more of its Directors, officers,
or shareholders, or with any firm of which one or more of its Directors,
officers, or shareholders are members, or with any corporation, association,
trust company, organization, or entity in which any one or more of its
Directors, officers, or shareholders are directors, officers, trustees,
shareholders, beneficiaries or otherwise interested, subject to the limitations
(if any) and other provisions (if any) of the Articles of Incorporation from
time to time applicable with respect thereto.
ARTICLE VII.
DIVIDENDS
The Board of Directors may, from time to time, declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation. Declaration
and payment of dividends shall rest within the discretion of the Board of
Directors and it shall not be required at any time to declare or pay any
dividends.
ARTICLE VIII.
SEAL
The Board of Directors may provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the corporation.
ARTICLE IX.
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended or repealed in whole or in part by the
affirmative vote of the majority of the directors of the Board of Directors or
by the affirmative vote of the holders of at least 66 2/3% of the issued and
outstanding shares then entitled to vote on such amendment. The words "amend"
and "amended" shall be broadly interpreted to include alterations,
modifications, additions and repeal, in whole or in part.
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EXHIBIT C
BOARD OF DIRECTORS OF
FRESHPOINT AMERICA, INC.
<TABLE>
<CAPTION>
NAME TERM EXPIRES
---- ------------
<S> <C>
Thomas Hubbard(1).............................. 2002
Lawrence Jackson(1)............................ 2001
David Sheinfeld(1)............................. 2000
Shelly Stein(1)................................ 2000
Colon Washburn(1).............................. 2001
John J. Geisler(2)............................. 2001
Mitt Parker(2)................................. 2002
Donald R. Kendall(2)........................... 2001
Brian Sturgeon(2).............................. 2002
John Gutfreund(2).............................. 2000
Bob Dussler(2)................................. 2000
</TABLE>
- ---------------
(1) Designated by Company
(2) Designated by Holdings
EXECUTIVE OFFICERS OF
FRESHPOINT AMERICA, INC.
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
David Sheinfeld............. Chairman of the Board
Mitt Parker................. Chief Executive Officer
Brian Sturgeon.............. Chief Operating Officer
John Gray................... Executive Vice President,
Chief Financial Officer
</TABLE>
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<PAGE> 207
EXHIBIT D
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of
, 1999 by and between , a resident of the State of Texas
(the "EXECUTIVE") and FRESH AMERICA CORP., a Texas corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of , 1999, by and between the Company and
FRESHPOINT HOLDINGS, INC., a Delaware Corporation ("HOLDINGS"), Holdings will
merge with and into the Company (the "Merger"), with the Company being the
surviving entity resulting from the Merger and having the name FRESHPOINT
AMERICA, INC.;
WHEREAS, the Executive is serving as the of the
;
WHEREAS, as a condition to the execution of the Merger Agreement, the
Executive and Company have agreed to enter into this Agreement whereby the
Executive shall serve as the of the Company; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF DIRECTORS")
desires the Company to employ the Executive, and the Executive desires to be
employed by the Company, on the terms and conditions set forth in this Agreement
but only in the event the Merger is consummated.
NOW, THEREFORE, in consideration of the employment of the Executive by the
Company, of the premises and the mutual promises and covenants contained herein,
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment subject to the consummation of the
Merger, on the terms and conditions set forth in this Agreement. The Executive
represents and warrants that he is not a signatory to, or otherwise bound by,
any agreement that would prevent or materially impair his ability to accept and
perform the employment duties contemplated by this Agreement.
2. Term. Subject to the provisions of Sections 10 and 12 of this Agreement,
the period of Executive's employment under this Agreement (the "TERM") shall be
deemed to have commenced as of the effective time of the Merger (the "EFFECTIVE
TIME"), and shall continue for a period of twenty four (24) calendar months
thereafter, and any extensions thereafter, unless the Executive dies before the
end of such twenty four (24) months, in which case the period of employment
shall continue until the end of the month of such death. [NOTE: AS TO JOHN GRAY
ONLY, 12 MONTHS IS SUBSTITUTED FOR 24 MONTHS IN THE PRECEDING PARAGRAPH.]
The said twenty four (24) month period of employment shall automatically be
extended for additional twenty four (24) full calendar months terms without
further action by the parties, commencing on the second anniversary of this
Agreement and each anniversary thereafter. No such automatic extension shall
occur if either party shall, at least ninety (90) days prior to any said
anniversary, have served written notice upon the other of its intention that
this Agreement shall not be so extended. [NOTE: AS TO JOHN GRAY ONLY, THE
PRECEDING PARAGRAPH IS NOT APPLICABLE.]
3. Duties, Authority, Status and Responsibilities. The Executive shall
serve in the capacity or capacities and shall have the duties and
responsibilities set forth in Section A of Appendix I attached hereto and such
other duties and responsibilities consistent therewith as may be determined from
time to time by the Board of Directors. During the Term, the Executive shall
devote substantially all his time and use his best efforts during normal
business hours to the business and affairs of the Company except for vacations,
illness or as otherwise agreed to by the Board of Directors and the Executive.
Subject to his election or appointment as such, the Executive agrees to serve
without additional compensation during the Term as a director or a member of any
committee of the Board of Directors or the board of directors of any of the
Company's affiliates.
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4. Place of Performance. The Executive shall be based and shall perform his
duties at the offices of the Company set forth in Section B of Appendix I
attached hereto, except for reasonable travel as the performance of the
Executive's duties may require.
5. Compensation.
(a) Base Salary. Subject to Section 10, during the Term, the Executive
shall receive from the Company the annual base salary set forth in Section C of
Appendix I attached hereto (as in effect from time to time, the ("BASE SALARY").
The Base Salary shall be payable in regular installments in accordance with the
customary executive payroll practices of the Company. The Board of Directors
shall review the Executive's Base Salary annually and in its sole discretion may
adjust upwards the Executive's Base Salary from year to year during the term of
this Agreement. The annual compensation adjustment, (regardless of form), will
be determined by the Board of Directors after taking into account, among other
things, changes in the cost of living, Executive's performance and the
performance of the Company. Any action or review by the Board of Directors may
be delegated to an appropriate committee thereof.
(b) Incentive Compensation. In addition to Base Salary and subject to
Section 11, with respect to each fiscal year of the Company during the Term, the
Executive shall be eligible to earn incentive or bonus compensation (the
"BONUS"). The amount of the Bonus (the "BONUS AMOUNT") shall be determined in
accordance with the bonus plan (the "BONUS PLAN"), attached hereto as Schedule
A. The Bonus Amount shall be paid within the earlier of 15 days of the Board of
Director's receipt of the Company's audited financial statements for the
applicable fiscal year and 90 days after the end of such fiscal year.
6. Expenses. During the Term, the Executive shall be entitled to receive
from the Company prompt reimbursement for all reasonable travel and business
expenses incurred by him (in accordance with the policies and procedures
established by the Board of Directors from time to time for the Company's senior
executive officers) in performing services hereunder, upon presentation of
expense statements or vouchers and such other information as the Company may
reasonably require.
7. Employee Benefits.
(a) General. The Executive shall be entitled to participate in all
executive benefit plans, programs and arrangements of the Company now or
hereafter made available to senior executives of the Company, as such plans,
programs and arrangements may be in effect from time to time. Without limitation
of the Executive's rights under Section 5(b) and 8, the compensation committee
of the Board of Directors or the Board of Directors shall determine, from time
to time, the extent to which the Executive shall have the right to participate
in other bonus, incentive compensation, stock option or purchase plans. The
Company shall indemnify the Executive and hold the Executive harmless from and
against any claim, loss or cause of action arising from or out of the
Executive's performance as an officer, director or Executive of the Company to
the maximum extent permitted by law and the certificate of incorporation and
by-laws of the Company, except in cases where such performance constitutes
fraud, gross negligence, criminal conduct or bad faith. The Company shall
maintain in full force and effect directors' and officers' liability insurance
unless the Board of Directors of the Company determines that the cost of such
insurance is not commercially reasonable when weighed against the nature of the
coverage available.
(b) Vacations. The Executive shall be entitled to annual vacations in
accordance with the Company's vacation policies in effect from time to time for
senior executives of the Company, but in any event shall be entitled to not less
than the number of weeks described in Section D of Appendix I attached hereto
which may be used during the twelve month period during the Term in which
accrued or in the next succeeding twelve month period during the Term; provided,
that the Executive's accrued and unused vacation shall not exceed six weeks at
any time. Vacations shall not be taken in a manner which will unreasonably
interfere with the Executive's duties hereunder. The Executive shall also be
entitled to all paid holidays and personal days given by the Company to its
senior executives.
8. Other Long Term Compensation. The Executive is granted an option to
purchase the number of shares of common stock in the Company, set forth in
Section E of Appendix I (the "OPTIONS"); and, shall further participate in such
other long term compensation arrangements, set forth in Section E of Appendix I.
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If either (i) a Change in Control has occurred as set forth in Section 12 of
this Agreement; or, (ii) this Agreement is terminated by the Company at any time
for any reason other than for Cause, as defined in Section 10 herein, all
Options not previously vested shall vest 100% on the date of such event.
9. Restrictive Covenants and Confidentiality.
(a) Non-competition and Non-solicitation.
(i) For a period commencing with the Effective Time and ending two (2)
years after the Executive is no longer employed by the Company or any
affiliate of the Company (the "RESTRICTED PERIOD"), the Executive shall
not, and shall not permit any of his affiliates to, directly or indirectly,
in any geographical area in which the Company does business, as of the date
the Executive's employment by the Company terminates for any reason (the
"TERRITORY"), engage in the business of purchasing, selling and
distributing, and arranging for or brokering the sale and distribution of
fresh fruits and vegetables or such other products or other businesses as
the Company and its affiliates are then engaged (the "BUSINESS") or,
whether alone or in association with others, as principal, officer, agent,
executive, director or stockholder of any corporation, partnership,
association or other entity, or through the investment of capital, lending
of money or property, rendering of services or otherwise, engage,
influence, control, have an interest in or otherwise become actively
involved with any business competitive with the Business of the Company and
its affiliates.
(ii) During the Restricted Period, the Executive shall not, and shall
not permit any of his respective affiliates, employees, or agents to,
directly or indirectly, on their own behalf or on behalf of any other
person, (A) call upon, accept business from, or solicit the business of (or
attempt to do any of the foregoing) any customer of the Company or any of
its affiliates or any other person who is, or who had been at any time
during the preceding twelve months, a customer of the Company or any of its
affiliates in the Territory, (B) otherwise divert or attempt to divert any
business from the Company or any of its affiliates operating in the
Territory, (C) interfere with the business relationships between the
Company and any of its affiliates operating in the Territory, on the one
hand, and any of its respective customers, suppliers or others with whom
they have business relationships, on the other hand, or (D) recruit or
otherwise solicit or induce, or enter into or participate in any plan or
arrangement to cause, any person who is an executive of, or otherwise
performing services for, the Company or any of its affiliates to terminate
his or her employment or other relationship with the Company or such
affiliate, hire any person who has left the employ of the Company or any of
its affiliates during the preceding twelve months, or hire any person who
is or has been an executive officer of the Company or any of its affiliates
at any time.
(iii) The Executive shall not at any time, directly or indirectly, use
or purport to authorize any person to use any name, mark, logo, trade dress
or other identifying words or images which are the same as or similar to
those used currently or in the past by the Company in connection with any
product or service, whether or not such use would be in a business
competitive with that of the Company or any affiliate of the Company.
(iv) The ownership or control of up to five percent of the outstanding
voting securities or securities of any class of a company with a class of
securities registered under the Securities Exchange Act of 1934, as
amended, shall not be deemed to be a violation of the provisions of this
Section 9(a).
(b) Confidential Information.
(i) The Executive acknowledges that in the course of his employment
pursuant to this Agreement, he has had and is expected to continue to have
extensive contact with customers of the Company and its affiliates, and to
have knowledge of and access to trade secrets and other proprietary and
confidential information of the Company and its affiliates, including,
without limitation, the identity of customers and suppliers and other
persons with whom the Company and its affiliates have business
relationships, technical information, knowhow, plans, specifications, and
information relating to the financial condition, results of operations,
employees, products, products under development, inventions, sources, leads
or methods of obtaining new products or business, pricing formulae, methods
or procedures, cost of supplies
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or services and marketing strategies of the Company or its affiliates or
any other information relating to the Company or its affiliates that could
reasonably be regarded as confidential or proprietary or which is not
available to the public (collectively, the "CONFIDENTIAL INFORMATION"), and
that such information, even to the extent it may be or have been developed
or acquired by or through the efforts of the Executive, constitutes
valuable, special and unique assets of the Company and its affiliates
developed or acquired at great expense which are the exclusive property of
the Company and its affiliates.
(ii) Executive agrees not to use, disclose or exploit, for two (2)
years after leaving the Company's employ, Confidential Information (as
defined in the preceding subsection) relating to the business of the
Company (whether constituting a trade secret or not) which is or has been
disclosed to Executive or of which Executive became aware as a consequence
of or through his relationship to the Company and which has value to the
Company and is not generally known to its competitors. However, such
confidential data and information shall not include any data or information
that has been voluntarily disclosed to the public by the Company (except
where such public disclosure has been made by Executive without
authorization) or that has been independently developed and disclosed by
others, or that otherwise enters the public domain through lawful means.
(iii) Without limiting the generality of the foregoing, the Executive
shall not, for two (2) years after leaving the Company's employ, directly
or indirectly, disclose or otherwise make known to any person the names or
addresses of any of the suppliers or customers of the Company or its
affiliates, whether such persons are suppliers or customers as of the
Effective Date or become such in the future and whether or not such persons
have previously conducted business with the Executive in any capacity, or
any information as to the Company's executives and others providing
services to the Company or its affiliates, including with respect to their
abilities, compensation, benefits and other terms of employment or
engagement.
(iv) Upon the termination of the Executive's employment with the
Company, the Executive shall promptly deliver to the Company all customer
files, correspondence, manuals, notes, notebooks, reports and copies
thereof, and all other materials relating to the Company's business,
including without limitation any materials incorporating Confidential
Information, which are in the possession or control of the Executive.
(v) The Executive acknowledges that the Company would not enter into
this Agreement without the assurances provided above with respect to the
Confidential Information of the Company and its affiliates. Confidential
Information for purposes of this Agreement shall be deemed not to include
information which is generally available to the public, other than as a
result of a breach by the Executive of an obligation of confidentiality.
(c) Continuing Obligations. The Executive acknowledges that the Company
would be irreparably harmed and that monetary damages would not provide an
adequate remedy to it in the event the covenants contained in subsections (a)
and (b) of this Section 9 were not complied with in accordance with their terms.
Accordingly, the Executive agrees that any breach or threatened breach by him of
any provision of subsections (a) and (b) of this Section 9 shall entitle the
Company to seek injunctive and other equitable relief to secure the enforcement
of these provisions, in addition to any other remedies which may be available to
it and it shall be entitled to receive from the Executive reimbursement for all
attorneys' fees and expenses incurred by it in enforcing these provisions
(unless one of them is not the substantially prevailing party in any legal
action brought for such purposes). It is the desire and intent of the parties
that the provisions of this Section 9 be enforced in full; however, if any
provisions of this Section 9 relating to the time period, scope of activities or
geographic area of restrictions is declared by a court of competent jurisdiction
to exceed the maximum permissible time period, scope of activities or geographic
area, the maximum time period, scope of activities or geographic area, as the
case may be, shall be reduced to the maximum which such court deems enforceable.
If any provisions of this Section 9 other than those described in the preceding
sentence are adjudicated to be invalid or unenforceable, the invalid or
unenforceable provisions shall be deemed amended (with respect only to the
jurisdiction in which such adjudication is made) in such manner as to render
them enforceable and to effectuate as nearly as possible the original intentions
and agreement of the parties.
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(d) Modification of Restrictive Period. In the event this Agreement is
terminated either (x) by Employer at any time for any reason other than for
Cause, as defined in Section 10 herein; or, (y) by Executive for Good Reason, as
defined in Section 10 herein, the term "Restrictive Period" as described in
Section 9(a) shall terminate on the date all amounts otherwise payable to the
Executive either have been paid to him or should have been paid to him pursuant
to the terms of this Agreement.
10. Termination. During the term of this Agreement, employment, including
without limitation, except as otherwise provided in this Section 10 and Section
12, all compensation, salary, expenses reimbursement, and the Executive benefits
may be terminated as follows:
(a) At the election of the Company for Cause;
(b) At the Executive's election, for Good Reason or upon the Company's
breach of any material provision of this Agreement;
(c) As used herein, the term "CAUSE" shall mean the occurrence of one or
more of the following: (i) a material breach by the Executive of any provision
of this Agreement which breach is not cured to the Company's reasonable
satisfaction within ten days after written notice thereof, (ii) the Executive's
gross negligence, willful misconduct or willful refusal or failure to perform in
any material respect any of his duties or responsibilities under this Agreement,
which does not cease to the Company's reasonable satisfaction within ten days
after written notice thereof, (iii) the Executive's misappropriation for
personal use of material assets or any business opportunity of the Company; (iv)
the Board of Directors determination in good faith that the Executive engaged in
conduct that is materially injurious to the Company, including but not limited
to such conduct which the Executive knew to be in contravention of any federal
or state employment law or regulation, or (v) any event, condition or
circumstance which, pursuant to the provisions of PACA or other federal or state
law, renders the Executive unemployable by the Company in the position and with
the duties described in Section 3.
(d) Upon the Executive's death, or, at the election of either party, upon
the Executive's disability as determined in accordance with the standards and
procedures under the Executive's then-current long-term disability insurance
coverage provided by the Company, or, if such disability insurance coverage
provided by the Company is not then in place, upon the Executive's disability
resulting in inability to perform the duties described in Section 3 of this
Agreement for a period of one hundred and eighty days (180) days during any
twelve (12) month period.
(e) At the Executive's election by delivery of the thirty (30) days' notice
thereof for any reason other than as set forth in Section 10(b) of this
Agreement.
(f) The term "GOOD REASON" shall mean action taken by the Company which
results in:
(i) a reduction in the Executive's Base Salary and or aggregate level
of benefits;
(ii) any requirement by the Company that the Executive relocate to a
location more than fifty (50) miles from the offices of the Company set
forth in Section B of Appendix I attached hereto; or,
(iii) a material breach of this Agreement by the Company.
(g) Provided there has not occurred a Change in Control as set forth in
Section 12 of this Agreement, if this Agreement is either (i) terminated by the
Company at any time for any reason other than for Cause or terminated by the
Executive for Good Reason; or, (ii) not renewed by the Company at the expiration
of the Term and the Executive resigns as an officer and employee of the Company
within thirty (30) days after the expiration of the Term, then the Company shall
pay to the Executive as the Executive's sole remedy hereunder the Executive's
Base Salary and Bonus Amount for a term equal to the greater of either (y) the
remaining months of this Agreement, or (z) twelve (12) months. [NOTE: AS TO JOHN
GRAY ONLY, 6 MONTHS IS SUBSTITUTED FOR 12 MONTHS IN THE PRECEDING PARAGRAPH.]
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(h) If the Agreement is terminated either for Cause or by the Executive
pursuant to Section 10(e) of this Agreement, the Executive shall receive no
further compensation or benefits, other than the Executive's Base Salary and
Bonus Amount accrued through the date of such termination.
11. Notices.
All notices provided for herein shall be in writing and shall be deemed to
be given when delivered in person or deposited in the United States Mail,
registered or certified, return receipt requested, with proper postage prepaid
and addressed as follows:
Company: Fresh America Corp.
6600 LBJ Freeway, Suite 180
Dallas, Texas 75240
Attn: Chairman, Compensation Committee
of the Board of Directors
Executive:
12. Change in Control. None of the benefits provided in Section 12 of this
Agreement shall be payable to the Executive unless (i) there shall have been a
Change in Control of the Company, as set forth in this Section 12, and (ii) the
Executive was employed by the Company at least ninety (90) days prior to such
time.
(a) A "CHANGE IN CONTROL" shall be deemed to have occurred if (i) during
the Term of this Agreement, the individuals constituting the Company's Board of
Directors at the effective date of this Agreement (the "BEGINNING COMPANY
BOARD") cease for any reason to constitute at least a majority of the Board of
Directors, provided that in making such determination, a director elected by or
on the recommendation of the Beginning Company Board shall be deemed to be a
member of such Beginning Company Board, excluding, for this purpose, any
director whose assumption of office occurs as a result of an actual or
threatened election contest or proxy contest with respect to the election or
removal of directors; or, (ii) more than 35% of the Company's outstanding common
stock or equivalent in voting power of any class or classes of outstanding
securities of Company entitled to vote in elections of directors shall be
acquired by any corporation, other person or group. The term "group" shall mean
persons who act in concert as described in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 as amended; or, (iii) the Company shall become a
subsidiary of another corporation or shall be merged or consolidated into
another corporation; or, (iv) substantially all of the assets of the Company
shall be sold to another entity other than a sale to a wholly-owned subsidiary
of the Company; or, (v) the sale or transfer of a majority of the stock or
substantially all of the assets of the Company regardless of the form of the
transaction, other than a sale to transfer to a wholly owned subsidiary of the
Company and in the case of (iii), (iv), or (v) above, any of (x) less than a
majority of the outstanding voting shares of the parent or surviving corporation
after such acquisition, merger or consolidation are owned immediately after such
acquisition, merger or consolidation by the owners of the voting shares of the
Company immediately before such acquisition, merger or consolidation, or (y) a
person or entity (excluding any corporation resulting from such business
combination or any employee benefit plan or related trust of the Company or such
resulting corporation) beneficially owns or controls 35% or more of the combined
voting power of the then outstanding securities of such corporation, except to
the extent that such ownership existed prior to the business combination, or (z)
less than a majority of the members of the board of directors of the corporation
resulting from such business combination were members of the Company's Board of
Directors at the time of the execution of the initial agreement for such merger
or consolidation.
(b) In the event of a Change in Control of the Company, the Executive shall
be entitled for a period of ninety (90) days after the date of closing of the
transaction effecting such Change in Control and at his election, to either (i)
deliver written notice to the Company and the Company of termination of this
Agreement whereupon the Company will continue to pay the Executive's base salary
for twelve (12) months after termination; provided that all other benefits or
compensation, including incentive compensation, shall be terminated as of the
termination of this Agreement; or, (ii) deliver written notice to the Company
that he intends to remain in the employ of the Company and the Company shall
employ the Executive, for the remainder of the term of this Agreement, or twenty
four (24) months, whichever is greater, performing the
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same duties that he was performing at the time of the effective date of the
Change in Control and with the same title, compensation, benefits, reporting
requirements and location. Any extension of employment under this Section 12(b)
shall be deemed an extension of the term of this Agreement, during which all
provisions of this Agreement shall remain in effect.
(c) Subject to the terms and conditions of this Agreement, following a
Change in Control of the Company, if the Executive elects to remain hereunder
and is terminated without Cause, the Executive shall receive the compensation
set forth in Section 12(c)(1) of this Agreement in consideration for the
services to be provided on behalf of the Company as set forth herein.
(1) If the Company terminates the Executive without Cause, or if the
Company takes any action specified in Section 12(c)(2) of this Agreement
during the term of this Agreement following the date of occurrence of a
Change in Control of the Company, (the "TERMINATION OF EMPLOYMENT"), the
Company shall pay the Executive a lump sum cash payment in an amount equal
to the product of (x) two and eleven twelfth's (2 and 11/12) multiplied by
(y) the Executive's annual compensation from the Company, including salary,
bonuses, all perquisites, and all other forms of compensation paid to the
Executive for his benefit or the benefit of his family, however
characterized, for the fiscal year during the term of this Agreement for
which such compensation was highest (the "EXECUTIVE'S ANNUAL SALARY")
multiplied by (z) a fraction of which the numerator shall be 35 less the
number of full months that have expired since the effective date of the
Change in Control and the denominator shall be 35. The payment provided for
in this Section 12(c)(1) shall be due and payable to the Executive within
thirty (30) days after the date of the Termination of Employment.
(2) During the remaining term of this Agreement following the
effective date of a Change in Control, if the Company takes any of the
following actions, such action shall be deemed to be a termination without
Cause. Those actions are: (i) a reduction in the Executive's salary, bonus
provisions or other perquisites as were in effect immediately prior to a
Change in Control of the Company, (ii) a material change in the Executive's
status, offices, titles, reporting requirements, duties or responsibilities
with the Company as in effect immediately prior to a Change in Control of
the Company, or (iii) the Company's requirement that Executive relocate
more than fifty (50) miles from the offices of the Company immediately
prior to a Change in Control of the Company set forth in Section B of
Appendix I attached hereto. In any such event, Executive shall be entitled
to all payments provided for in Section 12(c)(1) of this Agreement.
(d) Notwithstanding any other provision of this Section 12 of this
Agreement, in no event shall the Company pay or be obligated to pay the
Executive an amount which would be an Excess Parachute Payment. The term "Excess
Parachute Payment" shall mean any payment or any portion thereof which would be
an "excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and would result in the
imposition of an excise tax under Section 4999 of the Code, in the opinion of
tax counsel selected by the Company's independent accountants and acceptable to
the Executive. If it is established pursuant to a final determination of a court
or an Internal Revenue Service administrative appeals proceeding that,
notwithstanding the good faith of the Executive and the Company in applying the
terms of this Section 12 of the Agreement, a payment (or portion thereof) made
is an Excess Parachute Payment, then, except as hereafter provided, the
Executive shall have the obligation to repay the Company upon demand an amount
equal to the minimum amount (but without interest) necessary to insure that no
payments made or to be made by the Company pursuant to this Section 12 of the
Agreement is an Excess Parachute Payment; provided, however, that if, in the
opinion of tax counsel selected by the Company's independent accountants and
acceptable to the Executive, such repayment will not ensure that no Excess
Parachute Payment would be made hereunder, then (1) no such repayment obligation
will exist and (2) the Company shall pay to the Executive an additional amount
in cash equal to the amount necessary to cause the amount of the aggregate
after-tax cash compensation and benefits otherwise receivable by the Executive
to be equal to the aggregate after-tax cash compensation and benefits he would
have received as if Sections 280G and 4999 of the Code had not been enacted.
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13. Resolution of Disputes: Arbitration.
(a) Except as contemplated in Section 9, the Company and the Executive
shall use their best efforts to resolve any dispute, controversy or claim
between them with respect to any matter related to or arising out of this
Agreement (each, a "Dispute") through negotiation. Such negotiation shall begin
immediately after a party has delivered to the other party a written request for
such negotiation. If within 60 days following the date on which such notice is
given, the parties fail to resolve the dispute through such negotiations, then
either party may initiate an arbitration proceeding in accordance with this
Section 13.
(b) Subject to Section 13(a), any Dispute shall be referred to and finally
resolved by arbitration administered by the American Arbitration Association
(the "AAA") in accordance with the Commercial Arbitration Rules of the AAA and
the provisions of this Section 13, before a single arbitrator to be appointed by
the mutual consent of the Company and the Executive. In the event that the
parties cannot agree on an arbitrator, the parties agree that the AAA shall
designate an arbitrator. The arbitration proceedings shall be held in Dallas,
Texas.
(c) The arbitrator shall decide the Dispute in accordance with this
Agreement and the laws of the State of Texas applicable to agreements made and
to be performed entirely within such State. The decision of the arbitrator shall
be in writing and presented in separate findings of fact and law. The award of
the arbitrator shall be final and binding on the parties from which no appeal
may be taken, and an order confirming the award or judgment upon the award may
be entered into in any court having jurisdiction there over.
(d) Prior to the appointment of the arbitrator, the Company or the
Executive may seek provisional remedies, including, without limitation,
temporary restraining orders and preliminary injunctions. After the appointment
of the arbitrator, the arbitrator shall have sole authority to grant such
provisional remedies as the arbitrator, in its sole discretion, deems necessary
and appropriate.
(e) The arbitrator, in the award, may assess the fees and expenses of the
arbitrator and of the arbitration proceeding, and the witness and attorneys'
fees of the parties, or any part thereof, against either the Company or the
Executive or both of them, taking into account the circumstances of the case.
Except as assessed by the arbitrator in the award and as provided in the
preceding sentence, the Company and the Executive shall each bear their own
costs in connection with the arbitration proceeding, and shall each bear 50% of
the fees and expenses of the arbitrator.
14. Miscellaneous.
(a) Modification, Waiver, etc. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and a duly authorized officer of
the Company. No waiver by any party hereto at any time of any breach of another
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement shall be binding on and inure to the benefit of
the successors and assigns of the Company.
(b) Withholding Taxes. The Company may withhold from amounts payable under
this Agreement such Federal, state and local taxes as are required to be
withheld pursuant to any applicable law or regulation and the Company shall be
authorized to take such action as may be necessary in the opinion of the
Company's counsel (including, without limitation, withholding from amounts from
any compensation or other amount owing from the Company to Executive) to satisfy
all obligations for the payment of such taxes.
(c) Continuation of Employment. Unless the parties otherwise agree in
writing, continuation of Executive's employment with the Company beyond the
expiration of the Term shall be deemed an employment at will and shall not be
deemed to extend any of the provisions of this Agreement and Executive's
employment may thereafter be terminated at will by Executive or the Company
without further obligation of either party hereunder.
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(d) Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas applicable to agreements made and to be performed entirely in Texas,
without regard to the conflict of laws principles of such State.
(e) Assignment. This Agreement is a personal contract, and the rights and
interests of the Executive hereunder may not, during the Term, be sold,
transferred, assigned, pledged or hypothecated. This Agreement may be assigned
by the Company to a company which is wholly-owned or controlled directly or
indirectly by the Company, or which is a successor-in-interest to substantially
all of the business operations of the Company. Such assignment shall become
effective when the Company, shall have notified the Executive of such assignment
or at such later date as may be specified in such notice. Upon such assignment
the rights and obligations of the Company, hereunder shall become the rights and
obligations of such company, and the Company shall have no further rights or
obligations hereunder; provided, however, that the Company shall guarantee the
obligations of such company to the Executive under this Agreement.
(f) Definition of Terms. The term "affiliate", when used in this Agreement
with respect to any person, means any person that, directly or indirectly,
controls, is controlled by or is under common control with such person, and with
respect to any natural person, includes the members of such person's immediate
family (spouse, children and parents). The term "person", when used in this
Agreement, means any natural person or entity with legal status.
(g) Severability of Invalid or Unenforceable Provisions. The invalidity or
unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
(i) Entire Agreement. This Agreement, together with Schedule A, and
Appendix I, sets forth the entire agreement of the parties hereto in respect of
the subject matter contained herein and supersedes all prior agreements,
understandings, promises, covenants, arrangements and communications, both oral
or written, among the parties hereto in respect of the subject matter contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
"Executive"
(SEAL)
------------------------------
[name of Executive]
"Company"
Fresh America Corp.
By:
Its:
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SCHEDULE A
BONUS PLAN
The Bonus Plan shall be such plan adopted by the Company as of the
Effective Time substantially on the terms recommended by Price Waterhouse
Coopers, LLP or such other independent compensation consulting firm employed by
the Board of Directors (the "Compensation Consultant"); provided, however, such
plan shall enable the Executive to earn a maximum Bonus Amount equal to 110% of
his Base Salary upon the attainment by the Company of financial earnings that
are reasonably attainable.
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Appendix I to Employment Agreement
between [ ] and [ ] (the "Employment Agreement")
A. Capacity, Duties and Responsibilities.
B. Place of Performance.
The greater Dallas, Texas metropolitan area, or such other place as the
Company and the Executive mutually agree.
C. Compensation.
Annual Base Salary: $ .
Bonus calculation: To be determined in accordance with the Bonus Plan,
attached to the Employment Agreement as Schedule A.
D. Number of Weeks of Vacation.
E. Other Long Term Compensation.
Options: The number of Options granted by the Company as of the Effective
Time in an amount of at least and at an exercise price of not more
than recommended by the Compensation Consultant under the
Company's existing stock option plan; provided, however, the stock
option agreement to be entered into between the Executive and the
Company pursuant to such grant shall provide that the Options
shall vest one third per year starting with the first anniversary
of the Effective Time.
Other: Such other long term compensation plan or arrangement in which the
Executive will be a participant as of the Effective Time
substantially on the terms and in such amount as recommended by
the Compensation Consultant.
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EXHIBIT E
FORM OF LEGAL OPINION OF HOLDINGS' COUNSEL
Capitalized terms used herein and not otherwise defined shall have the
meaning given to such terms in the Merger Agreement.
1. Each of Holdings and FreshPoint, Inc. and the other subsidiaries listed
on Annex A hereto (each a "Material Subsidiary", and collectively, the "Material
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing would not have a Material Adverse Effect on
Holdings.
2. The authorized capital stock of Holdings consists of (i) 20,000 shares
of Holdings Common Stock, of which on the date hereof (A) 8,800 shares are
issued and outstanding and (B) no shares were held in treasury, and (C) 1,344
shares were reserved for future issuance pursuant to warrants, and (ii) 45,000
shares of preferred stock, $.01 par value, of which the following are issued and
outstanding on the date hereof: (A) 3,796.7 shares of Series A Exchangeable
Preferred Stock, (B) 8,467.2 shares of Series A-1 Exchangeable Preferred Stock,
and (C) 3,328.3 shares of Series A-2 Exchangeable Preferred Stock. To our
knowledge, all of the issued and outstanding shares of Holdings' capital stock
are owned as set forth in the shareholder summary in Schedule 3.03(a) to the
Holdings Disclosure Schedule. To our knowledge, no shares of capital stock of
Holdings are reserved for any purpose. The outstanding shares of capital stock
of Holdings and the Material Subsidiaries are duly authorized, validly issued,
fully paid and nonassessable, and have not been issued in violation of any
preemptive or similar rights created by statute, the charter or bylaws of
Holdings or any of the Material Subsidiaries, or any agreement known to us to
which Holdings or any of the Material Subsidiaries is a party or bound.
3. To our knowledge, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which Holdings or
any of the Material Subsidiaries is a party relating to the issued or unissued
capital stock of Holdings or any of the Material Subsidiaries or obligating
Holdings or any of the Material Subsidiaries to grant, issue or sell any shares
of its capital stock. Except as set forth in Schedule 3.03(c) to the Holdings
Disclosure Schedule, to our knowledge, there are no voting trusts, proxies or
other agreements or understandings to which Holdings or any of the Material
Subsidiaries is a party or by which Holdings or any of the Material Subsidiaries
is bound with respect to the voting of any shares of capital stock of Holdings
or any of the Material Subsidiaries.
4. Holdings has all requisite corporate power and authority to execute and
deliver the Merger Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery of
the Merger Agreement by Holdings and the consummation by Holdings of the
transactions contemplated thereby have been duly authorized by all necessary
corporate (including shareholder) action and no other corporate (including
shareholder) proceedings on the part of Holdings are necessary to authorize the
Merger Agreement or to consummate the transactions contemplated thereby. The
Merger Agreement has been duly executed and delivered by Holdings and
constitutes the legal, valid and binding obligation of Holdings.
5. The execution and delivery of the Merger Agreement by Holdings does not,
and the consummation of the transactions contemplated thereby will not (i)
conflict with or violate the charter or bylaws, in each case as amended or
restated, of Holdings or any of the Material Subsidiaries, (ii) conflict with or
violate in any material respect any Laws applicable to Holdings or any of the
Material Subsidiaries or by which any of their properties is bound or subject or
(iii) result in any material breach of or constitute a material default (or an
event that with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the
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<PAGE> 219
creation of a Lien on any of the properties or assets of Holdings or any of the
Material Subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract or agreement or other instrument or obligation known to us and to which
Holdings or any of its Material Subsidiaries is a party or by or to which
Holdings or any of the Material Subsidiaries or any of their properties is bound
or subject.
6. The execution and delivery of the Merger Agreement by Holdings does not,
and consummation of the transactions contemplated thereby will not, require
Holdings to obtain any consent, license, permit, approval, waiver, authorization
or order of, or to make any filing with or notification to, any Governmental
Entity, except for (i) filings or consents which have been made or obtained;
(ii) the filing of a certificate of merger with the Delaware Secretary of State
and a certificate of merger with the Texas Secretary of State and similar
documents with the relevant authorities of other states in which Holdings is
qualified to do business; and (iii) such consents, approvals, orders or
authorizations the failure of which to be made or obtained could not reasonably
be expected to have a Material Adverse Effect on Holdings.
7. To our knowledge, except as set forth in Schedule 3.10 to the Holdings
Disclosure Schedule, (i) there is no claim, action, suit, litigation,
proceeding, arbitration or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or
threatened against Holdings or any of the Material Subsidiaries or any
properties or rights of Holdings or any of the Material Subsidiaries, except for
claims, actions, suits, litigation, proceedings, arbitrations or investigations
which could not reasonably be expected to have a Material Adverse Effect on
Holdings and (ii) neither Holdings nor any of the Material Subsidiaries is
subject to any material order of, consent decree, settlement agreement or other
similar written agreement with, or, continuing material investigation by, any
Governmental Entity, or any material judgment, order, writ, injunction, decree
or award of any Government Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
8. Upon the filing of a certificate of merger with the Delaware Secretary
of State and a certificate of merger with the Texas Secretary of State, the
Merger will be effective in accordance with the laws of the States of Texas and
Delaware.
E-2
<PAGE> 220
ANNEX A
None.
<PAGE> 221
EXHIBIT F
STOCKHOLDERS' AGREEMENT
among
ROSECLIFF RCD MANAGEMENT, L.P.,
ROSECLIFF ALBERT FISHER PARTNERS, L.P.,
ROSECLIFF RCD PARTNERS,
ALBERT FISHER NORTH AMERICA, INC.,
ROSECLIFF RCD PARTNERS BENEFIT RESERVE TRUST,
DAVID I. SHEINFELD
and
THOMAS M. HUBBARD
---------------------
Dated , 1999
---------------------
<PAGE> 222
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. Definitions................................................. 1
2. Restrictions on Transfer of Shares.......................... 2
2.1 Limitation on Transfer................................. 2
2.2 Transfers in Compliance with Law; Substitution of 2
Transferee..................................................
3. Corporate Governance........................................ 2
3.1 General................................................ 2
3.2 Election of Directors; Number and Composition.......... 3
3.3 Vacancies.............................................. 3
4. After-Acquired Securities................................... 3
5. Stock Certificate Legend.................................... 3
6. Miscellaneous............................................... 4
6.1 Notices................................................ 4
6.2 Amendment and Waiver................................... 4
6.3 Specific Performance................................... 4
6.4 Headings............................................... 4
6.5 Severability........................................... 4
6.6 Entire Agreement....................................... 4
6.7 Term of Agreement...................................... 5
6.8 Governing Law.......................................... 5
6.9 Further Assurances..................................... 5
6.10 Successors and Assigns................................ 5
6.11 Counterparts.......................................... 5
</TABLE>
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<PAGE> 223
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of , 1999 (this "Agreement"),
by and among FreshPoint America, Inc., and Rosecliff RCD Management, L.P.,
Rosecliff Albert Fisher Partners, L.P., Rosecliff RCD Partners, Albert Fisher
North America, Inc., Rosecliff RCD Partners Benefit Reserve Trust, David I.
Sheinfeld and Thomas M. Hubbard (collectively, together with their respective
permitted successors and assigns, including partners of the various partnerships
signatory to this Agreement, the "Principal Stockholders").
WHEREAS, pursuant to a merger of FreshPoint Holdings, Inc., a Delaware
corporation ("Holdings"), with and into Fresh America Corp., a Texas corporation
(the "Company"), with the Company as the surviving corporation, all of the
outstanding shares of Holdings were converted into [ ] shares of Common
Stock (as hereinafter defined);
WHEREAS, to provide for the management of the Company and to avoid possible
dissension among the Principal Stockholders, the parties hereto wish to restrict
the transfer of the Shares (as hereinafter defined) and to provide for certain
other rights and obligations.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the meanings set forth below:
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
Person. For the purposes of this definition, "control," when used with
respect to any Person, means the power to direct or cause the direction of
the management or policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Albert Fisher" means The Albert Fisher Group PLC.
"Board of Directors" means the Board of Directors of the Company.
"Charter Documents" means the Certificate of Incorporation and the
Bylaws of the Company as in effect on the date hereof.
"Co-investor Partnerships" means Rosecliff-Palmetto Partners, L.P.,
Rosecliff-Mousseteek Partners, L.P., Rosecliff-Drakefield Partners, L.P.,
Rosecliff-CIR Partners, L.P., Rosecliff-SK Partners, L.P., and
Rosecliff-ENE Partners, L.P.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the common stock, par value $1.00 per share, of
the Company or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Fresh America Continuing Directors" means the following persons: (i)
each of the following persons so long as he continues to serve as a member
of the Board of Directors of the Company: David Sheinfeld, Thomas Hubbard,
Lawrence Jackson, Sheldon Stein and Colon Washburn; and (ii) each of their
successors who became a director of the Company and whose nomination for
election by the Company's stockholders was made pursuant to Section 3.2(ii)
or 3.3 by the Fresh America Continuing Directors then on the Board of
Directors of the Company.
"Fresh America Principal Stockholders" means David I. Sheinfeld and
Thomas M. Hubbard.
"Fresh America Shares" means Shares then owned by the Fresh America
Principal Stockholders.
"FreshPoint Designator" means PTJ GenPar, Inc. until such time as
Rosecliff RCD Partners, and those of the Co-investor Partnerships that
represent in the aggregate a majority of the partnership interest of
Rosecliff RCD Partners held by all of the Co-investor Partnerships, are
dissolved and the shares held by Rosecliff RCD Partners are distributed, at
which time the rights and obligations of the FreshPoint
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<PAGE> 224
Designator shall be transferred by PTJ GenPar, Inc. to such other person or
persons, as reasonably accepted by Palmetto Partners, a Texas General
Partnership, provided, however, that, if the FreshPoint Designator
exercises its right to replace one of its designees on the Board of
Directors and nominate a new designee for election at an annual meeting of
shareholders of the Company, such new designee must be reasonably
acceptable to the remainder of the directors whose nomination for election
by the Company's shareholders was made pursuant to Section 3.2(i) or 3.3 by
the FreshPoint Designator.
"FreshPoint Principal Stockholders" means the Principal Stockholders
other than the Fresh America Principal Stockholders.
"FreshPoint Shares" means Shares then owned by the FreshPoint
Principal Stockholders.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any
kind.
"Principal Stockholders" has the meaning set forth in the preamble of
this Agreement.
"Public Sales" means any sale of Common Stock pursuant to (i) an
effective Registration Statement filed under the Securities Act, (ii) Rule
144 under the Securities Act, or (iii) any other sale into the public
market for which a Registration Statement is not required.
"Registration Statement" means a registration statement filed pursuant
to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Shares" means, with respect to each Principal Stockholder, all shares
of Common Stock now owned or hereafter acquired by such Principal
Stockholder.
"transfer" has the meaning assigned to such term in Section 2.1.
2. Restrictions on Transfer of Shares.
2.1 Limitation on Transfer. No Principal Stockholder shall sell, give,
assign, hypothecate, pledge, encumber, grant a security interest in or otherwise
dispose of (whether by operation of law or otherwise) any Shares or any right,
title or interest therein or thereto (each a "transfer"), except a bona fide
sale or pledge of such Shares (including pursuant to a statutory merger
transaction) in accordance with the provisions of this Agreement including, but
not limited to, Section 2.2. Any attempt to transfer any Shares in violation of
the preceding sentence shall be null and void ab initio and the Company shall
not register any such transfer.
2.2 Transfers in Compliance with Law; Substitution of
Transferee. Notwithstanding any other provision of this Agreement, no transfer
may be made (a) unless the transfer complies in all respects with the applicable
provisions of this Agreement and applicable federal and state securities laws,
including, without limitation, the Securities Act and (b) other than pursuant to
a Public Sale, unless the transferee agrees in writing to be bound by the terms
and conditions of this Agreement (whereupon such transferee shall be substituted
for, and shall enjoy the same rights and be subject to the same obligations, as
its predecessor hereunder). A Principal Stockholder may not encumber or pledge
its Shares unless the pledgee agrees in writing to be bound by the terms and
conditions of this Agreement. Nothing herein shall prohibit a Public Sale made
in accordance with applicable law.
3. Corporate Governance.
3.1 General. Each Principal Stockholder shall vote its Shares at any
regular or special meeting of stockholders of the Company or in any written
consent executed in lieu of such a meeting of stockholders of the Company and
shall take all other actions necessary, to give effect to the provisions of this
Agreement (including, without limitation, Section 3.2 hereof), and to ensure
that the Charter Documents do not, at any time hereafter, conflict in any
respect with the provisions of this Agreement.
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3.2 Election of Directors; Number and Composition. Each Principal
Stockholder agrees that the number of directors constituting the entire Board of
Directors shall be eleven, comprised of the following individuals:
(i) six individuals designated by the FreshPoint Designator, which
shall initially be Mitt Parker, Brian Sturgeon, John J. Geisler, Donald R.
Kendall, John Gutfreund and Robert Dussler; provided, however, that (1) one
of these individuals shall be Mitt Parker so long as he serves as the chief
executive officer of the Company, (2) one of these individuals shall be
Brian Sturgeon so long as he serves as the Chief Operating Officer of the
Company, and (3) Albert Fisher shall have the right to designate one of
these individuals upon written notice to the FreshPoint Designator, such
notice to be given at least 90 days prior to the annual meeting of the
shareholders of the Company, so long as Albert Fisher owns Shares
representing at least 5% of the outstanding Common Stock or at least 50% of
its shares as of the date of this Agreement, provided, however, that an
individual designated by Albert Fisher may be designated for removal by the
FreshPoint Designator from and after the date Albert Fisher owns Shares
representing less than 5% of the outstanding Common Stock or less than 50%
of its shares as of the date of this Agreement; and
(ii) David Sheinfeld, Tom Hubbard, Lawrence Jackson, Shelly Stein and
Colon Washburn; provided, however, that if any of such individuals is no
longer serving for any reason, a majority of the Fresh America Continuing
Directors shall designate a replacement individual (the "Fresh America
Designators").
3.3 Vacancies. If at any time a vacancy is created on the Board of
Directors by reason of the death, removal or resignation of any Director, then
each Principal Stockholder shall, as soon as practicable after the date such
vacancy first occurs and in any event prior to the transaction of any other
business by the stockholders of the Company or the Board of Directors, take
action, including the voting of its Shares, to elect a successor as provided in
Section 3.2, provided, however, that the Board of Directors shall not be
prevented from taking any action if the failure to take such action would be a
breach of its fiduciary duties.
4. After-Acquired Securities. All of the provisions of this Agreement shall
apply to all of the Shares now owned or that may be issued or transferred
hereafter to a Principal Stockholder in consequence of any additional issuance,
purchase, exchange or reclassification of any of the Shares (including without
limitation, upon the exercise of any option or warrant), corporate
reorganization, or any other form of recapitalization, consolidation, merger,
share split or share dividend, or that are acquired by a Principal Stockholder
in any other manner.
5. Stock Certificate Legend. A copy of this Agreement shall be filed with
the Secretary of the Company and kept with the records of the Company. Each
certificate representing Shares now held or hereafter acquired by any Principal
Stockholder shall, for as long as this Agreement is effective, bear legends
substantially in the following forms:
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY
THAT REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS' AGREEMENT, DATED AS OF , 1999 (THE "STOCKHOLDERS'
AGREEMENT"), AMONG [STOCKHOLDERS], A COPY OF WHICH MAY BE INSPECTED AT THE
COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF
SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND
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UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE
STOCKHOLDERS' AGREEMENT.
Provided, however, that if Shares are transferred to a permitted transferee
pursuant to a Public Sale, the certificates representing such Shares shall not
bear such legend and, if required by the transferor in order to make the
transfer, the Company, at its own expense, shall provide an opinion of counsel
that such transfer may be properly made without registration under the
Securities Act or that such Shares have been registered under a Registration
Statement which is in effect at the date of such transfer.
6. Miscellaneous.
6.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied or
sent by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telecopied or sent by
certified, registered or express mail or, if mailed, five days after the date of
deposit in the United States mail, as follows:
(a) if to the Company:
with a copy to:
(b) if to the Principal Stockholders, to the addresses set forth on
Schedule A attached hereto.
Any party may, by notice given in accordance with this Section 6.1, designate
another address or person for receipt of notices hereunder.
6.2 Amendment and Waiver.
(a) No failure or delay on the part of any party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive of
any remedies that may be available to the parties hereto at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by any party from the terms of any provision of this Agreement,
shall be effective (i) only if it is made or given in writing and signed by the
Principal Stockholders holding two-thirds of the Fresh America Shares and the
FreshPoint Shares provided, however, that modifications to Albert Fisher's
rights under Section 3.2(i) shall also require the written approval of Albert
Fisher and provided, further, that modifications extending the term of this
Agreement or imposing additional restrictions or obligations, shall require the
written approval of all Principal Stockholders, and (ii) only in the specific
instance and for the specific purpose for which made or given.
6.3 Specific Performance. The parties hereto intend that each of the
parties has the right to seek damages or specific performance in the event that
any other party hereto fails to perform such party's obligations hereunder.
Therefore, if any party shall institute any action or proceeding to enforce the
provisions hereof, any party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the plaintiff party has an
adequate remedy at law.
6.4 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
6.5 Severability. If any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
6.6 Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties
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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.
6.7 Term of Agreement. This Agreement shall become effective upon the
execution hereof and shall continue in effect until the earlier of (i) such time
as two annual meetings of the stockholders of the Company have taken place
following 180 days from the date hereof, (ii) such time as the FreshPoint
Principal Stockholders cease to own at least 15% of the outstanding Common
Stock; provided that this Agreement shall cease to be effective as to a
particular Principal Stockholder when it ceases to own any Shares or (iii) the
third anniversary of the date hereof.
6.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
6.9 Further Assurances. Each of the parties shall, and shall cause their
respective Affiliates to, execute such instruments and take such action as may
be reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
6.10 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective permitted successors and
assigns. This Agreement is not assignable except in connection with a transfer
of Shares in accordance with this Agreement.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement on the date first written above.
ROSECLIFF RCD MANAGEMENT, L.P.
By:
-----------------------------------
Name:
Title:
ROSECLIFF ALBERT FISHER PARTNERS, L.P.
By:
-----------------------------------
Name:
Title:
ROSECLIFF RCD PARTNERS
By:
-----------------------------------
Name:
Title:
ALBERT FISHER NORTH AMERICA, INC.
By:
-----------------------------------
Name:
Title:
ROSECLIFF RCD PARTNERS BENEFIT
RESERVE TRUST
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
David I. Sheinfeld
By:
-----------------------------------
Thomas M. Hubbard
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EXHIBIT G
HOLDINGS AFFILIATE'S AGREEMENT
Fresh America Corp.
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of FreshPoint Holdings, Inc., a Delaware corporation ("Holdings"),
as that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act").
Pursuant to the terms and subject to the conditions of that certain
Agreement and Plan of Merger by and between Fresh America Corp., a Texas
corporation (the "Company") and Holdings dated as of , 1999 (the
"Merger Agreement"), providing for, among other things, the merger of Holdings
with and into the Company (the "Merger"), I will be entitled to receive shares
of common stock, par value $0.01 per share, of the Company ("Company Common
Stock"), in exchange for shares of common stock, $0.01 par value, of Holdings
owned by me at the Effective Time (as defined in the Merger Agreement) of the
Merger as determined pursuant to the Merger Agreement.
In consideration of the agreements contained herein, the Company's reliance
on this letter in connection with the consummation of the Merger and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that I will not make any
sale, transfer or other disposition of any shares of Company Common Stock
received by me in the Merger in violation of the Securities Act or the Rules and
Regulations. I have been advised that the issuance of the shares of Company
Common Stock pursuant to the Merger will have been registered with the SEC under
the Securities Act on a Registration Statement on Form S-4. However, I have also
been advised, and I agree, that since I may be deemed to be an affiliate of
Holdings at the time the Merger is submitted for a vote of the stockholders of
Holdings, the Company Common Stock received by me pursuant to the Merger can be
sold by me only (i) pursuant to an effective registration statement under the
Securities Act, (ii) in conformity with the volume and other limitations of Rule
145 promulgated by the SEC under the Securities Act, or (iii) in reliance upon
an exemption from registration that is available under the Securities Act.
I also understand and agree that stop transfer instructions may be given to
the Company's transfer agent with respect to the Company Common Stock to be
received by me pursuant to the Merger and that there may be placed on the
certificates representing such shares of Company Common Stock, or any
substitutions therefor, a legend stating in substance as follows:
"These shares were issued in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. These shares may only be
transferred in accordance with the terms of such Rule and an Affiliate's
Agreement between the original holder of such shares and the Company, a
copy of which agreement is on file at the principal offices of such
Company."
By its execution hereof, the Company agrees that it will, as long as I own
any Company Common Stock to be received by me pursuant to the Merger, the resale
of which remains subject to Rule 145 under the Securities Act, take all
reasonable efforts to make timely filings with the SEC of all reports required
to be filed by it pursuant to the Securities Exchange Act of 1934, as amended,
and will promptly furnish upon written request of the undersigned a written
statement confirming that such reports have been so timely filed.
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If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.
Very truly yours,
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
Address:
ACCEPTED this day
of , 1999
[Company]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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EXHIBIT H
AGREEMENT OF CONSENT AND WAIVER
AGREEMENT OF CONSENT AND WAIVER (this "Agreement"), dated as of April ,
1999, by and between FreshPoint Holdings, Inc., a Delaware corporation
("Holdings"), and Albert Fisher Group PLC, a company organized under the laws of
the United Kingdom (together with its subsidiaries and affiliates, including
Albert Fisher Holdings, Inc., "Albert Fisher").
WHEREAS, Holdings and Fresh America Corp., a Texas corporation ("Fresh
America"), are concurrently herewith entering into an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of April , 1999, by and between
Holdings and Fresh America, pursuant to which Holdings will merge with and into
Fresh America, with the surviving corporation named FreshPoint America, Inc.,
and incorporated in the State of Delaware ("FreshPoint America"), and all of the
outstanding shares of Common Stock of Holdings, par value $0.01 per share
("Holdings Common Stock"), and Holdings Preferred Stock (as defined in the
Merger Agreement) will be converted into the right to receive shares of common
stock of Fresh point America ("FreshPoint America Common Stock"), par value
$0.01 per share (the "Transaction");
WHEREAS, Albert Fisher is the holder of (i) a Subordinated Promissory Note
(the "Note"), dated as of November 21, 1996, issued by Holdings for a principal
sum of Twenty Five Million Dollars ($25,000,000); and (ii) 8,467.2 shares of
Holdings Series A-1 Exchangeable Preferred Stock (the "Holdings Series A-1");
WHEREAS, Rosecliff Albert Fisher Partners, L.P. is the holder of (i)
1,768.9 shares of Holdings Common Stock (the "Holdings Common Shares"), and (ii)
3328.3 shares of Holding's Series A-2 Exchangeable Preferred Stock
(collectively, together with the Holdings Series A, the "Holdings Preferred
Shares"); and
WHEREAS, it is a condition to the execution of the Merger Agreement that
Albert Fisher consent to the Transaction and the exchange of the Holdings
Preferred Shares and Holdings Common Shares for shares of FreshPoint America
Common Stock pursuant to the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties agree as
follows:
SECTION 1. Consent and Waiver. Subject to the terms and conditions set
forth in Section 7 of this Agreement, Albert Fisher hereby consents to the
Merger Agreement substantially in the form set forth in Exhibit A attached
hereto and to the execution, delivery and performance of the Merger Agreement by
Holdings, provided, however, that any modifications or amendments to the Merger
Agreement or the exhibits thereto, or the Registration Rights Agreement or
Stockholders' Agreement, attached as exhibits to the Merger Agreement, that
adversely affect Albert Fisher shall require the prior written approval of
Albert Fisher, unless such modifications or amendments are not material and do
not affect the repayment of the Note at the closing date of the Transaction or
the consideration to be received by Albert Fisher pursuant to the Transaction or
increase the consideration to be received by any other party to the Transaction
without proportionately increasing the consideration to be received by Albert
Fisher.
SECTION 2. Agreement to Convert. Subject to the terms and conditions set
forth in Section 7 of this Agreement, Albert Fisher hereby agrees to deliver,
upon the Effective Time (as defined in the Merger Agreement), all of its
Holdings Preferred Shares and Holdings Common Shares for conversion into the
right to receive shares of FreshPoint America Common Stock on the terms and
conditions set forth in the Merger Agreement pursuant to Article 2 of the Merger
Agreement. In furtherance thereof, Albert Fisher shall execute and deliver on
the date hereof duly executed written consents of Stockholders in lieu of
Meeting in the form attached hereto as Exhibits B-1 and B-2. At the Effective
Time, Albert Fisher (or its designated affiliate, if such affiliate signs the
Stockholders' Agreement to be entered into by and among Rosecliff RCD
Management, L.P., Rosecliff Albert Fisher Partners, L.P., Rosecliff RCD
Partners, Albert Fisher North America, Inc., Rosecliff RCD Partners Benefit
Reserve Trust, David I. Sheinfeld and Thomas M. Hubbard) shall receive all
shares of FreshPoint America Common Stock issuable upon the conversion of Albert
Fisher's
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Holdings Preferred Shares as well as those shares of FreshPoint America Common
Stock issuable from the conversion of those Holdings Preferred Shares and
Holdings Common Stock attributable to Albert Fisher's partnership interests in
Rosecliff Albert Fisher Partners, L.P., all as calculated on Schedule 2 hereto.
The calculations set forth on Schedule 2 assume that the price per share of
common stock of Fresh America, as determined according to the formula described
in Section 2.01(c) of the Merger Agreement, is $20, the actual price will be
calculated according to such formula and the calculations set forth on Schedule
2 shall be adjusted accordingly.
SECTION 3. Transaction Fees. Holdings hereby agrees to pay Albert Fisher,
subject to the occurrence of, and simultaneously with the consummation of, the
Transaction, by wire transfer of immediately available funds to an account to be
designated by Albert Fisher a fee of $1,250,000 (the "Transaction Fees").
SECTION 4. Prepayment of the Note. Holdings hereby agrees to prepay in full
by wire transfer of immediately available funds to an account to be designated
by Albert Fisher the principal and interest accrued under the Note through the
date of payment (the outstanding principal and accrued interest of which is
$30,888,972.47 as of the date hereof) upon delivery of the Note marked "Paid"
and subject to the occurrence of, and simultaneously with the consummation, of
the Transaction (the "Prepayment").
SECTION 5. Representations of Holdings. Holdings hereby represents to
Albert Fisher that:
(a) Required Consents. All required consents or approvals of shareholders
of Holdings, any person who has rights issued by Holdings to acquire shares of
Holdings or any affiliate of, or investor in, any entity controlled by
Rosecliff, Inc. to the Transaction have been obtained and are in full force and
effect and shall continue to be in full force and effect as of the Effective
Time, except for those the failure of which to obtain will not have a material
adverse effect on the business, assets, properties, prospects, condition
(financial or otherwise) or the results of operations of FreshPoint America and
its subsidiaries taken as a whole or the consummation of the Transaction and are
not required under applicable law to consummate the Transaction.
(b) Capitalization. Schedule 5(b) sets forth the authorized capital stock
of FreshPoint America upon consummation of the Transaction. The number of shares
of FreshPoint America Common Stock to be owned by the current shareholders and
warrant holders of Holdings upon consummation of the Transaction are described
on Schedule 5(b).
(c) Schedule 5(c) sets forth the application of the carried interest to be
distributed to Rosecliff-CI L.P. with respect to Rosecliff Albert Fisher
Partners, L.P.
(d) Schedule 5(d) sets forth all fees, compensation and other forms of
consideration to be received by Holdings, Rosecliff, Inc., Buttonwood Capital or
any person or entity controlled by Holdings, Rosecliff, Inc. or Buttonwood
Capital and all officers and directors of Holdings (including, without
limitation, Mitt Parker, Brian Sturgeon and John Geisler) or Rosecliff, Inc., in
connection with the Transaction, from Holdings, FreshPoint, Inc. or Fresh
America or any of their respective subsidiaries.
(e) The schedules of this Agreement are accurate and complete and will be
accurate and complete at the closing of the Transaction.
For purposes of calculating Schedules 5(b), 5(c) and 5(d) it is assumed
that the price per share of common stock of Fresh America, as determined
according to the formula described in Section 2.01(c) of the Merger Agreement,
is $20, the actual price will be calculated according to such formula and the
calculations set forth in the schedules shall be adjusted accordingly.
SECTION 6. Shareholder Approval Covenant and Undertaking. If Albert Fisher
determines that Shareholder approval is required, then no later than fifty-nine
(59) days following the date hereof, Albert Fisher shall cause a Circular,
containing resolutions approving this Agreement and the Transaction and, subject
to the fiduciary duties of the Board of Directors of Albert Fisher Group PLC
(the "Board of Directors"), both collectively and as individuals, which shall be
exercised following consultation with legal counsel in the discretion of such
directors, the recommendation of the Board of Directors for the adoption of such
resolutions, to be prepared and mailed to shareholders of Albert Fisher Group
PLC. No later than sixteen (16) days after the mailing of such Circular, Albert
Fisher shall cause an Extraordinary General
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Meeting of its shareholders to be held for the purpose of considering such
resolutions to approve Albert Fisher's execution and delivery of this Agreement,
and the consummation of the Transaction. Subject to the fiduciary duties of the
Board of Directors, both collectively and as individuals, which shall be
exercised following consultation with legal counsel in the discretion of such
directors, the recommendation of the Board of Directors shall not be withdrawn
or modified.
SECTION 7. Conditions to the Obligations of Albert Fisher. The obligations
of Albert Fisher under Sections 1 and 2 of this Agreement are conditioned solely
upon the satisfaction of the following conditions, unless waived by Albert
Fisher in writing in its sole discretion:
(a) The shareholders of Albert Fisher Group PLC shall have approved the
consummation of the Transaction by the passing of an ordinary resolution in a
general meeting in accordance with the requirements of the Companies Act 1985
(as amended);
(b) The payment of the Transaction Fees and the Prepayment as provided in
Sections 3 and 4 hereof; and
(c) The Registration Rights Agreement and the Stockholders Agreement,
attached as exhibits to the Merger Agreement, shall be executed and Albert
Fisher shall receive shares of Fresh America as contemplated by Section 2
hereof.
If, after compliance with its obligations under Section 6 the conditions
set forth in this Section 7(a) are not satisfied or if the conditions set forth
in Section 7(b) or (c) are not satisfied, then Albert Fisher shall have the
right to terminate this Agreement, including the consent granted by Albert
Fisher in Section 1 hereof, and, if Albert Fisher exercises such right, this
Agreement shall terminate and shall be of no further force and effect.
SECTION 8. Termination of Certain Agreements. Holdings and Albert Fisher,
together with their respective subsidiaries and affiliates, hereby agree as
follows:
(a) Upon the Effective Time, the Non-Competition and Confidentiality
Agreement, dated as of November 21, 1996, by and between Holdings and The Albert
Fisher Group PLC and the Indemnity Agreement, dated as of November 21, 1996, by
and among Holdings, Albert Fisher Holdings, Inc., Albert Fisher North America,
Inc. and The Albert Fisher Group PLC shall be terminated and of no further force
and effect, and the parties thereto shall have no further rights, benefits or
obligations with respect thereto.
(b) Upon the Effective Time, the Stock Purchase Agreement, dated as of
October 9, 1996, by and among Albert Fisher entities and Holdings, as amended,
shall be terminated and of no further force and effect, except (i) Sections
5.27, 8.6, 8.11, 8.12, 8.13, 8.14, 8.15, 8.15 A-D, 8.16, 8.16A, 8.22, 8.23 and
9.2 shall continue in full force and effect in accordance with their terms
except for the modifications to Section 9.2 set forth in Amendment No. 3
attached hereto as Exhibit C, and (ii) Albert Fisher shall continue its
remediation and/or monitoring efforts at the Diana Street and Movsovitz/Orlando
properties until a "sign-off" letter is received from the respective
governmental agencies.
(c) Upon the Effective Time, the Stockholders Agreement, dated as of
November 21, 1996, among Holdings, Rosecliff-RCD Partners, Rosecliff Albert
Fisher Partners, L.P., Rosecliff, Inc., Buttonwood Capital and Rosecliff RCD
Partners Benefit Reserve Trust shall be terminated and of no further force and
effect and the parties thereto shall have no further rights, benefits or
obligations with respect thereto.
(d) Upon the Effective Time, Rosecliff Albert Fisher Partners, L.P. shall
be liquidated and its assets shall be distributed to its limited partners in
accordance with the terms and conditions of its partnership agreement with the
carried interest calculated as set forth on Exhibit 5(c) hereto.
SECTION 9. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to conflicts
of laws principles.
SECTION 10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same instrument.
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SECTION 11. Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective successors or assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its respective officers thereunto duly authorized all as of the
date first above written.
FRESHPOINT HOLDINGS, INC.
By: /s/ MITT PARKER
---------------------------------
Name: Mitt Parker
Title: President and Chief
Executive Officer
THE ALBERT FISHER GROUP PLC
By: /s/ TERRY ROBINSON
---------------------------------
Name: Terry Robinson
Title: Chief Executive
AGREED AND ACKNOWLEDGED
This 2nd day of May, 1999
FRESH AMERICA CORP.
By: /s/ JOHN GRAY
------------------------------------
Name: John Gray
Title: Chief Financial Officer
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EXHIBIT I
FORM OF LEGAL OPINION OF COMPANY'S COUNSEL
Capitalized terms used herein and not otherwise defined shall have the
meaning given to such terms in the Merger Agreement.
1. Each of Company and Francisco Acquisition Corp. and 1277649 Ontario
Limited (each a "Material Subsidiary", and collectively, the "Material
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing would not have a Material Adverse Effect on
Company.
2. The authorized capital stock of Company consists of (i) 10,000,000
shares of Company Common Stock, of which, to our knowledge, as of March 11,
1999, (A) 5,239,051 shares were issued and outstanding, (B) no shares were held
in treasury, and (C) 1,932,572 shares were reserved for future issuance pursuant
to Company's employee stock option plans, warrants and contingent seller notes
incurred in connection with acquisitions; and (ii) 1,000,000 shares of preferred
stock, par value $1.00 per share, of which, to our knowledge, no shares are
issued and outstanding. Except as described in Section 4.03 of the Merger
Agreement, to our knowledge, no shares of capital stock of Company are reserved
for any purpose.
3. The outstanding shares of capital stock of Company and the Material
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable,
and have not been issued in violation of any preemptive or similar rights
created by statute, the charter or bylaws of Company or any of its Material
Subsidiaries, or any agreement known to us to which Company or any of its
Material Subsidiaries is a party or bound. Except as set forth in Section
4.03(a) of the Merger Agreement or in Schedule 4.03(b) to the Company Disclosure
Schedule, to our knowledge, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which Company or any
of the Material Subsidiaries are a party relating to the issued or unissued
capital stock of Company or any of the Material Subsidiaries or obligating
Company or any of the Material Subsidiaries to grant, issue or sell any shares
of its capital stock.
4. Company has all requisite corporate power and authority to execute and
deliver the Merger Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery of
the Merger Agreement by Company and the consummation by Company of the
transactions contemplated thereby have been duly authorized by all necessary
corporate (including shareholder) action and no other corporate (including
shareholder) proceedings on the part of Company are necessary to authorize the
Merger Agreement or to consummate the transactions contemplated thereby. The
Merger Agreement has been duly executed and delivered by Company and constitutes
the legal, valid and binding obligation of Company.
5. The execution and delivery of the Merger Agreement by Company does not,
and the consummation of the transactions contemplated thereby will not (i)
conflict with or violate the charter or bylaws, in each case as amended or
restated, of Company or any of the Material Subsidiaries, (ii) conflict with or
violate in any material respect any material Laws applicable to Company or any
of the Material Subsidiaries or by which any of their properties is bound or
subject, or (iii) result in any breach of or constitute a material default (or
an event that with notice or lapse of time or both would become a material
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material Lien on
any of the properties or assets of Company or any of the Material Subsidiaries
pursuant to, any material note, bond, mortgage, indenture, contract or agreement
or other instrument or obligation known to us and to which Company or any of the
Material Subsidiaries is a party or by or to which Company or any of the
Material Subsidiaries or any of their respective properties is bound or subject.
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6. The execution and delivery of the Merger Agreement by Company does not,
and the consummation of the transactions contemplated thereby will not, require
Company to obtain any consent, license, permit, approval, waiver, authorization
or order of, or to make any filing with or notification to, any Governmental
Entities, except for (i) filings or consents which have been made or obtained;
(ii) the filing of the certificate of merger with the Texas Secretary of State
and a certificate of merger with the Delaware Secretary of State and similar
documents with the relevant authorities of other states in which Company is
qualified to do business; and (iii) such consents, approvals, orders or
authorizations the failure of which to be made or obtained could not reasonably
be expected to have a Material Adverse Effect on Company.
7. The Registration Statement has become effective under the Securities
Act, and no order suspending the effectiveness of the Registration Statement has
been issued under the Securities Act and, to our knowledge, no proceeding for
that purpose has been instituted by the SEC. The Merger Shares are, subject to
notice of issuance, approved for listing on NASDAQ.
8. To our knowledge, except as set forth in Schedule 4.10 to the Company
Disclosure Schedule, (i) there is no claim, action, suit, litigation,
proceeding, arbitration or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or
threatened against Company or any of the Material Subsidiaries or any properties
or rights of Company or any of the Material Subsidiaries, except for claims,
actions, suits, litigation, proceedings, arbitrations or investigations which
could not reasonably be expected to have a Material Adverse Effect on Company
and (ii) neither Company nor any of the Material Subsidiaries is subject to any
material order of, consent decree, settlement agreement or other similar written
agreement with, or, continuing material investigation by, any Governmental
Entity, or any material judgment, order, writ, injunction, decree or award of
any Government Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
9. Upon the filing of a certificate of merger with the Delaware Secretary
of State and a certificate of merger with the Texas Secretary of State, the
Merger will be effective in accordance with the laws of the States of Texas and
Delaware.
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EXHIBIT J
REGISTRATION RIGHTS AGREEMENT
among
FRESHPOINT AMERICA, INC.
and
ROSECLIFF RCD MANAGEMENT, L.P.,
ROSECLIFF ALBERT FISHER PARTNERS, L.P.,
ROSECLIFF RCD PARTNERS,
ALBERT FISHER NORTH AMERICA, INC.
and
ROSECLIFF RCD PARTNERS BENEFIT RESERVE TRUST
---------------------
Common Stock, par value $0.01 per share
---------------------
Dated as of , 1999
<PAGE> 238
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Securities Subject to this Agreement........................ 1
2. Registration Under Securities Act........................... 1
2.1 Registration on Request................................ 1
2.2 Piggy-Back Registration................................ 3
2.3 Registration Procedures................................ 4
2.4 Underwritten Offerings Holdback Agreement.............. 6
2.5 Preparation; Reasonable Investigation.................. 6
2.6 Indemnification........................................ 6
3. Lock Up..................................................... 8
4. Definitions................................................. 8
5. Rule 144.................................................... 9
6. Amendments and Waivers...................................... 9
7. Nominees for Beneficial Owners.............................. 9
8. Notices..................................................... 10
9. Assignment.................................................. 10
10. Calculation of Percentage Interests in Registrable 10
Securities..................................................
11. No Inconsistent Agreements.................................. 10
12. Remedies.................................................... 10
13. Severability................................................ 10
14. Entire Agreement............................................ 10
15. Descriptive Headings........................................ 10
16. Governing Law............................................... 10
17. Counterparts................................................ 11
18. Term of Agreement........................................... 11
19. No Third Party Beneficiaries................................ 11
</TABLE>
i
<PAGE> 239
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of , 1999 (the
"Agreement"), by and among FreshPoint America, Inc., a Delaware corporation (the
"Company"), and Rosecliff RCD Management, L.P., Rosecliff Albert Fisher
Partners, L.P., Rosecliff RCD Partners, Albert Fisher North America, Inc. and
Rosecliff RCD Partners Benefit Reserve Trust, whose names appear on the
signature pages hereto under the heading "RIGHTS HOLDERS" (collectively, the
"Initial Holders"), and, subject to Section 9 hereof, any of their respective
(a) successors-in-interest by merger, consolidation or similar transaction, (b)
family members, trusts wholly or principally for the benefit of family members
and affiliates to whom an Initial Holder or its successor-in-interest transfers
any of the Registrable Securities (as hereinafter defined) initially issued to
such Initial Holder and (c) any other person or persons to whom an Initial
Holder transfers the Registrable Securities initially issued to such Initial
Holder in accordance with the terms hereof or any subsequent transferee of such
person (including partners of the various partnerships signatory to the
Agreement), which family member, trust, affiliate or person described in clause
(b) or (c) is registered on the books of the Company (together with the Initial
Holders, such successors-in-interest, family members, trusts, affiliates and
other persons are hereinafter sometimes referred to as the "Holders").
This Agreement is made pursuant to the Agreement and Plan of Merger, dated
as of , 1999, as amended from time to time (the "Merger Agreement"),
by and between Fresh America, Inc. and FreshPoint Holdings, Inc. ("Holdings"),
pursuant to which, among other things, (a) Holdings is merging with and into the
Company (the "Merger"), with the Company being the surviving corporation and (b)
the Company is issuing shares (the "Shares") of its common stock to the Initial
Holders. In order to induce Holdings to enter into the Merger Agreement and the
Initial Holders to vote in favor of, or consent to, the Merger, the Company has
agreed to provide certain registration rights with respect to the Shares as set
forth in this Agreement.
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Securities Subject to this Agreement. The securities entitled to the
benefits of this Agreement are the Shares and any other securities issued by the
company in exchange for any of the Shares (collectively, the "Registrable
Securities") but, with respect to any particular Registrable Security, only so
long as it continues to be a Registrable Security. Registrable Securities shall
include any securities issued as a dividend or distribution on account of
Registrable Securities or resulting from a subdivision of the outstanding shares
of Registrable Securities into a greater number of shares (by reclassification,
stock split or otherwise). For the purposes of this Agreement, a security that
was at one time a Registrable Security shall cease to be a Registrable Security
when (a) such security has been effectively registered under the Securities Act
and has been disposed of pursuant to such registration statement, (b) such
security has been distributed, or may be distributed without any limitation on
volume, to the public pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act, provided, that, for purposes of this Agreement,
any Holder which, together with its affiliates, holds at least 5% of the
Company's issued and outstanding capital shall be deemed to hold Registrable
Securities hereunder whether or not such Holder is subject to such volume
limitations under Rule 144 or, (c) such security has ceased to be outstanding.
2. Registration Under Securities Act.
2.1 Registration on Request.
(a) Shelf Registration. The Company agrees that it shall cause to be filed
as soon as reasonably practicable following the date hereof but in no event
later than 45 days after the date hereof a "shelf" registration statement (a
"Shelf Registration") on Form S-3 or any other appropriate form under the
Securities Act for an offering to be made on a delayed or continuous basis
pursuant to Rule 415 thereunder or any similar rule that may be adopted by the
Securities and Exchange Commission (the "Commission") (and shall register or
qualify the shares to be sold in such offering under such other securities or
"blue sky" laws as would be required pursuant to Section 2.2 hereof) covering
the entire issue of Registrable Securities. Prior to the filing of the Shelf
Registration or any supplement or amendment thereto, the Company will furnish
copies
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<PAGE> 240
of the Shelf Registration or such amendment to one counsel designated by the
Holders of a majority of the Registrable Securities participating in the
offering (who shall provide copies to any Holder upon its request), and will not
file the Shelf Registration or such amendment without the prior consent of such
counsel, which consent shall not be unreasonably withheld. The Company shall use
its best efforts to (a) cause the Shelf Registration to be declared effective by
the Commission as soon as reasonably practicable after its filing, but in any
event on the 180th day following the date hereof, and (b) keep the Shelf
Registration continuously effective (and register or qualify the shares to be
sold in such offering under such other securities or "blue sky" laws as would be
required pursuant to Section 2.2 hereof) until the termination of this Agreement
pursuant to Section 18. Each Holder of Registrable Securities wishing to sell
Registrable Securities pursuant to a Shelf Registration agrees to deliver a
notice to the Company at least three Business Days prior to any intended
distribution of Registrable Securities under the Shelf Registration Statement.
The Company agrees, if necessary, to supplement or make amendments to the Shelf
Registration, if required by the registration form used by the Company for the
Shelf Registration or by the instructions applicable to such registration form
or by the Securities Act or the rules or regulations thereunder or as may
reasonably be requested by the Holders of a majority of the Registrable
Securities then outstanding. Notwithstanding the foregoing, if (i) the Company
shall furnish to the Holders a certificate signed by the Chief Financial Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company it would be significantly disadvantageous to the Company and its
stockholders for any such Shelf Registration to be amended or supplemented and
(ii) the need for such an amendment or supplement is not caused by a proposed
public offering of any securities of the Company by any of its shareholders
(other than an offering made pursuant to a registration on Form S-8), the
Company may defer such amending or supplementing of such Shelf Registration for
not more than 60 days and in such event the Holders shall be required to
discontinue disposition of any Registrable Securities covered by such Shelf
Registration during such period; provided, however, that the Company may not, in
any 180 day period, defer such amendment or supplement for more than 60 days.
Notwithstanding the foregoing, in connection with any amendment or supplement
required to effect a public offering of securities by the Company, the Company
shall file such amendment or supplement no later than the same day that it files
a registration statement relating to such offering and shall provide written
notice of the filing of such amendment or supplement to the Holders of
Registrable Securities promptly following such filing. The Company shall pay all
Registration Expenses incurred in connection with the Shelf Registration and any
supplements or amendments thereto, whether or not it becomes effective, and
whether all, none or some of the Registrable Securities are sold pursuant to the
Shelf Registration. Each of the Holders that distributes Registrable Securities
pursuant to such registration shall pay its pro rata portion of any underwriting
discounts or commissions and transfer taxes relating to the sale of its
Registrable Securities. In no event shall the Shelf Registration include
securities other than Registrable Securities, unless the Holders of a majority
of the Registrable Securities then outstanding consent to such inclusion.
(b) Underwriting Procedures. If the Holders of 20% or more of the
Registrable Securities then outstanding, but not less than 5% of the Company's
issued and outstanding common stock, or any Holder, directly or together with
any permitted transferees (including, but not limited to, affiliates) of such
Holder, of at least 5% of the Company's issued and outstanding common stock (the
"Demanding Holders") so elect from time to time, the offering of all or a
portion of the Registrable Securities pursuant to such Shelf Registration shall
be in the form of an underwritten offering. Upon receiving notification by the
Demanding Holders of their election for an underwritten offering, the Company
shall promptly deliver a notification of such election to each Holder of
Registrable Securities who is not a Demanding Holder. All Holders of Registrable
Securities shall be entitled to participate in such offering in accordance with
the terms hereof if they so notify the Company of their desire to do so,
specifying the amount of Registrable Securities they wish to include, within 15
days of receipt of such notice from the Company. The managing underwriter or
managing underwriters of the underwritten offering to which the Shelf
Registration relates shall be a firm or firms of nationally recognized standing
selected by the Holders of a majority of the Registrable Securities
participating in such offering, and shall be reasonably acceptable to the
Company.
(c) Priority in Requested Registration. If a registration under this
Section 2.1 involves an underwritten public offering, and the managing
underwriter of such underwritten offering shall in good faith advise the Company
in writing (with a copy to each selling Holder) that, in its opinion, the number
of shares of
J-2
<PAGE> 241
Registrable Securities requested to be included in such registration would
materially and adversely affect the success of such offering, then the number of
shares of Registrable Securities to be included in such offering shall be
reduced to the amount recommended by such managing underwriter, and the shares
to be included in such registration shall be determined in the following order
of priority: first, the Put Shares (as defined below) held by any Holder; and
second, among the remaining number of the Registrable Securities (the "Demand
Share Balance") as provided below.
A Holder's amount of Registrable Securities to be included in an
underwritten public offering pursuant to clause second above shall equal the
product of the Demand Share Balance multiplied by a fraction, the numerator of
which is the sum (the "Sum") of (i) the number of C Shares (as defined below)
held by such Holder plus (ii) twice the number of P Shares held by such Holder,
and the denominator of which is the aggregate of the Sum calculated for all the
Holders participating in such offering.
"C Shares" means, as at any date, the number of shares of Registrable
Securities held by a Holder that were received by such Holder upon the exchange
of the common stock (or warrants exercisable into common stock), of Holdings.
The initial amount of C shares for each Initial Holder is set forth on Schedule
2.1.
"P Shares" means, as at any date, the number of shares of Registrable
Securities held by a Holder that were received by such Holder upon the exchange
of the Series A and A-2 Exchangeable Preferred Stock of Holdings. The initial
amount of P Shares for each Initial Holder is set forth on Schedule 2.1.
"Put Shares" means, as at any date, the number of shares of Registrable
Securities held by a Holder that were received by such Holder upon the exchange
of the Series A-1 Exchangeable Preferred Stock of Holdings (plus accrued
dividends). The initial amount of Put Shares for each Initial Holder is set
forth on Schedule 2.1.
If any shares of a Holder cease to be Registrable Securities, the Holder's
Put Shares, P Shares and C Shares shall be reduced first by reducing Put Shares,
then P Shares and last C Shares.
2.2 Piggy-Back Registration.
(a) Piggy-Back Rights. If the Company proposes to file a registration
statement for an underwritten public offering under the Securities Act with
respect to an offering by the Company of any class of security (other than a
registration statement on Form S-4 or S-8 (or any successor form thereto)) under
the Securities Act (a "Company Offering"), then the Company shall give written
notice of such proposed filing to each of the Holders at least fifteen (15) days
before the anticipated filing date, and such notice shall describe in detail the
proposed registration and distribution (including those jurisdictions where
registration under the securities or blue sky laws is intended) and offer such
Holders the opportunity to register the number of Registrable Securities as each
such Holder may request. The Company shall use its best efforts to cause the
managing underwriter or underwriters of an underwritten Company Offering (the
"Company Underwriter") to permit the Holders who have requested to participate
in the registration for the Company Offering within fifteen (15) days of the
notice provided for in the preceding sentence to include such Registrable
Securities in the Company Offering on the same terms and conditions as the
securities of the Company included therein. Notwithstanding the foregoing, (i)
if it is the Company Underwriter's opinion that the total amount of securities
which the Holders and the Company intend to include in the Company Offering is
sufficiently large so as to have a material adverse effect on the distribution
of the securities included in the Company Offering, then the securities proposed
to be included in the Company Offering by all Holders shall be reduced, in
accordance with Section 2.2(b) below, to the extent necessary to reduce the
securities included in the Company Offering to the amount recommended by the
Company Underwriter.
(b) Priority in Piggy-Back Registration. The shares of Registrable
Securities to be included in the registration of a Company Offering shall be
determined in the following order of priority: first, the securities proposed to
be registered by the Company; second, the Put Shares held by any Holder; and
third among the remaining number of Registrable Securities of the Holders
participating in such registration (the "Piggy Back Share Balance") as provided
below.
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<PAGE> 242
A Holder's amount of Registrable Securities to be included in a Company
Offering pursuant to clause third above shall equal the product of the Piggy
Back Share Balance multiplied by a fraction, the numerator of which is the sum
of (i) the number of C Shares held by such Holder plus (ii) twice the number of
P Shares held by such Holder and the denominator of which is the aggregate of
the Sum calculated for all the Holders participating in such offering.
(c) Expenses. The Company shall bear all Registration Expenses in
connection with any registration pursuant to this Section 2.2; provided,
however, that each of the Holders that distributes Registrable Securities
pursuant to a Shelf Registration shall pay its pro rata portion of any
underwriting discounts or commissions and transfer taxes relating to the sale of
its Registrable Securities.
2.3 Registration Procedures. In connection with the registration statement
filed pursuant to Section 2.1, the Company will, as expeditiously as possible:
(i) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by
such registration statement or as may be reasonably requested by the
Holders of a majority of the Registrable Securities participating in such
offering, until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
(ii) furnish to each seller of Registrable Securities covered by such
registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits) and such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iii) use its best efforts (x) to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such States of the United
States of America where an exemption is not available and as the sellers of
Registrable Securities covered by such registration statement shall
reasonably request, (y) to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
(z) to take any other action which may be reasonably necessary or advisable
to enable such sellers to consummate the disposition in such jurisdictions
of the securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do business as
a foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iii) be obligated to be so qualified,
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(iv) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be
necessary in the opinion of counsel to the Company and counsel to the
seller or sellers of Registrable Securities to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(v) use its best efforts to furnish at the effective date of such
registration statement and, if applicable, the date of the closing under
the underwriting agreement, to each seller of Registrable Securities, and
each such seller's underwriters, if any, a signed counterpart of (x) an
opinion of counsel for the Company, dated the closing date of the offering
under such registration statement addressed to the underwriter(s), if any,
and the participating Holders and (y) in connection with an underwritten
offering, a "comfort" letter signed by the independent public accountants
who have certified the Company's financial statements included or
incorporated by reference in such registration statement, covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) and, in the case of the accountants'
comfort letter, with respect to events subsequent to the date
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<PAGE> 243
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' comfort letters delivered to the
underwriters in underwritten public offerings of securities;
(vi) promptly notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that,
or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, in the light of the circumstances under which they were
made, and promptly prepare and furnish to each such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder, and promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus;
(viii) use its best efforts to list all Registrable Securities covered
by such registration statement on the NYSE, the AMEX or such other national
securities exchange on which Registrable Securities of the same class and,
if applicable, series, covered by such registration statement are then
listed or on the National Association of Securities Dealers Automated
Quotations System, Inc. ("NASDAQ") if the Registrable Securities are quoted
on NASDAQ; and
(ix) In connection with an underwritten offering, participate, to the
extent reasonably requested by the managing underwriter for the offering,
in customary efforts to sell the securities under the offering, including,
without limitation, participating in "road shows".
The Company may (i) require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing and (ii) require each seller of
Registrable Securities to agree to comply with the Securities Act and the
Exchange Act in connection with the registration and distribution of the
Registrable Securities.
Notwithstanding the foregoing, if any such registration or comparable
statement refers to any Holder by name or otherwise as the Holder of any
securities of the Company and in its sole and exclusive judgment such Holder is
or might be deemed to be a controlling person of the Company, such Holder shall
have the right to require the insertion therein of language, in form and
substance reasonably satisfactory to such Holder and the Company, to the effect
that the holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vi) of this Section
2.3, such Holder will forthwith discontinue such Holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vi) of this
Section 2.3 and, if so directed by the Company, will promptly deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
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<PAGE> 244
2.4 (a) Underwritten Offerings. If requested by the underwriters for any
underwritten offering by Holders of Registrable Securities pursuant to the Shelf
Registration, the Company will use its best efforts to enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in form and substance to each such Holder, the
Company and the underwriters and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the effect and to the
extent provided in Section 2.6. The Holders of the Registrable Securities
proposed to be sold by such underwriters will reasonably cooperate with the
Company in the negotiation of the underwriting agreement. Such Holders of
Registrable Securities to be sold by such underwriters shall be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. Any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company other than representations, warranties or agreements regarding
such Holder and such Holder's Registrable Securities and such Holder's intended
method of distribution.
(b) Holdback Agreement. The Company agrees (i) not to effect any public
offering or distribution of any capital stock of the Company during the 10 days
prior to the date on which any underwritten registration pursuant to Section 2.1
has become effective and until 90 days after the effective date of such
underwritten registration, except as part of such underwritten registration, and
(ii) to cause each holder of any capital stock acquired from the Company at any
time on or after the date of this Agreement (other than in a public offering),
to agree not to effect any public offering or distribution of such securities,
during such period.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company (i) shall give a representative Holder
designated in writing to the Company by the Holders of a majority of the
Registrable Securities participating in the offering (the "Representative"),
such Holders' underwriters, if any, and counsel and accountants designated by
the Representative, as the case may be, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto,
(ii) shall give each of them such reasonable access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified its financial statements
as shall be necessary, in the opinion of the Representative and such
underwriters or such counsel or accountants, to conduct a reasonable
investigation within the meaning of the Securities Act and (iii) shall promptly
notify the Representative and its counsel of any stop order issued or threatened
by the Commission and promptly take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.
2.6 Indemnification.
(a) Indemnification by the Company. The Company will, and hereby does,
indemnify, hold harmless and defend, in the case of any registration statement
filed pursuant to, or otherwise covered by, Sections 2.1, 2.2 or 2.3, each
seller of any Registrable Securities covered by such registration statement and
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such seller or any
such underwriter within the meaning of the Securities Act, and their respective
directors, officers, partners, shareholders, employees and affiliates against
any losses, claims, damages or liabilities, joint or several, to which such
seller or underwriter or any such director, officer, partner, shareholder,
employee, affiliate or controlling person may become subject under the
Securities Act or otherwise, including, without limitation, the fees and
expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated
J-6
<PAGE> 245
therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, or any violation by the
Company of the Securities Act, the Exchange Act, any state securities laws or
other laws or any rule or regulation thereunder applicable to the Company and
the Company will reimburse each such seller or underwriter and each such
director, officer, partner, shareholder, employee, affiliate and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by or on behalf of such seller or underwriter, as the
case may be, specifically stating that it is for use in the preparation thereof.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any such seller or any such director,
officer, employee, affiliate, partner or controlling person and shall survive
the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a result of including any
Registrable Securities in any registration statement, each prospective seller of
such Registrable Securities shall severally, and not jointly, indemnify, hold
harmless and defend (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 2.6) the Company, and each director, officer,
employee and shareholder of the Company and each other Person, if any, who
participates as an underwriter in the offering or sale of such securities and
each other Person who controls the Company or any such underwriter within the
meaning of the Securities Act, with respect to any untrue statement or alleged
untrue statement of a material fact contained in or any omission or alleged
omission to state therein a material fact in any such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.6(b) shall be
limited to the amount of proceeds received by such indemnifying party in the
offering giving rise to such liability.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.6, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided, however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.6, except to the extent that
the indemnifying party is materially prejudiced by such failure to give notice
and provided, further, that the failure to notify the indemnifying party shall
not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 2.6. In case any such action is brought
against an indemnified party the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, and so assuming such defense in a timely manner, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if the indemnified party reasonably believes it is advisable for it to be
represented by separate counsel because there exists a conflict of interest
between its interests and those of the indemnifying party with respect to such
claim, or there exist defenses available to such indemnified party which may not
be available to the indemnifying party, or if the indemnifying party shall fail
to assume responsibility for such defense, the indemnified party may retain
counsel satisfactory to it and the indemnifying party shall pay all fees and
expenses of such counsel. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed. No indemnifying
party shall, without
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<PAGE> 246
the consent of the indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation or which requires action
other than the payment of money by the indemnifying party. Each indemnified
party shall furnish such information regarding itself or the claim in question
as an indemnifying party may reasonably request in writing and as shall be
reasonably requested in connection with the defense of such claim and litigation
resulting therefrom.
The obligations of the Company and the Holders of Registrable Securities
under this Section 2.6 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Agreement and the
termination of this Agreement.
(d) Contribution. If the indemnification provided for in this Section 2.6
shall for any reason be held by a court of competent jurisdiction to be
unavailable to an indemnified party under subparagraph (a) or (b) hereof in
respect of any loss, claim, damage or liability, or any action in respect
thereof, then, in lieu of the amount paid or payable under subparagraph (a) or
(b) hereof, the indemnified party and the indemnifying party under subparagraph
(a) or (b) hereof shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating the same), (i) in such proportion as is appropriate to
reflect the relative fault of the Company and the prospective sellers of
Registrable Securities covered by the registration statement in connection with
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations (the relative fault of the Company and such prospective sellers
to be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or such
prospective sellers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission) or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the Company and such prospective sellers from the
offering of the securities covered by such registration statement. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this subparagraph (d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld or delayed.
(e) Indemnification Payments. The indemnification and contribution required
by this Section 2.6 shall be made by prompt periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
3. Lock Up. Each of the Holders of the Registrable Securities agrees that
it shall not, for a period of 180 days from the date hereof (the "Lock Up
Period"), without the prior written consent of the Company, directly or
indirectly, offer to sell, pledge, contract to sell, grant any option to
purchase, or otherwise dispose of (each a "Transfer"), pursuant to a
registration statement filed under the Securities Act or Rule 144 under the
Securities Act, any shares of Registrable Securities of which the Holder is now
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act);
provided, however, that each Holder of Registrable Securities may Transfer any
shares of Registrable Securities in any other transaction but not in a
transaction where the transferee reduces its risk by directly or indirectly
engaging in a hedging or similar transaction through selling shares in the
public market.
4. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
"AMEX" means the American Stock Exchange Inc.
"Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in New York City are authorized or required
by law to be closed.
J-8
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"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934,
as amended, shall include a reference to the comparable section, if any, of
any such successor federal statute.
"NYSE" means the New York Stock Exchange, Inc.
"Person" means any individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency, department or political subdivision
thereof) or other entity of any kind.
"Registration Expenses" means all costs, fees and expenses incident to
the Company's performance of or compliance with Section 2, including,
without limitation, all registration, filing and NASD fees, all fees and
expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of "cold comfort"
letters required by or incident to such performance and compliance, any
fees and disbursements of underwriters customarily paid by issuers or
sellers of securities (excluding any underwriting discounts or commissions
or transfer taxes with respect to the Registrable Securities) and the
reasonable fees and expenses of one counsel to Holders of a majority of the
Registrable Securities participating in an offering as contemplated herein.
"Securities Act" means the Securities Act of 1933, or any successor
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a reference
to the comparable section, if any, of any such successor federal statute.
5. Rule 144. The Company shall take all actions reasonably necessary to
enable Holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, (b) any similar rules or regulations hereafter adopted by the
Commission, including, without limiting the generality of the foregoing, filing
on a timely basis all reports required to be filed by the Exchange Act. Upon the
request of any Holder of Registrable Securities, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
6. Amendments and Waivers. This Agreement may be amended with the written
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of each Holder of the Registrable Securities then outstanding
affected by such amendment, action or omission to act, provided, however, that,
such consent need not be obtained from any Holder owning less than 2% of the
Company's issued and outstanding common stock. Each Holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 6, whether or not such Registrable Securities shall
have been marked to indicate such consent.
7. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the Holder of such Registrable Securities for purposes of
any request, consent, waiver or other action by any Holder or Holders of
Registrable Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by any Holder or
Holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
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8. Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telex, telegram,
telecopier, reputable courier service or personal delivery to the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to
(ii) if to the Company, to
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; one business day after being
sent by reputable courier service; three business days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; and when
receipt is acknowledged, if telecopied.
9. Assignment. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by the parties hereto and, with respect to
the Company, its respective successors and assigns and, with respect to any
Holder of any Registrable Securities, subject to the provisions respecting the
minimum numbers of percentages of shares of Registrable Securities required in
order to be entitled to certain rights, or to take certain actions, contained
herein. Any Holder may assign its rights with respect to the registration of any
Registrable Securities to any transferee of such securities.
10. Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the total number of shares of Common
Stock included in the definition of the Registrable Securities outstanding at
the time such calculation is made.
11. No Inconsistent Agreements. The Company will not hereafter enter into
any agreement, or amend any existing agreement, with respect to its securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement. The Holders hereby acknowledge that the John
Hancock entities are the beneficiaries of certain registration rights pursuant
to the Warrant Agreement dated as of May 4, 1998 among the Company and the
Purchasers named therein.
12. Remedies. Each Holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
13. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended and understood that all of the rights and privileges
of the Holders shall be enforceable to the fullest extent permitted by law.
14. Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
15. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.
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<PAGE> 249
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
18. Term of Agreement. This Agreement shall become effective upon the
execution hereof and shall continue in effect until the earlier of (i) the third
anniversary of the date hereof, or (ii) such time as all Registrable Securities
shall cease to be Registrable Securities; provided, however, that, Sections 2.6,
8, 9, 12, 13, 14, 15, 16, 17 and 19 of this Agreement shall survive such
termination.
19. No Third Party Beneficiaries. Nothing contained in this Agreement,
express or implied, is intended to or shall confer upon anyone other than the
parties hereto (and their permitted successors and assigns) any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
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<PAGE> 250
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
FRESHPOINT AMERICA, INC.
By:
----------------------------------
Name:
Title:
RIGHTHOLDERS
ROSECLIFF RCD MANAGEMENT, L.P.
By:
----------------------------------
Name:
Title:
ROSECLIFF ALBERT FISHER
PARTNERS, L.P.
By:
----------------------------------
Name:
Title:
ROSECLIFF RCD PARTNERS
By:
----------------------------------
Name:
Title:
ALBERT FISHER NORTH AMERICA, INC.
By:
----------------------------------
Name:
Title:
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<PAGE> 251
ROSECLIFF RCD PARTNERS BENEFIT
RESERVE TRUST
By:
----------------------------------
Name:
Title:
J-13
<PAGE> 252
SCHEDULE 2.1
<TABLE>
<CAPTION>
HOLDER PUT SHARES P SHARES C SHARES
- ------ ---------- -------- --------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 253
APPENDIX B
April 29, 1999
Board of Directors
Fresh America Corp.
6600 LBJ Freeway, Suite 180
Dallas, Texas 75240
Dear Sirs:
We understand Fresh America Corp. ("Fresh America") and FreshPoint Holdings
("Holdings") intend to enter into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Holdings will be merged with and into Fresh
America (the "Merger"), and FreshPoint, Inc. ("FPI" and together with Holdings,
"FreshPoint"), a current wholly-owned subsidiary of Holdings, will become a
wholly-owned subsidiary of Fresh America. You have provided us a copy of the
Merger Agreement together with the exhibits and schedules thereto in
substantially final form. As a result of the Merger, each outstanding share of
Common Stock of FreshPoint ("FreshPoint Common Stock") and FreshPoint's Series
A, A-1 and A-2 Exchangeable Preferred Stock ("Series A Preferred") will be
converted into 5,685,826 shares of Common Stock of Fresh America ("Fresh America
Common Stock"). Prior to the Merger, all of the warrants to purchase shares of
FreshPoint Common stock will be exercised for or exchanged into shares of
FreshPoint Common Stock and will be included in the 5,685,826 shares of Fresh
America Common Stock to be received by FreshPoint shareholders. Such 5,685,826
shares of Fresh America Common Stock to be received by FreshPoint shareholders
is herein defined as the "Consideration".
You have asked us to render our opinion as to whether the Consideration is
fair, from a financial point of view, to the shareholders of Fresh America.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement in substantially final form;
2. reviewed Fresh America's Annual Reports on Form 10-K for the years
ended January 3, 1997, January 2, 1998 and January 1, 1999 and its
Quarterly Reports on Form 10-Q for the quarters ended April 3, July 3 and
October 2, 1998;
3. reviewed FreshPoint's audited financial statements for the seven
months ended June 28, 1997 and the year ended June 27, 1998, the unaudited
financial statements for the six months ended December 26, 1998, and
preliminary results for the quarter ended March 27, 1999;
4. reviewed certain operating and financial information of Fresh
America and FreshPoint, including projections and projected cost savings
and operating synergies, provided to us by Fresh America's and FreshPoint's
management relating to their respective businesses and prospects;
5. met with certain members of Fresh America's and FreshPoint's senior
management to discuss their respective operations, historical financial
statements and future prospects and their views of the business,
operational and strategic benefits, cost savings, potential synergies and
other implications of the Merger;
6. reviewed publicly available financial data and stock market
performance data of other publicly held companies that we deemed generally
comparable to Fresh America and FreshPoint;
7. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Fresh America and FreshPoint. With respect
to Fresh America's and FreshPoint's projected financial results (including
projected cost savings and operating synergies resulting from the Merger), we
have assumed that they have been
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<PAGE> 254
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Fresh America and FreshPoint as to the
expected future performance of Fresh America and FreshPoint, respectively. We
have also assumed that the Merger and financing thereof will not violate, result
in a default under, or be in contravention of the terms of any material
agreement, including without limitation any agreements evidencing indebtedness
of Fresh America or FreshPoint. We have not assumed any responsibility for the
independent verification of the information or the projections (including
projected cost savings and operating synergies resulting from the Merger)
provided to us and we have further relied upon the assurances of the managements
of Fresh America and FreshPoint that they are unaware of any facts that would
make the information or projections (including projected cost savings and
operating synergies resulting from the Merger) provided to us incomplete or
misleading. On arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Fresh America or
FreshPoint. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
Our opinion does not constitute a recommendation of the Merger or a related
financing transaction or a recommendation to any shareholder of Fresh America as
to how any such shareholder should vote with respect to the approval of the
issuance of the Fresh America Common Stock in connection with the Merger.
Further, we are not expressing any opinion as to what the value of Fresh America
Common Stock actually will be at the time of the Merger or the prices at which
the Fresh America Common Stock will trade during the period following
announcement of the Merger or subsequent to the consummation of the Merger.
Finally, our opinion does not address Fresh America's underlying business
decision to effect the Merger. We have not reviewed any proxy statement or
similar document that may be distributed in connection with the Merger as such
materials have not yet been completed.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to the
shareholders of Fresh America.
We have acted as financial advisor to Fresh America in connection with the
Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon consummation of the Merger.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:
/s/ SHELDON STEIN
----------------------------------
Senior Managing Director
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<PAGE> 255
FRESH AMERICA CORP.
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING
OF SHAREHOLDERS AT 10:00 A.M. FRIDAY, AUGUST 27, 1999
The undersigned shareholder of Fresh America Corp. (the "Company") hereby
appoints David I. Sheinfeld and John H. Gray or either of them, as proxies,
each with full powers of substitution, to vote the shares of the undersigned
at the above-stated Annual Meeting and at any adjournment(s) thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ITEMS (1)
THROUGH (4).
(1) Approval of the Agreement and Plan of Merger dated as of May 3, 1999
relating to the merger of the Company with FreshPoint Holdings, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Approval of the charter amendment changing the Company's name to
"FreshPoint America, Inc.," increasing the number of authorized shares
of Fresh America common stock from 10,000,000 to 50,000,000, and
expanding the Fresh America Board of Directors from a six-member Board
to an eleven-member Board.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Election of Lawrence V. Jackson as Class II Director until the merger is
consummated or until the expiration of his term if the merger is not
consummated.
<TABLE>
<S> <C>
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
(except as provided to the contrary to vote for all nominees
below)
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominees, write
that nominee's name here):
- --------------------------------------------------------------------------------
(Continued and to be signed on the reverse side)
(Continued from reverse side)
(4) Approval of the amendment to the Fresh America Corp. 1996 Stock Option and
Award Plan as Amended and Restated Effective May 22, 1998 changing the name
of the stock option plan to the "FreshPoint America, Inc. 1999 Stock Option
and Award Plan," increasing the number of shares of common stock authorized
for issuance under the plan from 625,000 shares to 1,250,000 shares, and
providing for future annual increases in the total number of shares
authorized for issuance pursuant to non-qualified options and restricted
stock grants under the plan equal to any percentage increase in the number
of issued and outstanding shares of FreshPoint America common stock from the
prior year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) In their discretion, the proxies are authorized to vote upon such other
business or matters as may properly come before the meeting or any
adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE REVERSE SIDE. IF A CHOICE IS NOT
INDICATED WITH RESPECT TO ITEMS (1), (2), (3) AND (4) THIS PROXY WILL BE VOTED
"FOR" SUCH ITEM. THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY
MATTER REFERRED TO IN ITEM (5). THIS PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS
EXERCISED.
YOUR VOTE IS IMPORTANT. FAILURE TO VOTE IN PERSON OR BY PROXY IS EQUIVALENT TO A
VOTE AGAINST ITEMS (1) AND (2).
Receipt herewith of the Company's Annual Report and Notice of Meeting and
Proxy Statement, dated July 22, 1999, is hereby acknowledged.
Dated:
-------------------------------------------------------------------,
1999
----------------------------
----------------------------
Signature(s) of
Shareholder(s))
(Joint owners must EACH
sign. Please sign EXACTLY as
your name(s) appear(s) on
this card. When signing as
attorney, trustee, executor,
administrator, guardian or
corporate officer, please
give your FULL title.)
PLEASE SIGN, DATE, AND MAIL
TODAY.
