<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number
33-99452
HINES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 52-1720681
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
12621 Jeffrey Road
Irvine, California 92720
(Address of principal executive offices) (Zip Code)
(714) 559-4444
(Registrant's telephone number, including area code)
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 and 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 such
filing requirements for the past 90 days.
Yes (X) No( )
At October 31, 1996 there were 10,235,844 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
================================================================================
<PAGE>
HINES HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
--------
Condensed Consolidated Balance Sheets as of
December 31, 1995 and September 30, 1996 1
Condensed Consolidated Statements of Income and Retained
Earnings (Deficit) for the Three Months and Nine Months
Ended September 30, 1995 and 1996 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1996 4
Notes to the Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 18
Note: Items 1, 2, 3, and 4 of Part II are omitted because they are not
applicable.
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and September 30, 1996
<TABLE>
<CAPTION>
ASSETS December 31, 1995 September 30, 1996
------ (unaudited)
----------------- ------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 181 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,165 and $1,354 14,645 19,618
respectively
Inventories 76,894 77,182
Prepaid expenses and other current assets 2,846 2,070
-------- --------
Total current assets 94,566 98,870
-------- --------
FIXED ASSETS, net of accumulated depreciation
and depletion of $8,962 and $13,117, respectively 74,064 77,536
-------- --------
DEFERRED FINANCING EXPENSES, net of
accumulated amortization of $295 and $993,
respectively 7,039 6,494
-------- --------
OTHER ASSETS - 633
-------- --------
GOODWILL, net of accumulated amortization 12,875 19,284
-------- --------
$188,544 $202,817
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and September 30, 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
December 31, 1995 September 30, 1996
(unaudited)
----------------- ------------------
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 6,453 $ 7,113
Accrued liabilities 11,565 14,214
Long-term debt, current portion 4,058 4,926
Revolving line of credit 12,693 19,989
Deferred income taxes, current portion 16,342 19,320
Other liabilities 630 112
-------- --------
Total current liabilities 51,741 65,674
-------- --------
LONG-TERM DEBT, non-current portion 157,742 154,007
-------- --------
DEFERRED INCOME TAXES, non-current portion 15,399 14,856
-------- --------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE SENIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share,
liquidation preference of $1,000 per share; 10,000 10,000
CUMULATIVE REDEEMABLE JUNIOR PREFERRED
STOCK 12 PERCENT, par value $.01 per share,
liquidation preference of $1 per share 20,000 20,520
SHAREHOLDERS' DEFICIT
Common Stock
Authorized - 30,000,000 shares $.01 par value,
Issued and outstanding - 10,000,000 and
10,235,844 at December 31, 1995 and
September 30, 1996, respectively 100 103
Additional paid-in capital 9,900 10,043
Deficit (76,338) (72,386)
-------- --------
Total shareholders' deficit (66,338) (62,240)
-------- --------
$188,544 $202,817
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
Three Months and Nine Months Ended September 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
1995 1996 1995 1996
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
(In thousands) (In thousands)
SALES, NET $ 25,713 $ 28,085 $131,329 $138,412
COST OF GOODS SOLD 11,712 13,943 59,966 67,954
-------- -------- -------- --------
Gross Profit 14,001 14,142 71,363 70,458
-------- -------- -------- --------
SELLING AND DISTRIBUTION EXPENSES 8,067 9,279 31,859 34,490
GENERAL AND ADMINISTRATIVE EXPENSES 4,134 4,128 13,265 13,147
-------- -------- -------- --------
Total operating expenses 12,201 13,407 45,124 47,637
-------- -------- -------- --------
operating income 1,800 735 26,239 22,821
-------- -------- -------- --------
OTHER EXPENSES:
Interest 4,228 4,718 8,960 14,996
Amortization of deferred financing expenses 2,663 242 3,253 698
-------- -------- -------- --------
6,891 4,960 12,213 15,694
-------- -------- -------- --------
Income before provision for (recovery of) income
taxes, minority interest and loss (income) from
discontinued operations (5,091) (4,225) 14,026 7,127
PROVISION FOR (RECOVERY OF) INCOME TAXES (1,638) (1,559) 5,795 2,894
-------- -------- -------- --------
Income before minority interest and loss (income)
from discontinued operations (3,453) (2,666) 8,231 4,233
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARIES -- -- 3,958 --
-------- -------- -------- --------
Income before loss (income) from discontinued
operations (3,453) (2,666) 4,273 4,233
-------- -------- -------- --------
LOSS (INCOME) FROM DISCONTINUED
OPERATIONS, net of tax (benefit) of $(147)
and $2,122, respectively 149 -- (2,813) --
-------- -------- -------- --------
Income (loss) before extraordinary loss (3,602) (2,666) 7,086 4,233
EXTRAORDINARY LOSS, net of tax of $1,438 2,056 -- 2,056 --
-------- -------- -------- --------
NET INCOME (LOSS) (5,658) (2,666) 5,030 4,233
Retained earnings (deficit), beginning of period 16,585 (69,807) 5,897 (76,338)
Repurchase and retirement of stock (83,929) 87 (83,929) (281)
-------- -------- -------- --------
Retained earnings (deficit), end of period ($73,002) ($72,386) ($73,002) ($72,386)
======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
3
<PAGE>
HINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1995 1996
-------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,030 $ 4,233
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization 5,716 4,532
Extraordinary loss 1,890 -
Minority interest in earnings of subsidiaries 3,958 -
Gain on sale of discontinued operations (4,935) -
Deferred income taxes 6,732 2,433
Other 319 148
-------- ---------
18,710 11,346
CHANGE IN WORKING CAPITAL ACCOUNTS:
Accounts receivable (4,750) (3,792)
Inventories (3,580) 2,128
Prepaid expenses and other assets 3,641 272
Other assets - (597)
Accounts payable and accrued liabilities 1,789 2,584
Other liabilities (1,630) (161)
-------- ---------
Net cash provided by operating activities 14,180 11,780
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net of sales proceeds (4,694) (6,231)
Acquisitions, net of cash acquired (3,498) (10,301)
-------- ---------
Net cash used in investing activities (8,192) (16,532)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 58,298 147,194
Repayments on revolving line of credit (72,109) (139,898)
Proceeds from the issuance of long-term debt 135,000 -
Repayments of long-term debt (44,131) (2,921)
Deferred financing costs (5,022) (153)
Repurchase and retirement of stock (91,205) (281)
Issuance of preferred and common stock 11,673 666
Other (1,079) (36)
-------- ---------
Net cash provided by (used in) financing activities (8,575) 4,571
-------- ---------
NET DECREASE IN CASH (2,587) (181)
CASH beginning of period 2,650 181
-------- ---------
CASH end of period $ 63 $ -
======== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
<PAGE>
HINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1. Description of Business:
------------------------
Hines Holdings, Inc. (Holdings), formerly Macluan Capital (Nevada) Inc.,
produces and distributes horticultural products through its two operating
divisions, Hines Nurseries (Hines) and Sun Gro Horticulture (Sun Gro). The
business of Hines is conducted through Hines Horticulture, Inc. (Hines
Horticulture) and the business of Sun Gro is conducted through Sun Gro
Horticulture Inc. (Sun Gro-U.S.) and its wholly owned subsidiary, Sun Gro
Horticulture Canada Ltd. (Sun Gro-Canada). Holdings, together with Hines,
Sun Gro and Sun Gro-Canada, are hereafter collectively referred to as "the
Company."
2. Unaudited Financial Information:
--------------------------------
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments which are of a normal recurring nature
and which are necessary to state fairly the consolidated financial
position, results of operations, and cash flows of the Company as of and
for the periods indicated. The Company presumes that users of the interim
financial information herein have read or have access to the Company's
audited consolidated financial statements for the preceding fiscal year and
that the adequacy of additional disclosure needed for a fair presentation,
except in regard to material contingencies or recent significant events,
may be determined in that context. Accordingly, footnote and other
disclosures which would substantially duplicate the disclosures contained
in the Form 10-K filed on April 10, 1996 by Holdings under the Securities
Exchange Act of 1934, as amended (the Exchange Act), have been omitted. The
financial information herein is not necessarily representative of a full
year's operations.
5
<PAGE>
3. Inventories:
------------
As of December 31, 1995 and September 30, 1996, inventories consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
<S> <C> <C>
Nursery stock $65,696 $66,251
Finished goods 5,686 4,494
Materials and supplies 5,512 6,437
------- -------
$76,894 $77,182
======= =======
</TABLE>
4. New Accounting Pronouncements:
------------------------------
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Certain Long-lived Assets
and for Long-lived Assets to be Disposed of." The adoption of this standard
did not materially impact the financial statements.
5. Acquisition:
------------
On August 30, 1996, the Company acquired substantially all of the assets
used in the wholesale nursery business of Iverson Perennial Gardens, Inc.,
located in Trenton, South Carolina, for $10 million plus the assumption of
certain liabilities. The nursery currently operates on 110 acres of land
and owns an additional 415 acres of land, over 300 acres of which the
Company believes it will be able to place into production with minimal
capital expenditures.
6. Guarantor/Non-Guarantor Disclosures:
------------------------------------
The 11.75% Senior Subordinated Notes issued by Hines Horticulture (the
issuer) have been guaranteed by Holdings (the parent guarantor) and by Sun
Gro-U.S. (the subsidiary guarantor). The issuer and the subsidiary
guarantor are direct and indirect wholly-owned subsidiaries of the parent
guarantor and the parent and subsidiary guarantees are full, unconditional,
and joint and several. Separate financial statements of Hines and Sun Gro-
U.S. are not presented and Hines and Sun Gro-U.S. are not filing separate
reports under the Exchange because management believes that they would not
be material to investors.
6
<PAGE>
Holdings has no material assets other than the common stock of Hines
Horticulture, and accordingly, its ability to perform under the guarantee
will be dependent on the financial condition and net worth of Hines
Horticulture. The Senior Subordinated Notes are not guaranteed by Sun Gro-
Canada or its subsidiaries.
The following condensed consolidating information presents (a) Holdings as
the parent guarantor (carrying its investment in subsidiary under the
equity method), (b) Hines Horticulture as the issuer (carrying its
investment in its subsidiary under the equity method), (c) Sun Gro-U.S. as
subsidiary guarantor (carrying its investment in the subsidiary non-
guarantor under the equity method), (d) Sun Gro-Canada as subsidiary non-
guarantor, (e) eliminations necessary to arrive at the information basis
and (f) the parent guarantor on a consolidated basis, as follows:
. Condensed consolidating balance sheets as of December 31, 1995 and
September 30, 1996 (unaudited);
. Condensed unaudited consolidating statements of income and retained
earnings (deficit) for the nine and three month periods ended
September 30, 1995 and 1996.
. Condensed unaudited consolidating statements of cash flows for the
nine month periods ended September 30, 1995 and 1996.
7
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ - $181 $ - $ - $ - $ 181
Accounts receivable, net - 4,465 8,556 1,624 - 14,645
Inventories - 67,393 1,352 8,149 - 76,894
Prepaid expenses and other current assets - 691 1,394 761 - 2,846
Deferred income taxes, current portion - - 418 72 (490) -
--------------------------------------------------------------------------
Total current assets - 72,730 11,720 10,606 (490) 94,566
--------------------------------------------------------------------------
FIXED ASSETS, net - 24,423 4,092 45,549 - 74,064
DEFERRED FINANCING EXPENSES, net - 5,573 - 1,466 - 7,039
OTHER ASSETS - - - - - -
GOODWILL, net - 12,007 - 868 - 12,875
DEFERRED INCOME TAXES, non-current portion - 487 - - (487) -
INVESTMENTS IN SUBSIDIARIES 40,088 19,864 8,595 - (68,547) -
--------------------------------------------------------------------------
$40,088 $135,084 $24,407 $58,489 ($69,524) $188,544
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $2,731 $1,424 $2,298 $ - $6,453
Accrued liabilities - 6,659 2,812 2,094 - 11,565
Long-term debt, current portion - 2,308 - 1,750 - 4,058
Revolving line of credit - 11,813 880 - - 12,693
Deferred income taxes, current portion - 16,832 - - (490) 16,342
Other liabilities - - 630 - - 630
Intercompany accounts 76,426 (85,019) (8,703) 17,296 - -
--------------------------------------------------------------------------
Total current liabilities 76,426 (44,676) (2,957) 23,438 (490) 51,741
--------------------------------------------------------------------------
LONG-TERM DEBT, non-current portion - 144,492 - 13,250 - 157,742
DEFERRED INCOME TAXES, non-current portion - 1,439 1,243 13,206 (489) 15,399
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 10,000 - - - - 10,000
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 20,000 - - - - 20,000
SHAREHOLDERS' EQUITY
Common stock 100 3,971 13,190 1,777 (18,938) 100
Additional paid-in capital 9,900 21,364 - - (21,364) 9,900
Retained earnings (deficit) (76,338) 8,494 12,931 6,818 (28,243) (76,338)
--------------------------------------------------------------------------
Total shareholders' equity (deficit) (66,338) 33,829 26,121 8,595 (68,545) (66,338)
--------------------------------------------------------------------------
$40,088 $135,084 $24,407 $58,489 ($69,524) $188,544
==========================================================================
</TABLE>
8
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
As of September 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $- $ - $- $- $- $ -
Accounts receivable, net - 10,427 7,721 1,470 - 19,618
Inventories - 67,972 1,714 7,496 - 77,182
Prepaid expenses and other current assets - 357 583 1,130 - 2,070
Deferred income taxes, current portion - - 418 72 (490) -
--------------------------------------------------------------------------
Total current assets - 78,756 10,436 10,168 (490) 98,870
--------------------------------------------------------------------------
FIXED ASSETS, net - 28,147 4,551 44,838 - 77,536
DEFERRED FINANCING EXPENSES, net - 5,128 - 1,366 - 6,494
OTHER ASSETS 597 - 36 - 633
GOODWILL, net - 18,435 - 849 - 19,284
DEFERRED INCOME TAXES, non-current portion - 1,215 - - (1,215) -
INVESTMENTS IN SUBSIDIARIES 44,321 15,673 7,777 - (67,771) -
--------------------------------------------------------------------------
$44,918 $147,354 $22,800 $57,221 ($69,476) $202,817
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $- $ 3,127 $ 1,538 $ 2,448 $- $ 7,113
Accrued liabilities - 10,227 2,388 1,599 - 14,214
Long-term debt, current portion - 2,489 - 2,437 - 4,926
Revolving line of credit - 15,157 4,832 - - 19,989
Deferred income taxes, current portion - 19,810 - - (490) 19,320
Other liabilities - - 112 - - 112
Intercompany accounts 76,638 (85,839) (9,549) 18,750 - -
--------------------------------------------------------------------------
Total current liabilities 76,638 (35,029) (679) 25,234 (490) 65,674
--------------------------------------------------------------------------
LONG-TERM DEBT, non-current portion - 142,819 - 11,188 - 154,007
DEFERRED INCOME TAXES, non-current portion - 1,501 1,548 13,022 (1,215) 14,856
CUMULATIVE REDEEMABLE SENIOR
PREFERRED STOCK 10,000 - - - - 10,000
CUMULATIVE REDEEMABLE JUNIOR
PREFERRED STOCK 20,520 - - - - 20,520
SHAREHOLDERS' EQUITY
Common stock 103 3,971 11,414 - (15,385) 103
Additional paid-in capital 10,043 21,365 1,777 1,777 (24,919) 10,043
Retained earnings (deficit) (72,386) 12,727 8,740 6,000 (27,467) (72,386)
-------------------------------------------------------------------------
Total shareholders' equity (deficit) (62,240) 38,063 21,931 7,777 (67,771) (62,240)
-------------------------------------------------------------------------
$44,918 $147,354 $22,800 $57,221 ($69,476) $202,817
=========================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Income and Retained Earnings (Deficit)
(Unaudited)
(In thousands) For the Nine Month Period Ended September 30, 1995
--------------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Gurantor) Eliminations Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ -- $79,701 $45,535 $17,716 ($11,623) $131,329
COST OF GOODS SOLD -- 38,976 22,345 10,268 (11,623) 59,966
--------------------------------------------------------------------------------
Gross Profit -- 40,725 23,190 7,448 -- 71,363
OPERATING EXPENSES -- 20,410 18,435 6,279 -- 45,124
--------------------------------------------------------------------------------
Operating income -- 20,315 4,755 1,169 -- 26,239
--------------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 6,660 492 1,808 -- 8,960
Other, net (5,030) 629 (1,245) 234 8,665 3,253
--------------------------------------------------------------------------------
(5,030) 7,289 (753) 2,042 8,665 12,213
--------------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest and income from discontinued
operations 5,030 13,026 5,508 (873) (8,665) 14,026
PROVISION FOR (RECOVERY) OF INCOME TAXES -- 4,398 1,790 (393) -- 5,795
--------------------------------------------------------------------------------
Income (loss) before minority interest and income
from discontinued operations 5,030 8,628 3,718 (480) (8,665) 8,231
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES -- -- -- -- 3,958 3,958
--------------------------------------------------------------------------------
Income (loss) before income from discontinued
operations 5,030 8,628 3,718 (480) (12,623) 4,273
--------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS,
net of tax of $2,122 -- -- -- (2,813) -- (2,813)
--------------------------------------------------------------------------------
Income (loss) before extraordinary loss 5,030 8,628 3,718 2,333 (12,623) 7,086
Extraordinary loss, net of tax of $1,438 -- 928 142 986 -- 2,056
--------------------------------------------------------------------------------
NET INCOME (LOSS) 5,030 7,700 3,576 1,347 (12,623) 5,030
Retained earnings (deficit), beginning of period 5,897 2,397 8,573 5,447 (16,417) 5,897
Repurchase and retirement of stock (83,929) -- -- -- -- (83,929)
--------------------------------------------------------------------------------
Retained earnings (deficit), end of period ($73,002) $10,097 $12,149 $6,794 ($29,040) ($73,002)
================================================================================
For the Three Month Period Ended September 30, 1995
--------------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Gurantor) Eliminations Total
--------------------------------------------------------------------------------
SALES, NET $ -- $12,862 $11,380 $4,451 ($2,980) $25,713
COST OF GOODS SOLD -- 6,718 5,653 2,321 (2,980) 11,712
--------------------------------------------------------------------------------
Gross Profit -- 6,144 5,727 2,130 -- 14,001
OPERATING EXPENSES -- 5,197 4,630 2,374 -- 12,201
--------------------------------------------------------------------------------
Operating income -- 947 1,097 (244) -- 1,800
--------------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 3,296 121 811 -- 4,228
Other, net 5,658 4,102 1,852 76 (9,025) 2,663
--------------------------------------------------------------------------------
5,658 7,398 1,973 887 (9,025) 6,891
--------------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority interest and loss from discontinued
operations (5,658) (6,451) (876) (1,131) 9,025 (5,091)
PROVISION FOR (RECOVERY) OF INCOME TAXES -- (1,720) 510 (428) -- (1,638)
--------------------------------------------------------------------------------
Income (loss) before loss from discontinued
operations (5,658) (4,731) (1,386) (703) 9,025 (3,453)
LOSS FROM DISCONTINUED OPERATIONS,
net of tax benefit of $147 -- -- -- 149 -- 149
--------------------------------------------------------------------------------
Income (loss) before extraordinary loss (5,658) (4,731) (1,386) (852) 9,025 (3,602)
Extraordinary loss, net of tax of $1,438 -- 928 142 986 -- 2,056
--------------------------------------------------------------------------------
NET INCOME (LOSS) (5,658) (5,659) (1,528) (1,838) 9,025 (5,658)
Retained earnings (deficit), beginning of period 16,585 15,756 13,677 8,632 (38,065) 16,585
Repurchase and retirement of stock (83,929) -- -- -- -- (83,929)
--------------------------------------------------------------------------------
Retained earnings (deficit), end of period ($73,002) $10,097 $12,149 $6,794 ($29,040) ($73,002)
================================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Income and Retained Earnings (Deficit)
(Unaudited)
(In thousands) For the Nine Month Period Ended September 30, 1996
--------------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ -- $84,414 $47,390 $16,412 ($9,804) $138,412
COST OF GOODS SOLD 41,983 24,822 10,953 (9,804) 67,954
--------------------------------------------------------------------------------
Gross Profit -- 42,431 22,568 5,459 -- 70,458
OPERATING EXPENSES -- 21,893 20,480 5,265 -- 47,637
--------------------------------------------------------------------------------
Operating income -- 20,538 2,088 194 -- 22,821
--------------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 13,731 361 904 -- 14,996
Interest - intercompany -- (489) 405 84 -- --
Other, net (4,233) 325 818 222 3,566 698
--------------------------------------------------------------------------------
(4,233) 13,567 1,584 1,210 3,566 15,694
--------------------------------------------------------------------------------
Income (loss) before provision for income taxes 4,233 6,971 504 (1,016) (3,566) 7,127
PROVISION FOR (RECOVERY) OF INCOME TAXES -- 2,739 353 (198) -- 2,894
--------------------------------------------------------------------------------
NET INCOME (LOSS) 4,233 4,233 151 (818) (3,566) 4,233
Retained earnings (deficit), beginning of period (76,338) 8,494 12,931 6,818 (28,243) (76,338)
Repurchase and retirement of stock (281) -- (4,342) -- 4,342 (281)
--------------------------------------------------------------------------------
Retained earnings (deficit), end of period ($72,386) $12,727 $8,740 $6,000 ($27,467) ($72,386)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Month Period Ended September 30, 1996
--------------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $ -- $12,861 $13,501 $ 4,823 ($3,100) $28,085
COST OF GOODS SOLD -- 6,781 6,958 3,304 (3,100) 13,943
--------------------------------------------------------------------------------
Gross Profit -- 6,080 6,543 1,519 -- 14,142
OPERATING EXPENSES -- 5,244 6,541 1,622 -- 13,407
--------------------------------------------------------------------------------
Operating income (loss) -- 836 2 (103) -- 735
--------------------------------------------------------------------------------
OTHER EXPENSES:
Interest -- 4,424 113 181 -- 4,718
Interest - intercompany -- (190) 149 41 -- --
Other, net 2,666 681 331 77 (3,512) 242
--------------------------------------------------------------------------------
2,666 4,915 592 299 (3,512) 4,960
--------------------------------------------------------------------------------
Income (loss) before recovery of income taxes (2,666) (4,079) (590) (402) 3,512 (4,225)
RECOVERY OF INCOME TAXES -- (1,414) (74) (71) -- (1,559)
--------------------------------------------------------------------------------
NET INCOME (LOSS) (2,666) (2,665) (516) (331) 3,512 (2,666)
Retained earnings (deficit), beginning of period (69,807) 15,392 12,340 6,331 (34,063) (69,807)
Repurchase and retirement of stock 87 -- (3,084) 3,084 87
--------------------------------------------------------------------------------
Retained earnings (deficit), end of period ($72,386) $12,727 $8,740 $6,000 ($27,467) ($72,386)
================================================================================
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Supplemental Condensed Consolidating Statements of Cash Flow
(Unaudited) For the Nine Month Period Ended September 30, 1995
-----------------------------------------------------------------------------
(In thousands) Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITY $ 4,000 $ 16,876 ($7,571) $ 4,450 ($3,575) $ 14,180
-----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (1,978) (783) (1,933) - (4,694)
Repayments from affiliates - - 610 - (610) -
Acquisitions, net of cash acquired - (3,498) - - - (3,498)
-----------------------------------------------------------------------------
Net cash used in investing activities - (5,476) (173) (1,933) - (8,192)
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) revolving line
of credit - (12,670) (1,141) - - (13,811)
Proceeds from the issuance of long-term debt - 120,000 - 15,000 - 135,000
Repayments of long-term debt - (31,390) - (17,191) 4,450 (44,131)
Deferred financing costs - (3,435) - (1,587) (5,022)
Repurchase and retirement of stock (91,366) - - - - (91,366)
Issuance of preferred and common stock 11,673 - - - - 11,673
Intercompany 75,693 (83,943) 7,114 1,401 (265) -
Other - - 346 (1,264) - (918)
-----------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (4,000) (11,438) 6,319 (3,641) 4,185 (8,575)
-----------------------------------------------------------------------------
NET DECREASE IN CASH - (38) (1,425) (1,124) - (2,587)
CASH, beginning of period - 101 1,425 1,124 - 2,650
-----------------------------------------------------------------------------
CASH, end of period $ - $ 63 $ - $ - $ - $ 63
=============================================================================
For the Nine Month Period Ended September 30, 1996
-----------------------------------------------------------------------------
Sun Gro
Hines Sun Gro Canada
Holdings Hines U.S. (Subsidiary
(Parent Horticulture (Subsidiary Non- Consolidated
Guarantor) (Issuer) Guarantor) Guarantor) Eliminations Total
-----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ($597) $ 8,574 $ 1,208 $ 2,595 $ - $ 11,780
-----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net of sales proceeds - (3,743) (1,200) (1,288) - (6,231)
Acquisitions, net of cash acquired - (10,301) - - - (10,301)
-----------------------------------------------------------------------------
Net cash used in investing activities - (14,044) (1,200) (1,288) - (16,532)
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit - 95,883 51,311 - - 147,194
Repayments on revolving line of credit - (92,539) (47,359) - - (139,898)
Intercompany advances (repayments) 212 (820) 418 190 - -
Repayments of long-term debt - (1,546) - (1,375) - (2,921)
Deferred financing costs - (31) - (122) - (153)
Dividends received (paid) - 4,342 (4,342) - - -
Issuance of preferred and common stock 666 - - - - 666
Repurchase and retirement of stock (281) - - - - (281)
Other - - (36) - - (36)
-----------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 597 5,289 (8) (1,307) - 4,571
-----------------------------------------------------------------------------
NET DECREASE IN CASH - (181) - - - (181)
CASH, beginning of period - 181 - - - 181
-----------------------------------------------------------------------------
CASH, end of period $ - $ - $ - $ - $ - $ -
=============================================================================
</TABLE>
12
<PAGE>
HINES HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in this document contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward looking statements throughout this document.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995.
Net Sales. Net sales of $28.1 million for the three months ended September
30, 1996 increased $2.4 million, or 9.3%, from net sales of $25.7 million for
the comparable period in 1995. Net sales of the Company's nursery products
remained virtually unchanged from the comparable three month period. Net sales
of the Company's peat moss and peat-based products increased 18.5% from the
comparable three month period. This increase was primarily due to increased
sales volumes but partially offset by lower prices. These peat moss sale prices
declines were primarily due to the continued effect of the unusually favorable
peat moss harvest in Eastern Canada in 1995, which created an excess supply of
peat moss in the Company's eastern markets. The Company believes that these
lower peat moss prices are likely to continue throughout 1996 and will continue
to adversely affect gross profit margins in the Company's peat moss business.
Gross Profit. Gross profit of $14.1 million (50.4.% of net sales) for the
three months ended September 30, 1996 increased $0.1 million, or 1.0%, from
gross profit of $14.0 million (54.5% of net sales) for the comparable period in
1995. The margin decrease was attributable to the Company's peat and peat-based
products due to (i) lower sales prices resulting from the excess supply of peat
moss, and (ii) higher production costs due to differences in product mix.
Operating Expenses. Operating expenses of $13.4 million (47.7% of net
sales) for the three months ended September 30, 1996 increased $1.2 million, or
9.8%, from $12.2 million (47.5% of net sales) for the comparable period in 1995.
The increase was primarily attributable to increased distribution expenses for
the Company's peat and peat-based products as a result of higher sales volumes.
Operating Income. Operating income of $0.7 million for the three months
ended September 30, 1996 decreased $1.1 million, from $1.8 million for the
comparable period in 1995, due to the reasons described above.
13
<PAGE>
Interest Expense. Interest expense of $4.7 million for the three months
ended September 30, 1996 increased $0.5 million from $4.2 million for the
comparable period in 1995. The increase was attributable to the issuance of $120
million of Senior Subordinated Notes on October 19, 1995 which replaced the $110
million senior subordinated credit facility which was put in place August 4,
1995.
Loss before minority interest and loss from discontinued operations. The
loss before minority interest and loss from discontinued operations of $2.7
million for the three months ended September 30, 1996 decreased by $0.8 million
from a loss of $3.5 million for the comparable period in 1995. This decrease was
due to the reasons described above.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995.
Net Sales. Net sales of $138.4 million for the nine months ended September
30, 1996 increased $7.1 million, or 5.4%, from net sales of $131.3 million for
the comparable period in 1995. Net sales of the Company's nursery products
increased 5.9%, reflecting both increased sales volumes and prices. Net sales of
the Company's peat moss and peat-based products increased 4.6%, reflecting
increased sales volumes but partially offset by lower prices. These peat moss
sale prices declines were primarily due to the continued effect of the unusually
favorable peat moss harvest in Eastern Canada in 1995, which created an excess
supply of peat moss in the Company's eastern markets. The Company believes that
these lower peat moss prices are likely to continue throughout 1996 and will
continue to adversely affect gross profit margins in the Company's peat moss
business.
Gross Profit. Gross profit of $70.5 million (50.9% of net sales) for the
nine months ended September 30, 1996 decreased $0.9 million, or 1.3%, from gross
profit of $71.4 million (54.3% of net sales) for the comparable period in 1995.
The decrease was primarily attributable to the Company's peat and peat-based
products due to (i) lower sales prices resulting from the excess supply of peat
moss, and (ii) higher production costs due to differences in product mix.
Operating Expenses. Operating expenses of $47.6 million (34.4% of net
sales) for the nine months ended September 30, 1996 increased $2.5 million, or
5.5%, from $45.1 million (34.4% of net sales) for the comparable period in 1995.
The increase was attributable to the Company's higher variable selling and
distribution expenses incurred as a result of higher overall sales volumes and
general cost increases.
Operating Income. Operating income of $22.8 million for the nine months
ended September 30, 1996 decreased $3.4 million, or 13.0%, from $26.2 million
for the comparable period in 1995, due to the reasons described above.
Interest Expense. Interest expense of $15.0 million for the nine months
ended September 30, 1996 increased $6.0 million from $9.0 million for the
comparable period in 1995. The increase was attributable to the issuance of $120
million of Senior Subordinated Notes on October 19, 1995 which replaced the $110
million senior subordinated credit facility.
14
<PAGE>
Income (loss) before minority interest and income from discontinued
operations. The income before minority interest and income from discontinued
operations of $4.2 million for the nine months ended September 30, 1996
decreased by $4.0 million from income of $8.2 million for the comparable period
in 1995. This decrease was attributable to the decrease in operating income and
the increase in interest expense due to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the highly seasonal nature of the Company's nursery products
operations, the Company has historically satisfied its working capital
requirements through revolving credit facilities and operating cash flow. The
Company maintains a $50.0 million revolving credit facility pursuant to a Credit
Agreement dated as of August 4, 1995 by and among Hines Horticulture, Sun Gro-
U.S. and Sun Gro-Canada, as borrowers, the lenders listed therein and BT
Commercial Corporation, as agent (the "Bank Credit Agreement"). The revolving
credit facility is subject to a borrowing base tied to accounts receivable and
inventory and expires on December 31, 2000. The revolving credit facility and
all other obligations under the Bank Credit Agreement are secured by
substantially all of the assets and common stock of Hines Horticulture and Sun
Gro-U.S. as well as a pledge of 66% of the common stock of Sun Gro-Canada.
Proceeds from the revolving credit facility can be distributed to any of the
Company's subsidiaries, including Sun Gro-Canada. The Company typically draws
under its revolving credit facility in its first and fourth fiscal quarters to
fund its nursery products inventory buildup and continuing operating expenses.
Approximately 75% of Hines' sales occur in the first half of the year, which
allows the Company to reduce the revolving credit facility after the first
quarter. Working capital requirements for the Company's peat moss operations are
less seasonal in nature, with slight inventory buildups expected in the
Company's third and fourth fiscal quarters. The Company drew down $10 million on
its revolving credit facility on August 30, 1996 to finance the acquisition of
substantially all of the assets of Iverson Perennial Gardens, Inc., located in
Trenton, South Carolina. The Company had $27.8 million of unused borrowing
capacity under its revolving credit facility on October 31, 1996.
The Company's capital expenditures totaled $6.2 million for the nine month
period ended September 30, 1996. These capital expenditures consisted primarily
of vehicle, machinery and equipment purchases and other nursery related
structures and capital expenditures related to preparing peat bogs for harvest.
They also included the purchase of a 185 acre parcel of land in which the
Company intends to develop within its nursery products operations. The Company's
capital expenditures for 1996 are expected to be approximately $10.0 million.
The debt service costs associated with the borrowings under the Bank Credit
Agreement and the Senior Subordinated Notes significantly increased the
Company's liquidity requirements. All borrowings under the Bank Credit
Agreement, including term loans made to Hines Horticulture and Sun Gro-Canada in
an initial aggregate principal amount of $25.0 million, will mature prior to the
Notes. The Company's principal repayment schedule for term loans under the Bank
Credit Agreement is $3.0 million, $4.5 million, $5.0 million, $5.5 million and
$6.5 million for the years 1996 through 2000, respectively. The Company expects
that cash flow from operating activities together
15
<PAGE>
with borrowings available under the Bank Credit Agreement will be sufficient to
fund working capital needs, capital spending requirements and the debt service
requirements of the Company's current capital structure for the foreseeable
future.
The Indenture pursuant to which the Notes were issued imposes a number of
restrictions on the Company. The Indenture limits, among other things, the
Company's ability to incur additional indebtedness, to make certain restricted
payments, to make certain asset dispositions, to incur certain liens and to
enter into certain significant transactions. Breach of a material term of the
Indenture or any other material indebtedness that results in the acceleration of
such indebtedness would trigger an event of default under the Bank Credit
Agreement, upon which all amounts owing under the Bank Credit Agreement would
become immediately due and payable.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On August 30, 1996, the Company acquired substantially all of the assets
used in the wholesale nursery business of Iverson Perennial Gardens, Inc.,
located in Trenton, South Carolina, for $10 million plus the assumption of
certain liabilities. The nursery currently operates on 110 acres of land and
owns an additional 415 acres of land, over 300 acres of which the Company
believes it will be able to place into production with minimal capital
expenditures.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
4.1 Third Amendment to Credit Agreement dated March 15, 1996
4.2 Fourth Amendment to Credit Agreement dated August 28, 1996
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Registrant during the
period covered by this Report.
On November 1, 1996, subsequent to the period covered by this Report, the
Registrant filed a Current Report on Form 8-K dated October 28, 1996
stating that effective October 28, 1996, Hines Holdings, Inc. had engaged
the independent accounting firm of Price Waterhouse
16
<PAGE>
LLP (Price Waterhouse) to serve as its independent auditors. Price
Waterhouse had served as the independent auditors of Sun Gro Horticulture
Inc. and Sun Gro Horticulture Canada Ltd. since July 1993. Price Waterhouse
replaced Arthur Andersen L.L.P., which had served as the independent
auditors of Hines Holdings, Inc. and Hines Horticulture, Inc. since July
1990. There were no material disagreements with Arthur Andersen with
respect to the Company's accounting policies.
Items 1, 2, 3, and 4 are not applicable.
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
HINES HOLDINGS, INC.
(REGISTRANT)
/s/ Claudia Pieropan
By: _______________________________
Claudia M. Pieropan
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Date: November 13, 1996
18
<PAGE>
HINES HORTICULTURE, INC.
THIRD AMENDMENT
TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as
of March 15, 1996 and entered into by and among HINES HORTICULTURE, INC.
(formerly known as Hines Nurseries Inc.), a California corporation ("COMPANY"),
SUN GRO HORTICULTURE INC., a Nevada corporation ("SUN GRO"), and SUN GRO
HORTICULTURE CANADA LTD., a Canadian corporation ("SUN GRO CANADA"; together
with Company and Sun Gro, collectively, "BORROWERS"), the financial institutions
listed on the signature pages hereof ("LENDERS") and BT COMMERCIAL CORPORATION,
as Agent for Lenders ("AGENT"), and, for purposes of Section 4 hereof, the
Credit Support Parties (as defined in Section 4 hereof) listed on the signature
pages hereof, and is made with reference to that certain Credit Agreement dated
as of August 4, 1995 by and among Company, Sun Gro and Sun Gro Canada, Lenders
and Agent, as amended by that certain First Amendment dated as of October 11,
1995 and that certain Second Amendment dated as of October 26, 1995 (as so
amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to
(i) adjust certain of financial covenants set forth therein, and (ii) make
certain other amendments as set forth below:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 7: BORROWERS' NEGATIVE COVENANTS
------------------------------------------------------
A. MINIMUM INTEREST COVERAGE RATIO. Subsection 7.6A of the Credit
Agreement is hereby amended by deleting the third, fourth, fifth and sixth lines
in the table contained therein in their entirety and substituting the following
therefor:
<TABLE>
<S> <C>
"1st Fiscal Quarter, 1996 1.50:1.00
2nd Fiscal Quarter, 1996 1.50:1.00
3rd Fiscal Quarter, 1996 1.50:1.00
4th Fiscal Quarter, 1996 1.55:1.00"
</TABLE>
1
<PAGE>
B. MAXIMUM LEVERAGE RATIO. Subsection 7.6B of the Credit Agreement is
hereby amended by deleting the third, fourth, fifth and sixth lines in the table
contained therein in there entirety and substituting the following therefor:
<TABLE>
<S> <C>
"1st Fiscal Quarter, 1996 6.50:1.00
2nd Fiscal Quarter, 1996 5.60:1.00
3rd Fiscal Quarter, 1996 5.60:1.00
4th Fiscal Quarter, 1996 5.60:1.00"
</TABLE>
C. MINIMUM CONSOLIDATED ADJUSTED EBITDA. Subsection 7.6C of the
Credit Agreement is hereby amended by deleting the sixth line in the table
contained therein and substituting the following therefor:
"4th Fiscal Quarter, 1996 $32,000,000"
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "THIRD AMENDMENT
EFFECTIVE DATE"):
A. On or before the Third Amendment Effective Date, Holdings and each
Borrower shall deliver to Lenders (or to Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel)
the following, each, unless otherwise noted, dated the Third Amendment Effective
Date:
1. Certificate of the corporate secretary or assistant secretary
for each of Holdings and each Borrower certifying as of the Third Amendment
Effective Date that:
a. The Certificate or Articles of Incorporation of Holdings
or such Borrower have not been amended, modified or otherwise changed
since the Closing Date; and
b. The Bylaws of Holdings or such Borrower have not been
amended, modified or otherwise changed since the Closing Date;
2. Resolutions of Board of Directors of each of Holdings and each
Borrower approving and authorizing the execution, delivery, and performance
of this Amendment, certified as of the Third Amendment Effective Date by
Holdings or such Borrower's corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
2
<PAGE>
3. Signature and incumbency certificates of officers of each of
Holdings and each Borrower executing this Amendment; and
5. Executed copies of this Amendment.
B. On or before the Third Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and such
counsel shall have received all such counterpart originals or certified copies
of such documents as Agent may reasonably request.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, each Borrower represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Each Loan Party has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of each Loan Party party hereto.
C. NO CONFLICT. The execution and delivery by each Loan Party of
this Amendment and the performance by each Loan Party hereto of the Amended
Agreement do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Holdings or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Holdings
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Holdings or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of Holdings or any of
its Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Holdings or any of its Subsidiaries
(other than Liens created under any of the Loan Documents in favor of Agent on
behalf of Lenders), or (iv) require any approval of stockholders or any approval
or consent of any Person under any Contractual Obligation of Holdings or any of
its Subsidiaries, except for such approvals or consents which have been obtained
on or before the Third Amendment Effective Date and disclosed in writing to
Lenders.
3
<PAGE>
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Loan
Parties hereto of this Amendment and the performance by the Loan Parties hereto
of the Amended Agreement do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by each Loan Party and are the legally valid
and binding obligations of such Loan Party, enforceable against such Loan Party
in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement and contained in the other Loan Documents are and will be true,
correct and complete in all material respects on and as of the Third Amendment
Effective Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Guaranty, the Company Security
Agreement, the Company Pledge Agreement, the Company Trademark Security
Agreement, the Company Patent Security Agreement and the Collateral Account
Agreement pursuant to which Company has (i) guarantied the Obligations and (ii)
created liens in favor of Agent on certain Collateral to secure the Obligations
and to secure its obligations under the Company Guaranty. Sun Gro is a party to
the Domestic Subsidiary Guaranty, the Domestic Subsidiary Security Agreement,
the Domestic Subsidiary Pledge Agreement, the Domestic Subsidiary Trademark
Security Agreement, the Domestic Subsidiary Patent Security Agreement and the
Collateral Account Agreement pursuant to which Sun Gro has (i) guarantied the
Obligations and (ii) created liens in favor of Agent on certain Collateral and
to secure the obligations of Sun Gro under the Domestic Subsidiary Guaranty.
Sun Gro Canada is a party to the Canadian Subsidiary Security Agreement and the
Canadian Subsidiary Pledge Agreement pursuant to which Sun Gro Canada has
created liens in favor of Agent on certain Collateral to secure certain of the
Obligations. Holdings is a party to the Holdings Guaranty and the Holdings
Pledge Agreement pursuant to which Holdings has (i) guarantied the Obligations
and (ii) pledged certain Collateral to Agent to secure the obligations of
4
<PAGE>
Holdings under the Holdings Guaranty. Company, Sun Gro, Sun Gro Canada and
Holdings are collectively referred to herein as the "CREDIT SUPPORT PARTIES",
and the Guaranties and Collateral Documents referred to above are collectively
referred to herein as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the amendment of the Credit Agreement effected pursuant to this Amendment. Each
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Obligations of Borrowers now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the Credit Support Documents to which it is a party or
otherwise bound are true, correct and complete in all material respects on and
as of the Third Amendment Effective Date to the same extent as though made on
and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
Each Credit Support Party (other than Borrowers) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to the
Credit Agreement.
5
<PAGE>
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Third Amendment Effective Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference
in the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement shall
mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Section 1 hereof, the effectiveness of
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which is governed by Section 2 hereof) shall become effective upon the execution
of a counterpart hereof by Requisite Lenders, Holdings and each Borrower and
receipt by Company and Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
HINES HORTICULTURE, INC. (formerly
known as Hines Nurseries Inc.),
as Borrower
By: _______________________________
Title: ____________________________
SUN GRO HORTICULTURE INC.,
as Borrower
By: _______________________________
Title: ____________________________
SUN GRO HORTICULTURE CANADA LTD.,
as Borrower
By: _______________________________
Title: ____________________________
HINES HOLDINGS, INC., (formerly known as Hines
Horticulture Inc.)(for purposes of Section 4
only) as a Credit Support Party
By: _______________________________
Title: ____________________________
S-1
<PAGE>
BT COMMERCIAL CORPORATION,
AS A DOMESTIC LENDER AND AS AGENT
By: ________________________________
Title: _____________________________
BT BANK OF CANADA,
as a Canadian Lender
By: _______________________________
Title: ____________________________
BANKERS TRUST COMPANY,
as an Issuing Lender
By: _______________________________
Title: ____________________________
S-2
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: _______________________________
Title: ____________________________
FLEET BANK OF MASSACHUSETTS, N.A.,
as a Domestic Lender
By: _______________________________
Title: ____________________________
LASALLE NATIONAL BANK,
as a Domestic Lender
By: _______________________________
Title: ____________________________
NATIONSBANK, N.A.,
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
UNION BANK,
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
S-3
<PAGE>
WELLS FARGO BANK,
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
BANK OF MONTREAL,
as a Canadian Lender
By: _______________________________
Title: ____________________________
S-4
<PAGE>
HINES HORTICULTURE, INC.
FOURTH AMENDMENT, CONSENT AND WAIVER
TO CREDIT AGREEMENT
This FOURTH AMENDMENT, CONSENT AND WAIVER TO CREDIT AGREEMENT (this
"AMENDMENT") is dated as of August 28, 1996 and entered into by and among HINES
HORTICULTURE, INC. (formerly known as Hines Nurseries Inc.), a California
corporation ("COMPANY"), SUN GRO HORTICULTURE INC., a Nevada corporation ("SUN
GRO"), and SUN GRO HORTICULTURE CANADA LTD., a Canadian corporation ("SUN GRO
CANADA"; together with Company and Sun Gro, collectively, "BORROWERS"), the
financial institutions listed on the signature pages hereof ("LENDERS") and BT
COMMERCIAL CORPORATION, as Agent for Lenders ("AGENT"), and, for purposes of
Section 6 hereof, the Credit Support Parties (as defined in Section 6 hereof)
listed on the signature pages hereof, and is made with reference to that certain
Credit Agreement dated as of August 4, 1995 by and among Company, Sun Gro and
Sun Gro Canada, Lenders and Agent, as amended by that certain First Amendment
dated as of October 11, 1995, that certain Second Amendment dated as of October
26, 1995, and that certain Third Amendment dated as of March 15, 1996 (as so
amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, Company has requested Lenders to consent to the acquisition of
the assets of Iverson Perennial Gardens, Inc. and certain related real property;
and Lenders are willing, subject to the terms and conditions set forth herein,
to further waive Company's compliance with clause (ii) of the last proviso in
subsection 7.8 of the Credit Agreement; and
WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to
(i) adjust certain of the covenants set forth therein, (ii) agree as to certain
matters relating to certain equity contributions to be made by MDCP, and (iii)
make certain other amendments as set forth below:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
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SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS
-------------------------------------------------------------
A. Subsection 1.1 of the Credit Agreement is hereby amended by adding
thereto the following definitions, which shall be inserted in the proper
alphabetical order:
"`IPG' means Iverson Perennial Gardens, Inc., a Delaware corporation."
"`IPG ACQUISITION AGREEMENTS' means, collectively, (i) that certain
Acquisition Agreement dated as of August 30, 1996 by and among Ronald C.
Iverson, IPG and Company, and (ii) that certain Consulting and Non-
Competition Agreement dated as of August 30, 1996 by and between Ronald
Iverson and Company."
"`IVERSON ACQUISITION' means the acquisition by Company of the Iverson
Properties pursuant to IPG Acquisition Agreements."
"`IVERSON PROPERTIES' means (i) all of the operating assets of IPG's
South Carolina nursery operations (including without limitation related
Inventory located outside of South Carolina), and (ii) approximately 527
acres of real property owned by Ronald C. Iverson in South Carolina relating
to and used by IPG in its nursery operations."
1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND
-------------------------------------------------------------
LOANS
-----
USE OF PROCEEDS: REVOLVING LOANS. Section 2.5B of the Credit Agreement
is hereby amended by deleting the second sentence contained therein in its
entirety and substituting the following therefor:
"Any excess proceeds of the initial Revolving Loans and the
proceeds of any subsequent Revolving Loans shall be applied by Company
and Sun Gro for (i) working capital and general corporate purposes,
which may include the making of intercompany loans to any of Company's
wholly-owned Subsidiaries, in accordance with subsection 7.1(iv), for
their own working capital and general corporate purposes, and (ii)
consummation of the Iverson Acquisition, so long as the aggregate
amount of Revolving Loans applied to consummate such Iverson
Acquisition (including all fees and expenses relating thereto) does not
exceed $10,400,000."
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<PAGE>
1.3 AMENDMENTS TO SECTION 5: BORROWERS' REPRESENTATIONS AND WARRANTIES
------------------------------------------------------------------
MATERIAL CONTRACTS. Subsection 5.8C of the Credit Agreement is hereby
amended by deleting the second sentence contained therein in its entirety and
substituting the following therefor:
"Except as described on Schedule 5.8C, all such Material Contracts
(other than any Material Contract which has been terminated as
permitted under the Loan Documents and which termination has been
reported to Lenders in accordance with subsection 6.1(xviii)) are in
full force and effect and no material defaults currently exist
thereunder."
1.4 AMENDMENTS TO SECTION 6: BORROWERS' AFFIRMATIVE COVENANTS
---------------------------------------------------------
ADDITIONAL MORTGAGES. Subsection 6.12 of the Credit Agreement is
hereby amended by inserting immediately after the reference to "as soon as
practicable after the acquisition of such Covered Real Property Asset" contained
in clause (ii) therein the following:
"(and in the case of any Covered Real Property Asset acquired in
connection with the Iverson Acquisition, as soon as practicable after
the consummation of the Iverson Acquisition but in any event within
forty-five days after the effective date of the Fourth Amendment,
Consent and Waiver to Credit Agreement dated as of August 28, 1996 by
and among Company, Sun Gro, Sun Gro Canada, Lenders and Agent)".
1.5 AMENDMENTS TO SECTION 7: BORROWERS' NEGATIVE COVENANTS
------------------------------------------------------
CONSOLIDATED CAPITAL EXPENDITURES. Subsection 7.8 of the Credit
Agreement is hereby amended by (a) deleting the reference to "and" and adding
"," at the end of clause (i) of the proviso contained therein, and (b) adding
the following after clause (ii) of the last proviso contained therein, but
before the last period:
"and (iii) Company may incur additional Consolidated Capital
Expenditures on or before September 20, 1996 in an aggregate amount
(including all fees and expenses relating thereto) not to exceed the
sum of (x) $10,400,000 plus (y) the assumption of unsecured Assumed
Liabilities (as defined in the acquisition agreement described in
clause (i) of the definition "IPG Acquisition Agreements") not to
exceed $1,000,000, consisting of the Iverson Acquisition".
3
<PAGE>
1.6 AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT
------------------------------------------
A. CONDUCT OF BUSINESS RELATING TO HOLDINGS. Subsection 8.18 of the
Credit Agreement is hereby amended by deleting the reference to ":" at the end
of such subsection and substituting "; or" therefor.
B. IVERSON ACQUISITION EQUITY CONTRIBUTIONS. Section 8 of the Credit
Agreement is hereby amended by adding as a new subsection 8.19 the following:
"8.19 EQUITY CONTRIBUTIONS.
--------------------
(i) Holdings shall not have received from MDCP on or prior to
October 15, 1996 an equity contribution in an amount not less than
$10,000,000 but not greater than $20,000,000 (the "PARENT EQUITY
CONTRIBUTION"); or (ii) Company shall not have received from Holdings
on or prior to October 15, 1996 an equity contribution in an amount
equal to the Parent Equity Contribution; or (iii) Company shall not
have used the proceeds from the Parent Equity Contribution within one
Business Day of receipt of such proceeds (x) to prepay all Revolving
Loans of Company and of Sun Gro on a pro rata basis (in accordance with
the respective outstanding principal amount thereof) without any
corresponding reduction in their respective Revolving Loan Commitments,
and (y) to the extent the amount of such proceeds exceed the aggregate
outstanding principal amount of Revolving Loans, to prepay all Term
Loans in accordance to the application order set forth in the first
sentence of subsection 2.4B(iv)(b) in an amount equal to such excess
(it being understood by all parties hereto that Company shall apply the
proceeds from the Parent Equity Contribution in the manner set forth in
this clause (iii) of this subsection 8.19 notwithstanding anything to
the contrary contained in subsection 2.4B(iii)(c) or 2.4B(iv)(b)):"
SECTION 2. AMENDMENTS TO THE SECURITY AGREEMENT
2.1 MODIFICATIONS OF SCHEDULE I TO THE SECURITY AGREEMENT
-----------------------------------------------------
SCHEDULE I: SUPPLEMENTAL DESCRIPTIONS OF COLLATERAL. Schedule I to the
Security Agreement, as amended, is hereby amended by adding thereto the items
set forth in Annex A attached hereto.
2.2 MODIFICATIONS OF SCHEDULE II TO THE SECURITY AGREEMENT
------------------------------------------------------
SCHEDULE II: LOCATION OF COLLATERAL. Schedule II to the Security
Agreement, as amended, is hereby amended by adding thereto the items set forth
in Annex B attached hereto.
4
<PAGE>
2.3 MODIFICATIONS OF SCHEDULE III TO THE SECURITY AGREEMENT
-------------------------------------------------------
SCHEDULE III: EXISTING FINANCING STATEMENTS. Schedule III to the
Security Agreement, as amended, is hereby amended by adding thereto the items
set forth in Annex C attached hereto.
SECTION 3. CONSENT AND WAIVER
3.1 CONSENT TO IVERSON ACQUISITION AND WAIVER OF CERTAIN COVENANTS
--------------------------------------------------------------
Subject to the terms and conditions set forth herein and in reliance on
the representations and warranties of Company contained herein, Lenders hereby:
1. consent to the Iverson Acquisition by Company for a total
consideration (including all fees and expenses relating thereto) not
exceeding the sum of (x) $10,400,000 plus (y) the assumption of unsecured
Assumed Liabilities (as defined in the acquisition agreement described in
clause (i) of the definition "IPG Acquisition Agreements") not to exceed
$1,000,000; and
2. waive compliance with the provisions of clause (ii) of the last
proviso in subsection 7.8 of the Credit Agreement to the extent, and only to
the extent, necessary to permit Company to incur (a) $1,250,000 of the
additional Consolidated Capital Expenditures permitted under such clause
(ii) on or before July 6, 1996 and (b) $100,000 of the additional
Consolidated Capital Expenditures permitted under such clause (ii) on or
before December 31, 1996.
3.2 LIMITATION OF CONSENT AND WAIVER
--------------------------------
Without limiting the generality of the provisions of subsection 10.6 of
the Credit Agreement, both the consent and waiver set forth above shall be
limited precisely as written and relate solely to the Iverson Acquisition and
the noncompliance of Company with the provisions of clause (ii) of the last
proviso in subsection 7.8 of the Credit Agreement in the manner and to the
extent described above, and nothing in this Section 3 shall be deemed to:
1. constitute a waiver of compliance by Company with respect to (a)
clause (ii) of the last proviso in subsection 7.8 of the Credit Agreement in
any other instance or (b) any other term, provision or condition of the
Credit Agreement or any other instrument or agreement referred to therein
(whether in connection with the Iverson Acquisition or waiver of clause (ii)
of the last proviso in subsection 7.8 of the Credit Agreement or otherwise);
or
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<PAGE>
2. prejudice any right or remedy that Agent or any Lender may now have
(except to the extent that such right or remedy was based upon existing
defaults that will not exist after giving effect to this Section 3) or may
have in the future under or in connection with the Credit Agreement or any
other instrument or agreement referred to therein.
Except as expressly set forth herein, the terms, provisions and
conditions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect and in all other respects are hereby ratified and
confirmed.
SECTION 4. CONDITIONS TO EFFECTIVENESS
Sections 1, 2 and 3 of this Amendment shall become effective only upon
the satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "FOURTH
AMENDMENT EFFECTIVE DATE"):
A. On or before the Fourth Amendment Effective Date, Holdings and
each Borrower shall deliver to Lenders (or to Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel)
the following, each, unless otherwise noted, dated the Fourth Amendment
Effective Date:
1. Certificate of the corporate secretary or assistant secretary
for each of Holdings and each Borrower certifying as of the Fourth Amendment
Effective Date that:
a. The Certificate or Articles of Incorporation of Holdings
or such Borrower have not been amended, modified or otherwise changed
since the Closing Date; and
b. The Bylaws of Holdings or such Borrower have not been
amended, modified or otherwise changed since the Closing Date;
2. Resolutions of Board of Directors of each of Holdings and each
Borrower approving and authorizing the execution, delivery, and performance
of this Amendment, certified as of the Fourth Amendment Effective Date by
Holdings or such Borrower's corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
3. Signature and incumbency certificates of officers of each of
Holdings and each Borrower executing this Amendment;
4. Executed copies of the IPG Acquisition Agreements, each in
form and substance satisfactory to Agent;
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<PAGE>
5. Uniform Commercial Code ("UCC") searches relating to the
Iverson Properties in form and substance satisfactory to Agent;
6. UCC-1 financing statements, executed by the Company, relating
to the Iverson Properties for all jurisdictions as may be necessary or
desirable to perfect the security interests in the Iverson Properties in
form and substance satisfactory to Agent;
7. UCC-3 termination statements, mortgage releases or other
comparable instruments, executed by all necessary Persons, terminating any
and all existing UCC-1 financing statements or mortgages relating to the
Iverson Properties in favor of any third parties (other than UCC-1 financing
statements filed pursuant to item 6 above) in form and substance
satisfactory to Agent;
8. Evidence in form and substance satisfactory to Agent
(including without limitation an Officers' Certificate to the effect set
forth in clauses (i) - (iv) below) that:
(i) the IPG Acquisition Agreements shall be in full force and
effect and shall not have been amended, supplemented, waived or
otherwise modified without the consent of Agent;
(ii) all conditions to the Iverson Acquisition set forth in the
IPG Acquisition Agreements shall have been satisfied in all material
respects or the fulfillment of any such conditions shall have been
waived with the consent of Agent (which consent shall not be
unreasonably withheld);
(iii) the Iverson Acquisition shall have occurred; and
(iv) the aggregate purchase price for the Iverson Acquisition
(including all fees and expenses relating thereto) does not exceed the
sum of (x) $10,400,000 plus (y) the assumption of unsecured Assumed
Liabilities (as defined in the acquisition agreement described in
clause (i) of the definition "IPG Acquisition Agreements") not to
exceed $1,000,000;
9. Pro forma balance sheet of Company and its Subsidiaries as of
August 31, 1996 after giving effect to the Iverson Acquisition and the
financings contemplated thereby, and projected financial statements
(including balance sheets and statements of operations, stockholders' equity
and cash flows) of Company and its Subsidiaries for the five-year period
after consummation of the Iverson Acquisition, all of the foregoing in form
and substance satisfactory to Agent and Lenders;
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10. Any and all environmental reports relating to the Iverson
Properties received by Company from IPG or obtained by Company or any of its
Subsidiaries from any independent consultants; and
11. Copies of this Amendment executed by Holdings, each Borrower,
Requisite Lenders and Requisite Class Lenders of each Class.
B. On or before the Fourth Amendment Effective Date, all corporate
and other proceedings taken or required to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by Agent, acting on behalf of Lenders, and its
counsel shall be satisfactory in form and substance to Agent and such counsel,
and Agent and such counsel shall have received all such counterpart originals or
certified copies of such documents as Agent may reasonably request.
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, each Borrower represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Each Loan Party has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of each Loan Party party hereto.
C. NO CONFLICT. The execution and delivery by each Loan Party of
this Amendment and the performance by each Loan Party hereto of the Amended
Agreement do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Holdings or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Holdings
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Holdings or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of Holdings or any of
its Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Holdings or any of its Subsidiaries
(other than Liens created under any of the Loan Documents in favor of Agent on
behalf of Lenders), or (iv) require any approval of stockholders or any approval
or consent of any Person under any Contractual Obligation of Holdings or any of
its Subsidiaries, except for such
8
<PAGE>
approvals or consents which have been obtained on or before the Fourth Amendment
Effective Date and disclosed in writing to Lenders.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Loan
Parties hereto of this Amendment and the performance by the Loan Parties hereto
of the Amended Agreement do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment has been duly executed and
delivered by each Loan Party and this Amendment and the Amended Agreement are
the legally valid and binding obligations of such Loan Party, enforceable
against such Loan Party in accordance with their respective terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement and contained in the other Loan Documents are and will be true,
correct and complete in all material respects on and as of the Fourth Amendment
Effective Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default. Agent and Lenders acknowledge that Borrowers have notified Agent and
Lenders that Borrowers may be unable to be in compliance with certain financial
covenants contained in subsection 7.6 of the Credit Agreement at the end of the
Fiscal Quarter ending on September 30, 1996. Each party hereto agrees that
neither such notice nor such acknowledgement by Agent and Lenders in any way
constitutes a waiver of compliance by Borrowers with respect to subsection 7.6
of the Credit Agreement in any instance or at any time (including without
limitation at the end of the Fiscal Quarter ending on September 30, 1996), any
Event of Default or Potential Event of Default, or any other term or provision
of any Loan Document or prejudices any right or remedy that Agent or any Lender
may now have or may have in the future under or in connection with any Loan
Document.
SECTION 6. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Guaranty, the Company Security
Agreement, the Company Pledge Agreement, the Company Trademark Security
Agreement, the Company Patent Security Agreement and the Collateral Account
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Agreement pursuant to which Company has (i) guarantied the Obligations and (ii)
created liens in favor of Agent on certain Collateral to secure the Obligations
and to secure its obligations under the Company Guaranty. Sun Gro is a party to
the Domestic Subsidiary Guaranty, the Domestic Subsidiary Security Agreement,
the Domestic Subsidiary Pledge Agreement, the Domestic Subsidiary Trademark
Security Agreement, the Domestic Subsidiary Patent Security Agreement and the
Collateral Account Agreement pursuant to which Sun Gro has (i) guarantied the
Obligations and (ii) created liens in favor of Agent on certain Collateral to
secure the obligations of Sun Gro under the Domestic Subsidiary Guaranty. Sun
Gro Canada is a party to the Canadian Subsidiary Security Agreement and the
Canadian Subsidiary Pledge Agreement pursuant to which Sun Gro Canada has
created liens in favor of Agent on certain Collateral to secure certain of the
Obligations. Holdings is a party to the Holdings Guaranty and the Holdings
Pledge Agreement pursuant to which Holdings has (i) guarantied the Obligations
and (ii) pledged certain Collateral to Agent to secure the obligations of
Holdings under the Holdings Guaranty. Company, Sun Gro, Sun Gro Canada and
Holdings are collectively referred to herein as the "CREDIT SUPPORT PARTIES",
and the Guaranties and Collateral Documents referred to above are collectively
referred to herein as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the amendment of the Credit Agreement effected pursuant to this Amendment. Each
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Obligations of Borrowers now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the Credit Support Documents, in each case to which it is
a party or otherwise bound, are true, correct and complete in all material
respects on and as of the Fourth Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
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Each Credit Support Party (other than Borrowers) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to the
Credit Agreement.
SECTION 7. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
(i) On and after the Fourth Amendment Effective Date, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE
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STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Sections 1, 2 and 3 hereof, the effectiveness of which is governed
by Section 4 hereof) shall become effective upon the execution of a counterpart
hereof by Requisite Lenders, Holdings and each Borrower and receipt by Company
and Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
[Remainder of page intentionally left blank]
12
<PAGE>
ANNEX A
-------
Supplemental Descriptions of Collateral
---------------------------------------
Specific Inventory Included in Collateral:
- -----------------------------------------
Growing plants in containers, clumps, potting machines, irrigation
equipment, conveyors, related production tools, office equipment, office and
warehouse buildings located on premises, land as described in Appendix A
attached hereto.
Material Assigned Agreements:
- ----------------------------
1. Lease of 60 acres from the Blocker Family, dated July 25, 1991.
2. Supply contracts over $50,000:
<TABLE>
<CAPTION>
VENDOR PURCHASES TERMS
<S> <C> <C>
1. Thomas Transport $1,378,188.45 Net 30
2. Vaughan's Seed Company $ 435,262.50 Net 120
3. V-J Growers Supply $ 237,924.17 Net 90
4. Witteman & Co. $ 227,326.90 1% 10 Net 30
5. John Henry $ 223,533.16 Net 30
6. Jac. TH DE Vroomen Inc. $ 159,716.33 Net 30
7. Guernsey Clematis Nursery $ 147,735.65 Net 30
8. Nursery Supplies, Inc. $ 134,982.08 Net 120
9. Poppelmann $ 91,587.52 Net 60
10. Cannon Equipment Co. $ 61,563.37 Net 30
11. Oosterwijck $ 53,379.81 Net 30
12. Summit Plastic Co. $ 49,144.61 Net 90
</TABLE>
3. Purchase Orders. See Appendix B attached hereto.
----------
4. Agreement with John Deere relating to the financing of four John
Deere Tractors (unpaid balance is $54,822)
Annex A-1
<PAGE>
Specific Varieties and Types of Crops Included in Collateral:
- -------------------------------------------------------------
Hosta, Hemcucallis, Perennials
<TABLE>
<CAPTION>
Trademark Registrations:
- --------------------------
Trademark Registration No. Country
- --------- ---------------- -------
<S> <C> <C>
Iverson 1418582 USA
Signature Series 1418580 USA
Butterfly Blue 2437622 USA
IAM 1928509 USA
Iverson 1697877 USA
Plant Talker 1736469 USA
Signature Collection 1718328 USA
Signature Series 1575370 USA
Patent Registrations:
- ---------------------
Patent No. Country
- ---------- -------
Des. 322,707 USA
Des. 323,416 USA
Des. 323,415 USA
Plant Pat. 8,140 USA
Plant Pat. 8,801 USA
Plant Pat. 9,380 USA
Plant Pat. 9,386 USA
Plant Pat. 9,387 USA
Plant Pat. 9,372 USA
</TABLE>
Annex A-2
<PAGE>
ANNEX B
-------
Location of Collateral
----------------------
Filing Jurisdictions:
- ---------------------
South Carolina, Secretary of State
South Carolina, Edgefield County
Illinois, Secretary of State
Locations of Equipment, Inventory, Crops and Farm Products:
- -----------------------------------------------------------
The nursery located at the following address:
Iverson Perennials
Route 1
Highway 25
Trenton, South Carolina 29847
situated on land owned of record by Hines Horticulture, Inc. and described more
fully as set forth on Appendix A attached hereto.
The nursery located at the following address:
Iverson Perennial Gardens
2787 RFD
Long Grove, Illinois 60047
Annex B-1
<PAGE>
ANNEX C
-------
Existing Financing Statements
-----------------------------
No additional financing statements.
Annex C-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
HINES HORTICULTURE, INC. (formerly
known as Hines Nurseries Inc.),
as Borrower
By: _______________________________
Title: ____________________________
SUN GRO HORTICULTURE INC.,
as Borrower
By: _______________________________
Title: ____________________________
SUN GRO HORTICULTURE CANADA LTD.,
as Borrower
By: _______________________________
Title: ____________________________
HINES HOLDINGS, INC., (formerly known
as Hines Horticulture Inc.)(for purposes
of Section 6 only) as a Credit Support Party
By: _______________________________
Title: ____________________________
S-1
<PAGE>
BT COMMERCIAL CORPORATION,
AS A DOMESTIC LENDER AND AS AGENT
By: ________________________________
Title: _____________________________
BT BANK OF CANADA,
as a Canadian Lender
By: _______________________________
Title: ____________________________
BANKERS TRUST COMPANY,
as an Issuing Lender
By: _______________________________
Title: ____________________________
S-2
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Domestic Lender
By: _______________________________
Title: ____________________________
FLEET BANK OF MASSACHUSETTS, N.A.,
as a Domestic Lender
By: _______________________________
Title: ____________________________
LASALLE NATIONAL BANK,
as a Domestic Lender
By: _______________________________
Title: ____________________________
NATIONSBANK OF TEXAS, N.A.,
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
UNION BANK OF CALIFORNIA, N.A.
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
S-3
<PAGE>
WELLS FARGO BANK, N.A.
as a Domestic Lender and Canadian Lender
By: _______________________________
Title: ____________________________
BANK OF MONTREAL,
as a Canadian Lender
By: _______________________________
Title: ____________________________
S-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 20,972
<ALLOWANCES> 1,354
<INVENTORY> 77,182
<CURRENT-ASSETS> 98,870
<PP&E> 90,653
<DEPRECIATION> 13,117
<TOTAL-ASSETS> 202,817
<CURRENT-LIABILITIES> 65,674
<BONDS> 154,007
<COMMON> 103
30,520
0
<OTHER-SE> (62,240)
<TOTAL-LIABILITY-AND-EQUITY> 202,817
<SALES> 138,412
<TOTAL-REVENUES> 138,412
<CGS> 67,954
<TOTAL-COSTS> 47,637
<OTHER-EXPENSES> 15,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,996
<INCOME-PRETAX> 7,127
<INCOME-TAX> 2,894
<INCOME-CONTINUING> 4,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,233
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
