-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SV9TmjsfBoJRFDICLhwDEln/pUF0KWHDW8EkUavD4mnNJDOKsvfXEN7NQpGJ84D6 ka3NtiFvCiXsQZXSd+rpxw== 0000950170-97-000315.txt : 19970329 0000950170-97-000315.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950170-97-000315 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARGO NURSERY FARMS INC CENTRAL INDEX KEY: 0000808493 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 592142653 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15336 FILM NUMBER: 97566097 BUSINESS ADDRESS: STREET 1: ROAD 690 KILOMETER 5 8 CITY: VEGA ALTA STATE: PR ZIP: 00692 BUSINESS PHONE: 8098832570 MAIL ADDRESS: STREET 2: ROAD 690 KILOMETER 5 8 CITY: VEGA ALTA STATE: PR ZIP: 00692 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED COMMISSION FILE DECEMBER 31, 1996 NO. 0-15336 MARGO NURSERY FARMS, INC. A FLORIDA CORPORATION - I.R.S. NO. 59-2807561 ADDRESS OF PRINCIPAL EXECUTIVE OFFICES: ROAD 690, KILOMETER 5.8 VEGA ALTA, PUERTO RICO 00692 REGISTRANT'S TELEPHONE NUMBER: (787) 883-2570 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's common stock, $.001 par value, held by non-affiliates of the registrant: $1,763,580 based on the last sales price of $2-5/8 per share on March 14, 1997 and 671,840 shares held by non-affiliates. The registrant had 1,895,322 shares of common stock, $.001 par value, outstanding as of March 14, 1997. ================================================================================ MARGO NURSERY FARMS, INC. 1996 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PAGE ---- PART I ITEM 1. BUSINESS.............................................................1 ITEM 2. PROPERTIES...........................................................8 ITEM 3. LEGAL PROCEEDINGS....................................................9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................................................10 ITEM 6. SELECTED FINANCIAL DATA.............................................11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION..................................13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................20 ITEM 11. EXECUTIVE COMPENSATION..............................................22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................................24 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.........................................................27 PART I ITEM 1. BUSINESS GENERAL The principal business of Margo Nursery Farms, Inc. and its subsidiaries (collectively, the "Company") is the production and distribution of tropical and flowering plants, the sale and distribution of lawn and garden products (plastic and terracotta pottery, potting soils, chemicals and fertilizers) as well as landscaping design and installation services. PRINCIPAL OPERATIONS During 1996 and 1995, the Company conducted operations in the Commonwealth of Puerto Rico ("Puerto Rico") and South Florida. These operations are described below. PUERTO RICO OPERATIONS The Company's operations in Puerto Rico are conducted at a 117 acre nursery farm in Vega Alta, Puerto Rico, approximately 25 miles west of San Juan, and a 13 acre nursery in the Municipality of Barranquitas, Puerto Rico. The 117 acre farm is leased from Michael J. Spector and Margaret Spector, who are directors, officers and principal shareholders of the Company. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Lease and Option to Purchase Puerto Rico Nursery Farm" herein. The Company's operations in Puerto Rico include Margo Nursery Farms, Inc. (a Florida corporation), Margo Landscaping and Design, Inc., and Rain Forest Products Group, Inc. (both Puerto Rico corporations) Margo Nursery Farms, Inc., which operates under the trade name of Margo Farms del Caribe, is engaged in the production and distribution of tropical and flowering plants. Its products are primarily utilized for the interior and exterior landscaping of office buildings, shopping malls, hotels and other commercial sites, as well as private residences. The Company produces various types of palms, flowering and ornamental plants, trees, shrubs, bedding plants and ground covers. Its customers include wholesalers, retailers, chain stores and landscapers primarily located in Puerto Rico and the Caribbean. As a bona fide agricultural enterprise, the Company enjoys a 90% tax exemption under Puerto Rico law from income derived from its nursery business in Puerto Rico. The Company also receives a credit against a portion of federal income taxes under Section 936 of the Internal Revenue Code. See "Income Taxes" herein. Margo Landscaping and Design, Inc. ("Margo Landscaping"), provides landscaping services to customers in Puerto Rico and the Caribbean, including landscape design and landscaping. Margo Landscaping is also engaged in sales of lawn and garden products, including plastic and terracotta pottery, planting media (soil, peat moss, etc.) and mulch. Margo Landscaping is a wholesaler for Monsanto Corporation's Solaris Group which includes the Ortho, Roundup and Greensweep product lines (chemicals and pesticides). It is also the exclusive distributor of Sunniland Corporation's fertilizer and pesticide products for Puerto Rico and the Carribbean. Rain Forest Products Group, Inc. ("Rain Forest") commenced operations in April 1996. It is engaged in the manufacturing of potting soils, mulch, professional growing mixes, river rock and gravels. Rain Forest's products are marketed by Margo Landscaping. The Company has requested a tax exemption grant from the Government of Puerto Rico for the operations of Rain Forest. On October 31, 1996, the Company entered into an agreement with Cali Orchids, Inc. ("Cali"), a Puerto Rico based grower of orchids, bromeliads, anthuriums, poincettas and ornamental foliage, to purchase certain assets of Cali, including its live goods inventory and inventory of pots, peat, soil, chemical and fertilizers. The purchase price was approximately $190,000 and the transaction was closed on January 1, 1997. The agreement also provided for the leasing of Cali's facilities (13 acres) and equipment for a five year term (subject to two additional five year renewals) and the hiring of Cali's President as a general manager for the Company's new operation, Margo Flora. SOUTH FLORIDA OPERATIONS The South Florida operation is conducted through Margo Bay Farms, Inc.("Bay Farms") at a 71 acre nursery farm located approximately 20 miles south of Miami, Florida. In August 1992, substantially all of the Company's facilities in South Florida were destroyed by Hurricane Andrew. During 1993 and 1994, the Company rebuilt a portion of its facilities. Approximately 20 acres are currently in production. Bay Farms resumed sales during 1994. However, due to the significant competition in South Florida, it has not been able to achieve adequate sales levels through December 31, 1996 and has not been profitable. See "FUTURE OPERATIONS" herein. EUROPEAN OPERATIONS In 1991, the Company formed Margo Imports, B.V., a Netherlands corporation, to market the Company's products in Europe. In March 1993, the Company discontinued the operations of Margo Imports in connection with the sale of Cariplant, S.A., a former subsidiary, but kept Margo Imports active for possible future sales to Europe. Effective January 1, 1997, the Company closed Margo Imports. PRODUCTION The Company's plants are propagated by using cuttings, plugs, liners, air layers, seeds and tissue cultures. Cuttings are obtained from the Company's own stock plants and from other nurseries for grow-out at the Company's facilities. The newly planted cuttings take from two months to five years to mature into finished products, depending on variety. Bedding plants and annuals take from four to eight weeks to mature. The Company's products are either field grown or container grown, depending on the variety of plants and where they are grown. Substantially all products grown in South Florida are container grown. Most of these products start out in small pots and are "stepped up" to larger pot sizes over time. The Puerto Rico nursery operations produce both field and container grown material, as well as bedding plants and hanging baskets. MARKETING The Company's marketing efforts have been primarily directed at customers served by the Puerto Rico operation. The marketing efforts in South Florida resumed during 1994. The principal customers of the Company are wholesalers, mass merchandisers, retailers, garden centers, hotels, landscapers, government projects and commercial businesses located in Puerto Rico, the mainland United States and throughout the Caribbean. The Company targets construction and government projects which require extensive landscaping. In addition, Margo Landscaping provides landscaping design, installation and maintenance services which complement the sales function. For large retailers in Puerto Rico (such as WalMart, Builders Square, Kmart and Pueblo/Xtra) the Company develops promotional programs which include deliveries to customer outlets and special pricing based on volume. During 1996, 1995 and 1994, the Company's single largest customer (Builders Square) for each of such years, accounted for approximately 27%, 28%, and 20% , respectively, of the Company's net sales. The Company does not have any significant long-term (over one year) delivery contracts with customers, including landscaping contracts. 2 FINANCIAL INFORMATION RELATING TO PRINCIPAL OPERATIONS The following table sets forth information regarding operations at each of the Company's operating locations for the years ended December 31, 1996, 1995 and 1994. The information is provided after the elimination of intercompany transactions. 1996 1995 1994 -------- -------- -------- (Amounts in 000's) SALES BY LOCATION: South Florida $ 471 $ 446 $ 229 Puerto Rico: Plants 3,192 3,093 2,892 Lawn and Garden products 1,429 940 271 Landscaping 1,017 455 287 -------- -------- -------- $ 6,109 $ 4,934 $ 3,679 ======== ======== ======== OPERATING PROFIT (LOSS) BY LOCATION: South Florida $ (95) $ (501) $ (460) Puerto Rico 102 173 148 Netherlands -- (5) (4) -------- -------- -------- $ 7 $ (333) $ (316) ======== ======== ======== IDENTIFIABLE ASSETS BY LOCATION: South Florida $ 2,370 $ 8,803 $ 8,808 Puerto Rico 8,022 6,596 7,119 Netherlands 4 2 4 -------- -------- -------- $ 10,396 $ 15,401 $ 15,931 ======== ======== ======== TRADE NAMES AND TRADEMARK The Company utilizes the Trade Names "Margo Farms" and "Margo Farms Del Caribe," and has registered the name "Margo Farms" as a trademark with the United States Department of Commerce Patent and Trademark Office. In addition, the Company has registered "Margo Farms del Caribe" (as a trade name) and "Rain Forest" (as a trademark) with the Department of State of the Commonwealth of Puerto Rico. COMPETITION At the present time, the Company's sales efforts are primarily focused in Puerto Rico and the Caribbean. The Company enjoys a significant advantage over its competitors because it is the largest producer of quality nursery products in Puerto Rico. The Company continues expanding its operations in Puerto Rico. Most of the Company's competitors in Puerto Rico and the Caribbean are small nurseries and landscapers. The South Florida operations are subject to significant competition due to the large number of tropical foliage growers in the United States. Competition in the United States is based on quality, price, availability and service. 3 SEASONALITY The demand for plants in the United States is seasonal in nature, with increased demand during spring and fall, and lower demand in summer and winter. The demand in Puerto Rico and the Caribbean is less seasonal. WORKING CAPITAL REQUIREMENTS OF THE INDUSTRY The nursery industry requires producers to maintain large quantities of stock plants and inventory to meet customer demand and to assure a new source of products in the future. As a result, producers need to invest significant amounts of capital in stock plants and inventory. The Company believes that it has sufficient working capital for its operations from cash flow generated from operations and short-term borrowings. EMPLOYEES At December 31, 1996, the Company (Puerto Rico and South Florida) had 165 full time employees, of which 145 were directly involved in nursery production activities, and 20 in sales, accounting and administration. None of its employees are represented by a union. GOVERNMENT REGULATION The United States Department of Agriculture ("USDA") inspects cuttings imported into the United States by the Company. In addition, USDA regulations control various aspects of the Company's plant production process, including restrictions on the types of pesticides and fertilizers. All pesticides and fertilizers utilized by the Company are approved by the Environmental Protection Agency, as required by USDA regulations. The USDA prohibits the importation of foreign soil into the United States and limits the size of plants that can be imported into the United States. Puerto Rico is considered part of the United States for purposes of the USDA regulations. Shipments of products may also be subject to inspections by certain Puerto Rico or state officials. These officials may quarantine or destroy plants that are contaminated or infected by hazardous organisms. The Company's operations are subject to the Fair Labor Standards Act which governs such matters as minimum wage requirements, overtime and other working conditions. A large number of the Company's personnel are paid at or just above the federal minimum wage level and, accordingly, changes in such minimum wage rate affect the Company's labor costs. NATURAL HAZARDS The Company's operations are vulnerable to severe weather, such as hurricanes, flood, freezes and, to a lesser extent, plant disease and pests. In 1992, Hurricane Andrew destroyed substantially all of the Company's facilities in South Florida. The Company believes that it currently maintains adequate insurance coverage for its facilities and equipment. As of December 31, 1996, the Company had been unable to obtain adequate crop insurance coverage at a reasonable cost for its inventories. The Company intends to continue to seek to obtain crop insurance coverage at reasonable rates. However, no assurance can be given that the Company will be able to obtain such insurance coverage. The Company believes it has taken reasonable precautions to protect its plants and operations from natural hazards. In Puerto Rico, the Company's new facilities are being constructed with fabricated steel in an attempt to reduce the damage from any future storms. Each of the Company's operations currently has access to a plentiful water supply and facilities for the protection of many of their weather-sensitive plants. 4 INDUSTRY SEGMENTS The Company is primarily engaged in one industry segment, the production and marketing of tropical and flowering plants, and the sale of related lawn and garden products and the provision of landscaping services. Certain financial information concerning this industry segment is set forth in Item 7 - Management's Discussion and Analysis of Results of Operations and Financial Condition and in the Company's Consolidated Financial Statements included as Item 8 to this Annual Report on Form 10-K. FUTURE OPERATIONS The Company will continue to concentrate its economic and managerial resources in expanding its operations in Puerto Rico. The Company's Board of Directors has concluded that these operations present attractive opportunities for the future. The Board believes that the Company should continue to capitalize its advantage as one of the largest, full service nurseries in the region. The Company has a history of good margins in Puerto Rico because of the variety and quality of its inventory. The Company believes that it can increase its sales and margins by investing in a larger and more sophisticated facility and by increasing the size and variety of its inventory. Since 1993, the Company has continued to improve and expand its growing facilities in Puerto Rico. During January 1994, the Company leased approximately 27 more acres adjacent to its nursery facilities in Vega Alta, Puerto Rico for additional production. Effective January 1, 1997, the Company leased a 13 acre facility which includes approximately 110,000 square feet of enclosed bench space for production of orchids, bromeliads, anthuriums, poincettas and other ornamental and flowering plants. The Company believes that the lease of this additional space will allow it to supply its customers with a more complete product mix, thus increasing the Company's sales. During the second quarter of 1996, the Company entered into a contract with the Commonwealth of Puerto Rico's Department of Transportation for approximately $800,000 to provide palms, trees and other foliage for Puerto Rico Highway No. 3. At December 31, 1996, the Company had only delivered approximately $200,000, with the remainder to be delivered during the first and second quarters of 1997. At December 31, 1996, Margo Landscaping had sufficient landscaping projects in the pipeline to maintain operations into the third quarter of 1997. Among the landscaping projects that were in process is a contract with a local construction company to landscape a new U.S. Coast Guard Housing Project located in Bayamon, Puerto Rico for approximately $645,000. During 1997, Margo Landscaping will also be engaged in the landscaping of a new cross taxiway at Luis Munoz Marin International Airport in San Juan, for approximately $300,000. During 1997, Margo Landscaping's division of lawn and garden products will continue representing an increasing proportion of the Company's overall sales. The distribution of the Solaris product line (a Puerto Rico division of the Monsanto Company), Sunniland Corporation's fertilizer and pesticides products, together with Italian terracotta and plastic pottery, and all planting media related products (bagged potting soil, peat moss, cypress mulch, etc) should continue to provide increased sales. During late 1996 and early 1997, the Company became a distributor of additional product lines which will complement its lawn and garden products in order to provide a more complete mix of products to mass merchandisers, retail chains, garden centers, supermarkets and landscapers. During 1997, the Company plans to focus on the "outdoor living" concept, which includes patio furniture, water fountains, etc. Rain Forest is presently engaged in the manufacturing and distribution of potting soils, professional growing mixes, peat moss, mulch and aggregates under its trade name of Rain Forest, throughout Puerto Rico and the Caribbean. During 1997, these products should also provide the Company with increased sales. 5 Management believes that the Company was successful during 1996 in obtaining a greater share of the Puerto Rico market, which should help the Company achieve profitable results of operations during 1997 and beyond. The Company's South Florida operations through Bay Farms have continued to incur operating losses since resuming sales in 1994. It has not been able to obtain adequate sales levels sufficient to make the operation feasible due to the strong competition in South Florida. Based on the foregoing, the Company has determined to review the continued viability of this operation with the goal of making a final determination during 1997 whether this operation should be closed and the related assets disposed of. During 1996, the Company recorded a provision of $250,000 related to the excess of the carrying value over the fair market value of the assets of Bay Farms. INCOME TAXES As a Florida corporation, the Company is subject to federal income taxes on its worldwide operations and Puerto Rico income taxes on its Puerto Rico operation. For U.S. income tax purposes, the Company has elected the benefits of Section 936 ("Section 936") of the Internal Revenue Code. For taxable years beginning prior to December 31, 1993, corporations that met certain requirements and elected the benefits of Section 936 ("Section 936 Corporations") were entitled to a credit against their United States corporate income tax for the portion of such tax attributable to (i) income derived from the active conduct of a trade or business within Puerto Rico ("active business income") or from the sale or exchange of substantially all assets used in the active conduct of such trade or business and (ii) qualified possession source investment income ("QPSII"). These benefits were reduced for taxable years commencing after December 31, 1993, as described below. To qualify under Section 936 in any given taxable year a corporation must derive for the three-year period immediately preceding the end of such taxable year, (i) 80% or more of it gross income from sources within Puerto Rico and (ii) 75% or more of its gross income from the active conduct of a trade or business in Puerto Rico. The Omnibus Budget Reconciliation Act of 1993 amended various provisions of Section 936. The amendments (the "OBRA Amendments"), which are generally effective for taxable years beginning after December 31, 1993, permit a taxpayer to compute the tax credit available under Section 936 as under prior law but limit the amount of credit allowed as determined under one of two alternatives to be selected at the option of the taxpayer. Under the first alternative (the "income credit"), the limit was equal to a fixed percentage of the amount of tax credit allowable under prior law. This fixed percentage commenced at 60% for taxable years beginning in 1994 and is reduced by 5% per year until 1998. For taxable years beginning in 1998 such percentage would be 40%. Under the second alternative (the "economic activity method"), which is based on the amount of economic activity conducted by the taxpayer in Puerto Rico, the credit may not exceed the sum of the following three components: (i) 60% of the qualified possession wages and 15% of allocable fringe benefits paid by the taxpayer, (ii) applicable percentages of certain depreciation deductions claimed for regular tax purposes by the taxpayer with respect to qualified tangible property and (iii) a portion of the possession income taxes paid by the taxpayer except where the taxpayer uses the profit-split method for determining its income. On August 20, 1996, the Small Business Job Protection Act of 1996 (the "1996 Amendments") further amended Section 936 by eliminating the income credit available thereunder subject to a ten year grandfather rule as well as moving the economic activity credit to a new Section 30A of the Code, which also expires in ten years. For additional information on the 1996 Amendments, refer to Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition - Repeal of Section 936." The Company is also subject to Puerto Rico income taxes from its Puerto Rico operations. Subject to certain limitations, the Company's federal income tax liability is creditable against its Puerto Rico income tax liability. 6 The Agricultural Tax Incentives Act of the Commonwealth of Puerto Rico (Act. No. 225 of December 1, 1995, as amended) provides the Company with a 90% tax exemption for income derived from "bonafide" agricultural activity within Puerto Rico, including sales within and outside Puerto Rico, as well as a 100% exemption from property, municipal and excise taxes. The Act defines "bona fide agricultural activity" to include the nursery business. The Act became effective for taxable years commencing on or after December 1, 1995. Prior to the adoption of the Agricultural Incentives Act, the Company has obtained a grant of tax exemption from the Puerto Rico government under the Puerto Rico Tax Incentive Act of 1987, granting it an exemption from income tax on 90% of its income derived on the Company's export sales from Puerto Rico. The grant expires in 2002. 7 ITEM 2. PROPERTIES During 1996, the Company conducted its operations from nursery facilities located in Puerto Rico and South Florida. PUERTO RICO NURSERY FACILITIES The Company leases a 117 acre nursery facility in Vega Alta, Puerto Rico, approximately 25 miles west of San Juan. The facility, which includes the Company's corporate offices, consists of approximately 1,130,000 square feet of shade houses, propagation and mist facilities, as well as a 10,000 square foot warehouse for the Company's lawn and garden products. The nursery facility also has irrigation equipment and pump houses, shipping and storage areas, as well as two homes for field supervisors. The Puerto Rico facility is leased from Michael J. Spector and Margaret D. Spector (the "Spectors"), who are officers, directors and the major shareholders of the Company, pursuant to a lease agreement dated as of January 1, 1993. The lease has an initial term of five years and may be renewed for one additional term of five years at the option of the Company. During the initial term of the lease, rent is $19,000 per month. During the renewal term, the rent increases to the greater of $24,000 per month, or the original $19,000 per month adjusted on the basis of the increase in the Wholesale Price Index ("WPI") published by the United States Department of Labor, Bureau of Labor Statistics, from the WPI which was in effect on January 1, 1993 to the WPI in effect on January 1, 1998. Additionally, the Company must pay all taxes on the property, maintain certain insurance coverage and otherwise maintain and care for the property. The lease also contains an option which permits the Company to purchase the property at its appraised value at any time during the term of the lease. In consideration of the option, the Company must pay $1,000 per month. On January 1, 1994, the lease agreement was amended to include an additional 27 acres of land adjacent to the nursery facility for a five year period at a monthly rental of $1,750. This amendment does not provide for renewal nor purchase options for this tract of land. During the years ended December 31, 1996 and 1995, total lease payments to the Spectors amounted to $249,000 per year (not including the monthly payments for the option referred to above). Effective January 1, 1997, the Company entered into lease agreement with Cali Orchids, Inc., to lease a 13 acre nursery facility located in the town of Barranquitas, Puerto Rico. The lease has an initial term of five years and may be renewed for two additional five-year terms at the Company's option. During the initial term of the lease, monthly payments amount to $5,000. During the first and second renewal terms, monthly payments increase to $6,000 and $7,000, respectively. The lease agreement does not provide for any purchase option. SOUTH FLORIDA NURSERY FACILITY The Company's original nursery farm is located on a 51 acre parcel, approximately 20 miles southwest of downtown Miami. This facility, including the land, is owned by the Company. On August 24, 1992, Hurricane Andrew destroyed substantially all of the facilities at this farm. At the present time, the Company has a new 3.9 acre saran house, a 20,000 square feet propagation house, as well as 16 acres of sun growing area for production on an additional 20 acre parcel of land located near its South Florida nursery farm which is also owned by the Company. 8 ITEM 3. LEGAL PROCEEDINGS In the opinion of the Company's management, the pending or threatened legal proceedings of which management is aware will not have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK HOLDER MATTERS The Company's common stock is quoted on the NASDAQ Stock Market under the symbol MRGO. The following table sets forth the high and low sales prices for the Company's common stock, as reported by NASDAQ, for each of the calendar quarters of 1996 and 1995. The last reported sales price for the Common Stock on March 14, 1997 was $2-5/8 per share. 1996 1995 ------------------ ------------------- QUARTER: HIGH LOW HIGH LOW First $4-5/8 $2-5/8 $2-3/8 $2-1/4 Second 5 2-3/8 3 2-1/4 Third 4-1/4 3 4-3/4 2-3/4 Fourth 3-7/8 2-5/8 4 2-3/4 There were approximately 93 holders of record of the common stock as of December 31, 1996. This amount includes custodians, brokers and other institutions which hold the common stock as nominees for an undetermined number of beneficial owners. The Company did not pay any dividends on its common stock during 1996 or 1995. The payment of cash dividends in the future is dependent upon the earnings, cash position and capital needs of the Company, as well as other matters deemed relevant by the Company's Board of Directors. Dividends paid on the Company's Common Stock are generally subject to a 10% withholding tax at source under Puerto Rico tax laws. United States shareholders may be entitled to a foreign tax credit, subject to certain limitations, in connection with the imposition of the withholding tax. Prior to the first dividend distribution for the taxable year, individuals who are residents of Puerto Rico may elect to be taxed on the dividends at the regular graduated rates, in which case the special 10% tax will not be withheld from such year's distributions. United States citizens who are non-residents of Puerto Rico may also make such an election, and will not be subject to Puerto Rico tax on dividends if said individual's gross income from sources within Puerto Rico during the taxable year does not exceed $1,300 if single, or $3,000 if married. The Company recommends that shareholders consult their own tax advisors regarding the above tax issues. 10 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data has been taken from the Consolidated Financial Statements included with this Annual Report on Form 10-K. The selected financial data should be read in conjunction with Item 7 - Management's Discussion and Analysis of Results of Operations and Financial Condition and the Company's Consolidated Financial Statements. 11
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- Earnings Statement Data: 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- Net Sales $ 6,108,865 $ 4,933,718 $ 3,679,367 $ 2,489,881 $ 2,150,373 Gross Profit 2,137,340 1,777,358 1,467,202 1,282,636 740,840 Selling, general and administrative expenses 2,130,114 2,110,380 1,782,840 1,735,929 2,687,395 Income (loss) from operations 7,226 (333,022) (315,638) (453,293) (1,946,555) Loss before income tax provision extraordinary item and cumulative effect on prior years of accounting change (553,722) (386,334) (386,798) (420,280) (3,397,404) Extraordinary item, net -- -- -- 4,358,147 19,090,748 Cumulative effect on prior years of applying new method of accounting for income taxes -- -- -- 899,220 -- Net income (loss) (577,214) (396,334) (510,798) 4,949,887 15,678,344 Net income (loss) per common share $ (.30) $ (.21) $ (.27) $ 2.62 $ 9.28 Weighted average number of common shares outstanding 1,895,322 1,895,322 1,895,322 1,892,572 1,685,617 Balance Sheet Data: Working capital $ 4,113,799 $ 5,020,099 $ 5,580,916 $ 6,039,687 $13,615,074 Total assets 10,396,211 15,400,582 15,930,657 15,325,420 23,841,739 Long-term debt 427,078 354,707 372,424 5,293 139,528 Stockholders' equity 8,271,350 8,848,402 9,244,855 9,755,704 12,319,256
12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION For the year ended December 31, 1996, the Company incurred a net loss of approximately $577,000, compared to a net loss of $396,000 and $511,000 in 1995 and 1994, respectively. These amounts represent a loss per common share of $.30, $.21 and $.27 for 1996, 1995 and 1994, respectively. As discussed under "Item 1 - Natural Hazards", the Company's operations are vulnerable to severe weather. Notwithstanding the precautionary measures taken to mitigate physical damage from severe weather conditions, the indirect effects on the consumer, and hence, the local economy, will have an impact on the Company's operations. The Company believes that it currently maintains adequate insurance coverage for its facilities and equipment. As of December 31, 1996, the Company had been unable to obtain adequate crop insurance coverage at a reasonable cost for its inventories. The Company intends to continue to seek to obtain crop insurance coverage at reasonable rates. However, no assurance can be given that the Company will be successful in obtaining such coverage. During September 1996, Hurricane Hortense struck Puerto Rico. Although Hortense was not classified as a strong hurricane, the torrential rains caused widespread flooding, slowing down the local economy during the months of September and October 1996, and thus the Company's sales for the third quarter. During September 1995, Hurricanes Luis and Marilyn affected Puerto Rico and the Northeast Caribbean. Although Puerto Rico did not receive a direct strike from either hurricane, tropical storm winds and gusts were experienced, resulting in a loss of sales for half of the month of September, as well as early October. During 1994, the Company's operations were adversely affected by a drought which affected Puerto Rico heavily during the second and third quarters. Sales decreased significantly, thus increasing maintenance costs of plants, which were reflected in increased cost of sales. Notwithstanding the effects of hurricanes, the Company's sales have continued to increase, principally as a result of increased sales of landscaping services in 1996, and sales of lawn and garden products 1996 and 1995 to large retail chains. For the year ended December 31, 1996, the Company had income from operations of approximately $7,000, compared to losses from operations of $333,000 and $316,000 in 1995 and 1994, respectively. Despite the income from operations in 1996, cost of sales for both 1996 and 1995 include significant provisions for inventory valuation allowances for both Puerto Rico and South Florida operations. The Company's net loss for 1996 arises principally from the settlement of litigation with the Company's former principal lender, and a provision for the impairment of the assets of the South Florida operation and, therefore, is non-operational in nature. The Company's net loss for 1995 is the result a of significant operating loss incurred in South Florida, and to a lesser extent, the hurricane activity experienced during the third quarter of 1995. The Company's net loss for 1994 was directly attributed to the severe drought experienced in Puerto Rico and the Northeast Caribbean. Based on existing competition and lack of profitability during the past three years, the Company has determined to review the continued viability of this operation with the goal of making a final determination during 1997 whether this operation should be closed and the related assets disposed of. 13 RESULTS OF OPERATIONS SALES Consolidated net sales for the year ended December 31, 1996 were approximately $6,109,000, representing a 24% increase from sales of $4,934,000 in 1995. This increase in sales for 1996 is principally due to increased sales of lawn and garden products ($1,429,000 in 1996 versus $940,000 in 1995) as well as landscaping services ($1,017,000 in 1996 versus $455,000 in 1995). The increase in sales of 34% for 1995 when compared to 1994, was mainly due to increased sales of lawn and garden products ($940,000 in 1995 versus $271,000 in 1994). GROSS PROFITS The following table sets forth certain information regarding the Company's costs and expenses as a percentage of net sales.
YEARS ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ------ ------ ------ Net sales............................................ 100.0% 100.0% 100.0% Cost of sales........................................ 65.0 63.9 60.2 ----- ----- ----- Gross profit......................................... 35.0 36.1 39.8 Selling, general and administrative expenses......... 34.9 42.7 48.4 ----- ----- ----- Income (loss) from operations........................ .1 (6.6) (8.6) Interest income (expense), net....................... (.2) .6 (.7) Other expenses - net................................. (9.0) (1.8) (1.2) Loss before income tax provision..................... (9.1) (7.8) (10.5) Income tax provision................................. .3 .2 3.4 ----- ----- ------ Net loss............................................. (9.4) (8.0) (13.9) ===== ===== ======
The table above reflects that consolidated gross profits as a percentage of net sales were approximately 35%, 36%, and 40%, for the years ended December 31, 1996, 1995 and 1994, respectively. 14 Gross profit for 1996 (35%) was adversely affected by provisions regarding to inventory valuation reserves amounting to $150,000 in Puerto Rico and $102,000 in South Florida. The provision in Puerto Rico was required due to the maintenance of plant material produced in connection with a contract with the Commonwealth of Puerto Rico's Department of Transportation for $800,000, of which only $200,000 had been delivered as of December 31, 1996. Gross profit for 1995 (36%) was also adversely affected by a provision to an inventory valuation reserve of $250,000 in South Florida due to overproduction and maintenance of plant material. Additionally, from the commencement of the second quarter of 1994 through the first quarter of 1995, Puerto Rico and the northeast Caribbean suffered a severe drought. This drought reduced the Company's product turnover, causing plants to absorb increased overhead costs and resulting in a corresponding increase in the carrying costs of plants. The result was a significant reduction in gross profit throughout 1994, as well as the first quarter and portion for the second quarter of 1995. Also, as previously mentioned, the Company's sales of lawn and garden products increased significantly during 1996 and 1995. Sales of these products result in a lower gross profit than plants, and thus will cause an overall decrease in consolidated gross profits for those years when compared to 1994 (40%). SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The Company's selling, general and administrative (SG&A) expenses were $2,130,000 for 1996, compared to $2,110,000 in 1995, or a 1% increase. This increase is the net effect of increases in depreciation and administrative personnel coupled with reductions in other SG&A expenses. The increase in SG&A for 1995 when compared to 1994 resulted from increases in selling, shipping and warehousing expenses. As a result of increased sales for 1996, SG&A as a percentage of sales decreased to 35% when compared to 43% for 1995 and 48% for 1994. OTHER INCOME AND EXPENSE Interest income and interest expense for 1996 decreased significantly when compared to 1995. This decrease is principally due to the settlement of litigation with the Company's former principal lender in May 1996 (refer to the following paragraph). The decrease in interest income as well as interest expense results from the application of restricted cash (formerly in escrow accounts) used for the payment of principal and accrued interest on the outstanding loans in connection with the settlement of the litigation described below. Accordingly, results for 1996 reflect seven months less of interest income related to restricted cash and interest expenses related to the loans subject to litigation as compared to 1995. On May 29, 1996, the Company (including all related entities) and Michael J. Spector, the Chairman of the Board, Chief Executive Officer and the principal stockholder of the Company entered into a Settlement Agreement with First Union National Bank of Florida ("First Union"). The Settlement Agreement covered all claims brought by First Union against the Company and related entities (the "Margo Entities") related to a loan facility obtained by the Margo Entities from Southeast Bank, N.A. in 1988 and later acquired by First Union. The Settlement Agreement also settled all counterclaims brought by the Margo Entities against First Union related to First Union's efforts to collect such loan. The Settlement Agreement provided for a payment to First Union of $5,625,000, of which $5,285,000 corresponded to the Company and $340,000 corresponded to Mr. Spector. 15 The Settlement Agreement resulted in a charge of $255,174 to other expenses which was recognized in the second quarter of 1996, after the application of existing reserves of approximately $5,030,000 (for outstanding principal and interest) previously allocated to this matter. Litigation expenses represent legal fees incurred regarding the litigation and settlement with the Company's former principal lender. Litigation expenses will vary from year to year depending on developments on each particular case and time incurred by the Company's legal counsel. The decrease in litigation expenses for 1996 when compared to 1995 and 1994 is due to the settlement of the litigation with First Union. The Company recorded a provision of $250,000 related to the excess of the carrying value over the fair market value of the assets of the South Florida operations. For the year ended December 31, 1994, the Company wrote down the carrying value of the note receivable resulting from the sale of Cariplant (a former subsidiary of the Company) to Altec International, C. por A. by $680,962. This write-down represented management's assessment regarding the note's collection experience as well as the country (Dominican Republic) in which the debtor operates. The gain on insurance proceeds due to Hurricane Andrew for 1994 represents the excess of funds received over the book values of assets destroyed as a result of the storm. 16 FINANCIAL CONDITION At December 31, 1996, the Company's financial condition continues favorable, despite the reduction in shareholders' equity as a result of the net loss of $577,000, the settlement of litigation and the provision for loss upon the proposed closing of the South Florida operation. Notwithstanding a decrease in working capital of $906,000 during 1996 ($4,114,000 in 1996 vs. $5,020,000 in 1995), the Company's current ratio continued strong at December 31, 1996 (3.42 to 1 in 1996 vs. 1.81 to 1 in 1995). At December 31, 1996, the Company had cash of $946,000 and short term investments of $1,004,000. The Company's inventories increased by $397,000 (net of an increase in the valuation reserve of $232,000), resulting primarily from reduced product turnover and a corresponding increase in the carrying costs of plants. During 1996, the Company invested an additional $486,000 in equipment in order to increase capacity as demand for the Company's products and services continues to grow. At December 31, 1996, the Company's overall decrease in assets of $5,000,000 was principally due to the result of the settlement of litigation. Nevertheless, the Company's debt to equity ratio improved (26% in 1996 vs. 74% in 1995). At December 31, 1996, the Company believes it has adequate resources to meet its current liquidity and capital requirements. INFLATION The primary inflationary factors which may affect the Company's results of operations and financial condition are the costs of labor and production materials such as soil, pots, chemicals, fertilizer and plant cuttings. During the last three years, the impact of inflation on the results of domestic operations and financial condition of the Company has been minimal due to the stability of wage rates and the availability of production materials from a wide variety of sources. The Company does not anticipate that inflation will have a significant effect on its future earnings or financial condition because increases caused by inflation are ordinarily recovered through increases in prices. REPEAL OF SECTION 936 The Small Business Job Protection Act of 1996 (the "1996 Amendments") enacted into law on August 20, 1996, further amended Section 936 by repealing the income tax credit available under such Section subject to a ten-year grandfather rule applicable only for corporations that were actively conducting a trade or business in Puerto Rico on October 13, 1995 and moving the economic activity credit to a new Section 30A of the Internal Revenue Code (the "Code"). With respect to the income tax credit, the 1996 Amendments provide for a five year period from 1994 to 1998 during which period the allowable credit is reduced from 60% to 40%. Thereafter, and until the elimination of the credit, which occurs for taxable years beginning in 2006, the credit is limited to 40% subject to certain caps based on the taxpayer's Puerto Rico income over a base period ending on October 1995. The 1996 Amendments moved the economic activity credit to new Section 30A of the Code which applies for taxable years beginning after December 31, 1995 and before January 1, 2006. The economic activity credit is computed in substantially the same manner as under prior law, providing a credit equal to the sum of (i) 60% of qualified possession wages as defined in the Code, which includes wages up to 85% of the maximum earnings subject to the OASDI portion of Social Security plus allocable fringe benefits of up to 15% of qualified possession wages, (ii) a specified percentage of depreciation deductions ranging from 15% to 65%, based on the class life of qualified tangible property and (iii) a portion of the Puerto Rico income taxes paid by a qualified domestic corporation (as defined), up to a 9% effective tax rate. For taxable years beginning after December 31, 2001, the 17 amount of income that would qualify for the economic activity credit under new Section 30A would be subject to a new cap based on the taxpayer's possession income for an average base period ending before October 14, 1995. The Company computes its credit under the economic activity method contained in Section 30A. Because of the relatively labor intensive nature of the Company's business, the Company believes that it will continue to derive substantial benefit for the economic activety credit provided by Section 30A. While it is not possible to determine the long-term effect on the economy of Puerto Rico of the 1996 Amendments, the 1996 Amendments could have an adverse effect in the general economic condition in Puerto Rico, the Company's predominant service area. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is incorporated by reference to the Company's Consolidated Financial Statements and Schedules and the Auditors Report beginning on page F-1 of this Form 10-K. Supplementary data is not required. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the directors and executive officers of the Company as of March 14, 1997. The background and experience of these persons are summarized in the paragraphs following the table.
NAME (AGE AT MARCH 14, 1997) POSITIONS WITH THE COMPANY - ---------------------------- -------------------------- Michael J. Spector(50) Chairman, President, Chief Executive Officer and Director Margaret D. Spector(45) Secretary and Director Blas R. Ferraiuoli(52) Director Frederick D. Moss(68) Director Michael A. Rubin(54) Director Guillermo Fradera(46) Vice President and General Manager of Miami Operations Alfonso Ortega(43) Vice President, Treasurer and Chief Financial Officer Rene Llerandi(37) Vice President - Marketing Luis Torres(37) Vice President - Production
Each director of the Company holds office until the next annual meeting of shareholders and until his or her successor has been elected and qualified. Officers serve at the discretion of the Board of Directors. All of the executive officers of the Company except Margaret D. Spector devote their full time to the operations of the Company. BACKGROUND OF OFFICERS AND DIRECTORS Set forth below is a summary of the background of each person who was an officer or director of the Company as of March 14, 1997. MR. SPECTOR currently serves as the Chairman of the Board, Chief Executive Officer and President of the Company. He has held these positions since the organization of the Company in 1981. His wife, Margaret D. Spector, is Secretary and a director of the Company. MRS. SPECTOR currently servers as the Secretary and as a director of the Company. She has held these positions since the organization of the Company in 1981. Since July 1993, Mrs. Spector supervises the Company's lawn and garden distribution business. MR. FERRAIUOLI was elected a director of the Company in 1988 and continues to hold that position. Since June 1994, he manages his own law firm in San Juan, Puerto Rico. He was a partner in the law firm of Axtmayer, Adsuar, Muniz & Goyco, San Juan, Puerto Rico from March 1994 to June 1994. Prior to March 1994, he was a partner in the firm of Goldman Antonetti Cordova and Axtmayer. Mr. Ferraiuoli practices civil, corporate and administrative law and has provided services to the Company since 1987. 20 MR. MOSS was elected a director of the Company in 1988 and continues to hold that position. Since 1986, he has been an independent financial consultant in New York City. He has also served as the Chairman of the Board of Trustees of the Cincinnati Stock Exchange since 1989. Mr. Moss is a director of Summit High Yield Fund (mutual fund). MR. RUBIN was elected a director of the Company in 1995 and continues to hold that position. Mr. Rubin is an attorney engaged in private practice. He has been a partner in the law firm of Michael A. Rubin, P.A., Coral Gables, Florida, for more than the past five years. MR. FRADERA currently serves as the Vice President and General Manager of the Company's Miami operations. He has held these positions since December 1989. He joined the Company in 1984 and served as Vice President for Corporate Development from 1987 to 1989. MR. ORTEGA currently serves as the Vice President, Treasurer and Chief Financial Officer of the Company. He has held this position since he joined the Company in January 1993. From 1989 to January 1993, Mr. Ortega was an audit manager for the accounting firm of Vila Del Corral & Company, San Juan, Puerto Rico. MR. LLERANDI currently serves as Vice President of Marketing. He has held this position since April 1, 1993. He joined the Company in 1988 as Sales Manager for Puerto Rico. MR. TORRES currently serves as Vice President of Production. He has held this position since April 1, 1993. He joined the Company in 1990 as Production Manager for Puerto Rico. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16 of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers to report their ownership of and transactions in the Company's Common Stock to the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers. Copies of these reports are also required to be supplied to the Company. Specific dates for filing these reports have been established by the SEC, and the Company is required to report in the annual report any failure of its directors and executive officers to file by the relevant due date any of these reports during the fiscal year ended December 31, 1996. Based solely on its review of the copies of the report received by it, the Company believes that all such filing requirements were satisfied, except that Michael J. Spector, Margaret D. Spector, Blas R. Ferraiuoli, Frederick D. Moss, Michael A. Rubin, Guillermo Fradera, Alfonso Ortega, Rene Llerandi and Luis Torres filed one late report each relating to the granting of stock options. 21 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information regarding compensation of the Company's chief executive officer during each of the three years ended December 31, 1996, 1995 and 1994. No other executive officer of the Company earned more than $100,000 during 1996. ANNUAL COMPENSATION NAME OF INDIVIDUAL AND --------------------- OTHER ANNUAL POSITION WITH THE COMPANY SALARY BONUS COMPENSATION ------------------------- -------- ------- ------------ Michael J. Spector 1996 $160,000 $13,600 $ 0 Chairman, President, Chief 1995 160,000 13,600 0 Executive Officer and Director 1994 160,000 13,600 0 COMPENSATION OF DIRECTORS The directors of the Company who are not employees of the Company are paid a quarterly retainer fee of $1,000 and an additional $1,000 for each meeting of the board (or committee thereof) attended, plus any travel and out-of -pocket expenses incurred in connection with the performance of their duties. No separate fees are paid for committee meetings attended on the same day as a Board meeting. The directors of the Company who are employed by the Company do not receive additional compensation for serving as directors. The Company also provides directors liability insurance for its directors. During 1996, Messrs. Ferraiuoli, Moss and Rubin received stock options to acquire 2,500, 2,500 and 5,000 shares of Common Stock, respectively. Each option has an exercise price of $3-1/8 and expires on August 9, 2006. For information regarding stock options granted to Mr. and Mrs. Spector, see "Grant of Stock Options" below. GRANT OF STOCK OPTIONS The following table sets forth certain information regarding the grant of stock options made to Michael Spector during the year ended December 31, 1996.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM ----------------------------- % OF TOTAL # OF SHARES OPTIONS GRANTED UNDERLYING TO EMPLOYEES IN EXERCISE PRICE NAME OPTIONS GRANTED(1) FISCAL YEAR ($/SHARE)(2) EXPIRATION DATE 5%($) 10%($) ---- ------------------ --------------- -------------- --------------- ------ ------- Michael J. Spector 17,500(3) 48% $3.44 8/9/2001 $9,641 $27,919 - ------------------- (1) Options become exercisable at the rate of 20 percent on the first, second, third, fourth and fifth anniversary of the grant date. (2) The exercise price is based on the average of the bid and ask prices for the Company's Common Stock on August 9, 1996, the date of grant. (3) Includes options to acquire 2,500 shares granted to Margaret D. Spector, the wife of Michael J. Spector.
22 OPTIONS EXERCISED DURING 1996 AND OPTION VALUES AT DECEMBER 31, 1996 The following table sets information on outstanding options held by the Company's chief executive officer and their value at December 31, 1996. There were no exercises of options during 1996. Value is calculated as the difference between the last sales price of the Common Stock and the exercise price at as of December 31, 1996.
NUMBER OF SHARES VALUE OF UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS OPTIONS AT SHARES AT 12/31/96 12/31/96(1)(2) ACQUIRED VALUE ------------------------------ ------------------------------ NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------- ----------- ------------- ----------- ------------- Michael J. Spector(1) - - 12,000 25,500 $4,080 $3,770 - ------------------ (1) Includes 7,500 options held by to Margaret D. Spector, the wife of Michael J. Spector. (2) Based on the last sales price of $3-1/2 per share on December 31, 1996 and an exercise price of $3.16 for all exercisable options and an exercise price of $3.16 and $3.44 for 8,000 and 17,500 of unexercisable options, respectively.
EMPLOYMENT CONTRACTS The Company does not have any employment contracts with its executive officers. However, during 1994, 1995 and the first half of 1996 the Company was party to a consulting agreement with Douglas Pennock, who acted as the general manager of the Company's Puerto Rico landscaping division. Under his consulting agreement, Mr. Pennock received a weekly fee of $1,481 plus health insurance and automobile expenses. Effective August 12, 1996, Mr. Pennock was officially named general manager of the landscaping division with the same compensation and benefits under his prior consulting agreement. 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth, as of March 14, 1997, the number of shares of common stock of the Company owned beneficially by the following persons: (a) each director of the Company; (b) all executive officers and directors of the Company as a group; and (c) each person known to the Company who owns more than 5% of the outstanding common stock of the Company. Unless otherwise stated, all shares are held with sole investment and voting power.
SECURITY OWNERSHIP AS OF MARCH 14, 1997 NAME (POSITION WITH THE COMPANY) AMOUNT BENEFICIALLY OWNED(1) PERCENT OF CLASS(1) --------------------------- ---------------------------- ------------------- Michael J. Spector 1,260,982(2) 65.2% (Executive Officer and Director) Margaret D. Spector 1,260,982(2) 65.2% Carr. 690, Km. 5.8 Vega Alta, Puerto Rico 00646 (Executive Officer and Director) J. Morton Davis 189,149(3) 9.9% D.H. Blair Holdings, Inc. D.H. Blair Investment Banking Corp. 44 Wall Street New York, New York 1005 (Five Percent Shareholder) Frederick D. Moss (Director) 5,500(4) (6) Blas Ferraiuoli (Director) 9,000(4) (6) Michael A. Rubin (Director) 3,000 (6) All Executive Officers and 1,302,122(5) 66.7% Directors as a Group (9 persons) - -------------------- (1) The percent of class held by each person includes the number of shares of Common Stock the named person(s) has the right to acquire upon exercise of stock options that are exercisable within 60 days of March 14, 1997 (except in the case of Mr. and Mrs. Spector in which case all shares issuable upon exercise of stock options are included whether or not exercisable within 60 days of March 14, 1997), but does not include shares of Common Stock issuable upon exercise of stock options held by other persons. (2) Includes 937,194 shares held directly by Mr. Spector and 286,288 shares held by Mrs. Spector. Also includes stock options to acquire 30,000 and 7,500 shares held by Mr Spector and Mrs. Spector, respectively. The Spectors share voting and investment power over the shares owned by each other. (3) This amount consists of 189,149 shares held in the name of D.H. Blair Investment Banking Corp., a registered broker-dealer which is wholly-owned by D.H. Blair Holdings, Inc., which in turn is wholly-owned by J. Morton Davis. This amount is based upon a Schedule 13G dated February 9, 1995 filed with the Securities and Exchange Commission. (4) Includes 3,000 shares issuable upon stock options exercisable on or within 60 days of March 14, 1997. (5) Includes 37,500 shares issuable upon exercise of stock options granted to Mr. and Mrs. Spector as described in footnote (1) above and to other officers and directors that are exercisable on or within 60 days of March 14, 1997. (5) Less than one percent.
24 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AMOUNT DUE FROM/TO PRINCIPAL SHAREHOLDER In connection with the settlement of the Company's litigation with First Union on May 29, 1996, the Company advanced $340,158 on behalf of Michael J. Spector, which was the portion of the settlement that corresponded to claims made by First Union against Mr. Spector in his individual capacity. This amount was reduced by $66,506 that was due to the shareholder in connection with the purchase of the residence described below under "Purchase of Residence." Accordingly, at December 31, 1996, Mr. Spector owed the Company $273,652. The Company is not currently charging Mr. Spector interest on the amounts owed to the Company. As of December 31, 1995, the Company owed its principal shareholder, approximately $107,000 arising principally from lease payments for the Puerto Rico nursery farm. This balance was paid during 1996. LEASE AND OPTION TO PURCHASE PUERTO RICO NURSERY FARM Effective January 1, 1993, the Company and the Spectors entered into a lease agreement with respect to the Puerto Rico nursery farm. The lease has an initial term of five years and may be renewed for one additional term of five years at the option of the Company. During the initial term of the lease, rent was set at $19,000 per month. During the renewal term, the rent increases to the greater of (x) $24,000 per month or (y) the original $19,000 per month adjusted on the basis of the increase in the Wholesale Price Index ("WPI") published by the United States Department of Labor, Bureau of Labor Statistics, from the WPI which was in effect on January 1, 1993 to the WPI in effect on January 1, 1998. Additionally, the Company must pay all taxes on the property, maintain certain insurance coverages and otherwise maintain the property. The lease also contains an option which permits the Company to purchase the property at its appraised value at any time during the term of the lease. In consideration of the option the Company must pay the Spectors $1,000 per month. Effective January 1, 1994, the lease agreement was amended to include an additional 27-acre tract of land adjacent to the existing nursery facility for a five-year period. The rent for this additional tract is $1,750 per month. This lease terms for this additional tract do not include renewal or purchase options. See "Item 2 - Properties." PURCHASE OF RESIDENCE In August 1990, the Company agreed to lease a residence located in Puerto Rico from a partnership whose partners include Michael J. Spector and Margaret D. Spector. The lease had an initial term of five years and provided for payments of $2,000 per month for the first year of the lease and $2,500 per month each of the remaining four years. The Company also paid utilities, taxes, insurance, maintenance and repairs on the residence. The Company utilizes the residence to house employees, including employees traveling from Miami, as well as off island customers. In January 1996, the Company purchased the residence from the partnership. The purchase price, based on an independent appraisal prepared by a certified appraiser, amounted to $220,800, including the assumption of the mortgage referred to below. The property was subject to a 10% commercial loan with a balance of approximately $88,000, which was assumed by the Company. The Company believes that the purchase price for the residence was comparable to that which the Company would have obtained in an arm's length transaction with unaffiliated parties. 25 CERTAIN OTHER RELATIONSHIPS During 1996 the Company engaged Blas Ferraiuoli and Michael A. Rubin, each a director of the Company, to render legal services on behalf of the Company. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K EXHIBIT NUMBER DESCRIPTION ------- ----------- (a)(1) and FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. (a)(2) The information called for by this section of Item 14 is set forth in the Financial Statements and Auditor's Report beginning on page F-1 of this Form 10-K. The index to Financial Statements and Schedules is set forth on page F-2 of this Form 10-K. (a)(3) EXHIBITS. The Exhibits set forth in the following Index of the Exhibits are filed as a part of this report: (3) Articles of Incorporation and By-Laws: (a) Articles of Incorporation are incorporated by reference to the Company's Form 8-K dated December 23, 1992. (b) By-Laws are incorporated by reference from the Company's Form 8-K dated December 23, 1992. (4) (a) Stock Benefits Plan is incorporated by reference from the Company's Form 10-K filed April 14, 1989. (b) Employee Stock Option Plan is incorporated by reference from the Company's Registration Statement on Form S-18 filed December 23, 1986. (c) Stock Purchase Plan is incorporated by reference from the Company's Form 10-K filed April 14, 1989. (10) Material Contracts (a) Material contracts incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1991 filed April 15, 1992. (i) Consulting Agreement dated December 9, 1991 by and between the Company and Douglas W. Pennock. (b) Material contracts incorporated by reference from the Company's Form 8-K dated December 23, 1992: (i) Agreement and Plan of Merger dated December 21, 1992 between Margo Nursery Farms, Inc., Margo Farms Del Caribe, Inc. and Margo Bay Farms, Inc. (ii) Articles of Merger dated December 21,1992. (c) Material contracts incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1992 filed April 15,1993: (i) Lease Agreement dated January 1, 1993 between the Company and the Spectors. (ii) Stock Purchase Agreement dated March 29, 1993 between the Company, Altec Inter national, C. por A., Byron J. Smalley, et al. (iii) Disposal Agreement dated December 31, 1992 between the Company and Altec International C. por. A. 27 EXHIBIT NUMBER NUMBER DESCRIPTION ------ ----------- (iv) Collateral Pledge and Security Agreement dated December 7, 1992 between Del Caribe and Michael J. Spector. (d) Material contracts incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993 filed April 15, 1994: (i) First Amendment to Lease Agreement dated January 1, 1994 between the Company and the Spectors. (ii) Supplemental Disposal Agreement between The DuPont Company and Margo Farms Del Caribe, Inc. dated November 2, 1993. (e) Material Contracts incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1994: (i) Loan Commitment Agreement, dated December 15, 1994 between Puerto Rico Farm Credit ACA and the Company. (f) Material Contracts incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (i) Wholesale Agreement, dated September 28, 1995, between the Company and Monsanto Puerto Rico, division of Searle & Co. (g) Material Contracts incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995, filed April 16, 1996: (i) Deed of Sale, dated February 14, 1996, between S. & P., S. E. and the Company. (h) Material Contracts filed with this Form 10-K (i) Lease and Purchase Agreement, dated October 31, 1996 among Cali Orchids, Inc. and the Company. (ii) Stock Option Agreement, dated August 9, 1996, with Fred Moss. (iii) Stock Option Agreement, dated August 9, 1996, with Blas Ferraiuoli. (iv) Stock Option Agreement, dated August 9, 1996, with Michael A. Rubin. (v) Stock Option Agreement, dated July 9, 1993, with Fred Moss. (vi) Stock Option Agreement, dated July 9, 1993, with Blas Ferraiuoli. (vii) Stock Option Agreement, dated July 9, 1993, with Margaret D. Spector. (viii) Stock Option Agreement, dated, August 9, 1996, with Margaret D. Spector. (21) List of Registrant's Subsidiaries. (27) Financial Data Schedule (b) REPORTS ON FORM 8-K. Not applicable. 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 27, 1997 By: /s/ MICHAEL J. SPECTOR, PRESIDENT ---------------------------------- Michael J. Spector, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of th registrant and in the capacities indicated and on the dates indicated. Dated: March 27, 1997 By: /s/ MICHAEL J. SPECTOR ---------------------------- Michael J. Spector, Chairman of the Board and Chief Executive Officer Dated: March 27, 1997 By: /s/ MARGARET D. SPECTOR ----------------------------- Margaret D. Spector, Director Dated: March 27, 1997 By: /s/ BLAS R. FERRAIUOLI --------------------------- Blas R. Ferraiuoli, Director Dated: March 27, 1997 By: /s/ MICHAEL A. RUBIN ------------------------- Michael A. Rubin, Director Dated: March 27, 1997 By: /s/ FREDERICK D. MOSS -------------------------- Frederick D. Moss, Director Dated: March 27, 1997 By: /s/ ALFONSO A. ORTEGA PEREZ -------------------------------- Alfonso A. Ortega Perez, Vice President, Treasurer, Principal Financial and Accounting Officer MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS FOR INCLUSION IN FORM 10-K ANNUAL REPORT FILED WITH SECURITIES AND EXCHANGE COMMISSION FEBRUARY 25, 1997 F-1 MARGO NURSERY FARMS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES FEBRUARY 25, 1997 PAGE ---- Independent Auditors' Report......................................... F-3 Financial Statements Consolidated Balance Sheets....................................... F-4 Consolidated Statements of Operations............................. F-5 Consolidated Statements of Shareholders' Equity................... F-7 Consolidated Statements of Cash Flows............................. F-8 Notes to Consolidated Financial Statements........................ F-8 SCHEDULES Schedule II - Valuation and Qualifying Accounts................... F-26 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements or notes thereto. F-2 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Margo Nursery Farms, Inc. Vega Alta, Puerto Rico We have audited the accompanying consolidated balance sheets of Margo Nursery Farms, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 Margo Nursery Farms, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years ended December 31, 1996,1995 and 1994 in conformity with generally accepted accounting principles. In connection with our audits of the consolidated financial statements referred to above, we audited the consolidated financial statement schedule listed under Item 14(a)(2). In our opinion, this schedule presents fairly, in all material respects, the information stated therein, when considered in relation to the consolidated financial statements taken as a whole. KAUFMAN, ROSSIN & CO. -------------------- KAUFMAN, ROSSIN & CO. Miami, Florida February 25, 1997 F-3 MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS ------ 1996 1995 ------------ ------------ Current Assets: Cash and equivalents $ 946,490 $ 785,490 Short term investments 1,004,000 500,000 Restricted cash -- 6,732,597 Accounts receivable, net of allowance for doubtful accounts of $79,000 and $136,100 in 1996 and 1995 1,007,947 692,165 Inventories 2,737,109 2,340,373 Prepaid expenses 116,036 166,947 ------------ ------------ Total current assets 5,811,582 11,217,572 Property and equipment, net 3,864,646 3,587,982 Due from shareholder 273,652 -- Notes receivable 379,182 444,411 Other assets 67,149 150,617 ------------ ------------ Total assets $ 10,396,211 $ 15,400,582 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 118,085 $ 3,663,475 Notes payable 500,000 500,000 Accounts payable 630,572 372,025 Accrued expenses 425,634 1,555,187 Due to shareholder -- 106,786 Income taxes payable 23,492 -- ------------ ------------ Total current liabilities 1,697,783 6,197,473 Long-term debt 427,078 354,707 ------------ ------------ Total liabilities 2,124,861 6,552,180 ------------ ------------ Commitments and contingencies Shareholders' equity: Common stock, $.001 par value; 10,000,000 shares authorized, 1,915,122 shares issued, and 1,895,322 shares outstanding 1,915 1,915 Additional paid-in capital 4,637,706 4,637,706 Retained earnings 3,689,681 4,266,895 Treasury stock, 19,800 common shares, at cost (48,788) (48,788) Foreign currency translation loss (9,164) (9,326) ------------ ------------ Total shareholders' equity 8,271,350 8,848,402 ------------ ------------ Total liabilities and shareholders' equity $ 10,396,211 $ 15,400,582 ============ ============ See accompanying notes to consolidated financial statements F-4
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995, 1994 1996 1995 1994 ----------- ----------- ----------- Net Sales $ 6,108,865 $ 4,933,718 $ 3,679,367 Cost of Sales 3,971,525 3,156,360 2,212,165 ----------- ----------- ----------- Gross profit 2,137,340 1,777,358 1,467,202 Selling, general and administrative expenses 2,130,114 2,110,380 1,782,840 ----------- ----------- ----------- Income (loss) from operations 7,226 (333,022) (315,638) ----------- ----------- ----------- Other income (expense): Interest income 189,924 455,041 364,044 Interest expense (206,316) (421,313) (389,785) Litigation expenses, net of legal fees reimbursed of $112,000 and $110,948 in 1995 and 1994 (87,961) (130,229) (400,939) Litigation settlement (255,174) -- -- Provision for impairment of assets of subsidiary (250,000) -- -- Write-down of note receivable -- -- (680,962) Other income 48,579 43,189 139,433 Gain relating to Hurricane Andrew after insurance proceeds -- -- 897,049 ----------- ----------- ----------- (560,948) (53,312) (71,160) ----------- ----------- ----------- Loss before income tax provision (553,722) (386,334) (386,798) Income tax provision 23,492 10,000 124,000 ----------- ----------- ----------- Net loss $ (577,214) $ (396,334) $ (510,798) =========== =========== =========== Loss per common share $ (.30) $ (.21) $ (.27) =========== =========== =========== Weighted average common shares 1,895,322 1,895,322 1,895,322
See accompanying notes to consolidated financial statements F-5
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 COMMON COMMON ADDITIONAL STOCK STOCK PAID-IN SHARES AMOUNT CAPITAL ----------- ----------- ----------- Balance at December 31, 1993 1,895,322 $ 1,915 $ 4,637,706 Net loss -- -- -- Foreign currency translation loss -- -- -- ----------- ----------- ----------- Balance at December 31, 1994 1,895,322 1,915 4,637,706 Net loss -- -- -- Foreign currency translation loss -- -- -- ----------- ----------- ----------- Balance at December 31, 1995 1,895,322 1,915 4,637,706 Net Loss -- -- -- Foreign currency translation gain -- -- -- ----------- ----------- ----------- 1,895,322 $ 1,915 $ 4,637,706 =========== =========== =========== (RESTUBBED TABLE CONTINUED) CUMULATIVE RETAINED TREASURY TRANSLATION EARNINGS STOCK ADJUSTMENT TOTAL ----------- ----------- ----------- ----------- Balance at December 31, 1993 $ 5,174,027 $ (48,788) $ (9,156) $ 9,755,704 Net loss (510,798) -- -- (510,798) Foreign currency translation loss -- -- (51) (51) ----------- ----------- ----------- ----------- Balance at December 31, 1994 4,663,229 (48,788) (9,207) 9,244,855 Net loss (396,334) -- -- (396,334) Foreign currency translation loss -- (119) (119) ----------- ----------- ----------- ----------- Balance at December 31, 1995 4,266,895 (48,788) (9,326) 8,848,402 Net Loss (577,214) -- -- (577,214) Foreign currency translation gain 162 162 ----------- ----------- ----------- ----------- $ 3,689,681 $ (48,788) $ (9,164) $ 8,271,350 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements F-6
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net loss $ (577,214) $ (396,334) $ (510,798) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 467,261 339,491 280,731 Write-down of note receivable -- -- 680,962 Provision for inventory valuation reserve 70,000 250,000 -- Provision for possible bad debts 4,000 6,786 -- Gain relating to Hurricane Andrew after insurance proceeds -- -- (897,049) Provision for impairment of assets of subsidiary 250,000 -- -- Changes in assets and liabilities affecting cash flows from operating activities: Accounts receivable (319,782) 31,160 (319,533) Inventories (466,736) (570,641) (856,368) Prepaid expenses 53,571 19,367 (116,422) Advances from (to) shareholders (106,786) 106,786 88,267 Other assets 74,525 (67,685) (24,945) Deferred income taxes, net -- -- 104,100 Accounts payable 258,547 116,740 19,077 Accrued expenses (1,379,553) 359,276 275,336 Income taxes payable 23,492 (14,829) (10,117) ----------- ----------- ----------- Net cash provided by (used in) operating activities (1,648,675) 180,117 (1,286,759) ----------- ----------- ----------- Cash flows from investing activities: Decrease (increase) in restricted cash 6,732,597 (356,750) (291,261) Decrease (increase) in short-term investments (504,000) 210,359 6,222 Purchases of property and equipment (497,308) (422,832) (964,718) Increase in due from shareholder (340,158) -- -- Proceeds on insurance claims from Hurricane Andrew -- -- 897,049 Increase in notes receivable -- (10,000) (75,000) Collection on notes receivable 7,667 14,379 51,817 ----------- ----------- ----------- Net cash provided by (used in) investing activities 5,398,798 (564,844) (375,891) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from notes payable -- 300,000 910,000 Repayment of notes payable -- (1,000,000) (410,000) Proceeds from long-term debt 122,000 78,000 422,000 Repayments of long-term debt (3,711,285) (79,595) (2,464) ----------- ----------- ----------- Net cash provided by (used in) financing activities activities (3,589,285) (701,595) 919,536 ----------- ----------- ----------- Net increase (decrease) in cash and equivalents 160,838 (1,086,322) (743,114) Effect of change in exchange rates on cash 162 (119) (51) Cash and equivalents at beginning of year 785,490 1,871,931 2,615,096 ----------- ----------- ----------- Cash and equivalents at end of year $ 946,490 $ 785,490 $ 1,871,931 =========== =========== =========== See accompanying notes to consolidated financial statements
F-7 MARGO NURSERY FARMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Margo Nursery Farms, Inc. and subsidiaries (collectively, the "Company") are primarily engaged in the production and distribution of a wide range of tropical plants for sale to interior and exterior landscapers, plant leasing companies, wholesalers and retailers. The Company is also engaged in the manufacturing and distribution of its own line ("Rain Forest") of planting media, sales and distribution of lawn and garden products (chemicals, pesticides, fertilizers, plastic and terracotta pottery, etc.), and provides landscaping design and installation services. The Company's primary facility is located in Vega Alta, Puerto Rico. From this facility, the Company sells principally to customers in Puerto Rico and the Caribbean. The Company uses its South Florida facility to sell primarily to customers in Florida. (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of Margo Nursery Farms, Inc. and its wholly-owned sub sidiaries, Margo Landscaping and Design, Inc., Rain Forest Products Group, Inc., Margo Bay Farms, Inc., Tropiflower, Inc., and Margo Imports, B.V. (a Netherlands company). All significant intercom pany accounts and transactions have been eliminated in consolida tion. (b) CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 1996, cash and equivalents include $253,802 invested in a certificate of deposit bearing interest at 4.40%. The Company, from time to time, maintains cash and equivalents at financial institutions in excess of federally insured limits. (c) INVENTORIES Inventory of plant material includes the cost of seeds, cuttings, pots, soil, chemicals, fertilizer, direct labor and an allocation of overhead costs such as depreciation and rent, among others. Inventories of plants are stated at the lower of cost (first-in, first-out) or market. Inventories of lawn and garden products are stated at the lower of average cost or market. F-8 (d) PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION AND AMORTIZA TION Property and equipment are carried at acquisition cost. Deprecia tion and amortization are provided over the estimated useful lives of the respective assets on a straight-line basis. Such useful lives range from four to twenty years. The Company considers depreciation of certain facilities, equipment and stock plants as a direct cost of production of inventory. As inventory is sold, such cost is charged to cost of sales. (e) FOREIGN CURRENCY TRANSLATION Assets and liabilities outside the United States and Puerto Rico are translated to U.S. Dollars using exchange rates at the balance sheet date. Revenues and expenses are translated at the average rates of exchange during the applicable period. Effects of translation adjustments are deferred and included as a separate component of shareholders' equity. (f) REVENUE RECOGNITION The Company recognizes sales of foliage and lawn and garden products upon shipment from its facilities to customers. (g) INCOME TAXES The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires the use of the liability method in accounting for income taxes. Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Investment tax credits are recorded under the flow-through method. As a Florida corporation, Margo Nursery Farms, Inc. is required to file a federal corporate income tax return. However, it has elected to be treated as a possessions corporation under Section 936 of the Internal Revenue Code, and accordingly, receives a credit of federal income tax payable for operations in Puerto Rico. During 1993 the Internal Revenue Code was amended to reduce the benefits available under Section 936. During 1996, the Internal Revenue Code was further amended and Section 936 was repealed subject to a ten-year grandfather rule. During the ten-year grandfather period the credit is limited to certain caps based on the taxpayer's Puerto Rico income over a base eriod ending in October 1995. These changes were effective for taxable years commencing after December 31, 1993. For the years ended December 31, 1996, 1995 and 1994, there were no tax effects arising as a result of these changes. Margo Bay Farms, F-9 Inc., also a Florida corporation, is required to file a federal income tax return. The Agricultural Tax Incentives Act of the Commonwealth of Puerto Rico (Act. No. 225 of December 1, 1995, as amended) provides the Company with a 90% tax exemption for income derived from "bonafide" agricultural business, including sales of nursery plants within in Puerto Rico and outside Puerto Rico, as well as a 100% exemption from property, municipal and excise taxes. The Act became efective for taxable years commencing on or after December 1, 1995. Prior to the enactment of the Agricultural Tax Incentives Act, Margo Nursery Farms, Inc. had been granted a 90% exemption from property taxes and from income derived from its export sales, and a 60% exemption from volume of business tax related to export sales, under the Puerto Rico Industrial Incentives Act of 1987. The exemption is for a period of 15 years commencing on July 6, 1987. (h) LOSS PER COMMON SHARE Net loss per common share was computed by dividing net loss by the weighted average number of shares outstanding. For the years ended December 31, 1996, 1995 and 1994 there were 1,895,322 shares outstanding. For 1996, 1995, and 1994, outstanding stock options were not considered in the calculation of weighted average number of common shares outstanding, as their effect would have been antidilutive. (i) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The inventory valuation allowance is an estimate which is estab lished through charges to cost of goods sold. Management's judgement in determining the adequacy of the allowance is based on several factors which include, but are not limited to, costs of specific inventory items, sales histories of these items and management's judgement with respect to future marketability of the inventory. Based on the above, it is reasonably possible the Company's estimate of the inventory valuation allowance will change in the near term. The valuation allowance at December 31, 1996 and 1995 was $420,000 and $350,000, respectively. F-10 The Company has recorded a deferred tax asset of approximately $583,000 which is offset by a valuation allowance. Realization of the deferred tax asset is dependent on generating sufficient taxable income in the future. The amount of the deferred tax asset considered realizable could change in the near term if estimates of future taxable income are increased. NOTE 2 - HURRICANE ANDREW On August 24, 1992, Hurricane Andrew destroyed almost all of the Company's facilities in South Florida. These facilities included the Company's principal executive offices, warehouses, shadehouses and shipping area. Additionally, almost all of the Company's inventory located at this facility was damaged or destroyed. For the year ended December 31, 1994, as a result of the damages caused by the storm, the Company recorded the following gain: DESCRIPTION AMOUNT ----------- ------- Proceeds from insurance claims $908,820 Less: Clean-up, relocation and other expenses (11,771) -------- Net gain $897,049 ======== NOTE 3 - RESTRICTED CASH During 1991, the Company's former principal lender commenced litigation against the Company due to the Company's non-compliance with several covenants under a modified loan agreement (refer to Note 12). In connection with the settlement of a tort claim in 1992, the Company was required to place $4,000,000 of the settle ment proceeds in an escrow account. In connection with the settlement of the Company's insurance claims arising from Hurricane Andrew, the Company was required to deposit $1,970,435 (less court costs of $19,677) with the court. At December 31, 1995 these amounts were as follows: F-11 DESCRIPTION AMOUNT ----------- ---------- Proceeds from the settlement of tort claim, including accumu- lated interest of $544,795 $4,544,795 Insurance proceeds as a result of Hurricane Andrew, accumu- lated including accumulated interest of $237,044 2,187,802 ---------- $6,732,597 ========== In 1996, $5,625,000 of restricted cash was paid to the Company's former principal lender in connection with a litigation settlement (refer to Note 12). NOTE 4 - SHORT TERM INVESTMENTS At December 31, 1996 and 1995, short term investments consisted of certificates of deposit bearing interest between 4.80% and 5.75%, of which $500,000 were pledged as collateral for notes payable (refer to Note 8). At December 31, 1996, the carrying value of these short term investments approximates fair value due to the relatively short period of time between the origination of the instruments and their expected realization. NOTE 5 - NOTES RECEIVABLE At December 31, 1993, the Company had a note receivable with an outstanding principal balance of $996,962, arising from the sale of Cariplant, S.A. (a former Dominican Republic subsidiary) to Altec International, C. por A. ("Altec"), another Dominican Republic company. The note was originally due in 180 equal monthly installments of $9,638, including interest at 8%, through April 2008. The note is collateralized by the common stock and personal guarantee of the major shareholder of Cariplant. From the inception of the note in March 1993, the Company received several payments through December 1995. However, Altec has been unable to comply with the terms of the note. Due to the unfavorable collection experience as well as the difficulties of operating in the Dominican Republic, in 1994 Company management wrote down the carrying amount of the note to $316,000, representing the estimated value of Cariplant's land and related improvements, including buildings, shadehouses, and fixed and installed equipment. The write-down, amounting to $680,962 was included as an other expense in the accompanying consolidated statements of operations for the year ended December 31, 1994. F-12 On February 12, 1997, the Company obtained a second mortgage on Cariplant's property and equipment and entered into an agreement with Altec to modify the repayment terms of the unpaid principal balance of $996,962, with payments commencing in the year 2000. At December 31, 1996 and 1995, notes receivable included the following: DESCRIPTION 1996 1995 ------------- -------- -------- Note receivable from Altec $301,621 $301,621 10% note, collateralized by real property 26,331 23,918 8% notes, due on demand, personally guaranteed by various Company personnel, (no collections are expected in 1997) 51,230 118,872 -------- -------- $379,182 $444,411 ======== ======== NOTE 6 - PROPERTY AND EQUIPMENT At December 31, 1996 and 1995, property and equipment consisted of the following: 1996 1995 --------- ---------- Land and land improvements $ 859,380 $ 859,380 Buildings 448,968 219,404 Equipment and fixtures 1,445,545 1,187,716 Transportation equipment 728,831 571,736 Stock plants 97,277 97,277 Leasehold improvements 1,845,026 1,675,605 Construction in progress - 81,068 ---------- --------- 5,425,027 4,692,186 Less accumulated depreciation and amortization (1,560,381) (1,104,204) ---------- ---------- $3,864,646 $3,587,982 ========== ========== During the years ended December 31, 1996, 1995, and 1994, depreciation expense charged to production was approximately $287,000, $201,500, and $197,000, respectively. F-13 NOTE 7 - DUE FROM/TO SHAREHOLDER At December 31, 1996, amount due from shareholder principally arose from the settlement of litigation with the Company's former principal lender (refer to Note 12). This receivable is non-interest bearing and has no specific due date. At December 31, 1995, amount due to shareholder principally represents lease payments owed to the Company's principal shareholder arising from the lease agreement for the use of the Company's facilities in Puerto Rico (refer to Note 14). NOTE 8 - NOTES PAYABLE At December 31, 1996 and 1995, the Company had short-term borrowings of $500,000 with a commercial bank in Puerto Rico collateralized by a certificate of deposit. The notes bear interest at 1% over the rate earned by a $500,000 certificate of deposit (6.75% at December 31, 1996). At December 31, 1996, the carrying value of these notes payable approximates fair value due to the relatively short period of time between the origination of the instruments and their maturities. F-14 NOTE 9 - LONG-TERM DEBT At December 31, 1996 and 1995, long-term debt consisted of the following: DESCRIPTION 1996 1995 - ------------------------------------- ---------- ---------- Term loans (refer to Note 12) $ - $3,592,240 Five-year term loans, variable interest rate, 8.25% at December 31, 1996, payable in quarterly install- ments of $40,203, including inter- est, through October 2001. The loans are collateralized by trans- portation and farm equipment 444,535 423,546 8.50% automobile loan, payable in monthly installments of $636, including interest, through March 2001 27,163 - 9.75% commercial loan, payable in monthly installments of $2,000, including interest, through July 2000, collateralized by real estate property 73,465 - Capital lease obligation, collateral- ized by equipment, payable in month- ly installments of $318 (including interest at 16%)through August 1996 - 2,396 ---------- ---------- 545,163 4,018,182 Less current portion (118,085) (3,663,475) ---------- ---------- Long-term debt $ 427,078 $ 354,707 ========== ========== Based on borrowing rates currently available to the Company for loans with similar terms and maturities, the fair value of long-term debt and notes payable approxmates the recorded amounts. F-15 The annual aggregate maturities of long-term debt and other financing obligations are as follows: YEAR ENDING DECEMBER 31, AMOUNT ------------ -------- 1997 $118,085 1998 159,534 1999 171,377 2000 68,229 2001 27,938 -------- $545,163 NOTE 10 - ACCRUED EXPENSES At December 31, 1996 and 1995, accrued expenses consisted of the following: 1996 1995 ---------- ---------- Payroll and payroll taxes $ 111,984 $ 59,326 Professional fees 63,650 102,149 Provision for impairment of assets of subsidiary 250,000 - Interest (refer to Note 12) - 1,306,732 3232 Other - 86,980 ---------- ---------- $ 425,634 $1,555,187 ========== ========== NOTE 11 - INCOME TAXES The Company provides for income taxes using the applicable statutory tax rates in the related jurisdictions where it operates. The provision for income taxes, as reflected in the accompanying statements of operations for 1996, 1995 and 1994, does not bear a normal relationship to results of operations due to several items, such as a 90% tax exemption (Puerto Rico), unutilized net loss carryforwards and the credit available to the Company under Section 936 of the Internal Revenue Code. F-16 Income tax expense for the years ended December 31, 1996, 1995 and 1994 consisted of the following: 1996 1995 1994 ------- -------- --------- Current: Puerto Rico $ - $ 10,000 $ 20,000 United States 23,492 - - Deferred: United States - - 104,000 ------- -------- --------- $23,492 $ 10,000 $ 124,000 ======= ======== ========= Set forth below are explanations for the differences between the income tax provision and the amount computed by applying the federal statutory income tax rate of 34% to loss before income tax provision, extraordinary item and cumulative effect on prior years of accounting change: 1996 1995 1994 ---------- ---------- ---------- Income Tax benefit computed by applying federal rate $(188,265) $(131,354) $(131,511) (Increase) decrease in in- come tax benefit resulting from: Tax-exempt income (17,170) (17,000) (22,114) Puerto Rico tax exemption (67,563) (62,813) (107,484) Effect of Florida and Puerto Rico taxes (benefits) (10,022) (14,184) 14,112 (4) Adjustment of prior year valuation allowance - - 30,561 Increase in valuation allow- ance 338,697 158,132 33,614 Unutilized losses (untaxed income) of foreign subsi- diaries (4,094) 1,517 1,400 Permanent differences 70,758 291,708 Other differences (28,091) 4,944 13,714 --------- --------- --------- $ 23,492 $ 10,000 $ 124,000 ========= ========= ========= F-17 Deferred income taxes were recognized in the consolidated balance sheet at December 31, 1996 and 1995 due to the tax effect of temporary differences and loss carryforwards as follows: 1996 1995 -------- -------- DEFERRED TAX ASSETS: Excess book over tax depreciation $ 30,016 $ 20,401 Accrual to cash adjustments - 180,277 Net operating loss carryforwards 731,920 121,721 Contribution carryover 376 376 Alternative minimum tax credit carryover 18,576 65,211 -------- -------- 780,888 387,986 -------- -------- DEFERRED TAX LIABILITIES: Accrual to cash adjustments 197,398 - Insurance recoveries deferred for tax - 143,193 -------- -------- 197,398 143,193 -------- -------- Gross deferred tax asset 583,490 244,793 Less: Valuation allowance (583,490) (244,793) -------- -------- Net deferred tax asset $ - $ - ======== ======== At December 31, 1996, Margo Bay Farms, Inc. and Margo Landscaping and Design, Inc. had net operating loss carryforwards of approximately $421,000 available to offset future taxable income, if any, through December 31, 2003, and December 31, 2011, respectively. In addition, at December 31, 1996, Bay Farms had alternative minimum tax credit carryforwards of $18,576. NOTE 12 - COMMITMENTS AND CONTINGENCIES On May 29, 1996, the Company (including all related entities) and Michael J. Spector, President and the principal stockholder of the Company entered into a Settlement Agreement with First Union National Bank of Florida ("the Bank"). The Settlement Agreement covered all claims brought by the Bank against the Company and related entities and settled all counterclaims brought by the the Company against the Bank. At December 31, 1995, the outstanding balance of the loans payable to the Bank amounted to $3,592,240 and accrued interest amounted to approximately $1,307,000. F-18 The Company had also guaranteed $400,000 of personal loans made to its major shareholder by the Bank, with an outstanding balance of $230,000. The Settlement Agreement provided for a payment to the Bank of $5,625,000, of which $5,285,000 corresponded to the Company and $340,000 corresponded to Mr. Spector. The settlement payment made by the Company resulted in a charge of $255,174 to other expenses for the year ended December 31, 1996. The Company is a party to various legal actions arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition of the Company. NOTE 13 - SHAREHOLDERS' EQUITY The Company is authorized to issue 250,000 shares of preferred stock, par value $.01 per share, in one or more series to be established from time to time by the Company's Board of Directors. NOTE 14 - LEASE AND OPTION AGREEMENTS (a) PROPERTY IN VEGA ALTA, PUERTO RICO The primary Puerto Rico facility is leased from Michael J. Spector and Margaret D. Spector, who are officers, directors and major shareholders of the Company. Effective January 1, 1993, the Company entered into a lease agreement with its major shareholders for an initial five year period at a monthly rental of $19,000. In addition, the lessors have released the Company from responsibility for any claims arising from the Company's use of a defective fungicide in its operations at the nursery facility. The Company has an option to renew this lease for an additional five year period at the greater of $24,000 per month, or the original $19,000 per month adjusted on the basis of the increase in the Wholesale Price Index ("WPI") published by the United States Department of Labor, Bureau of Labor Statistics, from the WPI which was in effect on January 1, 1993 to the WPI in effect on January 1, 1998. Under the above lease agreement, the Company has the option to purchase the nursery facility at any time during the term of the lease, based on the property's appraised value. The Company pays $1,000 per month for this purchase option. F-19 Effective January 1, 1994, the Company amended the lease agreement with its major shareholders to include an additional 27 acres of land adjacent to the nursery facility for a five year period at a monthly rental of $1,750. This amendment does not provide for renewal nor purchase options towards the additional 27 acres of land. Total rental payments amounted to approximately $249,000 in 1996, 1995 and 1994. (b) PROPERTY IN CERRO GORDO, PUERTO RICO In August 1990, the Company entered into an agreement to lease a residence from a partnership whose partners include the Company's major shareholders. The lease agreement called for monthly lease payments of $2,000 during the first year of the five year term and $2,500 for each of the remaining four years. In addition, the Company was responsible for payment of utilities, property taxes, insurance, maintenance, repairs and administration of the residence. During the years ended December 31, 1995 and 1994, the Company incurred rental and other expenses related to this property of approximately $41,000 and $40,000, respectively. In February 1996, the Company purchased the residence from the partnership. The purchase price, based on the appraised value of the property, amounted to $220,800. The property was subject to a 10% commercial loan with a balance of approximately $88,000, which was assumed by the Company. (c) PROPERTY IN BARRANQUITAS, PUERTO RICO Effective January 1, 1997, the Company entered into a lease agreement with Cali Orchids, Inc., to lease a 13 acre nursery facility located in the town of Barranquitas, Puerto Rico. The lease has an initial term of five years and may be renewed for two additional five-year terms at the Company's option. During the initial term of the lease, monthly payments amount to $5,000. During the first and second renewal terms, monthly payments increase to $6,000 and $7,000, respectively. The lease agreement does not provide for any purchase option. F-20 (d) AGGREGATE LEASE OBLIGATIONS AND EXPENSES The Company's obligations under the above operating lease agreements, assuming the Company exercises its renewal option on the Vega Alta and Barranquitas, Puerto Rico properties, are as follows: YEAR ENDING MINIMUM DECEMBER 31, LEASE PAYMENTS ------------ -------------- 1997 $ 309,000 1998 369,000 1999 348,000 2000 348,000 2001 348,000 Thereafter 1,068,000 ---------- $2,790,000 ========== Total rental expense under all operating lease agreements amounted to approximately $249,000, $279,000, and $279,000, for the years ended December 31, 1996, 1995, and 1994, respectively. NOTE 15 - STOCK BENEFITS PLAN In June 1988, the Company adopted a stock benefits plan (the "Plan") to replace the Company's existing employee stock option plan. Under the terms of the Plan, the Company's Board of Direc tors, through a committee, can award up to 300,000 shares of common stock to eligible employees through combinations of stock options, stock appreciation rights, restricted stock awards, and stock purchase rights. As of December 31, 1991, the Company had es tablished a stock option plan and a stock purchase plan as described below: (a) EMPLOYEE STOCK OPTION PLAN The Company has an employee stock option plan under which certain employees may be granted options to purchase shares of common stock generally at 100% of fair market value at the time of the grant, except that options granted to persons owning 10% or more of the outstanding common stock carry an exercise price equal to 110% of the fair market value at the date of grant. Options generally vest over a period of five years, become exercisable one year from the date of grant and expire ten years after the date of grant. The status of the stock option plan as of December 31, 1996, is as follows: F-21 UNEXPIRED SHARES UNDER OPTION AT OPTION PRICE YEAR OF GRANT 12/31/96 PER SHARE ------------- ---------------- ------------- 1988 2,750 $2.00 - $2.20 1993 64,500 $2.88 - $3.16 1996 46,500 $3.13 - $3.44 ------- 113,750 ======= At December 31, 1996, options to purchase 41,450 shares of common stock were vested and exercisable. b) EMPLOYEE STOCK PURCHASE PLAN During the year ended December 31, 1988, the Company established an employee stock purchase plan. At December 31, 1996, no employees had subscribed to purchase any shares of the Company's common stock. NOTE 16 - SUPPLEMENTAL DISCLOSURES FOR THE STATEMENTS OF CASH FLOWS (a) NON-CASH INVESTING ACTIVITIES During the year ended December 31, 1996, the Company acquired a residence (previously leased by the Company) from a partnership. The purchase price of the residence, determined by an independent certified real estate appraiser, amounted to $220,800. Regarding the acquisition, the Company assumed a commercial loan amounting to $87,789, owed by the partnership, recorded an account payable to the Company's major shareholders amounting to $66,506, and applied $57,562 and $8,943 to the principal and interest, respectively, of a note receivable owed by a Company employee. During 1996, the Company acquired a vehicle with a cost of $28,477 (including a 7 year maintenance contract of $2,660) by assuming a loan for the same amount. During 1994, the Company transferred certain inventory used as stock plants amounting to $97,277, to fixed assets. (b) NON-CASH FINANCING ACTIVITIES During 1994, the Company recorded a $680,962 write-down of a note receivable related to the sale of a subsidiary. F-22 (c) OTHER CASH FLOW TRANSACTIONS During the years ended December 31, 1996, 1995 and 1994, the Company made interest payments of approximately $1,513,000, $110,900, and $75,200, respectively, and made income tax payments of $25,000 during the year ended December 31, 1994. NOTE 17 - MAJOR CUSTOMERS During 1996, 1995 and 1994 the Company's single largest customer for each of such years, accounted for approximately 27% ($1,621,000) 28% ($1,391,000), and 20% ($740,000), respectively, of the Company's net sales. This customer accounts for approximately 19%, 15% and 20% of trade accounts receivable at December 31, 1996, 1995 and 1994, respectively. NOTE 18 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 1996, the Company recorded a $250,000 provision for impairment of assets of its South Florida operation (Margo Bay Farms, Inc.). During the fourth quarter of 1995, the Company recorded a valuation reserve for inventory amounting to $218,750. During the fourth quarter of 1994, the Company recorded a $680,962 write-down of a note receivable related to the sale of a subsidiary. NOTE 19 - DISPOSAL OF MARGO IMPORTS, B.V. AND POSSIBLE DISPOSAL OF MARGO BAY FARMS, INC. In 1991, the Company formed Margo Imports, B. V., a Netherlands corporation, to market Company products in Europe. In March 1993, the Company discontinued these operations in connection with the sale of Cariplant, S.A. (refer to Note 5). Effective January 1, 1997, the Company disposed of Margo Imports, B. V. recording the accumulated deficit in Margo Bay Farms, Inc., owner of all its outstanding common stock. Regarding the Company's South Florida operation (Margo Bay Farms, Inc.), due to the strong competition, inadequate sales levels and lack of profitability, the Company has determined to review the continued viability of the operation during 1997, with the goal of making a final determination whether this operation should be closed and the related assets disposed of. During 1996, the Company recorded a provision of $250,000 related to the excess of the carrying value over the fair market value of the assets of Margo Bay Farms, Inc. F-23 NOTE 20 - DOMESTIC AND FOREIGN OPERATIONS The schedule below presents information about the Company's operations in different geographic areas. Domestic operations include those of Puerto Rico and South Florida. Foreign operations include those of Margo Imports (Europe). Income from operations is determined as net sales less cost of sales and selling, general and administrative expenses. In computing income from operations, provision for income taxes, interest expense and other income are not added or deducted. No allocation of general corporate expenses has been made to foreign operations. Identifiable assets are those assets of the Company that are identified with the operations in each geographic area less investments in other geographic areas. F-24 NOTE 20 (CONTINUED)
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS YEARS ENDED DECEMBER 31, 1996 AND 1995 DOMESTIC EUROPE ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------ 1996 -------------------------------------------------------------------- Total net sales to local unaffiliated customers $ 6,108,865 $ - $ - $ 6,108,865 =========== =========== =========== =========== Income from operations $ 7,226 $ - $ - $ 7,226 =========== =========== =========== =========== Identifiable assets at December 31, 1996 $10,392,344 $ 3,867 $ - $10,396,211 =========== =========== =========== =========== 1995 --------------------------------------------------------------------- Total net sales to local unaffiliated customers $ 4,933,718 $ - $ - $ 4,933,718 =========== =========== =========== =========== Loss from operations $ (328,524) $ (4,498) $ - $ (333,022) =========== =========== =========== =========== Identifiable assets at December 31, 1995 $15,397,977 $ 2,605 $ - $15,400,582 =========== =========== =========== ===========
F-25
SCHEDULE I MARGO NURSERY FARMS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------- ---------- ------------------------------ ---------- ------------ BALANCE CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR ----------- ---------- ---------- ---------- ---------- ----------- YEAR ENDED DECEMBER 31, 1996: Allowance for doubtful accounts $ 136,100 $ 4,000 $ - $ (61,100) $ 79,000 Allowance for inventory valuation $ 350,000 $252,000 - (182,000) 420,000 --------- -------- -------- --------- -------- $ 486,100 $256,000 $ - $(243,100) $499,000 ========= ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful account $ 136,100 $ 6,786 $ - $ (6,786) $136,100 Allowance for inventory valuation $ 100,000 $250,000 - - 350,000 --------- -------- -------- --------- -------- $ 236,100 $256,786 $ - $ (6,786) $486,100 ========= ======== ======== ========= ======== YEAR ENDED DECEMBER 31, 1994: Allowance for doubtful accounts $ 136,100 $ - $ - $ - $136,100 Allowance for inventory valuation $ 100,000 $ - - $ - 100,000 --------- -------- -------- --------- -------- $ 236,100 $ - $ - $ - $236,100 ========= ======== ======== ========= ========
F-26 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10 (h) Material Contracts filed with this Form 10-K (i) Lease and Purchase Agreement, dated October 31, 1996 among Cali Orchids, Inc. and the Company. (ii) Stock Option Agreement, dated August 9, 1996, with Fred Moss. (iii) Stock Option Agreement, dated August 9, 1996, with Blas Ferraiuoli, (iv) Stock Option Agreement, dated August 9, 1996, with Michael A. Rubin. (v) Stock Option Agreement, dated July 9, 1993, with Fred Moss. (vi) Stock Option Agreement, dated July 9, 1993, with Margaret D. Spector. (vii) Stock Option Agreement, dated July 9, 1993, with Blas Ferriuoli. (viii) Stock Option Agreement, dated August 9, 1996, with Margaret D. Spector. (21) List of Registrant's Subsidiaries. (27) Financial Data Schedule EX-10.H1 2 EXHIBIT 10(h)(i) LEASE AND PURCHASE AGREEMENT THIS LEASE AND PURCHASE AGREEMENT (this "Agreement") is entered into as of this 31st day of October, 1996, among Cali Orchids, Inc. ("Cali"), a corporation organized and existing under the laws of the Commonwealth of Puerto Rico; Juan Santiago, of legal age, married and resident of Barranquitas, Puerto Rico ("Santiago") (Cali and Santiago are hereinafter sometimes jointly referred to as "Lessors"); and Margo Nursery Farms, Inc. ("Lessee"), a corporation organized and existing under the laws of the State of Florida and authorized to do business in the Commonwealth of Puerto Rico, WITNESSETH: WHEREAS, Lessors own and operate certain lands with a developed nursery constructed thereon located in Barrio Quebradillas, Barranquitas, Puerto Rico described in Exhibits A-1, A-2 and A-3 attached hereto (the "Farm"); and WHEREAS, Cali owns certain furniture, fixtures, equipment and other tangible personal property utilized in the operation of the Farm (collectively the "Personal Property"), including but not limited to the items listed in Exhibit B attached hereto; and WHEREAS, Cali owns certain live goods inventory and inventory of pots, peat, soil, chemical and fertilizers (collectively the "PURCHASE ASSETS"), as described in Exhibit C attached hereto; and WHEREAS, Cali represents and warrants that it has the legal right and the corporate power and authority, as described in the Certificate of Corporate Resolution of the Board of Directors of Lessors, attached hereto as Exhibit D, to enter into this Agreement and transfer and convey unto Lessee the rights and privileges herein granted; and WHEREAS, Lessee desires to lease the Farm and the Personal Property (collectively the "LEASE ASSETS") and to purchase the PURCHASE ASSETS, and Lessors have agreed to the same on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto covenant and agree as follows: 1. LEASE OF THE LEASE ASSETS. Subject to the terms and conditions set forth herein, Lessors hereby lease, demise and let to Lessee the LEASE ASSETS for an initial term of five (5) years, commencing on January 1, 1997 and ending on December 31, 2001. 2. EXTENSIONS OF LEASE TERM. The term of this Agreement shall be automatically extended (I.E. without notice given by Lessee) for two (2) successive periods of five (5) years, unless Lessee shall give written notice to Lessors of its intention NOT TO EXTEND THE TERM of this Agreement not later than six (6) months prior to the date on which such extension term is scheduled to commence. Each extension of the Agreement shall be on the same terms and conditions as set forth herein, except for the rent, which shall be as set forth below in Paragraph 3 hereof. 3. MONTHLY RENT OF LEASE ASSETS. Lessee agrees to pay total rent to Lessors (80% to Cali and 20% to Santiago) monthly in advance no later than the tenth (10th) day of each month as follows: (a) INITIAL TERM. -2- (i) Rent shall be in the amount of FOUR THOUSAND FIVE HUNDRED DOLLARS ($4,500.00) per month thru December 31, 1997; (ii) For the period commencing January 1, 1998 thru December 31, 2001, in the amount of FIVE THOUSAND DOLLARS ($5,000.00) per month; (b) FIRST EXTENSION TERM. For the first extension term from January 1, 2002 thru December 31, 2006, in the amount of SIX THOUSAND DOLLARS ($6,000.00) per month; and (c) SECOND EXTENSION TERM. For the second extension term from January 1, 2007 thru December 31, 2011, in the amount of SEVEN THOUSAND DOLLARS ($7,000.00) per month. 4. SPECIAL PROVISIONS: EMPLOYMENT OF JUAN SANTIAGO, PURCHASE OF PURCHASE ASSETS, CONSTRUCTION OF LEASEHOLD IMPROVEMENTS, MORTGAGE OF LEASEHOLD ASSETS. (a) As an essential condition of this Agreement, Santiago shall execute the form of Employment Letter Agreement with Lessee attached hereto as Exhibit E, provided, however, that this Agreement shall remain in full force and effect regardless of any subsequent termination of Santiago's employment by Lessee for any reason whatsoever. (b) On our about December 14, 1996, the parties agree to conduct a physical inventory of all PURCHASE ASSETS. Based on such inventory and the condition of the same, the parties will agree upon a price to be paid by the Lessee for the live goods inventory. With respect to all other Purchase Assets which are in -3- usable and/or marketable condition, Lessee agrees to purchase the same at the lower of Cali's cost as documented from Cali's books and records or the fair market value thereof. Lessee reserves the right to reject any of the Purchase Assets which, in Lessee's judgment, are not currently usable or marketable and Lessor shall be free to sell such Assets and any others as to which Lessor and Lessee cannot agree on price to third parties. Payment for all Purchase Assets will be made in three (3) equal installments on January 31, 1997, March 31, 1997 and June 30, 1997. (c) Lessors hereby agree that Lessee may construct improvements on the Farm subject to Lessors prior written approval. Lessee shall submit to Lessors for their review and approval, all plans specifications and drawings for any permanent improvements on the farm. Upon termination of this Lease Agreement, all improvements shall become the property of the Lessors. (d) Lessors jointly and severally agree that they will not without the prior written consent of Lessee mortgage or otherwise further encumber the Farm or the Personal Property which is the subject of this Agreement, and further that in the event Lessee shall consent to the same, the terms of such mortgage or other security instrument will include notice to Lessee of any default by Lessors in their obligation to the mortgagee with a right in Lessee to cure such default and to recover from Lessors any amounts paid in connection therewith, which may be satisfied by rent abatement. Lessors shall, however, have the right to refinance the existing indebtedness on the Farm without Lessee's prior written consent provided the corresponding mortgage or security instrument will include a default notice to Lessee as provided herein. -4- 5. REPRESENTATIONS AND WARRANTIES OF LESSORS. Lessors represent and warrant to Lessee, as follows: (a) ORGANIZATION AND GOOD STANDING OF LESSORS. Cali is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Puerto Rico. (b) POWER AND AUTHORITY. Cali has the corporate power and authority to transfer and convey the LEASE ASSETS and to sell the PURCHASE ASSETS and to assume the obligations to be performed by it hereunder. (c) BINDING EFFECT. This Agreement and the other documents executed or required to be executed by Lessors in connection with this Agreement are or will be, when executed and delivered, the legal, valid and binding obligations of Lessors, enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other laws affecting the enforcement of creditor's rights generally and will be subject to general principles of equity in the event equitable remedies are sought. (d) TITLE TO LEASE ASSETS AND THE PURCHASE ASSETS. Lessors have legal, good and marketable title to the LEASE ASSETS and the PURCHASE ASSETS. The LEASE ASSETS and the PURCHASE ASSETS are owned free and clear of any lien, claim or encumbrance except for the existing mortgages with Farm Credit and the Farmers' Home Administration, and that portion of the Lease Assets which is owned by Santiago is his separate, private property and is not an asset of his marital partnership. -5- (e) NO VIOLATION OF ANY INSTRUMENT. Lessors are not in violation of or default under, nor has any event occurred that, with or without the giving of notice, lapse of time or the occurrence of any other event, would: (i) Result in the imposition of a lien, claim, or encumbrance upon any of the LEASE ASSETS or the PURCHASE ASSETS pursuant to any agreement or instrument to which either Lessor is a party or is bound, or to which the LEASE ASSETS and the PURCHASE ASSETS are subject; or (ii) Constitute a violation of, or result in the imposition of a lien, claim, or encumbrance upon the LEASE ASSETS or the PURCHASE ASSETS pursuant to, any law, judgment, order, injunction, or decree to which either Lessor is a party or is bound, or to which the LEASE ASSETS or the PURCHASE ASSETS are subject. (f) LITIGATION AND CLAIMS. Neither Lessor is a party to, nor are the LEASE ASSETS nor the PURCHASE ASSETS the subject of or affected by, any pending or threatened suit, claim, action, or litigation with any party or any administrative, arbitration, or other governmental proceeding, investigation or inquiry. There are no proceedings threatened or contemplated, or any unasserted claims (whether or not the potential claimant may be aware of the claim) which might, severally or in the aggregate, adversely affect the LEASE ASSETS or the PURCHASE ASSETS. (g) NECESSARY APPROVALS AND CONSENTS. No authorization, consent, permit or license or approval of, or declaration, registration or filing with, any person or governmental or regulatory authority or agency is necessary for (i) the execution and delivery by Lessors of this Agreement and the other agreements -6- executed or required to be executed by Lessors in connection with this Agreement, or (ii) the consummation by Lessors of the transactions contemplated by this Agreement. (h) ACCURACY OF INFORMATION FURNISHED. No representation or warranty made by Lessors in this Agreement or in the negotiation of this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not false or misleading. (i) SURVIVAL OF REPRESENTATIONS. The representations and warranties made within this Agreement are correct in all material respects and said representations and warranties shall survive the signing of this Agreement for a period of one (1) year. (j) NO BROKERS. Lessors have had no dealings with any broker, sales person, finder or agent in connection with this Agreement. Lessors covenant to pay, hold harmless, indemnify and defend Lessee, its agents and employees, from and against any and all claims, costs, expenses, including attorney's fees, or liability for any compensation, commissions, fees and charges claimed by any broker or agent with respect to the transactions contemplated under this Agreement. (k) ENVIRONMENTAL COMPLIANCE - NON CONTAMINATION. To the best of Lessors' knowledge, Lessors are and have been in compliance with all applicable environmental laws and regulations in the operation of the LEASE ASSETS. To the best of Lessors' knowledge, there is no condition or circumstance on the Farm or adjacent lands which has or may result in contamination of water, land or air on the Farm or said adjacent lands. -7- (l) RELIANCE. The foregoing representations and warranties are made by Lessors with the knowledge and expectation that Lessee is placing complete reliance thereon. 6. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and warrants to Lessors as follows: (a) ORGANIZATION AND GOOD STANDING OF LESSEE. Lessee is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and authorized to do business in the Commonwealth of Puerto Rico. (b) POWER AND AUTHORITY. Lessee has the corporate power and authority to lease the LEASE ASSETS and purchase the PURCHASE ASSETS and to assume the obligations to be performed by it hereunder. (c) BINDING EFFECT. This Agreement and the other documents executed or required to be executed by Lessee in connection with this Agreement are or will be, when executed and delivered, the legal, valid and binding obligations of Lessee, enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other laws affecting the enforcement of creditor's rights generally and will be subject to general principles of equity in the event equitable remedies are sought. (d) NECESSARY APPROVALS AND CONSENTS. No authorization, consent, permit or license or approval of, or declaration, registration or filing with, any governmental or regulatory authority or agency is necessary for the execution and delivery by Lessee of this Agreement and the other agreements executed or -8- required to be executed by Lessee in connection with this Agreement or for the consummation by Lessee of the transactions contemplated by this Agreement. 7. MAINTENANCE OF LEASE ASSETS. (a) Subject to subparagraph (c) below Lessee shall at all times keep the LEASE ASSETS in good repair and order, provided Lessee may replace and renew, with like kind and quality, any of the LEASE ASSETS which may become too worn to be repaired, so that, at all times, the LEASE ASSETS shall be in good order. (b) Upon termination of this Agreement for any reason whatsoever, Lessee shall return the LEASE ASSETS in the same condition when received, ordinary wear and tear excepted. All improvements, fixtures, alterations, or additions will be left at Lessors' option to be transferred and become the property of Lessors; provided, however, that all inventory of Lessee located on the Farm shall remain the property of Lessee. (c) Lessee shall not be responsible for the loss or destruction of the Farm due to acts of God or natural disaster. If, during the term of this Agreement, the Farm is totally or partially inaccessible or unusable, and if at that time Santiago is employed by Lessee as General Manager of the Farm, the Lessors shall, within six (6) months of the date of casualty, restore the Farm to substantially the same condition as immediately before the destruction, whether or not insurance proceeds are sufficient to cover the actual cost of restoration. Provided, that in such event, Lessors shall only be responsible for restoring those structures which were built prior to January 1, 1997. Such destruction shall not terminate this Lease Agreement, but the rent due hereunder shall be totally or partially abated until the later -9- of restoration of the Farm to its previous condition or resumption by Lessee of full operations. Any period during which rent is partially or totally abated shall be added to the lease period during which the destruction occurs and appropriate adjustments shall be made to the termination date of said period and the commencement and termination dates of each of the renewal terms. If Santiago is not employed by Lessee as General Manager of the Farm at the time of the casualty, the Lessee shall be responsible for restoring the structures at the Farm to their original condition, regardless, of when such structures were built. 8. INSURANCE. Throughout the term of this Agreement, the Lessee shall maintain in full force comprehensive general public liability insurance against claims for bodily injury, death, or property damage, occurring on, in or about the Farm, and the adjoining and related parking areas, streets, sidewalks and passageways, such insurance to provide limits of no less than THREE MILLION DOLLARS ($3,000,000.00) per person, THREE MILLION DOLLARS ($3,000,000.00) per occurrence, and ONE MILLION DOLLARS ($1,000,000.00) for property damage. The policy shall name the Lessors as insured parties. The Lessee shall deliver to the Lessors certificates of insurance certifying that such insurance is in full force and effect and in the amounts set forth herein. 9. UTILITIES AND TAXES. (a) Lessee shall pay for all water, light and power consumed on the Farm during the term of this Agreement or any extension thereof, as well as for any other charge or assessment for public services provided to or for the benefit of the Farm. -10- (b) All real and personal property taxes on the LEASE ASSETS will be paid during the term of this Agreement and all extensions by Lessors. 10. QUIET ENJOYMENT. (a) Subject to the provisions of subparagraph (b) below, the Lessors covenant that the Lessee, on paying the rent and performing all of its obligations hereunder, shall peacefully and quietly have, hold and enjoy the LEASE ASSETS throughout the term of this Agreement without hindrance, ejection or disturbance by any person(s) claiming under the Lessors. The Lessors, in addition, expressly agree and covenant that should the Lessors decide at any time during the term of this Agreement to sell or mortgage the Farm or any part thereof, the Lessors shall require from the buyer or mortgagee that this Lease be honored under the exact terms and conditions hereof by such buyer or mortgagee. (b) The Lessors retain the following rights and/or Lessee agrees to the following restrictions regarding use of the Farm: (i) Santiago and his family shall have the right to pass through the Farm's main road to gain access to Santiago's home on an adjacent parcel. Santiago's guests shall, however, use the secondary road which also passes through the Farm; (ii) Lessors retain the exclusive right to use the residential property (CASITA) located on the Farm and to maintain the aviary construction adjacent thereto; (iii) Lessors retain the right to draw water from the three deep wells on the Farm for their personal and business use on adjacent properties; and -11- (iv) Lessee will not utilize or in any manner disturb or do anything to affect the lake on the Farm. 11. TRANSFER OF AGREEMENT. Lessee may not assign this Agreement or sublease the LEASE ASSETS in whole or in part without the prior written consent of Lessors, which shall not be unreasonably withheld. 12. EVENTS OF DEFAULT. The following shall be considered events of default hereunder: (a) Non-payment by Lessee of any installment of the stipulated rent on the date specified herein; (b) Non-compliance by Lessee with any of the terms and covenants of this Agreement after notice in writing of such non-compliance has been given by Lessors to Lessee and the same remains uncorrected for thirty (30) days thereafter, or, if such default shall not be curable within a period of thirty (30) days after the date of such notice, if Lessee shall have failed within such thirty (30) day period to begin and actively proceed in good faith, with the curing of such default; (c) Lessee shall permanently vacate, desert or abandon the LEASE ASSETS; (d) The levy of an attachment or other order to secure the effectiveness of judgment, or the levy of execution, upon the LEASE ASSETS, or upon the Agreement, in any proceeding pending against Lessee in any court of competent jurisdiction, unless such attachment, order, or execution be discharged by bond or otherwise not later than thirty (30) days counted from the date upon which Lessee shall have received notice thereof; -12- (e) The mere filing by Lessee, or by any creditor of Lessee, in any court of competent jurisdiction of any voluntary or involuntary proceedings permitted under the Federal or Commonwealth bankruptcy laws then in force, as the case may be, unless the same has been dismissed or set aside within one hundred twenty (120) days after the date of filing thereof, provided that no default shall exist if Lessee continues to comply with the terms hereof after such filing. Upon the happening of any such event of default, and once the period of grace established in each case for the correction thereof has elapsed without such default having been corrected by Lessee, this Agreement shall be automatically terminated as of the date on which the act of default occurred. Upon such termination Lessors may immediately re-enter the LEASE ASSETS and recover possession thereof without legal proceeding or through any legal proceeding available to it and Lessee shall be liable to Lessor for the rent payable during the remaining term of this Agreement and the damages caused to Lessor by such default. In the event that Lessors are forced to seek the relief of a court of law to compel Lessee, its successors, officials or directors to comply with the terms of this Agreement, Lessee assumes the obligation to pay reasonable attorney's fees to Lessors to cover the legal fees of such legal action upon a final unappealable determination by such court of law or appellate court that Lessee has defaulted in its performance of this Agreement. 13. NOTICES. All notices herein required or permitted to be given to or served upon, either party, shall be in writing. Any such notice shall be sufficiently given or served if served personally or by mail on agent of such party at its address set -13- forth below, or at such other address as it shall designate in a notice to the other party in accordance with this section. IN CASE OF NOTICE TO CALI: Cali Orchids, Inc. Carr. 152, Km. 7.6 Barrio Quebradillas Sector Las Orquideas Barranquitas, Puerto Rico 00794 Attention: Mr. Michael J. Spector IN CASE OF NOTICE TO LESSEE: Margo Nursery Farms, Inc. Carr. 690, Km. 5.8 Vega Alta, Puerto Rico 00762 Attention: Mr. Michael J. Spector IN CASE OF NOTICE TO JUAN SANTIAGO: c/o Cali Orchids, Inc. Carr. 152, Km. 7.6 Barrio Quebradillas Sector Las Orquideas Barranquitas, Puerto Rico 00794 Each party may designate by notice in writing a new address to which any communication may thereafter be so given, served or sent. Each notice or communication that is mailed or delivered in the manner described above shall be deemed given at such time as it is delivered to the addressee (with the return receipt, the delivery receipt or the affidavit of messenger being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. -14- 14. GREENHOUSE IRRIGATION SYSTEM Lessors represent that the irrigation system for the greenhouses presently at the Farm are in working condition. Lessee has inspected such system and is satisfied with its present condition. This system will be maintained in accordance with section 7(a) of this Agreement. 15. CONSTRUCTION OF SHADE HOUSE Lessee shall have the right to build a shade house on the Farm. Lessor hereby allows Lessee to use the foundations presently on site on an as is basis. 16. WAIVER. No waiver of any condition or covenant of this Agreement by either party shall be deemed to imply or constitute a further waiver of such party of the same or any other condition or covenant. 17. CONDEMNATION. If the LEASE ASSETS or any substantial part thereof is taken by or pursuant to Governmental authority or through the exercise of the right of eminent domain, and the balance remaining is, in the opinion of Lessee, not suitable for the purposes for which Lessee intends to use said LEASE ASSETS, or in the event Lessee's use of the LEASE ASSETS is restricted or -15- prohibited by reason of any law, ordinance, injunction, regulation or order of any properly constituted authority, then and in any such event, Lessee shall have the right, at its option, to terminate this Agreement by giving thirty (30) days written notice of its intention so to do to Lessors and Lessee shall thereupon be relieved from all liability hereunder. If part of the LEASE ASSETS is so taken, Lessee shall have the option to retain the balance of the LEASE ASSETS under the terms of this Agreement, in which case there will be a reduction of rent in proportion to the property taken. If the Agreement is terminated pursuant to the provisions of this clause, Lessors will not be liable to pay any indemnification to Lessee without prejudice to Lessee's rights to a condemnation award against the Government. 18. RECORDATION OF AGREEMENT. Lessors and Lessee have agreed that Lessee, at its option, may record this Lease Agreement in the Registry of Property for Barranquitas and Lessors agree to cooperate with Lessee to cause the provisions of this Agreement which pertain to the lease of the Farm to be re-executed in recordable deed form. In the event Lessee chooses to record this Lease Agreement, all fees and expenses in the preparation and recordation of such deed of lease and its cancellation shall be for the account of Lessee and all documents necessary to effect the same shall be executed before a Notary Public designated by Lessee. -16- 19. APPLICABLE LAWS. This Agreement shall be governed by, and performed and interpreted in accordance with the laws of the Commonwealth of Puerto Rico. 20. SANTIAGO GUARANTEE. Juan Santiago represents and warrants to Lessee that he is the sole stockholder of Cali Orchids, Inc. and jointly and severally guarantees the performance by Cali of each and every one of its obligations hereunder. 21. ARBITRATION. Any controversy which shall arise between or among the Lessors, Juan Santiago and the Lessee regarding the rights, duties or liabilities hereunder of any party shall be settled by arbitration. Such arbitration shall be before one (1) disinterested arbitrator if one be agreed upon, otherwise before three (3) disinterested arbitrators, one named by the Lessors, one by the Lessee, and one by the two (2) thus chosen. The arbitrator or arbitrators shall settle the controversy in accordance with the provisions of this Agreement and the laws of the Commonwealth of Puerto Rico. 22. RIGHT OF FIRST REFUSAL. Should either Lessor desire to sell the subject LEASE ASSETS, or any of them, Lessee shall have the right of first refusal to purchase, which right shall be exercised within thirty (30) days of receipt by Lessee of a copy of -17- a BONA FIDE offer made by a third party. Lessee's purchase shall be on the same terms as the said BONA FIDE offer. 23. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties and may not be changed, altered, amended or modified except in writing, signed by both parties. 24. NONDISCLOSURE. Lessors agree not to disclose the terms of this Agreement except as may be agreed to in writing by Lessee. All press releases and other communications relating to this Agreement shall be made exclusively by Lessee. 25. SEVERABILITY. The parties hereto intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, should a court of competent jurisdiction determine that the scope of any provision is too broad to be enforced as written, the parties intend that the court should reform the provision to such narrower scope as it determined to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof; and the remaining provisions of this Agreement shall remain in full force and effect -18- and shall not be affected by the illegal, invalid or unenforceable provision or by its severance. 26. SUCCESSORS, ASSIGNS, ETC. This Agreement shall be binding upon the successors, assigns, heirs, transferees, legal representatives and administrators of the parties hereto. IN WITNESS THEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CALI ORCHIDS, INC. MARGO NURSERY FARMS, INC. By:/s/ ILLEGIBLE By: /s/ MICHAEL J. SPECTOR -------------------- ---------------------- Name: Name: Michael J. Spector Title: President Title: President /s/ JUAN SANTIAGO - ------------------- Juan Santiago -19- EXHIBIT A-1 - ---RUSTICA: Predio de terreno radicado an el Barrio Quebradillas del termino municipal de Barranquitas, con una mas de otra cuerda (13.76 odas.) equivalentes a Cincuenticuatro Mil Noventicinco Metros Cuadrados con Setenticuatro Centesimas de otro metro cuadrado (54,095.74) m.c.) y en lindes: por el Norte con Pablo Aponte Figueroa y la Carretera Municipal del Sector Las Orquideas; por el Sur, con las parcelas tres, cinco y seis de Valentino Sarra; por el Este, con la parcela dos de Valentino Sarra y por el Oeste, con Pablo Aponte Figueroa. - ---Inscrita en el Registro de la Propiedad de Barranquitas, folio sesenta y seis (66), volumen ciento dos (102) de Barranquitas, propiedad numero cinco mil cuarenta y dos (5,042). EXHIBIT A-2 - ---UNO-RUSTICA: Predio del terreno radicado en el Barrio Quebradillas del termino municipal de Barranquitas, con una cabida superficial de CINCO CUERDAS CON NUEVE MIL SEISCIENTOS SESENTIOCHO DIEZ MILESIMAS DE OTRA CUERDA (5.9668), equivalentes a VEINTITRES MIL CUATROCIENTOS CINCUENTIUN METROS CUADRADOS CON OCHOCIENTOS CINCUENTA Y SIETE MILESIMAS DE OTRO METRO CURADRADO (23,451.857), y en lindes por el Norte, con carretera municipal, Sector Las Orquideas; por el Sur, con carretera municipal Sector Las Orquideas y un camino de la finca propiedad de Valentino Sarra; por el Este, con terrenos de Marcos Alvarado y el camino municipal Sector Las Orquideas; y por el Oeste, con terrenos del Cali Orchids, Inc. y Valentino Sarra. - ---Inscrita al folio ochenta y cinco (85) del tomo ciento quince (115) de Barranquitas, finca numero seis mil novecientos cuarenta y siete (6,947). EXHIBIT A-3 "RUSTICA": Predio de terreno radicado en el Barrio Quebradillas del municipio de Barranquitas, con una cabida superficial de CUATRO CUERDAS CON TRES CENTESIMAS DE OTRA CUERDA (4.03) cuerdas equivalentes a QUINCE MIL OCHOCIENTOS CUARENTIDOS METROS CUADRADOS CON CUATRO CENTESIMAS DE OTRO METRO CUADRADO (15,842.04) En lindes por el Norte, con la parcela numero tres antes, hoy Cali Orchids, Inc., por el Sur, con el remancente de la finca principal de la cual se segrega; por el Este, con el predio segregado y vendido a Plantas Las Palomas, Inc. y por el Oeste, con el predio numbero uno, de Valentino Sarra antes, hoy Cali Orchids, Inc. - ---Constituye el remanente de la finca numero cinco mil cuarentidos (5,042), inscrita al folio sesenta y nueve (69) del tomo ciento dos (102) de Barranquitas. EXHIBIT B PERSONAL PROPERTY ----------------- The following is the list of certain assets owned by Lessors, herein referred as "PERSONAL PROPERTY ASSETS", that are to be leased to Lessee under the Agreement: 1. ______existing greenhouses with approximately one thousand (100,000 sq/ft) square feet of Benches and Tables. 2. Two (2) trucks. [NEED DESCRIPTION.] 3. Six (6) tractors. (i) Yammar Model YM 187D C8593 (ii) Yammar Model YM 187D (iii) Ford 1100 LEK 7520 (iv) Ford 1100 Unit 6K07B (v) Kubota B6100E 2WD (vi) Kubota B6100 D650A 5. Twelve (12) tracking Trailers 4' x 8'. 6. One (1) Potting Machine Boulding & Lanson Horcho 100. 7. Two (2) Peat Moss Mixing Machine Boulding & Lanson. 8. All other assets of Lessors, including stock plants, BUT EXCLUDING: (a) the inventory of live goods, (b) the inventory of pots, peat, soil, chemicals and fertilizers, (c) all accounts receivable (hereinafter the "Accounts Receivable"), and (d) the goodwill (i.e., customers lists and other intangible property); EXHIBIT C PURCHASE ASSETS --------------- The following is the list of certain assets owned by Lessors, herein referred as "PURCHASE ASSETS", that are to be sold to Lessee under the Agreement: 1. the inventory of live goods, 2. the inventory of pots, peat, soil, chemicals and fertilizers, and, 3. the goodwill (i.e., customers lists and other intangible property). [ILLEGIBLE GRAPHIC] [ILLEGIBLE GRAPHIC] EXHIBIT D CERTIFICATE OF CORPORATE RESOLUTION The undersigned, Alejandro Luis Santiago Rodriguez, Secretary of Cali Orchids, Inc., a corporation organized and existing under the laws of the Commonwealth of Puerto Rico (the "Corporation"), does hereby certify that the following resolution were duly adopted by the Board of Directors of said Corporation, by unanimous written consent in lieu of meeting dated the date hereof, and does further certify that the said resolution are in full force and effect and unrescinded: "RESOLVED, that the LEASE AND PURCHASE AGREEMENT among the Corporation, and Margo Nursery Farms, Inc. ("Lessee") submitted to the consideration of the Board of Directors, whereby the Corporation agree to lease to Lessors certain Land, Leasehold Improvements and Personal Property, subject to the terms and conditions set forth in the Lease and Purchase Agreement the further agreements referred to therein, is hereby deemed to be advisable and desirable, and that the Corporation shall consummate the transaction contemplated under the Lease and Purchase Agreement and execute any further document and agreements referred to therein substantially in the form presented to the Board of Directors. "FURTHER RESOLVED, that Juan Santiago, President of this Corporation, acting singly, be and hereby is authorized, for and on behalf of this Corporation, to execute and deliver on behalf of the Corporation the following documents: (i) Lease and Purchase Agreement; (ii) Employment Agreement with Juan Santiago. "FURTHER RESOLVED, that Juan Santiago, President of this Corporation, acting singly, be and hereby is authorized, for and on behalf of this Corporation, to execute all such documents and instruments (whether public or private) and to do and perform all such other and further acts and things as in his judgment may be necessary or advisable for the performance of the Corporation's obligations under or the consummation of the transactions contemplated by the aforesaid Lease and Purchase Agreement or otherwise implement and give full effect to the intent and purpose of the foregoing resolution." IN WITNESS WHEREOF, the undersigned has hereunto set his hand and the seal of the Corporation, this 31st day of October, 1996. /s/ Alejandro Luis Santiago Rodriguez ------------------------------------- Alejandro Luis Santiago Rodriguez Secretary (CORPORATE SEAL) Affidavit Number 1705 Sworn to and subscribed before me by Alejandro Luis Santiago Rodriguez, of legal age, married, property owner and resident of Barranquitas, Puerto Rico, in his capacity as Secretary of Cali Orchids, Inc., to me personally known, at San Juan, Puerto Rico, this 31st day of October, 1996. /s/ Jose F. Rameriz de Arellano ------------------------------------- NOTARY PUBLIC EXHIBIT E Margo Nursery Farms, Inc. January 1, 1997 Mr. Juan Santiago Cali Orchids, Inc. P.O. Box 818 Barranquitas, Puerto Rico Dear Juan: Reference is made to that certain Lease and Purchase Agreement dated October 31, 1996 among you, Cali Orchids, Inc. ("Cali") and this Corporation. As we have discussed, we intend to operate the property in Barranquitas which is owned and has been operated by you and Cali for the production and distribution of ornamental plants. This will confirm our agreement to employ you for a period of five (5) years commencing January 1, 1997 as the General Manager of our new facility at the former Cali location; provided, however, that we may terminate your employment at any time with cause upon payment to you of six months' salary at your then current rate of pay; provided, however, that a restructuring of operations or sale of the business of this Corporation will not be considered cause. Your duties will include all such functions as are customarily performed by a General Manager of an agricultural operation (including assistance in marketing products of the Cali location to your present customers) except that financial administration will be conducted from our principal offices at Vega Alta, Puerto Rico. You will report directly to the President of this Corporation. Your base salary will be $36,000 per year payable at regular intervals, not more than monthly, less required deductions for income and employment taxes, provided that for each of the second through the fifth years of your employment your salary shall be increased by 5% of your salary for the immediately preceding year. You and your dependents will also be included in the Margo medical plan on the same basis as comparable employees. It is expected that you will devote substantially all of your working time and attention to our business at the Cali location. You will not have the right to make any contracts or incur any obligations for or on behalf of Margo Nursery Farms, Inc. During the period of your employment and for one year thereafter (i) you will not, directly or indirectly, engage in any business or activity which competes with or in any way conflicts with the business of Margo Nursery Farms, Inc. (provided, however, that if the Lease and Purchase Agreement is terminated or not renewed by Margo Nursery Farms, Inc. this restriction will not be applicable), (ii) nor will you disclose to any third party or use for your own benefit any confidential or proprietary information of Margo Nursery Farms, Inc. If you agree that the above describes our understanding, please signify the same by executing the copy of this letter provided for this purpose and returning the same to us. Very truly yours, MARGO NURSERY FARMS, INC. By:/s/ Michael J. Spector ---------------------- Michael J. Spector President AGREED AND ACCEPTED: /s/ Juan Santiago - -------------------------- Juan Santiago Date: 10-31-96 --------------------- EX-10.H2 3 EXHIBIT 10(h)(ii) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of August 9, 1996, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corporation (the "Company"), and FREDERICK MOSS (the "Optionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to TWO THOUSAND FIVE HUNDRED (2,500) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.125 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire ten (10) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal represen tative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retire ment for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. 2 (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retire ment, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. 3 (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consoli dation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 4 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applica ble state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration require ments. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registra tion or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfactory 5 to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agree ment, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 6 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: 37 Riverside Drive Apartment 14A New York, N.Y. 10023 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY MARGO NURSERY FARMS, INC. By:/s/ MICHAEL J. SPECTOR ----------------------------- Michael J. Spector, President OPTIONEE By: /s/ FREDERICK MOSS ----------------------------- Frederick Moss 8 EX-10.H3 4 EXHIBIT 10(H)(III) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of August 9, 1996, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corporation (the "Company"), and BLAS FERRAIUOLI (the "Optionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to TWO THOUSAND FIVE HUNDRED (2,500) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.125 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire ten (10) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal represen tative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retire ment for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. 2 (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retire ment, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. 3 (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consoli dation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 4 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applica ble state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration require ments. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registra tion or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfac- 5 tory to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agree ment, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 6 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: PO Box 70364 San Juan, Puerto Rico 00936 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY: MARGO NURSERY FARMS, INC. By: /s/ MICHAEL J. SPECTOR ---------------------------- Michael J. Spector, President OPTIONEE: By: /s/ BLAS FERRAIUOLI ------------------------------ Blas Ferraiuoli 8 EX-10.H4 5 EXHIBIT 10(H)(IV) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of August 9, 1996, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corporation (the "Company"), and Michael A. Rubin (the "Optionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to FIVE THOUSAND (5,000) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.125 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire ten (10) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal represen tative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retire ment for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. 2 (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retire ment, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. 3 (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consoli dation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 4 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applica ble state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration require ments. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registra tion or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfac- 5 tory to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agree ment, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 6 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: P.O. Box 70364 San Juan, P.R. 00936 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY: MARGO NURSERY FARMS, INC. By:/s/ MICHAEL J. SPECTOR ------------------------------ Michael J. Spector, President OPTIONEE: By:/s/ BLAS FERRAIUOLI ------------------------------ Blas Ferraiuoli 8 EX-10.H5 6 EXHIBIT 10(H)(V) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of July 9, 1993, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corpora tion (the "Company"), and FREDERICK MOSS (the "Optionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to FIVE THOUSAND (5,000) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.16 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire ten (10) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal represen tative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years 2 from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retire ment for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retire ment, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; 3 and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consoli dation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the 4 Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. 5 (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applica ble state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration require ments. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registra tion or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfac tory to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 6 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agree ment, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 7 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: 37 Riverside Drive Apartment 14A New York, N.Y. 10023 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to 8 any breach of or default in any term or condition of this Agreement shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY MARGO NURSERY FARMS, INC. By:/s/ MICHAEL J. SPECTOR ----------------------------- Michael J. Spector, President OPTIONEE By:/s/ FREDERICK MOSS ----------------------------- Frederick Moss 9 EX-10.H6 7 EXHIBIT 10(H)(VI) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of July 9, 1993, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corporation (the "Company"), and MARGARET D. SPECTOR (the "Optionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to FIVE THOUSAND (5,000) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.16 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire ten (10) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years 2 from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retirement for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retirement, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; 3 and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consolidation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the 4 Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. 5 (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applicable state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration requirements. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registration or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfactory to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 6 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agreement, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 7 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: P.O. Box 706 Dorado, Puerto Rico 00646 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to any breach of or default in any term or condition of this Agreement 8 shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY: MARGO NURSERY FARMS, INC. By: /s/ Michael J. Spector ----------------------------- Michael J. Spector, President OPTIONEE: By: /s/ Margaret D. Spector ------------------------ Margaret D. Spector 9 EX-10.H7 8 EXHIBIT 10(H)(VII) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of July 9, 1993, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corpora tion (the "Company"), and BLAS FERRAIUOLI (the "Optionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to FIVE THOUSAND (5,000) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.16 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire ten (10) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal represen tative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years 2 from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retire ment for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retire ment, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; 3 and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consoli dation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the 4 Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. 5 (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applica ble state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration require ments. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registra tion or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfac tory to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 6 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agree ment, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 7 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: P.O. Box 70364 San Juan, P.R. 00936 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to any breach of or default in any term or condition of this Agreement 8 shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY: MARGO NURSERY FARMS, INC. By:/s/ MICHAEL J. SPECTOR ----------------------------- Michael J. Spector, President OPTIONEE: By:/s/ BLAS FERRAIUOLI ----------------------------- Blas Ferraiuoli 9 EX-10.H8 9 EXHIBIT 10(H)(VIII) DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of August 9, 1996, is made and entered into by and between MARGO NURSERY FARMS, INC., a Florida corporation (the "Company"), and MARGARET D. SPECTOR (the "Op tionee"). WITNESSETH: WHEREAS, the Company has approved the grant of non-qualified stock options to the directors of the Company; and WHEREAS, the Optionee is a director of the Company; NOW, THEREFORE, in consideration of the Optionee's agreement to serve as a director of the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GRANT OF THE OPTION. Subject to and upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase up to TWO THOUSAND FIVE HUNDRED (2,500) shares (the "Option Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), at a price equal to $3.44 per share. 2. TERM. The term of the Option shall commence on the date of this Agreement, and, subject to the provisions of Section 5 of this Agreement, shall expire five (5) years from the date of this Agreement. Upon its termination, the Option shall be of no further force and effect and shall not be exercisable to any extent. 3. VESTING. Subject to the provisions of Section 5 of this Agreement, the right of the Optionee to purchase the Option Shares under the Option shall vest over a period of five (5) years at the rate of twenty percent (20%) per year, with the first twenty percent (20%) to vest on the anniversary date of this Agreement, and each additional twenty percent (20%) to vest on each subsequent anniversary date of this Agreement. 4. RESTRICTIONS ON TRANSFER. The Optionee may not transfer any of the Optionee's rights in the Option or under this Agreement except upon the Optionee's death. 5. TERMINATION OF OPTION ON TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the Company terminates by reason of death, the Option shall become fully vested and may thereafter be immediately exercised by the legal represen tative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of three years from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall become fully vested and may thereafter be exercised for a period of three years 2 from the date of such termination of employment or the expiration of the stated term of such Option, whichever period is shorter. (c) If the Optionee's employment with the Company terminates by reason of Retirement, the Option may thereafter be exercised to the extent it was exercisable at the time of Retire ment for a period of three (3) years from the date of Retirement or the expiration of the stated term of the Option, whichever period is shorter. (d) If the Optionee's employment with the Company terminates for any reason other than death, Disability or Retire ment, the Option shall thereupon terminate, except that if the Optionee's employment with the Company involuntarily terminated without Cause, such Option may, to the extent vested as of such date, be exercised for the lesser of three (3) months from the date of the Optionee's termination or the balance of the Option's stated term. (e) For purposes of this Agreement, "Disability" shall mean a written determination by a competent physician that the Optionee has been physically or mentally unable to perform his or her duties as an employee of the Company and that such condition has existed for an aggregate of one hundred twenty (120) days during any period of twelve (12) consecutive months; "Cause" shall mean a felony conviction of the Optionee or the failure of the Optionee to contest prosecution for a felony, or the Optionee's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company; 3 and "Retirement" means retirement from employment on or after reaching age 65. 6. ADJUSTMENT IN CERTAIN EVENTS. (a) In the event of any stock dividend or stock split, the Company (subject to any required action by the shareholders of the Company) shall make such equitable adjustments as are necessary and appropriate to protect the Option from dilution in the number, kind and the exercise price of the Option Shares underlying the Option; provided, however, that the Company shall not be required to make any such adjustments in the event of a change which does not result in a dilution of at least ten percent (10%) in the number or exercise price of the Option Shares. (b) Except as expressly provided by Section 6(a), the Company shall be under no obligation to make any adjustments to the Option in the event of any other changes involving the Company's capital structure, including, but not limited to, merger, consoli dation, dissolution, liquidation, sale of assets or sale or redemption of capital stock. Furthermore, this Agreement shall not in any way limit or affect the right of the Company to make such changes in its capital structure. 7. PRIVILEGE OF STOCK OWNERSHIP. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a shareholder with respect to, any Option Shares unless and until the Optionee properly exercises the Option in accordance with the requirements of Sections 8 and 9. Upon the proper exercise of the 4 Option, the Optionee shall have full voting and other ownership rights with respect to the Option Shares. 8. MANNER OF EXERCISING OPTION. The Option may be exercised only as to whole shares and only by written notice signed by the Optionee (or in the case of exercise after Optionee's death or mental disability by Optionee's legal representative, executor, administrator or heir or legatee, as applicable), and mailed or delivered to the Secretary of the Company at its principal office. The notice shall specify the number of Option Shares with respect to which the Option is being exercised. The notice must be accompanied by payment in full for such Shares in cash and include any representations required by Section 9. If the Option is exercised by a person other than the Optionee, such person must provide the Company with proof, in a form satisfactory to the Company and its counsel, that such person has the right to exercise the Option. The Company shall have the right to accept payment for the Option in a form other than cash, in the Company's sole discretion. 9. COMPLIANCE WITH LAWS AND REGULATIONS. (a) Prior to the exercise of the Option, the Optionee shall deliver to the Company such representations in writing as may be requested by the Company in order to ensure that the exercise of the Option and the issuance of the Option Shares will comply with all applicable federal and state securities laws. 5 (b) The Optionee acknowledges and agrees that the Option Shares will not be registered under federal or state securities laws, and that the Option Shares may not be resold by the Optionee unless such shares are first registered under federal and applica ble state securities laws or unless such resale is, in the opinion of the Company's counsel, exempt from such registration require ments. The Optionee further acknowledges and agrees that the Company has no intent or obligation to register the Option Shares under federal and state securities laws, and that the Optionee may not require such registration. The Optionee represents and warrants that all Option Shares will be acquired for investment purposes only, and not with a view to their resale or distribution. (c) If the Company shall determine, in its discretion, that it is necessary or desirable to obtain the listing, registra tion or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any government regulatory body, then the Option may not be exercised in whole or in part, and no shares may be issued under the Option, until such listing, registration, qualification, consent or approval is obtained free of any conditions deemed unacceptable to the Company. 10. TAXES. The Company shall have the right to require the Optionee to pay tho the Company, or to make arrangements satisfac tory to the Company regarding the payment of any federal, state or local taxes required to be paid or withheld with respect to the Option. 6 11. EMPLOYMENT. Nothing in this Agreement shall be deemed to grant any right of continued employment to the Optionee or to limit, restrict or waive any right of the Company to terminate the Optionee's employment at any time with or without Cause. 12. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by the Optionee without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties, and their successors and assigns. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties regarding the subject matter hereof. This Agreement supersedes all prior discussions, agree ment, oral or written between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified except in a written document signed by both of the parties. (c) NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or upon the expiration of seven (7) days after the date of posting, if mailed by registered or certified mail, postage pre-paid to the parties at the following addresses: 7 If to the Company: Margo Nursery Farms, Inc. PO Box 706 Dorado, Puerto Rico 00646 If to the Optionee: P.O. Box 706 Dorado, Puerto Rico 00646 Any party may change the address to which notices to such party shall be delivered or mailed by giving notice thereof to the other party in the manner provided by this Section. (d) GOVERNING LAW. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida without regard to its principles of conflicts of laws. (e) WAIVER. Any term or condition of this Agreement may be waived at any time by the party which is entitled to the benefit thereof, but only if such waiver is evidenced by writing signed by such party. No failure on the part of a party hereto to exercise, and no delay in exercising, any right, power or remedy created hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by any such party preclude any other future exercise thereof or the exercise of any other fight, power or remedy. No wavier by any party hereto to any breach of or default in any term or condition of this Agreement 8 shall constitute a waiver of or consent to any subsequent breach of or default in the same or any other term or condition hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. COMPANY: MARGO NURSERY FARMS, INC. By: /s/ MICHAEL J. SPECTOR ------------------------------ Michael J. Spector, President OPTIONEE: By: /s/ MARGARET D. SPECTOR ------------------------------- Margaret D. Spector EX-21 10 EXHIBIT 21 SUBSIDIARIES OF MARGO NURSERY FARMS, INC. NAME JURISDICTION OF - ---- --------------- INCORPORATION ------------- Margo Bay Farms, Inc. Florida Margo Landscaping and Design, Inc. Puerto Rico Rain Forest Products Group, Inc. Puerto Rico EX-27 11
5 1 12-MOS DEC-31-1996 DEC-31-1996 946,490 0 1,086,947 79,000 2,737,109 5,811,582 5,425,027 1,560,381 10,396,211 1,697,783 427,078 0 0 1,915 8,269,435 10,396,211 6,108,865 6,323,876 3,971,525 4,564,660 0 0 206,316 (577,214) 0 0 0 0 0 (577,214) (0.30) (0.30)
-----END PRIVACY-ENHANCED MESSAGE-----